福特汽車 (F) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter Fixed Income conference call. My name is Derek and I will be your operator for today. At this time, all participants are on a listen-only line. Towards the end of the conference, we shall facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Steve Dahle, Manager of Fixed Income Investor Relations. Please proceed.

Thanks, Derek. Good morning, ladies and gentlemen. Welcome to all of you who are joining us either via phone or webcast. On behalf of the entire Ford management team, we would like to thank you for sending time with us this morning.

With me this morning are Neil Schloss, Ford Vice President and Treasurer; Stuart Rowley, Ford Vice President and Controller; and Marion Harris, Ford Credit Chief Financial Officer.

We have some other members of the management team who will be joining us for the call this morning including Sam Smith, Assistant Treasurer; Brian Schaaf, Assistant Treasurer; and Paul Andonian, Director of Accounting.

Before we begin, I would like to review a few items.

A copy of this morning's press release and the fixed income slides that we will be using today has been posted on Ford Motor Company's investor and media websites for your reference.

The financial results discussed herein are presented on a preliminary basis. Final data will be in our Form 10-Q.

Additionally, the financial results presented here are on a GAAP basis and in some cases, a non-GAAP basis. Any non-GAAP financial measures discussed on this call are reconciled to the US GAAP equivalent as part of the appendix to the slide deck.

Finally, today's presentation includes some forward-looking statements about our expectations for Ford's future performance. Actual results could differ materially from those suggested by our comments here. The most significant factors that could affect future results are summarized at the end of this presentation. These risk factors and other key information are detailed in our SEC filings, including our annual, quarterly and current reports to the SEC.

With that, I would like to turn the call over to Ford Credit CFO Marion Harris.

Thanks, Steve. Good morning, everyone, and thanks for joining us.

Today I will walk through Ford Credit's third-quarter operating highlights, profits, and credit and residual loss performance.

Then Neil will cover Ford Credit's funding and liquidity, as well as automotive cash, debt, and liquidity.

We will have some time for Q&A at the end, so let's get started.

Let's turn to Ford Credit's operating highlights on slide 1.

We had another strong quarter with pretax profit of $541 million and net income of $365 million.

We ended the quarter with managed receivables at $122 billion, which is consistent with our expectation and showing nice growth.

Credit losses remain at the low end of our historical experience with third-quarter loss-to-receivables ratio at 24 basis points.

At September 30, the allowance for credit losses or reserve was $403 million or 33 basis points of managed receivables.

Managed leverage was 9.1 to 1.

Overall, we are very pleased with our progress and performance. Our origination practices remain consistent, and our balance sheet is strong.

On slide 2, we explain our results of operations. Our pretax profit improved compared with a year ago, as a result of favorable volume and mix, reflecting primarily higher consumer finance receivables in all geographic segments and an increase in leasing in North America.

Higher credit losses, primarily in North America, were a partial offset, reflecting higher charge-offs and an increase in the reserve.

As shown below the chart, pretax profit was higher compared with the second quarter, more than explained by higher financing margin and favorable volume and mix. Unfavorable residual performance reflecting lower auction values in North American lease portfolio was a partial offset.

For the full year, we continue to expect pretax profit to be equal to or higher than 2014. We now expect year-end managed receivables of $124 billion to $127 billion.

We continue to expect distributions to our parent of about $250 million this year. We expect our managed leverage to remain temporarily above our 8 to 9 to 1 target range, as a result of the translation effect from the strong US dollar.

Slide 3 shows our quarterly trends of charge-offs, loss-to-receivables ratio, and credit loss reserve.

We continue to experience historically low levels of credit losses. The third-quarter LTR of 24 basis points was up 7 basis points from the prior year, but well below the 10-year average of 46 basis points. Compared to the second quarter, LTR was up 7 basis points, consistent with normal seasonality.

Charge-offs were up $25 million year-over-year and up $23 million quarter over quarter.

The reserve as a percentage of managed receivables was up 1 basis point and $23 million on an absolute basis from the second quarter. Our credit loss reserve is based on such factors as historical credit loss performance, portfolio quality, and receivables levels.

Slide 4 shows the primary credit loss drivers in our US Ford and Lincoln retail financing and lease portfolio, which comprised about 75% of our worldwide consumer portfolio at September 30.

Over 60-day delinquencies remained consistently low at 13 basis points, down 2 basis points from a year ago and up 3 basis points from the second quarter of 2015.

Repossessions continue at historically low levels. There are 7,000 units or 1.01% of average accounts outstanding, down 6 basis points from a year ago, and up 12 basis points from the second quarter of 2015. The increase from second quarter is below seasonal trends. That said, this represents our lowest third-quarter repossession ratio on record.

Severity of $9,000 in third quarter was $900 higher than the same period a year ago; $500 of the increase primarily reflects higher amounts financed and higher balances at repossession, offset partly by higher auction values. The remainder reflects the change we referred to in the first quarter and noted on the slide. Quarter-over-quarter severity increased $400.

Slide 5 shows the quarterly trend of the lease residual performance for our U.S. Ford and Lincoln brands. In the third quarter, lease return volume and the return rate were down compared with the same period a year ago, reflecting fewer 24-month versus 36-month lease placements in 2013, relative to 2012.

Our auction values improved year-over-year and were down quarter over quarter, consistent with the industry.

Our worldwide net investment and operating leases was $24.5 billion at the end of the third quarter, up $3 billion from year-end 2014.

With that, I will turn it over to Neil.

Thanks, Marion. Good morning, everyone.

Turning to slide 6, we are on track to achieve our 2015 funding plan. Year to date we have issued about $25 billion.

In the third quarter, we completed $7 billion of funding in the public term markets, consisting of about $4 billion of unsecured debt in the U.S., Canada, Europe, and China, and about $3 billion of public asset-backed debt in the US and Canada.

We issued the industry's first Reg AB II compliant public retail securitization transaction for about $1 billion, which was very well received by investors.

In China, our wholly-owned Auto Finance Company issued its first unsecured financial bond for RMB 2 billion. We continue to broaden our funding tools in China, adding public unsecured issuance to our established ABS program.

Ford Credit ended the quarter with net liquidity of about $25 billion.

Our funding strategy remains focused on diversification, and we plan to continue accessing a variety of markets, channels, and investors. We continue to target a single A investment grade profile.

Slide 7 shows our projected 2015 global public funding plan for Ford Credit, excluding our short-term funding programs.

As I mentioned earlier, year to date we have completed $25 billion of public term funding in the US, Canada, Europe, and China.

We project full-year public term funding in the range of $28 to $31 billion, consisting of $15 to $16 billion of unsecured debt and $13 to $15 billion of public securitizations.

Slide 8 shows the trends in funding of our managed receivables.

At the end of the third quarter, managed receivables were $122 billion, and we ended the quarter with $9 billion in cash. Securitized funding was 39% of managed receivables. We are projecting 2015 year-end managed receivables of $124 to $127 billion.

We expect securitized funding as a percent of managed receivables to be about 40%. We expect this percentage to decline over time. Quarterly movements to this percentage reflects the calendarization of our funding plan.

Turning to slide 9, we highlight Ford Credit's third-quarter liquidity, which remains strong at $25.3 billion.

Ford Credit's sources of liquidity include cash, committed asset-backed lines, unsecured credit facilities, and the corporate revolver allocation.

As of September 30, liquidity sources including cash totaled $46.3 billion, down about $500 million from second quarter.

Ford Credit is focused on maintaining a strong liquidity position to meet its business and funding requirements through economic cycles.

Now turning to the automotive section, slide 10 shows that automotive debt was $12.8 billion at the end of the quarter, $900 million lower than the second quarter.

We ended the quarter with gross cash of $22.2 billion and automotive liquidity of $33.2 billion, both up from the second quarter.

Now let's close with a summary.

We successfully completed 14 of our 16 new vehicle launches this year, and that's on top of the record 24 global launches completed in 2014. Even with the unprecedented number of new vehicles, our quality remains strong and is improving around the world.

For the quarter, we made pretax profit of $2.7 billion, more than double a year ago. Net income also more than doubled to $1.9 billion.

Automotive operating margin came in at 6.5%, up 4 percentage points from a year ago, and we generated a third-quarter record with automotive operating-related cash flow at $2.8 billion.

At the end of the quarter, automotive gross cash at $22.2 billion and liquidity very strong at $33.2 billion.

Ford Credit had another strong quarter with receivables up $9 billion from a year ago.

As a result of this consistent purchase policy and world-class servicing, Ford Credit's portfolio continues to perform extremely well. Credit losses continue to run at historic lows.

Ford Credit has a diversified funding plan and strong liquidity in line with our targets.

Ford Credit is a strategic asset and integral to Ford's business. It supports sales, dealers, and builds customer satisfaction and loyalty, and delivers consistent profits for its strong business.

For the Company in 2015, we continue to expect North America to remain very strong, both in profits and substantial topline growth; and with a margin at the upper half of the 8.5% to 9.5% range that we have guided to.

It was an outstanding third quarter for the Company with a record third-quarter pretax profit, higher wholesales, higher revenue, higher market share, and better margin. We are firmly on track to deliver our breakthrough full year.

With that, I will turn it over to Steve to start the Q&A session.

Thanks, Neil. With that, we will start the question-and-answer session. Derek, can we have the first caller, please?

Brian Jacoby, Goldman Sachs.

Thanks for taking my question. Just two questions, one more finance related and the other just on the auto side. But just maybe if you give a bigger picture view on the financing environment, just the competitive environment around just the prime funding.

Are you seeing the banks still being very competitive and availability of credit for consumers still quite strong? Or there's been a little bit of chatter around maybe some pullback on the auto side at some of the bigger banks that are involved in auto financing.

I'm just curious on what you guys are seeing, how the landscape looks.

Brian, this is Marion. The competitive environment is, I think, pretty consistent with what we've seen over the last couple of years. The industry is up, reflecting strong demand from consumers. And we have provided very consistent originations through that.

I think what we are seeing more than anything is growth and extended-term financing. That continues to get longer and longer in the industry, and it's something we are very focused on to ensure that we are able to manage the trade cycle, build relationships with our customers and customer loyalty.

That said, our purchase policy has remained very, very consistent, and with that consistent policy we are able to deliver a portfolio that performs very consistently.

How much of your more recent business is kind of on extended terms? Can you give us a flavor roughly?

It depends a bit on your definition of extended-term. The version we see is 73 months or longer. We have a very small mix of that relative to others in the industry, particularly banks and credit unions. But for us, that mix is only a couple of points of our origination, a couple of percentage points of our origination.

Okay, thank you. The other question is just around the auto side and in particular in China. It looks like you tweaked up -- well, you didn't really tweak up, but you are using the China volume of, what, 24 million now? And you alluded to on the earnings call that, obviously, some of the government incentives there I guess on the tax side is helping, and you think car sales have hit bottom.

So one thing that I was a little surprised, though, is your market share was flat. And from what I'm reading and hearing is that SUV and CUV sales in China seem to be the one area that's still growing. You guys have a very competitive lineup there, and just trying to get my arms around how to think about your share and just your product offering.

Because I would have thought you would have done little bit better on the share, and maybe it's just a timing thing on products. I know you were destocking somewhat in the quarter, but maybe you could you share a little -- some thoughts on where the demand is stronger in certain product categories. Clearly, car side has been weaker.

Brian, it's Stuart here. Our share in the quarter was equal to our prior record of 4.7%, so it was a good share. Now within that, you're right, in the industry we are seeing passenger cars, including SUVs, somewhat stronger than commercial vehicles. And then within passenger, SUV is stronger than sedan.

You rightly point out we do have a strong lineup of SUVs, and they performed very well. We have the EcoSport, we have the Kuga and we have the Edge. In the third quarter, one of the factors that was in play was we were in changeover of the Edge. We previously imported that vehicle as it built up from North America, and we are moving to a locally-produced three-row version of that product. And that is one of the products that was negatively impacted by the supplier constraint that we experienced during the quarter. So we probably could have done a little better on Edge than we did if we have had free supply.

That issue as we mentioned in the call is now behind us. So we are in full production on Edge. And then as we go into the fourth quarter, we also have the all-new Everest, the Ford Everest that is being built at our JMC joint venture. That's also an SUV. We are building it in China and Thailand.

And then as we go into the quarter, we also launched the all-new Taurus at our Hangzhou plant. So we've got a real strong availability of new product as we go into the fourth quarter, and that's what is behind the very confident guidance that we've provided for the fourth quarter, and our guidance for the full year to be improved in the region compared to last year.

So we feel very good about Asia-Pacific. The third quarter was negatively impacted by the stock adjustment. We called the industry slowdown early. We called in in late second quarter, but the actual adjustment production happened early in the third quarter, so our stocks were in a great position. Our product lineup is in a great position. We are building all of the products and we are looking forward to a good fourth-quarter result.

Okay, great. Thank you. That's it for me.

Eric Selle, SunTrust.

Good morning, and kind of dovetail some of Brian's questions. But Mark gave some really good high-level color on China, talking about floorplan, traffic stabilizing. And I know you guys are extremely dynamic over there, growing both your distribution as well as your manufacturing over there.

I guess my question is twofold. How do you assess a market is moving so fast or someone like you that's growing so fast? What type of perimeters are you using? Are you looking at Tier 1 markets because there's somewhat stabilized? What you seeing on pricing?

Is there any interesting competitive behavior during this slowdown that we have not really seen in the last 15 years?

Well, Eric, thanks for the question. It's Stuart here again. So we use our creating value roadmap process as you know s a leadership team. We meet here every week. Our China and our Asia-Pacific teams are a part of that, and we really focus on real-time availability of data and transparency. We look to react quickly to everything that we see in the market.

So I think I would be correct in saying that we were one of the first of the OEMs that called the slowdown in the China industry. We saw that in late second quarter, and we talked about that on our second-quarter call. In the data we look at, we look at sales. We switch from wholesale reporting to retail reporting.

We manage -- we monitor those retail sales by tier, region around the country, we monitor them by vehicle type and by competitor. So we have seen the growth in the SUV segment. That has been very marked as we've gone through our 2015, and we have adjusted production accordingly.

As we took the industry call down at second-quarter, as Bob mentioned, we have moved that up slightly at third-quarter. That's in reaction to the sales tax adjustments that the government has put in place in China. That applies to about 70% of our product offering in the market. So we think we are well placed to benefit from that and we expect the industry as a whole to benefit from it.

In terms of pricing, China industry pricing is negative. That is consistent with what we have experienced for many years now. Pricing is very much in line with the market, so we don't see anything particularly unique there. We do feel very good about our stocks. Part of our plan for many years now has been to match production to real demand and manage our inventory levels. And we got our inventory adjusted back to our target levels already by the end of August, and that sets us up going well going forward.

I think you guys did the same thing in 2013 in Europe, being the first ones to bring down your stocks. Obviously, it was a great reaction. You guys were the first ones coming out with volumes and pricing, so that's great.

Marion, we've heard about all these off-lease volumes coming from the luxury side and from the Japanese side. Are you guys seeing any -- then obviously, you layer on the VW approach to the market, kind of having a dearth in their products and having this diesel challenge.

Have you seen any year-over-year differences in the leasing market? Has it gotten more competitive as you've seen that roll off of the off-lease volumes and Volkswagen's approach somewhat changes given the headlines?

Not really, Eric. The mix of leasing that we have done has been pretty consistent -it's in the low 20% range, and it is up a bit year over year. But we are still well below the industry averages in the high 20s. But we haven't seen anything abnormal through auction or anything like that, in fact, auction prices are up year over year and that's just a mix of what we are seeing in the business.

As you know, we have a ONE Ford lease strategy where we work with Ford and Lincoln on the appropriate amount of leasing to do, and we do it by vehicle line mix, series, and so forth to ensure that we are supporting residual values to brand and the right sales level.

Then just one final question. You guys obviously have gone through a very heavy lunch cadence very smoothly. You are still generating a ton of cash. As you sit here at the end of the launch and look forward, do you anticipate any change in your cash priorities?

Because it looks like you are set up just to generate cash and accumulate on the balance sheet going forward. Are there any movements upstairs on that priority?

Eric, this is Neil and I just would reiterate a consistent message that we gave at investor day a little over a year ago. From a standpoint of the shifting of priorities and less on the balance sheet, given the fact that our debt is now down, our pensions are much better funded, and more cash over time is provided to our shareholders. But I think first and foremost, priority one continues to be the business, making sure our products are funded, make sure growth is funded and a lot of the special technology initiatives that obviously are facing the industry and that we are very excited about.

That's great. Neil and all the rest of you guys, great execution and I appreciate your time.

(Operator Instructions) Doug Karson, Bank of America.

Thanks, guys. Good quarter. I had a question about the managed receivables and then one on earnings and the one bigger picture. It looks like you guys are running around 39% of securitized funding as a percentage of total managed, and is that the right level? I know historically, agencies were hoping that would fall, and it's fallen from 44% from 13%, close to 40% now. Does that make them happy enough, or do they want to see that even lower?

This is Neil, and I think from the standpoint of overall and if you look at the long-term trend of that percentage, I think we would like to see that number come down further from where it is today. The rating agencies obviously do as well, but I think we feel it's important to continue to build a stronger balance sheet and by using unsecured debt to do that, and saving the securitization capacity is a smart and prudent thing for us to do.

As we position ourselves, who knows when the next cycle is coming. And we'd like to have as much of our powder available as we possibly can in bringing that number down.

Now it's going to vary from quarter to quarter. Obviously, the third quarter had a lot of market volatility to it, and so that's why you see a little uptick in that number using securitization a little more. But over time, we'd like to see that number come down and freeing up more assets that we could sell in the future.

That's helpful. Just a bigger picture question, probably one that you won't really be able to answer. But I was just kind of looking at the ratings, and I guess time has kind of flown by. It looks like you've been investment grade now by all the agencies, for about two years. And the balance sheet has gotten a lot better and the performance operationally has improved a lot.

Have you had updated conversations with the rating agencies regarding the low BBB?

I think nothing has changed from previous years from the standpoint that we do have regular conversations with them. I think importantly, not only the Ford Credit team but the senior leadership team at Ford, is very focused on continuing to make progress both on the operating side of our business but also on the balance sheet and the financing strategy. So I think we are operating this business, we still have a long-term objective to get to a single A credit profile. We believe we've made a lot of progress in doing that.

I think investors in the most cases have given us a lot of credit, and they talk with their feet from the standpoint of investing in our bonds, which have been very successfully executed. The rating agencies will come along when they decide it's the right time for them, but in the meantime we're going to continue to execute what we think is right to get to a single A credit.

That's great. And then finally at the beginning of the deck on slide 2, you go over on the pretax results compared to last year what was favorable and unfavorable. And the volume and mix looks like it was, if I'm reading it right, $150 million favorable.

Was that more leading on the volume side or the mix side? Like I said, I have to form my estimates.

This is Marion. It's predominantly volume. We were up quite a bit in receivables, even exchange-adjusted.

Right, all right. Well, good quarter and that's it for me. I appreciate the time on the call.

At this time, I'm showing no further questions. Thank you. I would like to turn the call back over to Mr. Steve Dahle for any closing remarks.

Thank you, Derek. We would like to thank everyone who participated on the call today, and thank you for joining us. Good day.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.