Ford Motor Company (F)

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Ford Motor (F)

Q2 2011 Earnings Call

July 26, 2011 9:00 am ET

Executives

Alan Mulally - Chief Executive Officer, President, Executive Director, Member of Long-Term Incentive Compensation Award Committee and Member of Finance Committee

Robert Shanks - Chief Accounting Officer, Vice President and Controller

K. Kent - Executive Director of Investor Relations

Lewis Booth - Chief Financial Officer, Executive Vice President, Director of Land Volvo Brand, Director of Ford of Europe and Non-Executive Director of Volvo Cars Division

Analysts

DeeAnn Durbin

Colin Langan - UBS Investment Bank

Rod Lache - Deutsche Bank AG

Seth Weber - RBC Capital Markets, LLC

Adam Jonas - Morgan Stanley

Patrick Archambault - Goldman Sachs Group Inc.

H. Nesvold - Jefferies & Company, Inc.

Brian Johnson - Barclays Capital

Itay Michaeli - Citigroup Inc

Greg Gardner

Christopher Ceraso - Crédit Suisse AG

Himanshu Patel - JP Morgan Chase & Co

John Murphy - BofA Merrill Lynch

Unknown Analyst -

Jamie LaReau - Automotive News

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Ford Motor Company's Second Quarter Earnings Conference Call. My name is Crystal, and I will be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. K.R. Kent, Director of Investor Relations. Please proceed.

K. Kent

Thank you, Crystal, and good morning, ladies and gentlemen. Welcome to all of you who are joining us today, either by phone or webcast. On behalf of the entire Ford management team, I'd like to thank you for spending time with us this morning. With me here today are Alan Mulally, President and CEO of Ford Motor Co.; Lewis Booth, Chief Financial Officer. Also in attendance are Bob Shanks, Vice President and Controller; Neil Schloss, Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit CFO.

Before we begin, I'd like to cover a few items, copy of this morning's press release and the presentation slides that we will be using today have been posted on Ford's Investor and Media website for your reference. The financial results discussed here and are presented on a preliminary basis. Final data will be included in our Form 10-Q.

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

Finally, today's presentation include some forward-looking statements about our expectations for Ford's future performance. Actual results could differ materially from those suggested by our comments made here. The most of significant factors that could affect future results are summarized at the end of the presentation. These risk factors and other key information are detailed in our SEC filing, including our annual, quarterly and current reports. With that I'd now like to turn the presentation over to Ford's President and CEO, Mr. Alan Mulally.

Alan Mulally

Thank you, K.R., and good morning, everyone. We are pleased to have the opportunity today to review our second quarter business performance and the progress we continue to make in delivering our plan. Overall, we had a very good second quarter, in line with our plan despite a challenging business environment.

Let's start by turning to Slide 3. Our second quarter business performance was marked by Automotive growth, solid profitability and strong positive Automotive operating-related cash flow. Both volume and revenue were higher than a year ago. We earned a pretax operating profit for the eighth consecutive quarter. And in addition, each of our Automotive operations as well as Financial Services was profitable.

Net income totaled $2.4 billion and Automotive operating-related cash flow was a positive $2.3 billion. We continue to strengthen our balance sheet, reduce an Automotive debt by $2.6 billion in the quarter. Market share was higher at 3 of our Automotive operations compared with a year ago, with shares in South America unchanged.

Overall, we had a very good second quarter and first half, and we are well on track to deliver our guidance of improved total company pretax operating profit and Automotive operating-related cash flow for the full year compared with 2010.

We accomplished these results while continuing to invest for future growth, focused on developing our outstanding products, the segment leading quality, fuel efficiency, safety, economy and technology. While this is increasing cost in the short term, it is in line with our plan. These actions are also driving higher volume, richer mix and stronger transaction prices.

Slide 4 summarizes our second quarter business results compared with a year ago. Vehicle wholesales were 1.5 million units, up 101,000 units or 7% from 2010. Revenue was about $36 billion, an increase of about $4 billion or 13%. For comparison purposes, we excluded Volvo wholesales and revenue from 2010. Pretax operating profit excluding special items was $2.9 billion or $0.65 per share. This is $64 million lower than a year ago, with gains in the Automotive sector offset by the anticipated reduction in Financial Services.

Net income attributable to Ford, including unfavorable pretax special items of $272 million, was $2.4 billion or a $0.59 per share. This reflects a $201 million decrease from a year ago. In the first half, vehicle wholesales increased by 9% compared with the same period a year ago and revenue improved 15%.

First half pretax operating profit excluding special items was $5.7 billion, a $763 million improvement in income attributable to Ford was $4.9 billion, a $265 million improvement. We ended the quarter with $22 billion of Automotive growth cash, and with Automotive growth cash exceeding debt by $8 billion, a net cash improvement of over $13 billion compared with a year ago and $3.3 billion higher than the first quarter.

Slide 5 details our key product and sales highlights from the second quarter. We continue to demonstrate strength in mature markets including increasing total market share in the U.S. from 16.9% to 17.3%, growing market share in Europe from 7.9% to 8.3%, remaining #1 in Canada, including posting our best June result in 22 years.

In the emerging markets, our momentum is accelerating with our second quarter performance boosted by solid growth in Turkey, Russia, China and ASEAN. Our safety commitment continue to gain recognition as the 2012 Focus, the F-150 and the Lincoln MKX were awarded Top Safety Pick ratings from the Insurance Institute for Highway Safety. In addition, the Focus also won a Euro NCAP maximum 5-star rating. Our commitment to customers was also on display as Lincoln was named the top brand in the 2011 Auto Pacific Vehicle Satisfaction Award.

At the New York Auto Show in April, we previewed our fresh in 2013 Taurus with significant advances in fuel efficiency, technology and design. In the pursuit of world-class efficiency and performance, we announced a plan to offer a new 1-liter, 3-cylinder EcoBoost engine and an all-new 8-speed transmission.

Turning to Slide 6. We now review our business highlights from the second quarter. We've made significant announcements during the quarter as we continue to boost our commitment to growth. These included a $350 million investment with our joint venture partners in China to build our first transmission plant in the country, with initial capacity of 400,000 fuel-efficient, 6-speed transmissions. Also in China, we plan to double our dealer body over the next 4 years from 340 today to 680. And we announced our plan to build our next generation small SUV in China.

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