Ford Motor Company (F)

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Ford Motor Company (F)

Q3 2012 Earnings Call

October 30, 2012 11:00 am ET

Executives

George Sharp – Executive Director of Investor Relations

Alan Mulally – President and Chief Executive Officer

Robert L. Shanks – Executive Vice President and Chief Financial Officer

Stephen T. Odell – Group Vice President, Chairman and Chief Executive Officer, Ford of Europe

Analysts

Chris Ceraso – Credit Suisse

Itay Michaeli – Citigroup

Peter Nesvold – Jefferies

Adam Jonas – Morgan Stanley

Brian Johnson – Barclays Capital

Colin Langan – UBS

Rod Lache – Deutsche Bank

Patrick K. Archambault – Goldman Sachs & Co.

Alisa Priddle – Detroit Free Press

Dee-Ann Durbin – The Associated Press

Mike Ramsey – Wall Street

Robert Schoenberger – Plain Dealer

Karl Henkel – Detroit News

Todd Lassa – Motor Trend

Tom Walsh – Detroit Free Press

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Ford Third Quarter Earnings Conference Call. My name is Shinal and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct 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. George Sharp, Executive Director, Investor Relations. Please proceed.

George Sharp

Thank you, Shinal, 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 would like to thank you for taking the time to be with us this morning, so we can provide you with additional details of our third-quarter financial results. Of course our thoughts are with everyone impacted by Hurricane Sandy.

We considered delaying this call, but after much consideration we concluded that given our large and diverse worldwide investor base, changing the timing right before the planned date could cause significant confusion. Therefore, presenting today are Alan Mulally, President and CEO of Ford Motor Company, and Bob Shanks, Chief Financial Officer. Also in attendance are Stephen Odell, Chairman and CEO of Ford Europe; Stuart Rowley, Corporate Controller; Neil Schloss, Corporate Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit CFO.

Now before we begin, I need to cover a few items. Copies of this morning's press release and the presentation slides that we will be using have been posted on Ford's investor and media website for your reference. The financial results discussed today are presented on a preliminary basis. Final data will be included in our Form 10-Q that will be filed shortly. The financial results presented 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 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. Of course, actual results could differ materially from those suggested by our comments today. 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.

With that, I would now like to turn the presentation over to Ford's President and CEO, Alan Mulally.

Alan Mulally

Thank you, George, and good morning to everyone. Before starting, we would like to express to all of those affected by the massive storm that struck the East Coast that our thoughts and our prayers are with you all. For those of you in the region who are joining us today from your home, wherever you may be thank you. We hope that everyone who may have been unable to dial into today's announcement will utilize the replay on our website at their convenience. In addition, our investor relations team stands ready to assist investors with their questions.

Let's begin by turning to slide 3 please. To start, we achieved record total company and Automotive pretax results for the third quarter with the total company results also representing our 13th consecutive quarterly pretax profit. In addition, we generated positive Automotive operating-related cash flow and ended the period with strong liquidity. The results were achieved at wholesale volumes and total company revenue that were lower than a year ago. North America achieved its highest quarterly pretax profit and operating margin since at least 2000, when we began reflecting it as a separate business unit.

Ford Credit results were once again solid and South America and Asia Pacific were profitable. Europe as expected incurred a substantial loss. Last week we announced our strategy and plans to accelerate the transformation of our business in Europe, projecting a return to profitability by mid-decade. Although the external environment continues to be dynamic and uncertain, we are continuing to implement our ONE Ford plan across the entire business and working towards our mid-decade outlook.

Let's look more closely now at the financial highlights of the quarter. Slide 4 summarizes our business results compared with year ago for the third quarter and the first nine months of the year. Third-quarter wholesale volume was 1.3 million units, down 17,000 units compared with a year ago. Revenue was $32.1 billion, down $1 billion. Pretax profit, which excludes special items, was $2.2 billion, $200 million higher than a year ago. Earnings were $0.40 per share, $0.06 higher than last year's earnings per share adjusted for the tax valuation allowance release.

Net income attributable to Ford including favorable pretax special items of $83 million was $1.6 billion or $0.41 per share. Both were about the same as last year. Automotive operating related cash flow was $700 million, the 10th consecutive quarter of positive performance. We ended the quarter with $24.1 billion of automotive gross cash exceeding debt by $9.9 billion. This is a net cash improvement of $1.8 billion compared with a year ago. In the first nine months, vehicle wholesales and revenue declined from year ago. First nine months pretax profit was $6.3 billion, a $1.4 billion decrease. Net income was $4.1 billion, a $2.5 billion decrease.

Slide 5 summarizes our third-quarter business highlights including the launch of seven new vehicles across three regions. The all-new Transit Custom was voted International Van of the Year and the Ranger pickup, not shown in the slide but launched earlier this year, was the only vehicle in its class to be awarded a Five Star Euro NCAP safety rating. Ford Focus was the world's best-selling single car nameplate through the first half of the year based on IHS Automotive Data.

In North America, we assumed control of the AutoAlliance Manufacturing Facility in Michigan and renamed it Flat Rock Assembly Plant. Flat Rock will be the U.S. production home of the all-new Fusion, leading to the addition of a second shift and the creation of 1,200 new jobs.

In late September, the Canadian Auto Workers ratified a new four-year agreement for our 4,500 unionized workers in Oakville and Windsor, Ontario. This improves our competitiveness, provides operational flexibility, and creates jobs.

In China, we broke ground at two new manufacturing facilities, Chongqing #3 and Hangzhou, which will take Ford's production capacity to 1.2 million passenger cars by mid-decade. And in the third quarter, we achieved our highest quarterly market share in Asia Pacific and Africa as well as in China. This was driven by strong sales of Focus and the Ranger pickup.

Finally, we announced in late August that we will launch Lincoln in China in 2014. Now I will turn it over to Bob Shanks, who will take us through more details of our financial results. Bob?

Robert L. Shanks

Thanks, Alan, and good morning, everyone. Let's start with slide 7, which walks our pretax operating results to net income. As Alan mentioned, total company pretax operating profit was about $2.2 billion. Pretax special items of a positive $83 million reflect a one-time gain on consolidation of the AutoAlliance International joint venture, offset partially by personnel and dealer actions. Additional detail is shown on appendix 3. The provision for income taxes was $613 million and net income attributable to Ford was about $1.6 billion. The provision is about $400 million higher than a year ago simply due to the fact that we no longer have in place most of the valuation allowance against our deferred tax assets. Recall that this was largely eliminated in the fourth quarter last year. Although not shown, our operating effective tax rate was lower in the third quarter compared with the prior two quarters reflecting one-time tax items. Consistent with prior guidance, we expect our full-year operating effective tax rate to be similar to 2011.

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