Ford Motor Company (F) CEO Mark Fields on Q2 2014 Results – Earnings Call Transcript

Source: Seeking Alpha


Ford Motor Company (NYSE:F)

Q2 2014 Results Earnings Conference Call

July 24, 2014; 08:30 a.m. ET


Mark Fields – President & Chief Executive Officer

Bob Shanks – Chief Financial Officer

Stuart Rowley – Corporate Controller

Neil Schloss – Corporate Treasurer

Paul Andonian – Director of Accounting

Mike Seneski – Ford Credit, Chief Financial Officer

George Sharp – Executive Director of Investor Relations


George Galliers – ISI

Brian Johnson – Barclays

Colin Langan – UBS

Patrick Archambault – Goldman Sachs

Adam Jonas – Morgan Stanley

Joe Spak – RBC Capital Markets

Ryan Brinkman – JPMorgan

John Murphy – Bank of America

Dee-Ann Durbin – AP

Emmanuel Rosner – CLSA

Rod Lache – Deutsche Bank

Itay Michaeli – Citigroup


Good day ladies and gentlemen and welcome to your Ford, Second Quarter Earnings Conference Call. My name is Kanti and I’m your operator for today.

At this time all participants are on listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. George Sharp, Executive Director of Investor Relations. Please proceed sir.

George Sharp – Executive Director of Investor Relations

Thank you Kanti and good morning everyone. I’d like to welcome you and thank you for joining us today either by phone or webcast. On behalf of the entire Ford management team, I’d like to thank you for taking the time to be with us this morning, so we can provide you with additional details of our second quarter 2014 financial results.

Now, presenting today are Mark Fields, who became President and CEO of Ford earlier this month, and Bob Shanks, our Chief Financial Officer. Also participating are Stuart Rowley, Corporate Controller; Neil Schloss, Corporate Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit CFO.

Now, copies of this morning’s press release and presentation slides are available on Ford’s Investor and Media websites. The financial results discussed today are preliminary and include references to non-GAAP financial measures.

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Now any non-GAAP financial measure are reconciled to the U.S. GAAP equivalent in the appendix of the slide deck, and final data will be included in our Form 10-Q. Now finally, today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance. Of course, actual results could be different.

The most significant factors that could affect future results are summarized at the end of this presentation and detailed in our SEC filings.

With that, I’d now like to turn the presentation over to Mark.

Mark Fields – President & Chief Executive Officer

Thanks George. I’m really pleased to join you this morning and today we’ll review our second quarter financial results, the details behind them and our outlook ahead. So let’s get right into the first slide.

Our strong results this quarter are due once again to the success of our ONE Ford plan, which remains unchanged. We are continuing to focus on all four elements of the plan. They have served us very well and will continue to be our focus going forward.

We also plan to build on our success by accelerating the pace of progress throughout our business. In many ways we are just starting to see the full benefits and strength of ONE Ford and we intend to maximize these opportunities going forward.

At the same time, we are passionate about product excellence and leading in innovation. We are committed to building on the product strength today, with even more new products and innovations that will deliver growth for our stakeholders and define our company going forward.

Now let’s turn to slide two for a look at the second quarter. Overall, we delivered a strong quarter. We achieved our 20th consecutive profitable quarter and our best quarterly pretax profit since the second quarter of 2011.

We also delivered positive automotive operating related cash flow and ended the quarter once again with strong liquidity. Although second quarter wholesale volume and revenue declined 1% year-over-year, we achieved higher market share in Asia Pacific, driven by record share in China.

All automotive business units contributed to the company’s pretax profit, and all improved from a year ago, with the exception of South America. North America achieved record quarterly performance for pretax profit; Asia Pacific achieved a second quarter record; and Europe earned its first quarterly profit since the market dramatically declined three years ago. Ford Credit once again delivered solid results.

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As we’ve said, this year is the most aggressive in our history for new product launches. We remain on track with our 23 global product launches. Our full-year outlook for the company pretax profit is unchanged, ranging from $7 billion to $8 billion. Our outlook for automotive revenue and operating margin also remains unchanged.

Today, we are improving our outlook for automotive operating related cash flow to lower than a year ago, from substantially lower, due to the strong cash flow generated in the first half. As we look forward, we expect the payoff of our investments this year will be a strong product line up, with higher volumes, revenues and margins in 2015 and beyond.

Let’s turn to slide three to recap some of the quarter’s other achievements. Both our Ford and Lincoln brands made strong improvements in the latest J.D. Power 2014 U.S. Initial Quality Study, with the F-150, Edge and Lincoln MKX ranking highest in their segments.

To support growth, we revealed several new products, including the all-new 2015 Edge, Focus ST and Escort in China. We also revealed a number of concepts, including the Ford Everest in China, the S-MAX Vignale in Europe, and the Ford Lightweight Concept, which showcases our commitment to light-weighting and advanced material innovation.

In China we launched our Lincoln brand, including the reveal of the MKX concept. We also began North American production of Transit from our Kansas City plant, and the Lincoln MKC from Louisville. In Europe we increased production of Fiesta in Cologne to meet growing European demand.

Ford Otosan, our joint venture in Turkey, began vehicle production from a new plant in Turkey. In China, we opened a new transmission plant with our joint venture partner, Changan Ford Automobile, and in Brazil, we launched a new engine plant. We reached agreement with the German Works Council to improve flexibility and efficiency at our Cologne plant, with the production of the next-generation Fiesta.

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Currently, we are implementing a previously announced share repurchase program for up to 116 million shares to offset an up to 3% dilutive effect of potential convertible debt conversions and stock-based compensation.

Now, Bob Shanks will take us through the details of our second quarter results. Bob, you want to take it away?

Bob Shanks – Chief Financial Officer

Yes, thanks Mark and good morning everyone. Starting at the top on slide four, second quarter wholesale volume was 1.7 million units, down 17,000 units from a year ago; and revenue was $37.4 billion, down $500 million. Pretax profit was $2.6 billion, excluding special items, $44 million higher than a year ago.

After-tax earnings per share at $0.40 were $0.05 lower. Net income attributable to Ford, including pretax special item charges was $1.3 billion, $78 million higher than a year ago. Earnings were $0.32 a share, up $0.02.

Pretax special item charges were $481 million in the quarter. These include the impairment of our equity investment in the Ford Sollers joint venture in Russia, reflecting the present outlook for the business, including a weaker ruble, lower industry volume, and adverse industry segmentation changes that negatively impact sales of Focus. Also included in special item charges are separation related actions, primarily in Europe, to support our transformation plan. You can find details on these charges in appendix three.

Automotive operating-related cash flow was $2.6 billion, our 17th consecutive quarter of positive performance, and automotive gross cash was $25.8 billion, exceeding debt by $10.4 billion. Consistent with our most recent guidance, our second quarter operating effective tax rate, which isn’t shown was 44%, reflecting calendarization effects, including the impact of regional profits.

We continue to expect our full-year operating effective tax rate to be about 35%, assuming retroactive extension of U.S. Research Credit Legislation in the fourth quarter. Our third quarter rate is expected to be about equal to our second quarter rate.

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