Highlights From F's Q2 Conference Call: Expects Even Better Second Half

July 23, 2009 6:10 PM EDT

Ford (NYSE: F) report Q2 loss of $0.21, versus the consensus of a $0.48 loss. Revenues came in at $27.2 billion, versus the consensus of $24.76 billion. Shares took off today, closing up 9.4%.

Highlights From F's Q2 Conference Call:

• Cash burn in Q2 of $1 billion. Ford said it is on track to meet or exceed all 2009 financial targets.
  
• (Controller) Vehicle wholesales in Q2 were about 1.2 million units, down 390,000 units from the same
  period in 2008.
  
• Ford's Q2 revenue was 27.2 billion, an 11 billion decrease from a year ago. The decrease is primarily explained by lower volumes and unfavorable exchange, partly offset by favorable net pricing.
  
• Our Q2 pre-tax operating loss, excluding special items was 424 million, a 609 million improvement from a year ago. An automotive decline of 320 million was more than offset by 929 million improvement of financial services.
  
• We ended the second quarter with 21 billion of gross cash.
  
• In North America we recorded a charge of 98 million, primarily related to personnel reduction actions in the U.S. We also recorded a charge of 110 million related to the UAW retiring healthcare VEBA agreement.
  
• We recorded 141 million of held for sale accounting related adjustments for Volvo, reflecting the elimination of depreciation and related costs.
  
• Our Automotive operating-related cash flow was one billion negative in Q2, reflecting an Automotive pre-tax loss of one billion.
  
• Capital expenditure in the quarter was about 100 billion lower than the depreciation and amortization.
  
• The operating-related cash out flow of one billion in Q2 represents a 2.7 billion improvement over Q1.
  
• Total industry volume was equal to a sale of 9.8 million units in the U.S., and 15.4 million units in a variety of markets we track in Europe. We expect that the full-year U.S. industry will be in the range of 10.5 to 11 million units.
  
• Based on first half European industry volume, we now expect that full-year European industry will be in the range of 15 to 15.5 million units, higher than our previous outlook of 13.5 to 14.5 million units.
  
• On the operational metrics, the Global Quality Research System study indicates that U.S. Ford, Lincoln and Mercury brand vehicles have made significant progress reducing things gone wrong and improving customer satisfaction.
  
• Second half automotive structural cost reductions will be less than the first half as a result of significant cost reductions achieved during the third and fourth quarters of 2008. U.S. total market share was 15.2%. Our share of the U.S. retail market was 12.8%, and Europe market share was 9.2% in the first half.
  
• (CFO) Our June 30, 2009, on balance sheet receivables were $99 billion, about $37 billion lower than a year ago. This decline primarily reflected lower receivables in North America and Europe, reflecting lower industry volumes, lower dealer stocks and the transition of Jaguar, Land Rover, and Mazda financing to other finance providers, and changes in currency exchange rates.
  
• Our financing share of U.S. Ford, Lincoln and Mercury retail installment and lease contracts was 28% in Q2 of 2009, 11 points lower than in the same period a year ago, which primarily reflects our reduction in leases.
  
• Charge offs for on balance sheet receivables in Q2 were $285 million and the worldwide loss for receivable ratio was 109 basis points, up 39 basis points from last year.
  
• At June 30, the allowance for credit losses for on balance sheet receivables was $1.8 billion or 181 basis points over receivables. The allowance was about $100 million higher than the first quarter 2009, and up about $300 million from a year ago.
  
• At the end of the second quarter our equity was about $10.3 billion.
  
• Our International segment which is primarily Europe incurred a small pre-tax loss in Q2 of 240 million decline from last years profit.
  
• Furthermore we expect year-end receivables of between 85 billion and $95 billion.
  
• At this point in time we have very few, roughly about $100 million of off balance sheet receivables.
  
• Repossessions in Q2 were 22,000 units, which was up 4,000 units from Q2 of 2008, but down 3,000 units from Q1 of 2009.
  
• Bankruptcy filings total 12,000 in Q2, up 1,000 compared with Q1 and up 3,000 compared to the second quarter of 2008.
  
• Compared with the prior quarter, option values were up about $1,500 and $1,000 for 24 and 36 month lease vehicles respectively.
  
• In the second quarter, cars and crossovers represented 98% of new placements, up from 62% in Q2 of 2008 and 88% in Q1 of 2009.
  
• In the near term, government sponsored programs in the U.S. and around the world will be an important component of our funding plans. So far in 2009, we have completed about seven billion of TALF eligible securitizations utilizing U.S. retail and lease auto assets and we continue to utilize the commercial paper funding facility and the European Central Bank's facilities. We continue to have discussions with the FDIC on gaining approval of our application for an industrial loan corporation, which would provide access to FDIC insured deposit funding.
  
• We will continue to explore and execute alternative business and funding arrangements in those locations where we lack diverse funding capability, while also insuring that Ford has continued support in these markets. Ford Credit's funding strategy remains focused on maintaining liquidity to meet short-term funding obligations, including holding a substantial cash balance.
  
• While we continue to work on gaining TALF eligibility for floor plan assets, we have sufficient private funding capacity to support U.S. wholesale receivables in the near term. During the second quarter we completed about two billion of wholesale renewals and private securitization transactions.
  
• (Q&A) Looking at Ford Credit, you guys have outsourced some of the financing. Hypothetically if Volvo is sold, how much of that AR could be lowered going forward? How much of the receivables can be reduced by that sale? (A)Just to give a little bit perspective, we're sitting on 99 billion on our balance sheet. Roughly right now we have about 5% of that is Jag, Land Rover, 5% is Mazda and 5% is Volvo. That's kind of a high level of perspective on what we have on our balance sheet.
  
• What is this size of the gain of the intercompany loan to Canada? What was the size of that? And why would you not have backed that out under special items? (A)On currency exposures, it's more than just Canada. It's also other countries, like Australia for example. And essentially it's $250 million during the quarter. Historically, the credit company really doesn't have a lot of items that we call out as special items. It is part of our underlying business. Typically, we would hedge those, but the markets got a little dicey. We were unable to hedge some of the intercompany loans and then effectively with the U.S. weakening dollar, we picked up a gain during the second quarter. We are back into the process of late in the quarter and continuing into July, we've resumed some use of derivatives to implement alternative hedging structures. And, for example, as Neil mentioned, we've raised some funds up in Canada with a lease and a public retail
  transaction which helped reduce some of that exposure.
  
• Just on that question, we don't treat hedging down to losses as a special on the Auto side either. And in fact, in this quarter, we had about $250 million bad news on hedging that, on the balance sheet, that we
  haven't shown as a special either. (A) And then finally, I know your year over year bridge on the FINCO , you call out better lease residual experience. That was not a gain,that's just lower depreciation, correct?
  Yes, how best to describe it. When auction prices really tanked off last year through the second quarter, we ended up having the impairment for example. So for example, any vehicle that we had impaired last year that terminated during the second quarter of 2009, we might have actually seen technically a gain on that vehicle. We just kind of put them all together where there's gain or changes in depreciation and call it all out as least residual related.

Related Categories

Corporate News
Earnings

Stocks Mentioned

Related Entities

• European Central Bank
• Bankruptcy
• FDIC

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