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Ford Motor Company (F)

Q4 2010 Earnings Call

January 28, 2011 9:00 am ET


Alan Mulally – President, Chief Executive Officer

Lewis Booth – Chief Financial Officer

K.R. Kent – Director, Investor Relations

Mike Seneski – Chief Financial Officer, Ford Motor Credit Co.


Himanshu Patel – JPMorgan

Brian Johnson – Barclays Capital

John Murphy – Bank of America Merrill Lynch

Chris Ceraso – Credit Suisse

Rod Lache – Deutsche Bank

Adam Jonas – Morgan Stanley


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Good day ladies and gentlemen and welcome to the Ford Motor Company Fourth Quarter Earnings conference call. My name is Katina and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of the presentation. To pose a question at any time, please key star, one on your touchtone telephone. If at any time during the call you require assistance, please key star, zero and a coordinator will be happy to assist you.

As a reminder this conference is being recorded for replay purposes.

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

K.R. Kent

Thank you, Katina, and welcome ladies and gentlemen. Good morning. Welcome to all of you who are joining us today either by phone or by webcast, and 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 Chief Executive Officer of Ford Motor Company; Lewis Booth, Chief Financial Officer; and also in attendance are Bob Shanks, Vice President and Controller; Neil Schloss, Vice President and Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit CFO.

Before we begin, I’d like to cover a few items. A 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 websites for your reference. The financial results discussed herein are presented on a preliminary basis and final data will be included in our Form 10-K. 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 in the slide deck.

Finally, today’s presentation includes some forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments made 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.

With that, I would 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 to everyone. We’re pleased today to provide an update on the progress we achieved in the fourth quarter and full year of 2010. We continued to be profitable and generated positive automotive operating-related cash flow in the fourth quarter. We recorded our sixth consecutive quarterly pretax operating profit, although our results were lower than the same period a year ago. We continue to maintain our focus on strengthening the balance sheet with additional debt repayments in the fourth quarter.

We finished 2010 with each of our business segments reporting a full-year profit, all of which were an improvement compared with a year ago. In total, we improved pretax operating profit by 8.3 billion compared with 2009. For the full year, we reduced debt by 14.5 billion. We ended the year with automotive gross cash exceeding debt by 1.4 billion and at the same time improved our overall liquidity position.

Throughout 2010, we continued our transition from fixing the fundamentals of our business to delivering profitable growth for all. We are investing aggressively in new products, technology, and growth in all regions of the world. As a result of our 2010 financial performance, under the UAW collective bargaining agreement we will pay profit sharing to approximately 40,600 eligible U.S. hourly employees. The average amount is expected to be approximately $5,000 per eligible full-time employee.

The solid performance in 2010 sets the stage for continued improvement in total Company pretax operating profit and automotive operating-related cash flow in 2011. I will start off by providing you with an overview of our financial results and business, product and our sales highlights; then Lewis will walk us through the financial results in even greater detail. Finally, I will recap our 2010 performance and discuss our 2011 outlook and plan going forward.

Turning to Slide 3, I will review our key financial summary compared with a year ago. As shown at the top of the slide, fourth quarter vehicle wholesales were 1.4 million units, up 41,000 units excluding Volvo from 2009. The increase was explained primarily by higher wholesales in Asia Pacific and Africa, offset partially by lower wholesales in Europe. The improvement in the fourth quarter brings the full-year increase in vehicle wholesales to 771,000 units.

Fourth quarter revenue was 32.5 billion, an increase of 1.6 billion excluding Volvo from 2009. This increase was explained primarily by timing differences related to the rental repurchase auction sales and favorable net pricing. This brings the full year revenue increase to 17 billion.

Fourth quarter pretax operating profit, excluding special items, was 1.3 billion or $0.30 per share, a decrease of 322 million. The automotive sector reported a profit of 741 million, a decrease of 173 million; and the financial services sector reported a profit of 552 million, a decrease of 149 million. The decrease in automotive sector results is more than explained by higher structural and commodity costs, aligned with our guidance, as well as unfavorable volume and mix. This was offset partially by favorable net pricing. The higher structural costs, which include manufacturing, engineering and advertising costs, largely supported product launches and growth of our product plans, investments that will provide a strong foundation as we move into 2011.

In Europe, our results were lower than expected in the fourth quarter, reflecting primarily lower market share driven by our actions to maintain margins. Financial services decrease was in line with our expectations, reflecting primarily lower volume.

Fourth quarter net income attributable to Ford, including unfavorable pretax special items of 1 billion, was 190 million or $0.05 per share, a decrease of 696 million. The special items impact primarily reflects a previously disclosed charge for completion of debt conversion offers that reduce outstanding automotive debt by over 1.9 billion. We will discuss this in more detail later.

For the full year, pretax operating profit, excluding special items, was 8.3 billion or $1.91 per share, which represents a profit of 5.3 billion for the automotive sector and 3 billion for the financial services sector. This is an increase of 8.3 billion compared with a year ago.

Full year net income attributable to Ford, including unfavorable pretax special items of about 1.1 billion, was 6.6 billion or $1.66 per share, an increase of 3.8 billion. In addition, we ended the quarter with 20.5 billion of automotive gross cash, with automotive gross cash exceeding debt by 1.4 billion, an improvement of 10.1 billion compared with a year ago.

Slide 4 details some of our key business and product highlights for the fourth quarter and full year. We reduced total automotive debt in the fourth quarter by 7.3 billion, including newly announced payments of 2.5 billion in December on our revolving credit line and term loan, as well a full repayment of VEBA Trust obligations and completion of debt conversion offers. This brings our full-year debt reduction actions to 14.5 billion, a 43% reduction.

In October, we announced 850 million in future investments for Michigan-based engineering and manufacturing leading to 1,200 jobs through 2013. In December, we announced a 600 million investment for our Louisville assembly plant for production of the next-generation Escape. This investment will lead to 1,800 new jobs at the plant. And we also announced a 630 million investment in our Otosan plant in Kocaeli, Turkey for future transit van production.

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