Ford Motor (F)

Q3 2011 Earnings Call

October 26, 2011 9:00 am ET

Executives

Mark Fields - Group Vice President of Premier Automotive Group, Executive Vice President and President of The Americas Operations

Michael L. Seneski - Chief Financial Officer of Ford Motor Credit Company

Lewis W. K. Booth - Chief Financial Officer, Executive Vice President of Premier Automotive Group, Executive Vice President, Director of Jaguar Brand, Non-Executive Director of Volvo Cars Division, Director of Land Volvo Brand and Director of Ford of Europe

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

K. R. Kent - Executive Director of Investor Relations

Analysts

Adam Jonas - Morgan Stanley, Research Division

Robert Schoenberger - Plain Dealer

Alisa Priddle

Keith Naughton - Bloomberg

Colin Langan - UBS Investment Bank, Research Division

Himanshu Patel - JP Morgan Chase & Co, Research Division

Rod Lache - Deutsche Bank AG, Research Division

Bernard Woodall

Greg Gardner

John Murphy - BofA Merrill Lynch, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

James Treece

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Dee-Ann Durbin - The Associated Press

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter Ford Motor Co. Earnings Conference Call. My name is Catina, and I'll be your coordinator for today. [Operator Instructions] 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, Executive Director of Investor Relations. Please proceed.

K. R. Kent

Thank you, Catina, and good morning, ladies and gentlemen. Welcome to all of you who are joining us either -- 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 Company; and 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. A copy of this morning's press release and the presentation slides that we will be using today have been posted on Ford Investor and Media website for your reference. The financial results discussed herein are presented on a preliminary basis and 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 the call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide decks.

Finally, today's presentation includes 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 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 filings, including our annual, quarterly and current reports.

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

Alan R. Mulally

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

Let's start by turning to Slide 3. Our third quarter business performance was marked by automotive growth, solid profitability and positive automotive operating-related cash flow, with volume and revenue were higher than a year ago. We earned a pretax operating profit of $1.9 billion, with our automotive and financial services sectors each profitable. Net income totaled $1.6 billion and automotive-related cash flow was a positive $400 million. We've continued to strengthen our balance sheet, reducing automotive debt by $1.3 billion in the quarter. Market share was higher in North America, Europe and Asia-Pacific and Africa compared with a year ago. Overall, we had a solid third quarter and the first 9 months. We also concluded an agreement with the UAW for 4-year contract, which was recently ratified and improves our competitiveness in the U.S.

We accomplished these results while continuing to invest for future growth, focused on developing outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value. Although this is increasing costs in the short term, it's in line with our plan. These actions also are driving higher volume and stronger transaction prices. In summary, 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.

Slide 4 summarizes our third quarter business results compared with the year ago. Vehicle wholesales were 1.3 million units, up 93,000 units or 7% from 2010. Revenue was about $33 billion, an increase of about $4 billion or 14%. For comparison purposes, we excluded Volvo wholesales and revenue from 2010.

Pretax operating profit, excluding special items, was $1.9 billion or $0.46 per share. This is $111 million lower than a year ago. The pretax operating profit was reduced by about $350 million for unrealized mark-to-market adjustments on commodity hedging for future periods. These adjustments occurred because of the significant decline in commodity prices near the end of September. This is a noncash charge that will either reverse commodity prices increase or be offset by the benefit of lower commodity prices in the future.

Net income attributable to Ford, including unfavorable pretax special items of $98 million, was $1.6 billion or $0.41 per share. This is down slightly from a year ago. Automotive operating-related cash flow was $400 million positive. In the first 9 months, vehicle wholesales increased by 9% compared with the same period a year ago and revenue improved by 15%. First 9 months pretax operating profit, excluding special items, was $7.7 billion, a $652 million improvement, and net income attributable to Ford was $6.6 billion, a $227 million improvement.

Operating-related cash flow was $4.9 billion. We ended the quarter with $20.8 billion of automotive gross cash and with automotive gross cash exceeding debt by $8.1 billion. This is a net cash improvement of $10.7 billion compared with a year ago and $100 million higher than the second quarter.

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