Ford Motor Co. - Special Call

Ford Motor Company (F)

March 09, 2012 10:30 am ET


George Sharp - Director of Investor Relations

Robert L. Shanks - Chief Accounting Officer, Vice President and Controller

Neil M. Schloss - Vice President and Treasurer

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


Brian Arthur Johnson - Barclays Capital, Research Division

John Murphy - BofA Merrill Lynch, Research Division

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Adam Jonas - Morgan Stanley, Research Division

Itay Michaeli - Citigroup Inc, Research Division

Rod Lache - Deutsche Bank AG, Research Division

Eric J. Selle - JP Morgan Chase & Co, Research Division



Good day, ladies and gentlemen, and welcome to the Ford Motor Company, Ford University Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Mr. George Sharp, Executive Director of Investor Relations. Please go ahead, sir.

George Sharp

Thank you, Keith, 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'd like to thank you for spending time with us this morning so we can provide you with a number of updates to Ford University. This is an important part of our process to share with investors our guidance and how we report against that guidance during the upcoming year. With me today are: Bob Shanks, presently our Corporate Controller and soon to be our CFO; Neil Schloss, Corporate Treasurer; Mike Seneski, Ford Credit CFO; John Murphy, Director of Investor Relations; and Lee Kremzier, Director of Corporate Finance.

Now before we begin, I'd like to cover a few things. Copies of this morning's presentation slides have been posted on Ford's investor and media website for your reference. 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 U.S. GAAP equivalent as part of our various SEC filings.

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 also are detailed in our SEC filings, including our annual, quarterly and current reports.

With that, I'd now like to turn the presentation over to Bob Shanks.

Robert L. Shanks

Thanks, George, and good morning, everyone. This is Bob Shanks, and I'd like to welcome you today to Ford University.

If we can turn to Slide 2. We hope that the discussion today will help you better understand and use our planning assumptions and metrics to evaluate our financial progress throughout the year. There are also some other important topics that we'd like to talk to you about today, such as our pension derisking plan, which Neil will take you through, and tax rates. And this year's presentation also includes clarification on select topics from last year. We've also included in the slide set all of the subjects we covered last year and, although we won't be going through them today, we've updated them with the latest information and we're happy to answer any questions that you might have on these subjects. Mike Seneski, our Ford Credit CFO, is also with us, as George mentioned, and he can provide further insight to questions that you might have related to Credit University, which is also posted for your information.

As shown on Slide 3, we've chunked our Ford University into 3 main sections: first is a discussion of our 2012 key financial metrics and guidance; headline topics, such as pension derisking, tax matters, which includes the release of our valuation allowance, the impact on operating EPS, cash taxes and our revised effective tax rates; and finally, Automotive operating margin, with focus on structural costs, commodity hedging and warranty rules of the road. And as I mentioned a moment ago, we'll also provide more texture around a few topics that we covered in Ford University last year.

Now let's move on to Slide 4, which summarizes our key financial metrics, which are unchanged from the guidance that we've provided in January. So let's go through them. Compared with 2011, we expect 2012 Automotive pretax operating margin -- or rather profit, excluding special items, to improve despite the challenges that we're facing in Europe. Ford Credit is expected to be solidly profitable but a lower level than in 2011. And total company pretax operating profit is expected to be about equal to last year, and we expect our Automotive operating margin to improve. We see our Automotive structural costs increasing by less than $2 billion as we support higher volumes, new product launches and growth plans. And our capital spending is expected to be in the range of $5.5 billion to $6 billion as we continue to invest in our business. And finally, we expect commodity cost to show a nonmaterial increase over 2011. Longer-term, of course, we expect commodity prices to continue to trend upward, given global demand growth.

Now let's move to Slide 5, where you can see our assumptions by segment. Let's turn then talk about North America first, which we see it continuing as our core Automotive operation with improved profitability for full year 2012 compared with 2011. Looking ahead for South America. Competition in the region is intensifying with substantial capacity increases planned by a number of companies and new entrants. Against this background, we expect Ford South America to continue to generate solid profitability this year, although somewhat lower than 2011. We're continuing to work on actions to strengthen our competitiveness in this changing environment, and these actions include fully leveraging our ONE Ford plan, including the introduction of an all-new lineup of global products over the next 2 years, starting generally in the second half of the year.

In Europe, the external environment is uncertain and likely to remain so for some time. Given the challenges in that region and our updated industry volume assessment of about 14 million units for the 19 markets that we track, we expect our first quarter 2012 results for Europe to be about the same or somewhat worse than they were in the fourth quarter last year. We expect Ford Europe's pretax results to improve from that level during the year, largely reflecting the impact of the pace of our new product introductions and our continuing work on our cost base, with full year results for Ford Europe limited to a loss ranging from about $500 million to $600 million. Going forward, we will continue to review taking accelerated actions to strengthen and improve our business there. This will include fully leveraging our ONE Ford plan and our global resources to service customers in Europe. We expect Ford Asia Pacific Africa to grow volume and be profitable for 2012 even as we continue to invest there in additional capacity and in our product lineup for an even stronger future in line with our ONE Ford plan.

For other Automotive, we expect net interest in 2012 to be about equal to 2011. And this reflects the fact that while our net interest expense will be reduced due to lower debt levels, lower interest rates will result in lower interest income. Fair market value adjustments are also included in other Automotive, and they reflect mainly our investment in Mazda, which was a negative $100 million impact in 2011. Results in 2012 will depend largely on the value of Mazda's stock. Now please note that we don't separately report a corporate or central expense category. Such costs are allocated to our Automotive business units as well as to Ford Credit.

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