Ford Q3 '96
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Ford Q3 '96
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Ford Motor Company <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> UNION CITY, Ca., October 17, 1996/FOOLWIRE/ --- Ford Motor Company reported third quarter earnings yesterday morning. Net income for the third quarter was $686 million. That included $15 million from the automotive side, a $216 million improvement, and $671 million from Financial Services, a $113 million improvement (which is principally the gain they had in the sale of USL Capital Assets). Earnings were $0.56 per share, up $0.29 from Q3 1995. The earnings include special items which netted out to a gain of $0.03 per share -- there was a charge for early retirement programs of $0.03 per share and a gain on the sale of USL Capital Assets of $0.06 per share. AUTOMOTIVE OPERATIONS In automotive operations there are two stories. They had a record US earning result; but higher losses in Europe and South America. Unit deliveries worldwide were slightly ahead of last year at 17,000. They had combined market shares of 24.5% in the US and 11.8% in Europe. The US is down 0.3% and Europe is down 1%. Ford made continued progress on cost reductions and emphasized profitability of market share. US marketing costs were 6.8% of revenue. Ford calculates marketing costs as retail money-against-the-market per unit which reflects their strategy of putting the marketing money where they think they can make a total unit profit against the profitable margin products. They have backed off some of the fleet business, for example. This figure came in at $1110 per unit in Q3, down $260 per unit from the year ago period. Therefore, the 6.8% of revenue, while higher as a percentage of revenue, is actually lower than the amount spent per profitable vehicle in the year-ago period. Ford has made significant progress in net income from last year and sequentially. After almost a year of sub-par earnings in the automotive business, second quarter was flat versus the prior year and the third quarter is now their first improvement in some time. They expect that trend to continue in the fourth quarter and next year. The US was strong with $634 million, which was about $1300 per unit compared to about $750 last year. They think that is good progress. The $447 million improvement was not driven by volume, it was a small volume increase, but really by net revenue and costs, by margins, and by mix improvements (higher margin products, principally trucks, that they have introduced recently). Volume was only a small part and retirement programs had a small negative impact. Two problem areas they had were Europe and South America where they had losses of $472 million and $226 million respectively. The rest of the world had a $79 million profit. In Europe the third quarter is typically their seasonal low for the year. Three other things are impacting results this year. First, they had two large product launches in the Mondeo in August and the Ka in September. Their volume was down slightly and their mix was also unfavorable. They are selling the small cars well and, principally because of the Mondeo changeover, they lost some of the Mondeo mix in the third quarter. Third, marketing costs continue to be a focal point and are much higher than they like to see and they are up versus last year. The combination of those is a $472 million loss. Going forward, two things they are focusing on is getting the new products launched. Ka and Mondeo are both very important for their product recover. Ford is also continuing their efforts to lower cost structure in Europe. In South America, the loss of $226 million is consistent with discussions Ford had a month ago regarding some changes. Ford is taking a more conservative tack on taxes for South America, particularly Brazil. They are not tax affecting their losses in Brazil at this time. In addition, in the fourth quarter there is certainly a risk of additional restructuring charges on top of what they were looking for even a month ago. This is based on the new management assessment. They are recommending looking at South America in Q4 to be much like Q3. Ford introduced two new products this quarter, Expedition and Ka. The reviews for these products have been among the best they have ever had for any new vehicle. FINANCIAL SERVICES BUSINESS Ford Financial Services posted another record despite an increasingly tough market. The group posted a $671 million profit, up $113 million over last year. Ford Credit's profit including their international affiliates is $371 million -- a good result and is the second largest profit that they have ever had in the third quarter. It is down from the record of last year by $55 million and the change from last year is principally credit losses. The trend is consistent with second quarter, the credit losses are up versus last year but still well below the most recent peak they saw in 1989, 1990, and 1991. Credit losses for Ford Credit in the third quarter were about 1.2% of total retail and lease receivables. That compares with about 0.7% a year ago and almost 2% in the late 1980s and early 1990s. They also believe the credit losses are in line with competition, but they are watching it very closely. The Associates, despite a lot of pressure in the marketplace continues to go very strong. They have another record in the $230 million result. And Hertz is also a record third quarter at $74 million. The $18 million profit posted by USL Capital is from operations. Ford had a one-time gain on the sale of USL Capital assets of $76 million. OUTLOOK. Ford's outlook going forward is very consistent with what they have been seeing over the last several months and there is no change in value from last quarter's discussion. They see a healthy industry demand in the US and Europe and don't expect that to change. They expect good product momentum, especially with the Expedition in the US, the Ka and the Mondeo and Europe. Cost and product mix improvements are continuing certainly in the US. They know in the case of Europe and South America that they have more to do and that is a very top priority for the managment at Ford at this time. In the second quarter they highlighted the fact that they were going to have a fourth quarter charge in the range of $200-300 million after taxes. They now think that is going to be higher. They think it will be $300-400 million after taxes. A small portion of that was included in the Q3 results, but the bulk of the charges will be in the fourth quarter. It reflects early retirements in the US and the addition versus their second quarter estimate is now other parts of the world as well. Some of those have not been announced yet, so they wouldn't go into specifics because they haven't made the announcements yet. First Call estimates for the fourth quarter has them at about $1.15. They believe that excludes the early retirement costs and they think it is still in the ballpark of where they will come in. Ford announced organization management changes last week. They streamlined product development by reducing the number of vehicle centers from 5 to 3. They also want to separate the components business as a separate standalone business that will be competitive which they believe will give them a full range of options to improve shareholder value in the future. It has been two years since the last level of changes was announced, so they see these changes a normal evolution and something people should expect on a regular basis to keep the business competitive. UAW CONTRACT. About a month ago Ford reached an agreement with the UAW. Questions have been ratified and they will sign the agreement next week. GM is caught up in Canada and is not really bargaining in the US and won't really get back to the US table until they complete the Canadian negotiations. Chrysler followed Ford virtually directly, no significant changes there. They were in the agreement seeking to retain their operating flexibility and to achieve the economic settlement on a modest basis. And they did so. UAW's principle objective was force level guarantees. That is, having had income protection, they were concerned about maintaining the functional size they had with a number of adjustments. They think they are able to achieve that goal of UAW to give them force level protection without in any way inhibiting their operating flexibility. They were able to overlay this agreement on their business plan and have absolutely no alterations planned. There are a number of opportunities for efficiencies in it for Ford. They are already undertaking them. They think they will come out of this agreement barely above CPI total cost wise and it shouldn't have any impact on their ability to be competitive. The press summaries are not inaccurate. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |