Ford's
Q2
| (FOOL
CONFERENCE
CALL SYNOPSIS)* By Randy Befumo (MF Templar) Ford Motor Company <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> ALEXANDRIA, Va., July 17, 1996/FOOLWIRE/ --- FORD MOTOR COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:F)") else Response.Write("(NYSE:F)") end if %> announced improving results from automotive operations combined with record profits from financial services this morning, The company earned $1.903 billion in the second quarter, including a one-time gain of $213 million related to the Associates First Capital initial public offering and a write-down for Budget Rent a Car. Net income from automotive operations was $1.108 billion and financial services posted net income of $795 million. This is $1.56 EPS on a full diluted basis including a one-time gain of $0.18 EPS versus 1995's $1.30 EPS.
AUTOMOTIVE OPERATIONS
Net income from worldwide automotive operations was up $8 million to $1.108 billion in sales. The U.S. earned $697 million, up $34 million from last year despite a small decline in unit sales. Lower launch costs allowed overall profitability to be improved. Auto operations outside the U.S. slid during the quarter, down $26 million from last year to $411. Lower results in Europe and Brazil are to blame. They are looking at flat to slightly up margins in Europe as the competitive dogfight continues. This is very hard to predict given the tough competitive environment and the trend towards selling smaller cars like the Fiesta.
Worldwide vehicle unit sales were 1,810,000 compared with 1,811,000 last year. Combined car and truck share in the U.S. was 24.8%, down from 26.2%. In Europe, share was 12.0% compared with 12.2% last year. Capital spending was about equal to last year. July sales are flat or a little lower than last year as of yet.
NEW PRODUCT DEMAND AND REVENUE MIX
The demand for the new Taurus/Sable, the Escort/Tracer and the new F-Series truck have all been solid.
The Explorer had record first half sales, up 10% from a year ago. The Mountaineer is also off to a good start, with sales exceeding expectations. This fall they will launch the new Expedition and already have 30,000 orders for the vehicle -- half of their anticipated production.
Dealer stocks are in good shape, down 74,000 units from last year. Overall marketing costs including fleet are declining. This was 8.4% of revenue, down 0.3% from last year.
The lease mix was 23% in the second quarter, up slightly form last year. Residual values are holding and they are very adequately reserved. They are about where they want to be with this mix, although they will tweak this as their competitors shift.
They have the strongest product line they have ever had in their history. Their top three sellers are all new cars and they believe they are very well positioned in the truck and sport utility markets.
FINANCIAL SERVICES
Ford's second quarter results included a one-time $650 million gain from the initial public offering of 19.3% of Associates First Capital and a charge of $437 million to write-down Ford's investment in the preferred stock and debt of Budget Rent a Car. Ford intends to acquire the common stock of Budget, giving it control of the company. This comes out to a $213 million one-time gain.
Without this gain, Ford's financial services business earned $582 million compared to $472 million last year. Ford Credit earned $332 million compared with $341 million last year. USL Capital earned $41 million compared to $30 million last year. The Associates earned $200 million versus $162 million last year, of which $177 million counted towards Ford's results. Ford Credit's result of $401 million was down $6 million from last year.
Volumes were a bit higher than last year, as were credit losses. They believe the story at Ford Credit is very good. The credit loss experience looks reasonable and is substantially better than what they saw in the early '90s. The delinquency ratio was 27 basis points, up from last quarters 20 basis points but well below 1991, 1992 and 1993. This is also down from the fourth quarter of fiscal 1995 as well. This is an area that they watch very closely.
AUTOMOTIVE BALANCE SHEET
Net cash for Ford's auto business was $8.4 billion, an improvement from last year's $7.1 billion. The second quarter is their strongest quarter and they will dip down in the third quarter with new product launches. They are pleased with this and believe it reflects the profits for the year.
FINANCIAL SERVICES BALANCE SHEET
The restructuring in Financial Services was done to maximize shareholder value and improve the balance sheet. The proceeds from the Associates initial public offering and the coming proceeds from the USL Capital initial public offering are being used to decrease debt leverage.
LOOKING FORWARD
Ford believes the factors on a macro basis, an industry specific basis and a company specific basis all look better than industry analysts expect. The gross domestic product of 2.0% represents reasonable growth with little inflation. Consumer confidence remains high while employment growth is solid. There is a strong case for believing the business expansion can last for some time in the U.S. and is only beginning in Europe. They do not expect this to change in 1996 or 1997. Ford sees the U.S. auto industry selling about 15.5 million vehicles in 1996.
At Ford, product momentum continues with new products being introduced over the next two years. They expect to show meaningful improvements in profits over the next year. Financial services continues to do well. The labor situation looks promising as well and they expect a business-like settlement that will be done rather quickly.
COMMENTS ON VALUATION
At today's price of $30 1/2, they believe there is a strong case to be made that this represents good value. The valuation, the dividend yield, the increasing value of their financial services unit are what they cite as factors that should warrant a higher valuation. These all argue for a much higher price than they are getting today. * 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. | |
Copyright 1996,
The Motley Fool |