This morning, we announced solid third quarter financial results that reflect progress on our One Ford plan and demonstrate that we are well on track to delivering improved pre-tax operating profit and Automotive operating-related cash flow over last year.
Congratulations to everyone for continuing to focus on our plan and taking the decisive action that will increase our competitiveness and allow for long-term growth. By working together to deliver an exciting, viable and profitably growing Ford for all of our stakeholders, we continue to improve the fundamental engine of our company.
We also are delivering cars, utilities and trucks that people want and value around the world, as well as investing for global growth and continuing to strengthen our balance sheet by paying down debt – all despite uncertain economic conditions globally.
Our fundamental plan to deliver One Ford is working, and it remains unchanged:
• Aggressively restructure to operate profitably at the current demand and changing model mix
• Accelerate the development of new products that customers want and value
• Finance the plan and improve the balance sheet
• Work together effectively as one team, leveraging Ford’s global assets
It is important for all of us to read the below news release and understand the progress we are making against our plan and our outlook for the future.
One Team. One Plan. One Goal. One Ford.
Congratulations and thank you!
DEARBORN – Ford Motor Company [NYSE: F] today reported third quarter 2011 net income of $1.6 billion, or 41 cents per share, a decrease of $38 million, or 2 cents per share, versus third quarter 2010. During the quarter, Ford continued to generate solid profits, strengthen its balance sheet, invest for future growth, as well as take actions to improve its competitiveness.
“We delivered solid results for the third quarter despite an uncertain business environment by continuing to serve our customers around the world with best-in-class vehicles,” said Alan Mulally, Ford president and CEO. “We accomplished this while continuing to invest for future growth and focusing on developing outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value.”
Third quarter 2011 pre-tax operating profit was $1.9 billion, or 46 cents per share, a decrease of $111 million, or 2 cents per share, from third quarter 2010. Improved total Automotive results were more than offset by anticipated reductions in Financial Services.
Within Automotive results, pre-tax operating profit was reduced by about $350 million for unrealized mark-to-market adjustments on commodity hedges for future periods. These adjustments occurred because of the significant decline in commodity prices near the end of September. This is a non-cash charge that will either reverse should commodity prices increase or be offset by the benefit of lower commodity prices in the future.
For the first nine months, Ford earned a pre-tax operating profit of $7.7 billion, net income of $6.6 billion and reported Automotive operating-related cash flow of $4.9 billion. Ford continued to grow volume and revenue during the period.
Ford’s third quarter net income was affected by unfavorable special items of $98 million. The special items include personnel reduction actions, Mercury and other dealer-related actions in North America.
Third quarter Ford Credit pre-tax operating profit was $581 million, a decrease of $185 million from third quarter 2010, consistent with previous guidance.
Third quarter total Automotive pre-tax profit was $1.3 billion, an increase of $45 million from the same period a year ago. North America and South America reported pre-tax profits for the third quarter, while Europe and Asia Pacific and Africa posted a loss for the period.
Ford’s third quarter revenue was $33.1 billion, an increase of $4.1 billion from third quarter 2010. Ford generated positive Automotive operating-related cash flow of $400 million in the third quarter.
Ford also continued to strengthen its balance sheet, with a net reduction in Automotive debt of $1.3 billion in the third quarter. This included payment of the remaining $1.8 billion balance of secured Term Loan debt, which was offset partially by an increase in low-cost loans to support advanced technology. Ford ended the third quarter with $20.8 billion of Automotive gross cash, a decrease of $1.2 billion compared to June 30, 2011. Automotive gross cash exceeded debt by $8.1 billion, an improvement of $10.7 billion from a year ago. Ford’s Automotive liquidity totaled $31 billion.
“We remain well on track to deliver improved full-year pre-tax operating profit and Automotive operating-related cash flow, consistent with our guidance,” said Lewis Booth, Ford executive vice president and chief financial officer. “Our liquidity remains strong, and we will continue to take actions when appropriate to strengthen our balance sheet.”
THIRD QUARTER 2011 HIGHLIGHTS
• Increased market share in the U.S. and Europe
• Ford continued as the best-selling brand in the U.S., with sales up 14 percent from a year ago
• Increased sales volume by more than 30 percent in Russia
• Increased market share in Asia Pacific Africa
• Launched 2.0-liter EcoBoost in North America in Explorer and Edge
• Eight Ford vehicles ranked in the top three in their respective segments in the U.S. in J.D. Power APEAL
• Launched new global Ranger in Asia Pacific Africa
• Started production of all-new Focus in Russia and new Fiesta in India
• Concluded four-year agreement with UAW that improves Company’s competitiveness in the U.S.
• Credit ratings upgraded
• Announced several new growth and other initiatives, including:
• $1 billion investment to build an integrated vehicle and engine manufacturing facility in Gujarat, India
• Started construction for a new $350 million transmission plant in Chongqing
• Initiated 50-50 joint venture in Russia with Sollers as of Oct. 1
• Memorandum of understanding with Toyota to collaborate on light truck and SUV hybrid system and next-generation in-car telematics services
• Two-year alliance with Zipcar, establishing Ford as the largest university vehicle partner of Zipcar’s U.S. car sharing network
Total Automotive pre-tax operating profit in the third quarter was $1.3 billion, an increase of $45 million from third quarter 2010. The increase is explained by higher net pricing in each of our Automotive operations, lower net interest expense, and favorable volume and mix in North and South America. This was offset partially by higher contribution costs – which include material costs, warranty expense, as well as freight and duty costs.
About two-thirds of the contribution cost increase is due to commodities. As previously noted, in addition to higher commodity costs, the company recognized unfavorable mark-to-market adjustments on commodity hedges of about $350 million driven by a sharp decline in commodity prices mainly in the latter part of September. Ford uses hedging to provide cash flow protection against volatility in commodity prices. Mark-to-market refers to the accounting practice of reflecting commodity hedges at their current market value. As commodity prices go up, the market value of Ford’s commodity hedges increases; as commodity prices go down, the market value of Ford’s hedges decreases. These changes in the market value of the company’s commodity hedges do not have an immediate cash impact, although the change in value is reflected in its current earnings.
Total vehicle wholesales in the third quarter were 1.3 million units, up 93,000 units from third quarter 2010, as every business segment reported higher wholesales.
Total Automotive revenue in the third quarter was $31.1 billion, up $4.4 billion from third quarter 2010.
North America: In the third quarter, North America reported a pre-tax operating profit of $1.6 billion, essentially unchanged from a year ago. Higher net pricing and favorable volume and mix were more than offset by higher contribution costs. These costs included higher commodity costs and hedging adjustments, and higher material costs excluding commodities mainly associated with our new products. Wholesales in the third quarter were 642,000 units, up 50,000 units from a year ago. Revenue in the third quarter was $18 billion, up $1.8 billion from a year ago.
South America: In the third quarter, South America reported a pre-tax operating profit of $276 million, compared with a profit of $241 million a year ago. The increase primarily reflects favorable net pricing, volume and mix, and other profits, offset partially by higher structural costs, driven by local inflation, and higher commodity costs. Wholesales in the third quarter were 133,000 units, up 17,000 units. Revenue in the third quarter was $3 billion, up $500 million from a year ago.
Europe: In the third quarter, Europe reported a pre-tax operating loss of $306 million, compared with a loss of $196 million a year ago. The decrease is explained by higher commodity costs, including hedging adjustments, as well as unfavorable exchange, partially offset by improved structural costs. Wholesales in the third quarter were 357,000 units, up 17,000 units. Revenue in the third quarter was $7.8 billion, up $1.6 billion from a year ago.
Asia Pacific Africa: In the third quarter, Asia Pacific Africa reported a pre-tax operating loss of
$43 million, compared with a profit of $30 million a year ago. The decline reflects higher costs, unfavorable volume and mix, mainly mix, and unfavorable exchange, offset partially by higher net pricing. Wholesales in the third quarter were 214,000 units, up 9,000 units. Revenue in the third quarter, which excludes sales at unconsolidated China joint ventures, was $2.3 billion, up $500 million from a year ago.
Other Automotive: In the third quarter, Ford reported a loss of $138 million, an improvement of $231 million from a year ago. The improvement is more than explained by lower net interest expense.
FINANCIAL SERVICES SECTOR
For the third quarter, the Financial Services sector reported a pre-tax operating profit of $605 million, a decrease of $156 million compared with third quarter 2010.
Ford Motor Credit Company: In the third quarter, Ford Credit reported a pre-tax operating profit of $581 million, a decrease of $185 million compared with the third quarter of 2010. The decrease in pre-tax earnings is more than explained by fewer leases being terminated and the related vehicles sold at a gain, and lower credit loss reserve reductions.
Ford remains focused on delivering the key aspects of the One Ford plan, which are unchanged:
• Aggressively restructuring to operate profitably at the current demand and changing model mix
• Accelerating the development of new products that customers want and value
• Financing the plan and improving the balance sheet
• Working together effectively as one team, leveraging Ford’s global assets
In the first nine months of 2011, the seasonally adjusted annual rate of sales was 12.8 million in the U.S. and 15.3 million in for the 19 markets Ford tracks in Europe. Based on the latest outlook for industry volumes, Ford now forecasts the U.S. full-year industry volume at 13 million units, compared with a range of 13 million to 13.5 million units previously. For the 19 markets Ford tracks in Europe, Ford now forecasts the industry volume at 15.2 million units, compared with a previous range of 14.8 million to 15.3 million units.
As reported with first and second quarter results, quality remains mixed due to some near-term issues in North America, which Ford is addressing. The company also said it is on track to achieve quality improvements in its international operations.
The company expects its full year U.S. total market share, its U.S. retail share of the retail market and European market share to be equal to or improved from 2010. In the first nine months, Ford’s U.S. total market share was 16.5 percent, its U.S. retail share of the retail market was 13.9 percent and European market share was 8.3 percent.
Ford said its third quarter and first nine-month performance was solid, and the company remains well on track to deliver continued improvement for full year pre-tax operating profit and Automotive operating-related cash flow compared with 2010. In 2010, the company reported a full-year pre-tax operating profit of $8.3 billion and Automotive operating-related cash flow of $4.4 billion.
Based on the company’s most recent assessment, Ford expects its structural costs to be about $1.6 billion higher than 2010. As a result of the recent hedging adjustments, Ford expects commodity costs to be about $2.2 billion higher than 2010. Ford now expects its full-year Automotive operating margin will be about 5.7 percent, compared to the 6.1 percent Ford achieved in 2010. This is due primarily to the impact of commodity hedging adjustments. Automotive operating margin through the first nine months of 2011 was 6.5 percent.
Ford expects 2011 capital expenditures to be about $4.6 billion, as the company realizes efficiencies from its global product development processes. The company remains on track with its product plans. Capital spending in the first nine months was $3.1 billion.
Ford expects total company fourth quarter production to be about 1.4 million units, up 22,000 units from a year ago. Fourth quarter production in Asia Pacific Africa is being affected by flooding in Thailand. Although the company’s joint venture Auto Alliance Thailand assembly plant is not affected, the flood is causing parts shortages that have forced it to suspend production. Ford is working closely with its affected suppliers to return to production as quickly as possible and to minimize any potential impact in other regions. This forecast reflects the company’s best projection at this time. Should the outlook change materially, the company will update its forecast accordingly.
“We are making consistent progress on our commitment to deliver profitable growth for all,” said Mulally. “Going forward, we are focused on aggressively managing short-term challenges and opportunities and we remain committed to delivering our mid-decade plan and serve a growing group of Ford customers around the world.”
Ford’s planning assumptions and key metrics, and production volumes, are shown below: