Ford Motor Company — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted. Ford reports Automotive and Financial Services sectors. Interim statements are unaudited; PwC performed a review, not an audit.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $33.9 billion | $35.9 billion |
| Income before taxes | $1.405 billion | $1.259 billion |
| Net income attributable to Ford | $924 million | $989 million |
| Diluted EPS | $0.23 | $0.24 |
| Operating cash flow, consolidated | $2.413 billion | $2.220 billion |
- Automotive revenue was $31.8 billion, down 6%; pretax profit rose to $936 million from $797 million. Automotive operating margin was 3.6%, up 0.2 percentage points.
- Financial Services revenue increased to $2.1 billion from $2.0 billion; pretax profit was $469 million versus $462 million. Credit-loss provision expense rose to $73 million from $39 million, while interest expense declined.
- The effective tax provision increased to $480 million from $270 million, contributing to lower net income despite higher pretax income. Ford declared a $0.15 per-share dividend, versus $0.125.
- Consolidated assets were $212.4 billion and total debt was $122.8 billion at quarter-end. Cash and marketable securities totaled $33.1 billion. Automotive gross cash was $19.5 billion, Automotive debt $13.4 billion, and Automotive net cash $6.1 billion.
- Automotive operating-related cash flow, a company-defined measure, was $0.5 billion versus $1.2 billion. Automotive capital spending was $1.8 billion. Its gross cash declined $2.2 billion during the quarter, reflecting pension contributions, separation payments, debt changes, dividends and the AAI transaction.
- Ford Credit managed receivables were $112.9 billion, broadly unchanged from year-end; net liquidity available for use was $27.9 billion. Managed leverage was 8.8:1.
Changes and operating developments
- Total revenue declined about 5.5%, principally from lower Automotive revenue, lower wholesale volume and the strong U.S. dollar’s effect on international operations. Higher net pricing, favorable mix and exchange effects helped Automotive pretax results.
- North America pretax profit decreased to about $1.3 billion from $1.5 billion, largely because F-150 and Edge launch-related volume was lower. South America’s pretax loss narrowed to $189 million from $510 million, with ongoing economic, currency and inflation pressures. Europe’s pretax loss was $185 million, broadly unchanged. Asia Pacific pretax profit fell to $103 million from $291 million as launch and capacity costs increased; China joint ventures contributed $360 million.
- Ford consolidated Ford Sollers in Russia effective March 31 after gaining control through preferred shares. The transaction added provisionally measured assets of $977 million and liabilities of $888 million, with no Q1 earnings impact. Final purchase accounting was expected in Q2.
Outlook, risks and unusual items
- Ford maintained its 2015 total-company pretax-profit outlook of $8.5–$9.5 billion, excluding special items, and expected higher Automotive revenue, operating margin and positive operating-related cash flow versus 2014. Management expected the second half to be more profitable than the first.
- Ford raised North America operating-margin guidance to 8.5%–9.5% from 8%–9%. South America losses were expected to improve from 2014 but be greater than previously anticipated; Middle East & Africa was expected to be about breakeven. Europe and Asia Pacific pretax results were expected to improve from 2014.
- Ford Credit expected 2015 pretax profit at least equal to 2014, managed receivables of $123–$128 billion at year-end and distributions of about $250 million. It expected managed leverage near the upper end of its 8–9:1 range in the near term.
- Management cited South America and Russia as key weak spots, alongside a strong U.S. dollar, competitive pricing, slower China growth, launch execution, warranty/recall exposure, pension obligations, supplier disruption, credit losses and lease residual values.
- Ford recorded a $782 million adjustment to correct an understatement in the 2014 year-end U.S. pension obligation valuation; the after-tax effect was a $508 million loss in other comprehensive income. Management said the adjustment was not material to current or prior-period financial statements.
- No Q1 2015 special items were reported. Ford paid $342 million to acquire Mazda’s interest in AAI after Mazda exercised its put option. Ford disclosed reasonably possible loss above accruals of up to approximately $2.5 billion for material matters, primarily indirect tax and customs issues; outcomes remain uncertain.
- Ford expected 2015 pension contributions and unfunded-plan benefit payments totaling about $1.5 billion, of which about $900 million had been made in Q1. Planned 2015 Automotive capital spending was about $7.5 billion.
Investor verification priorities
- Confirm the drivers of the higher tax provision and the reported pension valuation correction, including any subsequent-period effects.
- Track North American F-150 and Edge production, deliveries, margins and the expected second-half launch-related recovery.
- Assess continued deterioration or stabilization in South America and Russia, including Ford Sollers funding needs and final purchase accounting.
- Monitor Ford Credit’s credit-loss trends, lease residual values, leverage, funding access and progress toward its receivables outlook.
- Review developments in the disclosed indirect tax and customs exposure, warranty and field-service obligations, and other litigation or contingencies.