Ford Motor Company — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Financial statements are unaudited; PwC performed a limited interim review, not an audit. Unless noted, amounts are U.S. dollars.
Business context and results
Ford operates Automotive and Financial Services sectors, the latter primarily Ford Credit. Management described Q2 as an exceptionally strong quarter, led by record North American profit. Results also reflect foreign-exchange pressure from a strong U.S. dollar and continued weakness in South America and Russia.
Key financial metrics
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Total revenue | $37.3B | $37.4B | $71.2B | $73.3B |
| Pre-tax income | $2.868B | $2.118B | $4.273B | $3.377B |
| Net income attributable to Ford | $1.885B | $1.311B | $2.809B | $2.300B |
| Diluted EPS | $0.47 | $0.32 | $0.70 | $0.57 |
| Cash dividends declared per share | $0.15 | $0.125 | $0.30 | $0.25 |
- Automotive: Q2 revenue was $35.1B and pre-tax income was $2.377B; operating margin was 7.2%. First-half revenue was $66.9B, pre-tax income $3.313B, and operating margin 5.5%.
- Financial Services: Q2 revenue was $2.158B and pre-tax income $491M, versus $429M a year earlier. First-half pre-tax income was $960M, versus $891M.
- Cash flow: First-half consolidated operating cash flow was $7.623B, compared with $6.970B. Investing activities used $8.950B; financing activities provided $3.741B. Automotive operating-related cash flow, a non-GAAP measure, was $2.4B versus $3.8B.
- Liquidity and debt at June 30: Automotive gross cash was $20.7B and Automotive net cash was $7.0B; Automotive liquidity, including available credit lines, was $31.7B. Consolidated debt was $123.5B, including $109.8B of Financial Services debt and $13.7B of Automotive debt. Ford Credit reported $26.6B of net available liquidity and 8.7:1 managed leverage.
- Margins: No consolidated operating-margin figure is stated in the supplied filing text. Automotive operating margin is reported above.
Material changes versus comparable periods
- Q2 revenue was nearly flat year over year, while pre-tax income increased $750M and Ford-attributable net income increased $574M. For the first half, revenue declined about 3%, while pre-tax income rose $896M and Ford-attributable net income rose $509M.
- Automotive Q2 pre-tax income rose $207M year over year. Higher volume and mix, especially in North America, supported results; the North American segment reported a record $2.6B pre-tax profit. Ford cited higher net pricing and lower costs as additional contributors.
- First-half Automotive gross cash fell $1.0B from year-end 2014 to $20.7B; Automotive operating-related cash flow was lower than in the first half of 2014. Capital spending was $3.5B.
- Ford consolidated Ford Sollers effective March 31, 2015, after obtaining a controlling interest through preferred shares. The change followed a $329M Ford Sollers impairment in Q2 2014. Ford also sold its interest in Blue Diamond Truck and recorded a $19M pre-tax gain.
- Ford recorded no special items in Q2 or the first half of 2015; prior-year comparisons included separation costs and the Ford Sollers impairment.
Guidance, commentary, and risks
- 2015 outlook: Ford maintained its company pre-tax profit outlook of $8.5B–$9.5B, excluding special items. It expected higher Automotive revenue, operating margin, and positive operating-related cash flow than in 2014, and Ford Credit pre-tax profit equal to or above 2014. Management expected stronger results in the second half.
- Ford expected global auto industry sales of 86M–89M units, roughly flat with 2014. It raised its Europe 20 industry outlook and reduced its China outlook. It cited South America—particularly Brazil—and Russia as key areas of concern, alongside slower China growth, pricing pressure, and currency volatility.
- Ford expected a 2015 operating effective tax rate about equal to or higher than 2014’s 26%, assuming extension of U.S. research credit legislation; Q3 rate was expected to be about 34%.
- Ford expected approximately $7.5B of 2015 capital spending and $1.5B in 2015 pension contributions and payments to unfunded-plan participants. Australia manufacturing closure was planned for October 2016; estimated total separation costs were about $230M.
- Contingencies: Ford estimated reasonably possible loss in excess of accruals for material matters, principally indirect tax and customs matters, at up to about $2.8B. Maximum potential payments under guarantees and limited indemnities were $592M, with $17M of recorded liabilities. Warranty and field-service-action accruals were $4.705B.
- Other items to monitor: A $782M first-quarter adjustment corrected an understatement in the year-end 2014 U.S. pension obligation; Ford said it was not material to current or prior-period financial statements. The Consumer Financial Protection Bureau issued a rule expanding its authority to supervise large nonbank auto finance companies, including Ford Credit. Forward-looking results are exposed to demand, pricing, currency, supplier, labor, product-quality, regulatory, pension, litigation, and Ford Credit funding and credit risks.
Important facts for investors to verify
- Whether North American demand, F-150 availability, pricing, and product launches deliver the forecast second-half improvement.
- Progress in South America, Russia, Europe, and China, including currency effects, competitive pricing, and Ford Sollers performance.
- Automotive cash generation, capital spending, debt reduction, and pension funding against management’s targets.
- Ford Credit’s credit losses, lease residual values, funding access, liquidity, and leverage as receivables grow.
- Developments in the up-to-$2.8B indirect tax and customs exposure, warranty obligations, and regulatory oversight of Ford Credit.