Ford Motor Company — Q1 2011 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2011, compared with Q1 2010. Ford reports Automotive and Financial Services sectors; interim results are not necessarily indicative of full-year results. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Total revenue | $33.1 billion | $31.6 billion, up 4.9% |
| Net income attributable to Ford | $2.551 billion | $2.085 billion, up $466 million |
| EPS attributable to Ford | Basic $0.68; diluted $0.61 | Basic $0.62; diluted $0.50 |
| Income before tax | $2.776 billion | $2.135 billion |
| Cash from operating activities, consolidated | $2.497 billion | $2.683 billion |
| Automotive pre-tax income | $2.070 billion | $1.320 billion |
| Automotive operating margin (excluding Other Automotive and special items) | 7.7% | 6.2% |
| Financial Services pre-tax income | $706 million | $815 million |
| Cash and cash equivalents; marketable securities | $21.318 billion; $13.548 billion | At Dec. 31, 2010: $14.805 billion; $20.765 billion |
| Total debt, consolidated | $101.638 billion | $103.988 billion at Dec. 31, 2010 |
| Equity attributable to Ford | $2.426 billion | Deficit of $673 million at Dec. 31, 2010 |
Material changes and operating performance
- Automotive sales were $31.038 billion, up from $28.894 billion. Automotive pre-tax income rose $750 million; increased volume, mix, and net pricing more than offset higher commodity, material, warranty, and structural costs.
- Automotive wholesales increased 4% to 1.403 million units. North America’s pre-tax income rose to $1.844 billion from $1.253 billion; Europe rose to $293 million from $107 million. South America and Asia Pacific Africa remained profitable.
- Automotive gross cash was $21.3 billion, and reported Automotive liquidity was $30.7 billion, including $8.6 billion of unused secured credit capacity. Automotive ended the quarter with net cash of $4.7 billion, versus $1.4 billion at year-end.
- Ford Credit pre-tax income was $713 million, down from $828 million. Lower derivative valuation gains, lower receivables volume, and less favorable lease residual performance outweighed better financing margins, lower operating costs, and lower credit-loss provision.
- Ford Credit charge-offs fell to $55 million from $133 million; its loss-to-receivables ratio declined to 0.27% from 0.58%. Its allowance for credit losses was $744 million, or 0.87% of end-of-period receivables, versus $854 million, or 1.02%, at year-end.
- Ford Credit liquidity available for use was $18.2 billion, down from $22.6 billion at year-end. Ford Credit debt was $82.9 billion; managed leverage increased to 7.0:1 from 6.7:1.
- On March 15, Ford redeemed about $3 billion of subordinated convertible debentures and related trust preferred securities, reducing Automotive debt and expected annual interest costs by about $190 million. The redemption caused a $60 million pre-tax charge.
Outlook, commentary, and risks
- Management said it remained on track for full-year improvement in pre-tax operating profit and Automotive operating-related cash flow versus 2010. It expected full-year Automotive and North America operating margins to be equal to or higher than 2010.
- Ford expected Ford Credit to remain solidly profitable in 2011, but below 2010. Management estimated lower lease-related gains and smaller allowance releases would reduce 2011 pre-tax profit by about $1.1 billion versus 2010. Ford Credit projected year-end managed receivables of $82–$87 billion and 2011 distributions of about $3 billion.
- Full-year U.S. and Europe industry-volume outlooks were unchanged at 13.0–13.5 million and 14.5–15.5 million units, respectively. Ford forecast $5–$5.5 billion of 2011 capital spending and about $2 billion of year-over-year increases in both Automotive structural and commodity costs.
- Management cautioned that later-year quarterly results could be weaker than Q1 because of lower expected Ford Credit profit, rising commodity costs, seasonality, and planned investment. Japan-related component shortages were an uncertain near-term risk; Ford said a material impact was not then expected, but production outside Japan could be affected if supplies were disrupted without alternatives.
- Other risks include fuel and commodity prices, market-share and product-demand changes, supplier disruption, pension obligations, vehicle quality and recalls, regulation, litigation, and access to capital markets. Ford Credit remained below investment grade, relied substantially on securitization funding, and identified regulatory and market disruption as funding risks.
- A Brazilian tax-incentive dispute presented a reasonably possible loss of up to about $500 million, including interest and penalties; Ford had not accrued a liability. Ford also reported near-term North American quality issues and a mixed overall quality outlook for 2011.
- Ford retained a full valuation allowance against specified U.S. and foreign deferred tax assets. Management said continued operating improvement could permit reversal of almost all of the allowance as early as the second half of 2011; any reversal could materially affect reported tax expense and earnings.
Important facts for investors to verify
- Whether Automotive volume, pricing, and margin improvements can continue to offset commodity, material, and planned structural-cost increases.
- Whether Japan-related supplier constraints, quality issues, or changes in fuel prices affect production, sales mix, or warranty costs.
- Ford Credit’s credit-loss trends, lease residual performance, funding access, liquidity, and planned distributions, particularly given expected lower 2011 earnings.
- The timing and financial-statement impact of any deferred-tax valuation-allowance release, and the status and potential cash-collateral needs of the Brazilian tax dispute.
- Debt maturities and liquidity availability by sector: consolidated debt includes substantial Financial Services borrowings, and some securitized assets and cash are restricted to related obligations.