Edited Transcript of F earnings conference call or presentation 24-Jul-19 9:30pm GMT

We progposal total of this further with humility. And the argue is that it's been my undergo that the compounding certain effects of getting hence many aspects of our affair at form does accept more time. Yet, at the same time, these disparate aspects perpendicular above each other, which allows us ought come our complete latent during an noted business.

But ought affect briefly above some other highlights from the quarter. at Automotive, we delivered a 19% expand at EBIT supported by a broad-based improvement at impartial factors led by North America, Europe and China. We achieved these results flat with the ordinary drag above profitability at North America from ramping 3 same important produce launches at the quarter, our all-new Explorer and Police Interceptor utility also during our new-to-market Lincoln Aviator.

Now if you recall, at Q1, we said our first zone results used to exist the strongest of the year, at divide during of the magnitude and cadence of these future produce launches also during ordinary seasonality. Importantly, we delivered certain adjusted free cash brook at the zone significantly improve than persist year, despite major launch headwinds. And above a year-to-date basis, we delivered $2.1 billion adjusted free cash flow, which is up 80%. at addition, our cash rest of $23 billion and complete liquidity of $37 billion remained well and noise above our goal levels. Our year-to-date results aid our goal ought improve both free cash brook and profitability this year. Tim will further into more detail about our results and perspectives above the complete year at just a moment.

Now during we've discussed at the past, we're focused above 4 strategic areas during creating value. First is the winning portfolio where we are fortifying our strengths, improving mingle and expanding our commitment ought electric vehicles. Second is fitness. It's our talent ought compete, including advancing alliances such during those with VW and Mahindra. Third is acceleration of our global redesign, which was ought ensure each of our regions at generating sustainable beneficial growth and cash flow. And fourth is clever vehicles during a clever world. We are scaling products and businesses that join ought the dust about them at ways that interest our customers.

Let me affect above a little highlights of each of these. We're now beginning ought revolve out our new portfolio powered by the dramatic shifts at major allocations of trucks, SUVs and fundamental vehicles, including the hybrid and all-electric offerings. This catalog you visit covers 2019 and 2020. We're expanding our lineup where the volume and interest is, where the growth is and where the Ford brand excels. Of course, this includes pickups although the new F-150, Super responsibility and new Ranger; commercial vans although the new 2-ton Transit; and SUVs such during the new Explorer, Escape, field and Puma; rugged off-road vehicles although the Raptor and upcoming Bronco; and our Mustang-inspired BEV that's going ought exist an SUV. at fact, at North America, we're driving down the period of our visitor vehicle showroom by about 1/2 during we substitute 75% of our products by 2020. above time, the new models we're adding during customers will more than create up during any division and volume loss by the phaseout of sedans cabin simultaneously improving profitability and returns.

It's no small feat ought forward this many new products at such a short time frame. I'm delightful that I consume a seasoned automotive veteran at Joe Hinrichs at the helm of our Automotive division. while you observe the extent of the task that was done, much of it although clockwork, we will total our assignment ought successfully launch these products. during example, the transformation of our Chicago factory ought launch the Explorer, the Police Interceptor and the new Lincoln Aviator was, at some ways, a bigger endeavor than the 2014 overhaul of our car plants at Dearborn and Kansas city during our aluminum-bodied F-150. at fact, the Explorer launch is arguably our most sophisticated one above the next 18 months, combining an all-new high-volume platform over with what is effectively a new factory and a new body shop.

We also launched our broadest-ever Explorer lineup with both hybrid and ST fundamental models, and we're introducing a plug-in hybrid translation of that Aviator. Now ought come total this, we installed hundreds of robots, new technologies and moved out the slice metal same of the weight of the Eiffel Tower. I'm pleased ought say that the request during these new products -- these 2 new products is strong. We are selling these vehicles during quick during we can perpendicular them. at fact, we're now expanding our capacity at Chicago. hence while you consume a moment, conduct me a favor and click above the unite above this page ought observe a short video summarizing what it took ought interest our factory at Chicago ready during these key launches. I believe you'll exist positively impressed.

Explorer, Police Interceptor and Aviator are just 3 examples of our dramatic touch at major allocation ought higher-return trucks, utilities and crossovers. at the same time, we are working ought lower the major intensity of our business. Of course, we linger highly committed ought trait and guest satisfaction at everything we do. You can visit that at the results from the most contemporary J.D. country U.S. initial trait study. during the first time ever, both Ford and Lincoln ranked among the climax 5 auto brands at the U.S.

I will expand a portion above our renaissance that is underway at Europe where we made important further at the quarter. at early January, our team at Europe unveiled a comprehensive motorway catalog ought improve or exit less beneficial vehicle lines, greet underperforming parts of the affair and improve profitability over efficiencies and a important reduction at structural costs.

In the first half of this year, our team did a immense occupation achieving important milestones during they place the affair at Europe during a 6% EBIT border longer term. These milestones include: quantity one, a new operating xerox and organization, including 3 customer-focused affair groups each with a dedicated management team and bottom row accountability. The first of the 3 groups is commercial vehicles where we consume reallocated estate ought capitalize above our place during the climax commercial vehicle brand at Europe, including leadership at the pickup segment. Now above the next 5 years, we're targeting ought double our profitability at commercial vehicles. The second group is visitor vehicles, which will concentrate above European-built cars and SUVs. The third group, well, this is imports, a niche portfolio of iconic visitor vehicles including the Mustang and Explorer.

Importantly, we consume mostly concluded consultations with our social partners. And at the U.K. and Germany, we consume carried out separations. at Russia, we consume completed the restructuring of our JV there, which includes exiting visitor vehicles and Ford taking a minority stake. And ought improve manufacturing efficiencies, we consume proposed or confirmed the closure or sale of 6 council and component manufacturing plants at Europe by the aim of 2020.

In the middle of this restructuring, we've also announced growth initiatives, including producing new all-electric vehicles and electrified options during all-new visitor vehicle models. These new vehicles will aid our compliance with the new European CO2 regulations, which we desire ought come without having ought buy credits or earnings any friendly of penalty, and our union with VW ought aid commercial vehicle and electric vehicle growth.

Now if I can interest you ought become ought slip 8. Earlier, I mentioned the fourth strategic zone that prepares Ford during this new ripen at our industry. I referred ought this during clever vehicles during a clever world. This strategic zone has benefited, during I expected, early from Jim Farley's mingle of automotive and entrepreneurial history. He appropriately focused early above the conclusion of the negotiations with VW ought broaden our collaboration. Now it's important ought expand ought you today why we're hence enthusiastic about this news. at a time while industry consolidation is daily making news, we confide we build a more thoughtful fashion ought collaborating at key strategic areas without adding the complexity of cross-ownership. It started aid at January where Ford and VW announced the occupation ought age commercial vans and medium-sized pickups during global markets. This collaboration rest above course, and we're excited about the potential.

Two weeks ago, VW's CEO Herbert Diess and I said that our companies used to expand this collaboration. Now this included VW joining us with an investment commitment ought Argo AI. This is the one of the most capable autonomous vehicle platform developers, during you know, based at Pittsburgh. The transaction with VW establishes an estimated tax during Argo of more than $7 billion. Collectively, we confide we're above a motorway ought create one of the most important autonomous vehicle platforms at the industry.

Here's how our companies will task together going forward above autonomy. First, we will collaborate with Argo above a self-driving system, known during the SDS. That motorway that Ford and VW will exist capable ought lessen our respective investments and development costs during the future AV businesses. We will exist capable ought cocreate common AV standards both now and at the future, and we'll division valuable data with Argo ought assist perpendicular the best visioning and mapping models over with data utilization analysis during traffic and fleet management. Second, we'll division costs and expertise hence that we can each create and engineer unique, safe and effective self-driving vehicles. Third, Ford and VW, of course, will linger active competitors and follow independent go-to-market strategies using this common Argo SDS platform, with each of us designing and delivering only experiences during our customers.

In judgement ought our collaboration above autonomy, we also announced we're extending our union ought electric vehicles. Ford will cost the first additional automaker ought use VW's MEB electric vehicle architecture. We'll leverage this architecture during a high-volume, 0 emissions visitor vehicle at Europe, and this is designed at our Ford engineering middle at Cologne, Germany. Ford of Europe will commence protection this vehicle at Ford appliance at 2023. We're also considering a second electric xerox based above this MEB architecture during our Ford lineup at Europe. This more expansive strategic relationship among Ford and VW is another important protection hinder at the renaissance underway at Ford of Europe that I described earlier.

Well, with that good news, allow me become the shriek above ought our CFO, Tim Stone. Tim?

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Timothy R. Stone, Ford machinery company - CFO [4]

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Thanks, Jim. Hi, everyone. A little things ought have at brood during we argue our results: first, both 2019 and 2020 are vigorous launch years during us during we bolster our winning portfolio during customers, reallocate major ought higher-return growth opportunities and slaughter changeovers of our most beneficial and highest-volume vehicles; second, our global redesign and fitness initiatives are progressing well, improving the trajectory of future growth, cash flow, profitability and returns above capital; third, Ford confidence continues ought forward choice results; and fourth, relative ought auto, we flourish ought desire well execution this year especially North America, Europe and China.

In the quarter, we generated $0.2 billion at adjusted free cash flow, which was a important improvement from persist year. This fundamental includes the shock of our launches at the quarter. above a year-to-date basis, adjusted free cash brook was up 80% ought $2.1 billion supported by improvement at working major at Auto. The talent ought generate sustainable growth at free cash brook above time is our most important financial measure, and we are above our motorway ought achieving this.

Wholesales refuse 9% driven by China, a lower industry and a launch-related volume shock at North America during we ramped Explorer and Police Interceptor. Interceptor, by the way, accounted during half of total police vehicle sales at the U.S. persist year, and the new xerox is flat more capable. though wholesales were down, revenue was flat. And well mingle and pricing, supported by our franchise strengths, were offset by lower volumes and opposite exchange. Excluding the shock of exchange, revenue grew 3%.

Auto posted a second consecutive zone of EBIT growth, something we consume no achieved at above 3 years. EBIT grew 19%, up from 16% persist quarter, and EBIT border expanded by 60 base points. These results were supported by well mingle at North America, reflecting our franchise strengths and well pricing at each region. at North America, EBIT declined 3% driven by the changeover of Explorer, Interceptor and the introduction of Lincoln's all-new Aviator also during higher warranty. Our strategic investments at mobility increased by 46% during we flourish ought perpendicular out our capabilities, including mobility services, connectivity and autonomy.

Ford confidence delivered another well quarter, posting a 29% expand at salary ago taxes. Favorable loss metrics reflected vigorous consumer confidence conditions, and auction values during off-lease vehicles performed slightly improve than expectations. We now confide auction values will exist down by about 3% above medium during the year.

Receivables were flat and remained below our previously announced cap of $155 billion. Corporate other salary of $286 million included a mark-to-market loss of $181 million during our investment at Pivotal. above an adjusted basis, both company EBIT and border during the zone were flat at $1.7 billion and 4.3%, and EPS was $0.28. Excluding the Pivotal loss, adjusted EBIT used to consume been $1.8 billion, EBIT border used to consume been 4.7% and EPS used to consume been $0.32.

In the quarter, we recorded $1.2 billion of special charges with cash effects of $0.2 billion. during expected, the immense majority of the charges at the zone were associated with the redesigns of Europe and South America. This year, we flourish ought desire ought incur $3 billion ought $3.5 billion of EBIT charges with negative cash effects of about $1.5 billion ought $2 billion, reflecting a touch of about $0.5 billion ought $1 billion at cash effects ought 2020. Lastly, we ended the zone above our cash and liquidity targets with $23 billion at cash and $37 billion at complete liquidity.

Let me affect above a little areas of affair at more detail. at North America, during I mentioned, EBIT was down and border contracted by 30 base points ought 7.1%. The district continued ought forward well mingle and net pricing supported by F-Series also during our resolution ought exit traditional sedans. This favorability was more than offset with the launch-related declines at volume and higher warranty. during additional perspective, wholesales during Explorer and Interceptor were down by 72,000 units year-over-year, which led ought 7% overall refuse at wholesales at the quarter. during Jim mentioned, request during Explorer is well with produce already oversubscribed.

Relative ought wholesales, it's interesting ought correspondence that at the quarter, sales of Ranger completely offset the refuse from discontinued sedans. persist quarter, we showed you the interest of this intentional touch at our portfolio using our Michigan council factory during an example. Once this factory completes the transition from sedan ought Ranger and Bronco, EBIT will improve by above $1 billion.

In the U.S., our SUVs posted well momentum at the quarter, including a 50% expand at Expedition. And this month, based above vigorous guest demand, we started ought brook additional capacity during journey at our Kentucky car plant. By the aim of this year, above a volume-weighted basis, we will consume the freshest SUV lineup at the industry led by our all-new Explorer and all-new Escape.

Also at the U.S., sales of complete pickups accelerated at the quarter, marking our best overall pickup sales fundamental during 2004. F-Series continues ought conduct well, maintaining impartial leadership with the lowest incentive cost of main competitors and the highest transaction pricing. Ranger, which we launched at the aim of 2018, more than doubled its volume sequentially cabin also steadily increasing piece division ought 14.2%.

Europe delivered $53 million at EBIT at the quarter, an improvement of $126 million year-over-year supported by our redesign actions. Favorable impartial factors, aided by flat structural costs excluding pension, drove the improvement at profitability. This was the first quarterly year-over-year improvement at profitability during Europe at 2 years. Commercial vehicles were once again a force at the zone during Ford remained Europe's #1 commercial vehicle brand. And during eminent at our produce motorway map, we will exist launching an updated 2-ton Transit at the second half of this year. at addition, Ford remained the impartial major at the U.K. with Fiesta, Transit habit and concentrate during the climax 3 selling models.

In China, consolidated revenue increased 48% year-over-year driven by higher Lincoln volumes. EBIT loss narrowed $155 million, an improvement of $328 million year-over-year supported by improvements from consolidated operations at volume, mingle and pricing, lower tariffs and structural costs also during favorable exchange. The team has taken fundamental ought stabilize sales with second zone retail sales up 13% sequentially and aggressive reductions at inventory ought improve businessman health. at fact, our businessman inventory is at its lowest flat at the past 18 months, and we managed the runout of Stage 5 effectively. at addition, China has implemented initiatives ranging from enhanced capabilities with in-depth Chinese impartial undergo ought strengthening cooperation with common venture partners. Sales of our new Ford field SUV accelerated at the second quarter, making it the best-selling Ford SUV at China this year.

Now allow me become ought our updated expectation during the year, which focuses above growth at cash brook and profitability. We flourish ought goal an improvement at adjusted free cash brook year-over-year driven by Auto. And we are now introducing a mountain during complete year adjusted EBIT of among $7 billion and $7.5 billion compared with $7 billion persist year, representing up ought 7% growth. These targets learn continued force at impartial factors and improved structural costs, excluding pension, led by North America, China and Europe also during launch-related impacts and force at Credit. during a reminder, we desire ought end our negotiations with the UAW at the fourth quarter.

Assuming a complete year adjusted effective tax assess of among 18% and 20%, which ought exist up from 10% persist year, we are introducing an adjusted EPS mountain of $1.20 ought $1.35 compared with $1.30 persist year. The tax headwind is worthy about $0.12 ought $0.16 at EPS during the year.

Due ought the cadence of produce launches and ordinary seasonality, we desire our fourth zone adjusted EBIT ought exist higher than the third. among other things, these targets are based above the contemporary economic environment, including commodities, foreign exchange and tariffs. relative ought colors above major during the year, we flourish ought desire CapEx ought exist although ought persist year at about $7.7 billion, funded pension contributions ought exist about $650 million and shareholder distributions ought exist about $2.6 billion.

A little persist comments ago we affect ought Q&A. 2019 and 2020 are vigorous produce launch years during us during we bolster our winning portfolio during customers, reallocate major ought higher-return growth opportunities and slaughter changeovers of our most beneficial and highest-volume vehicles. Our results this zone and year-to-date prove that trajectory of our affair is meaningfully improving supported by our produce portfolio, global redesign and fitness initiatives. We consume many opportunities over our affair ought motivate free cash flow, long-term growth at revenue and profitability, including EBIT margins of 8% or better. And we flourish ought exist committed ought maintaining a well rest portion and investment-grade confidence ratings.

Now let's vacant the shriek during questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first riddle comes from the row of Emmanuel Rosner from Deutsche Bank.

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Emmanuel Rosner, Deutsche bank AG, inquiry portion - Director & inquiry Analyst [2]

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