“This resiliency positions Pro to benefit from second half volume recovery.”

In context

“Sherry House (Chief Financial Officer): Thank you, Jim, and hello, everyone. Our second quarter results demonstrate our resiliency and intentional actions to drive profitability in a complex macroeconomic and industry environment. We generated $48.3 billion in revenue, down 4% year over year while earning $2.5 billion in adjusted EBIT, up 17%. Revenue was impacted due to expected volume reduction stemming from lower Novelis aluminum supply and the sunsetting of certain vehicles as we refresh our portfolio. Consistent with our deliberate actions to enhance profitability, this quarter's EBIT strength was largely a result of strong mix and net pricing. We generated $2.1 billion in company adjusted free cash flow and ended the quarter with a strong balance sheet, including $22.3 billion in cash and $43.4 billion in total liquidity. We remain committed to our investment grade rating and returning capital to shareholders. In fact, over the last five years, we have returned more than $16 billion through dividends and anti-dilutive share repurchases. And today, we announced a third quarter regular dividend of $0.15 per share. Before unpacking the segment results, I want to address our $1.3 billion net loss in the quarter. As we announced in December 2025, we recognized a one-time special item charge of $3.6 billion, of which approximately $500 million was cash. This charge was related to the May disposition of the BlueOval SK Battery joint venture. We expect the vast majority of the remaining cash charges related to our December announcement, which total up to $2 billion, to be completed by the end of the year. Operationally, we are successfully navigating the Novelis aluminum supply recovery plan and we remain confident in our net $1 billion EBIT improvement, heavily weighted to the second half of the year. Year to date, we have incurred about $800 million in Novelis-related temporary costs and now expect a full year cost impact of about $1.5 billion. The hot mill restart is on track, and contingency material is secured. U.S. inventory of 52 retail days' supply is slightly below our target of 55 to 65 days, and we expect to return to targeted levels as the recovery progresses. Turning now to the core automotive highlights: Ford Blue delivered $1.1 billion in EBIT on revenue of $26.1 billion. Our revenue and EBIT were up 17% and 2%, respectively, reflecting favorable product mix enabled by U.S. regulatory changes and higher net pricing more than offsetting an 8% decline in wholesales. These results demonstrated that our focus on off-road vehicles and passion products is resonating. We had record sales for the Bronco family in Q2, and our three-row adventure utilities are growing, with Explorer and Expedition retail sales up 22% in the quarter. F-150 remained strong while inventories recover, with disciplined go-to-market execution in Q2 that included the highest retail share, lowest incentive spend, and highest share of revenue, with sales focused through our most profitable channels. Ford Pro delivered a solid quarter despite significant headwinds, delivering $1.7 billion of EBIT and $17.8 billion of revenue, down 26% and 5% respectively, primarily due to the temporary Novelis disruption. We continue to see growth in software and physical services highlighting the durability of our ecosystem strategy even in periods of disruption. This resiliency positions Pro to benefit from second half volume recovery. We are confident in the pricing power of our Pro business and although early, 2027 model year customer contracting in North America is off to a fast start, placing us about a month ahead of where we were last year. For Model e, we reported an EBIT loss of $919 million on revenue of $1 billion, reflecting a 31% EBIT improvement on declining revenue. This was our third consecutive quarter of year-over-year EBIT improvement. Progress was driven by structural cost reductions, right-sized Gen 1 volumes, and lower U.S. incentives following regulatory relaxation. We continue to prioritize profitability and capital efficiency on our path to breakeven. As such, we expect to improve Gen 1 EBIT by approximately 40% year over year in 2026, paving the way for our investments in UEV and Ford Energy. Our software and physical services keep getting stronger. Total paid subscriptions grew about 50% to roughly 1.6 million, including more than 900 thousand Ford Pro Intelligence paid subscriptions. Customers are actively choosing to pay for these services beyond an included trial, a direct signal of value. We have also seen positive net pricing in our parts business, in line with the industry. These services carry attractive margins and create recurring customer relationships. Ford Credit delivered another solid quarter with EBT of $757 million, up $112 million. These results reflect our strong financing margin, our high-quality portfolio, and our disciplined approach to capital and risk management. We remain confident in the quality of our portfolio and our ability to continue supporting the market shift toward longer-term financing options for customers. We also continue to execute on our multiyear certified pre-owned enterprise strategy which ultimately protects our residual values. According to third-party data, our year to date CPO unit sales growth in the U.S. is over 20%, now positioning us as the No. 2 CPO brand in the market. Now I will turn to our 2026 outlook. For the full year, we now expect company adjusted EBIT of $10 billion to $11 billion, narrowing the range and increasing the midpoint by $1 billion. This is driven by strong pricing and mix. An increase in adjusted free cash flow to $6 billion to $7 billion now includes flow-through of this higher EBIT and our expectation to receive in 2026 about $500 million of the $1.3 billion reimbursement we booked in Q1. Capital expenditures remain unchanged at $9.5 billion to $10.5 billion as we invest in higher-return growth opportunities. Our guidance does not include potential impacts of a significant escalation in the Middle East or a material downturn in the U.S. economy, which could have a substantial impact on industry demand. For our full year segment outlook, we now expect an increase in Ford Blue's EBIT range to $5 billion to $5.5 billion, a narrowing of Ford Pro's EBIT range to $7 billion to $7.5 billion, an improvement in Model e losses to about $4 billion. This includes about $1 billion in incremental investment for UEV and Ford Energy mostly weighted towards the second half of the year. And for Ford Credit, EBT is now expected to be above $2.5 billion. Our guidance continues to assume a U.S. SAR of 16 million to 16.5 million units, commodity headwinds of just above $2 billion, and we remain on track to deliver $1 billion in material and warranty cost reductions in 2026, enabling our increased investments in UEV and Ford Energy. For U.S. industry pricing, we now expect full year to be about a half a point higher at plus 50 basis points. The accomplishments this quarter reinforce our trajectory. The investments we are making in our truck lineup, UEV platform, Ford Energy, and high-margin services will bolster our margins over time, keeping us firmly on the path to our 8% EBIT margin target by 2029. With that, let's open the line for your questions.”