CNH Industrial reports Q1 net earnings of US$101M, down 50% from year-ago period as revenues fall 0.1% to US$7.54B
BASILDON, United Kingdom
May 8, 2014
– FINANCIAL RESULTS UNDER U.S. GAAP(*) (**)
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First quarter revenues totaled $7.5 billion, in line with Q1 2013. Net sales of Industrial Activities at $7.2 billion decreased 0.6% vs Q1 2013 (+1.3% on a constant currency basis).
Operating profit of Industrial Activities for the quarter was $412 million, down 2.1% against Q1 2013, with operating margin at 5.7%.
Net income was $101 million, or $0.07 per share. Net income before restructuring and other exceptional items was $177 million, or $0.13 per share, down $8 million against Q1 2013.
Net industrial debt was $4.0 billion at March 31, 2014 ($2.2 billion at December 31, 2013). Available liquidity totaled $8.1 billion ($8.7 billion at December 31, 2013), after the issuance of a €1 billion bond, due March 2019, with an annual fixed rate of 2.75%.
CNH Industrial is releasing today its 2014-2018 Business Plan.
(*) Beginning with the filing with the U.S. Securities and Exchange Commission ("SEC") of its annual report on Form 20-F for the fiscal year ended December 31, 2013, prepared in accordance with U.S. GAAP, CNH Industrial reports quarterly and annual financial results both under U.S. GAAP for SEC reporting purposes and under IFRS for European listing purposes and Dutch law requirements. Financial statements under both sets of accounting principles use U.S. dollar as the reporting currency. In addition, as disclosed in the Form 20-F, CNH Industrial has expanded its reportable segments from three (Agricultural and Construction Equipment inclusive of its financial services activities, Trucks and Commercial Vehicles inclusive of its financial services activities, and Powertrain) to five (Agricultural Equipment, Construction Equipment, Commercial Vehicles, Powertrain and Financial Services). The following tables and comments on the financial results of the Company and by segments are prepared in accordance with U.S. GAAP. Financial results under IFRS are shown in a subsequent section of this press release; prior period results under IFRS, prepared in euro, have been consistently recast into U.S. dollars. A summary outlining the Company's transition to U.S. GAAP and U.S. dollar as the reporting currency is available on the Company's website, www.cnhindustrial.com.
(**) Refer to the Non-GAAP Financial Information section of this press release for information regarding Non-GAAP financial measures.
CNH Industrial N.V. (NYSE: CNHI / MI:CNHI) today announced consolidated revenues of $7,540 million for the first quarter 2014, in line with Q1 2013. Net sales of Industrial Activities were $7,213 million in Q1 2014, a 0.6% decrease compared to the prior year (+1.3% on a constant currency basis). Net of a 1.9% negative impact of currency translation, net sales increased in Construction Equipment and Powertrain, offsetting reduced net sales for Agricultural Equipment, primarily in LATAM. Net sales for Commercial Vehicles were substantially flat compared to Q1 2013.
Operating profit of Industrial Activities was $412 million in Q1 2014, a 2.1% decrease compared to Q1 2013 (+3.3% on a constant currency basis) with an operating margin for the first quarter of 5.7%. Operating profit increases in Construction Equipment and Powertrain, together with margin improvements in Agricultural Equipment, were more than offset by the negative effects of challenging operating conditions in LATAM affecting Commercial Vehicles mainly due to a significant decline in demand in Brazil and in manufacturing activities in Venezuela, as well as by a 5.3% negative currency translation impact.
Interest expense, net totaled $141 million for the quarter, $29 million higher than Q1 2013 primarily due to an increase in average net industrial debt, mainly due to working capital build-up to support expected increase in seasonal activity in Q2.
Other, net was a charge of $94 million for the quarter ($97 million for Q1 2013). In Q1 2014 Other, net included a pre-tax charge of $64 million due to the re-measurement of Venezuelan assets denominated in Bolivares following the changes in Venezuela's exchange rate mechanism. In Q1 2013, Other, net included a pre-tax charge of $41 million related to the dissolution of the Financial Services joint venture with the Barclays group.
Income taxes totaled $143 million, representing an effective tax rate of 65.3% for the quarter. The significant increase over the 52.3% Q1 2013 effective tax rate is mainly due to the exceptional pre-tax charge relating to the re-measurement of Venezuelan assets, for which no corresponding tax impact has been book benefited. Excluding this item, the effective tax rate for the quarter was 50.5%, higher than the Company's 2014 forecast range of 40% to 44% due to not book benefiting losses in certain jurisdictions.
Equity in income of unconsolidated subsidiaries and affiliates totaled $25 million for the quarter, in line with Q1 2013.
Net income of Financial Services was $86 million for the quarter ($59 million for Q1 2013). Q1 2013 was affected by the negative impact of $25 million, net of taxes, related to the dissolution of the joint venture with Barclays group.
Consolidated net income was $101 million for the quarter ($151 million for Q1 2013), or $0.07 per share ($0.09 for Q1 2013). Net income before restructuring and other exceptional items was $177 million for the quarter ($185 million in Q1 2013).
Net industrial debt of $4.0 billion at March 31, 2014 was $1.8 billion higher than at December 31, 2013. Net industrial cash flow absorption reflected the expected seasonal increase in working capital (mainly in Agricultural Equipment after de-stocking in Q4 2013).
Available liquidity of $8.1 billion, inclusive of $2.3 billion in undrawn committed facilities, decreased $0.6 billion during the first quarter mainly due to the anticipated seasonal increase in working capital, partially offset by a €1 billion bond ($1.4 billion equivalent) issued in March 2014 by CNH Industrial Finance Europe S.A., a wholly-owned subsidiary of CNH Industrial N.V. The notes were issued under the Global Medium Term Note Programme guaranteed by CNH Industrial N.V. at an annual fixed rate of 2.75% and are due March 2019.
2014-2018 Business Plan and 2014 US GAAP Guidance
CNH Industrial is setting its 2014 U.S. GAAP guidance consistent with the 5-year plan financial projections that will be presented at today's Investor Day.
Net sales for Agricultural Equipment were $3,706 million for the quarter, down 6.0% from Q1 2013 (-3.9% on a constant currency basis), mainly as a result of decreased volumes primarily in LATAM and APAC and less favourable product mix. The geographic distribution of net sales for the period was 48% NAFTA, 31% EMEA, 11% LATAM and 10% APAC.
Worldwide Agricultural Equipment market share was lower for tractors and combines, mainly due to the expected timing impact from the transition to Tier 4B final emission regulations in major markets.
The Company's worldwide production of Agricultural Equipment was 27% above retail sales for the quarter, consistent with past years as the Company increases inventory in the first quarter in anticipation of the spring and summer selling seasons.
Agricultural Equipment operating profit was $464 million for the quarter ($468 million in Q1 2013). Operating margin was 0.6 p.p. higher at 12.5%, with net price realization and improved industrial performance offsetting negative volume and mix.
Net sales for Construction Equipment were $774 million for the quarter, up 2.7% (+8.1% on a constant currency basis), as industry unit demand increased in every region except LATAM, with light equipment up 6% and heavy up 9% worldwide. The geographic distribution of net sales for the period was 38% NAFTA, 20% EMEA, 31% LATAM and 11% APAC.
Worldwide Construction Equipment share was largely unchanged for the period.
Worldwide Construction Equipment production levels were 5% above retail sales, in line with the recovery in most major markets except for LATAM.
Construction Equipment reported operating profit of $3 million compared to a $26 million loss for Q1 2013, as a result of favorable volume and mix mainly in heavy equipment, as well as positive price realization and positive contribution from containment actions on structural costs.
On April 28, 2014, the Company announced that it intends to enter into a new licensing agreement with Sumitomo (S.H.I.) Construction Machinery Co. Ltd., a wholly owned subsidiary of Sumitomo Heavy Industries, Ltd. Under this new technology license and component supply agreement, CNH Industrial will manufacture Sumitomo designed crawler excavators (models ranging from 13 to 35 tonnes) at designated plants within its manufacturing network. Start of production of the new localized models is planned for mid-2016. This agreement also extends the existing Global Product Supply agreement between CNH Industrial and Sumitomo (S.H.I.) Construction Machinery for the sourcing of excavators manufactured in Sumitomo plants. Since 1992, Sumitomo has been a supplier to the CNH Industrial global distribution network of excavators ranging from 7 to 80 tonnes. This next step will further strengthen the partnership between the two companies.
Commercial Vehicles posted first quarter net sales of $2,308 million, down 0.6% from the prior year (+0.3% on a constant currency basis), as positive performance in truck and bus in EMEA and APAC was offset by a significant decline in demand in Brazil, in manufacturing activities in Venezuela and by unfavorable calendarization of activity in parts and specialty vehicles.
A total of 27,752 vehicles (including buses and specialty vehicles) were delivered, representing a 2% increase over Q1 2013. Volumes were higher in the light (+6.1%) and the heavy (+3.7%) vehicle segments, while in the medium segment volumes were down 6.5%. Commercial Vehicles deliveries increased 9% in EMEA and 24% in APAC, while LATAM was down 28%.
The European truck market (GVW ≥3.5 tons) was up 8.1% over Q1 2013 to approximately 156,100 units. Light vehicles (GVW 3.5-6 tons) increased 7.8%, while medium vehicles (GVW 6.1-15.9 tons) posted a decline of 6.9%; the heavy vehicles market (GVW >16 tons) increased 12.3% mainly due to the end of Euro V registrations allowed in 2014 in almost all countries. With the completion of the Euro V registrations, we expect heavy vehicle market growth to slow.
The Company's first quarter share of the European truck market (GVW ≥3.5 tons) was estimated flat at 11.3%, despite a negative market mix. In the light vehicle market, share declined by 0.6 p.p. to 10.7% largely as a result of the phase out in anticipation of the launch of the new Daily which is scheduled to begin shipments in June. In the medium vehicles market the Company achieved market leadership in Europe, with an increase of 3.8 p.p. up to a share of 31.5%. The heavy vehicle market share was up to 8.2%, with a growth of 1.0 p.p.
In LATAM, new truck registrations (GVW ≥3.5 tons) were down 11.6% compared with Q1 2013 to 43,500 units. The market decline affected all ranges and was due to the negative cycle affecting the medium and heavy market in Brazil and the instability in Venezuela. Argentina was the only market with a positive trend (+2.0%).
The Company's share of the LATAM market (GVW ≥3.5 tons) was up 1.7 p.p. over Q1 2013 to 11.9%.
In APAC registrations were down 2.2%, while market share increased 0.4 p.p. compared with Q1 2013.
In EMEA, dealer inventories of new vehicles remained stable compared to year-end 2013, representing coverage of approximately 3 months of expected activity.
Commercial Vehicles closed the first quarter with an operating loss of $70 million compared with a loss of $28 million for Q1 2013, as a result of negative market mix related to a significant slowdown of activity in LATAM affecting volume and manufacturing operations, and transitional costs with the launch of the new Daily and Euro VI bus product line-up. In addition, price realization under-recovered negative foreign exchange impacts in emerging market currencies (mainly in Brazil, Turkey and Russia). EMEA performance in truck and bus was flat compared with Q1 2013, notwithstanding a slow Q1 2014 after the strong finish last year due to the pre-buy in advance of Euro VI introduction.
In April 2014, Commercial Vehicles announced it was temporarily suspending its manufacturing operations in Venezuela, effectively immediately, due to the continuing currency crisis which has caused difficulties for Venezuelan industry in the importation of key components and materials.
Powertrain reported first quarter net sales of $1,201 million, an increase of 23.3% over Q1 2013 (+19.7% on a constant currency basis) primarily attributable to higher volumes. Sales to external customers accounted for 37% of total net sales (31% in the same period in 2013).
During the quarter, Powertrain sold a total of 157,370 engines, an increase of 28% year-over-year. By major customer, 27% of engines were supplied to Agricultural Equipment, 25% to Commercial Vehicles, 4% to Construction Equipment and the remaining 44% to external customers. Additionally, Powertrain delivered 17,276 transmissions and 40,136 axles, an increase of 10% and 6%, respectively, over the same period in 2013.
Powertrain closed the first quarter with an operating profit of $34 million, up $20 million from the same period in 2013, with an operating margin of 2.8% (1.4% for Q1 2013). The improvement was mainly due to the increase in volumes and related industrial efficiencies.
Financial Services reported first quarter revenues of $440 million, an increase of 5.5% compared to Q1 2013, primarily driven by the increase in the average value of the portfolio.
Financial Services reported net income of $86 million, up $27 million over the same period in 2013, mainly driven by a higher average portfolio value offset by SG&A increases associated with new activities launched in EMEA and LATAM to support Commercial Vehicles. Further, Q1 2013 results were negatively affected by the dissolution cost, net of taxes, of $25 million related to the joint venture with the Barclays group.
Retail loan originations in the quarter were $2.3 billion, down $156 million compared to Q1 2013, due mostly to the decline in Agricultural Equipment sales. The managed portfolio (including joint ventures) of $27.8 billion (of which Retail was 65% and Wholesale 35%) was up $0.9 billion compared to December 31, 2013 (of which Retail was up $0.6 billion and Wholesale was up $0.3 billion).
FINANCIAL RESULTS UNDER IFRS (*)
(*) Refer to the Non-GAAP Financial Information section of this press release for information regarding Non-GAAP financial measures. Prior period results prepared in euro have been consistently recast into U.S. dollar.
On an IFRS basis, CNH Industrial posted revenues of $7,644 million for the first quarter 2014, a decrease of 0.2% from the same quarter in 2013 (+1.7% on a constant currency basis).
Consolidated trading profit was $510 million for the first quarter, down $28 million or -5.2% from Q1 2013 (-1.1% on a constant currency basis). Trading margin for the first quarter decreased 0.3 p.p. to 6.7%. Agricultural Equipment trading profit was $442 million ($446 million in Q1 2013), with a trading margin of 11.9% (11.3% in Q1 2013). Construction Equipment reported a trading profit of $1 million ($28 million loss in Q1 2013). Commercial Vehicles closed the first quarter with a trading loss of $74 million (trading loss of $23 million for Q1 2013). Powertrain closed the first quarter with a trading profit of $30 million, compared with $15 million for the same period in 2013, with a trading margin of 2.5% (1.5% for Q1 2013). Financial Services reported a trading profit of $130 million, down $5 million over the same period in 2013.
Profit before taxes totaled $291 million ($364 million for Q1 2013), down $73 million mainly reflecting the $28 million reduction in trading profit, as well as higher net financial expense which totaled $215 million for the quarter (inclusive of the $64 million pre-tax charge for the re-measurement of Venezuelan assets), compared with $149 million for the same period in 2013: excluding this exceptional charge, net financial expenses totaled $151 million, in line with Q1 2013, as increased financial expenses deriving from higher average net industrial debt were offset by lower foreign exchange losses. Result from investments totaled $26 million, in line with Q1 2013.
Income taxes for the first quarter totaled $145 million ($138 million for Q1 2013), representing an effective tax rate of 49.8% for the quarter. The significant increase over the 37.9% Q1 2013 effective tax rate is mainly due to the exceptional charge relating to Venezuela, for which no corresponding tax impact can be recorded. Excluding this item, the effective tax rate was 40.8%, higher than the Company's 2014 forecast range of 36% to 40% due to not book benefiting losses in certain jurisdictions.
Consolidated net profit was $146 million, or $0.11 per share, compared with $226 million, or $0.15 per share for Q1 2013.
Net industrial debt of $4.0 billion at March 31, 2014 was $1.8 billion higher than at December 31, 2013, the same as under US GAAP.
Revenues and Trading profit/(loss) by Segment under IFRS – 1st Quarter
Case IH launched the True-Tandem 335 vertical tillage (VT) unit at the Commodity Classic trade show in San Antonio, Texas. The new product builds on the heritage of the industry-leading True-Tandem 330 Turbo with added features designed to allow the user more operational control, as well as to reduce maintenance.
Case IH received three AE50 awards from the American Society of Agricultural and Biological Engineers (ASABE). The awards annually recognize the top 50 most innovative new agricultural products introduced during the past year. Products receiving awards were the Case IH 4412F folding corn head, the Axial-Flow 230 Series Combines Grain Handling System Capacity, and the new Steiger Rowtrac.
Four models of Case IH Puma tractors were launched in LATAM at the Coopavel trade show in Brazil. The four mid-range models offer an excellent balance of size and weight for efficient work and versatility in various conditions for heavier applications.
Case IH previewed a new product category in the UK at the LAMMA trade show in January with the introduction of the Case IH Farmlift range of telescopic loaders. Combining compact dimensions, powerful engines and hydraulics with multi-functional capabilities, the six brand new Farmlift models range from the agile Farmlift 525, designed especially for use in low buildings and livestock housing, to the powerful Farmlift 935, which handles high and heavy lifting work with ease. The Farmlift range also appeared at last year's Agritechnica trade show in Hanover, Germany and the range will officially launch early in the second quarter of 2014.
At the 50th annual FIMA Agricola fair which took place in Zaragoza, Spain, Case IH received a Technical Innovation award for the pivoting grain spout on the Axial-Flow® combine. The unloading system on the Axial-Flow® combines has been specially designed to optimize and facilitate unloading operations.
At Agrotech in Poland, the Farmall U Pro series was awarded the Gold Medal of Kielce Trade Fair in recognition of its application of modern design and ergonomic solutions.
New Holland Agriculture
New Holland had a successful start to 2014 with three FIMA Innovation awards at the Zaragoza show in Spain for the Opti-Grape™ technology on the Braud 9000 grapeharvester range, the Opti-Speed™ variable speed strawwalker technology on the CX7000 and CX8000 Elevation combine range and the SmartTrax™ rubber tracks on the TK4000 tractor series.
The American Society for Agricultural and Biological Engineers (ASABE) awarded six prestigious AE50 awards to the ECOBlue™ HI-eSCR technology, the Roll-Belt™ 560 round baler, the Discbine® center-pivot disc mower-conditioners, the Speedrower® self-propelled windrower, the Opti-SpeedTM variable strawwalker speed technology and the SmartTraxTM system with TerraglideTM suspension.
In NAFTA, New Holland introduced the BoomerTM Series compact tractors compliant with Tier 4B emissions standards and the upgraded T4.75 PowerStarTM tractor series, the first in North America to feature PM Catalyst (Particulate Matter Catalyst) technology which meets Tier 4B emissions standards. It also benefits from Common Rail technology for lower fuel consumption and improved operating productivity and efficiency.
The Company's Basildon UK plant is celebrating half a century of continuous tractor manufacturing. This important milestone has been commemorated with the production of Golden Jubilee limited editions of the T7.270 Auto CommandTM and T6.160 Auto CommandTM tractors.
In LATAM at the Expodireto show, New Holland launched six new models of the T7 tractor series, available with mechanical and semi powershift transmissions; the T7.205 and the TL 75 tractors were named the "Tractor of the Year" in their categories.
In Australia and New Zealand, New Holland launched the all-new T5 Electro Command tractor, Roll-Belt™ variable chamber round baler and new DiscBine mower conditioners for large livestock operations, cooperatives, straw, hay and forage contractors. The new T5 Electro Command tractor features a 4 speed powershift transmission and provides maximum versatility to the livestock and dairy customer.
In NAFTA, Case Construction Equipment previewed new Tier 4 final wheel loaders at ConExpo in March. Each new wheel loader delivers best-in-class horsepower with a 6.7-liter SCR engine that also provides quick throttle response and impressive torque. The new models provide up to a 10% increase in fuel economy over the previous E Series. The brand also previewed the new F Series line of compact wheel loader models, completely redesigned to provide improved maneuverability, versatility and performance and equipped with Tier 4 final engines. Additionally at ConExpo, Case previewed the new Tier 4 interim DV209 and DV210 high frequency asphalt compactor models. They represent the addition of two new models to Case's high frequency double-drum range, giving road builders more control and versatility to dial compaction performance to match the thickness and required density.
In China, the Case CX220 crawler excavator was named among the "Top 50" products by Construction Machinery & Maintenance, the most authoritative equipment magazine in the country.
In India, at its facility in Pithampur, Case launched the 851 EX, the most powerful backhoe loader in India. This model completes the new "EX" Series, entirely developed in India, that comprises three models (the 770 EX, 770 EX Magnum and 851 EX) ranging from 76 to 96 hp.
New Holland Construction
New Holland Construction presented an upgraded skid steer and compact track loader range compliant with Tier 4 standards. All models equipped with Powertrain 90 hp engines comply with Tier 4 interim emission requirements by using High Pressure Common Rail (HPCR) technology. The new models benefit from increased productivity, improved fuel efficiency, increased up-time through best-in-class serviceability and better operator comfort.
New Holland launched the 12D wheel loader in LATAM, focused on the heavy civil construction and rental segments. Six 12D machines are currently available within the test and certification program, and are being used by 12 large contractors in Brazil.
In LATAM, New Holland held "Yellow Day" events with crawler excavators, dozers and wheel loaders, offering the possibility to test the equipment and train Brazilian vendors.
In EMEA, Iveco followed the introduction of the Euro VI diesel Stralis with HI-eSCR (High Efficiency SCR) technology with the new Euro VI LNG (liquid natural gas) and CNG (compressed natural gas) Stralis Natural Power in markets across Europe. This medium-to-long range vehicle, which has a range of 750 km, is eco-friendly and cost effective to operate.
In LATAM, in March Commercial Vehicles recorded a major milestone with production of the 300,000th vehicle – a Stralis Hi-Way – at the Sete Lagoas plant in Brazil.
In APAC, in March Naveco, the Commercial Vehicles JV in China, launched the new wide cab C500 version of the Chaoyue, completing the light truck range, which also includes the narrow cab C100 and the medium cab C300 presented in 2013.
In January, Hongyan, a brand of the joint venture SIH (SAIC Iveco Hongyan Commercial Vehicles), received the "Most Satisfying CV Brand 2013 in China" award, which was presented by Commercial Motor World magazine in collaboration with 26 colleges and universities in China.
On the sponsorship front, Iveco renewed its partnership with MotoGP, the premier motorcycle racing world championship, and Dorna Sports, the championship's organizer, as official Truck and Commercial Vehicle Supplier.
Iveco is also Technical Sponsor of the new Sky Racing Team VR46, which is competing on a KTM in the current Moto3 World Championship.
Finally, Iveco demonstrated the performance and reliability of its trucks once again during Dakar 2014, placing second overall with all four vehicles crossing the finish line in Valparaiso.
During the first quarter, Powertrain began production of the Euro VI F1C engine for the new Iveco Daily at the Foggia plant in Italy.
At the SFH (SAIC Fiat Powertrain Hongyan) plant in China, production began on the Tier 4B Cursor 9 for Agricultural Equipment's CCH (Cash Crop High) tractors.
At the Bourbon-Lancy plant in France production was started on the Euro VI CNG Cursor 8 engine for the Iveco Stralis.
At Middle East Electricity 2014, held in Dubai in February, Powertrain presented its new range of gensets and G-Drives based on the Cursor series engines, which expand its offer of not emissionized products up to 500 kVA.
At ConExpo, held in Las Vegas in March, Powertrain launched the new R22 engine designed for construction machinery, together with its new range of latest generation engines.
Powertrain also presented its new range of HI-eSCR after-treatment systems, which are extremely flexible in terms of installation.
About CNH Industrial
CNH Industrial N.V. is a global leader in the capital goods sector that, through its various businesses, designs, produces and sells agricultural and construction equipment, trucks, commercial vehicles, buses and specialty vehicles, in addition to a broad portfolio of powertrain applications. Present in all major markets worldwide, CNH Industrial is focused on expanding its presence in high growth markets, including through new joint ventures. Further information on CNH Industrial and its businesses is available on the corporate website www.cnhindustrial.com.
Industry Intelligence Editor's Note: This press release omits select charts and/or marketing language for editorial clarity. Click here to view the full report.