CNH Industrial N.V. has announced consolidated revenues of $5,960 million for the first quarter 2015, a decrease of 11.1% compared to Q1 2014 on a constant currency basis (down 21.0% on a reported basis). Net sales of Industrial Activities were $5,625 million in Q1 2015, down 11.9% compared to Q1 2014 on a constant currency basis (down 22.0% on a reported basis). Net of the negative impact of currency translation, net sales increased for Commercial Vehicles (+5.6%), mainly driven by positive volume and mix in EMEA offsetting challenging trading conditions in LATAM. This increase was more than offset by the forecasted decline in Agricultural Equipment, due to unfavorable industry volume and mix in all regions primarily in the row crop sector of the business, in Construction Equipment, due to negative volume and mix primarily in LATAM, and in Powertrain, due to lower sales to captive customers.
Operating profit of Industrial Activities was $223 million in Q1 2015, a 39.4% decrease compared to Q1 2014 on a constant currency basis (down 45.9% on a reported basis), with an operating margin at 4.0% (5.7% for Q1 2014). Operating profit declined in Agricultural Equipment, driven by negative volume and mix including negative industrial absorption as a result of forecasted inventory balancing measures, partially offset by positive net price realization, purchasing efficiencies and positive contribution from structural cost reductions. Commercial Vehicles' operating result improved due to favorable volume and mix and cost reductions in selling, general and administrative (SG&A) expenses. Powertrain operating profit improved mainly due to positive product mix, industrial efficiencies and SG&A expense reduction. Construction Equipment reported breakeven operating profit, substantially flat compared to Q1 2014, as unfavorable volume and mix, mainly in heavy equipment in LATAM, were offset by structural cost containment actions implemented last year.
Restructuring expenses totaled $12 million for the first quarter, in line with Q1 2014, and mainly relate to actions in Agricultural Equipment and Commercial Vehicles as per the company's Efficiency Program launched in 2014.
Interest expense, net totaled $106 million for the quarter, a decrease of $35 million compared to Q1 2014, primarily due to lower cost of funding.
Other, net was a charge of $75 million for the quarter (charge of $94 million for Q1 2014) and mainly includes foreign exchange losses. In Q1 2014, Other, net included a pre-tax charge of $64 million due to the re-measurement of Venezuelan assets denominated in Bolivars following the changes in Venezuela's exchange rate mechanism.
Income taxes totaled $77 million, representing an effective tax rate of 84.6% for Q1 2015 (65.3% in Q1 2014). This tax rate for the quarter is mainly due to not recording deferred tax assets on losses in certain jurisdictions. For the full year 2015, the company expects an effective tax rate within a 40 to 43% range.
Equity in income of unconsolidated subsidiaries and affiliates totaled $9 million for the quarter compared to $25 million recorded in Q1 2014. The decrease was due to lower results of joint ventures in APAC.
Net income of Financial Services was $85 million for the quarter, in line with Q1 2014.
Consolidated net income was $23 million for the quarter ($101 million for Q1 2014), or $0.02 per share ($0.07 per share for Q1 2014). Net income before restructuring and other exceptional items (a non-GAAP measure) was $33 million for the quarter ($177 million in Q1 2014), or $0.02 per share ($0.13 per share in Q1 2014).
Net industrial debt of $3.1 billion at March 31, 2015 was $0.4 billion higher than at December 31, 2014. Compared to Q1 2014, net industrial cash flow has improved by $0.8 billion, due to lower seasonal increase in net-working capital and a 38% reduction in capital expenditure.
Available liquidity at March 31, 2015 was $7.2 billion ($8.9 billion at December 31, 2014), inclusive of$2.7 billion in undrawn committed facilities ($2.7 billion at December 31, 2014).
Agricultural Equipment registered net sales of $2,577 million for the quarter, down 23.9% compared to Q1 2014 on a constant currency basis (down 30.5% on a reported basis), as a result of unfavorable industry volume and mix in all regions primarily in the row crop sector. The geographic distribution of net sales for the period was 45% NAFTA, 32% EMEA, 12% LATAM and 11% APAC.
Worldwide agricultural equipment industry unit sales were down 14% for tractors and down 26% for combines. In key product segments within NAFTA, the over 140 hp tractor segment was down 26%, and combine demand was down 44%. Smaller horsepower tractors in NAFTA were slightly positive, with the under 40 hp segment up 2%, and the 40 to 140 hp segment up 4%. In LATAM, tractor and combine markets decreased 10% and 35%, respectively. EMEA markets were down 14% for tractors and 8% for combines. APAC markets decreased 17% for tractors and 19% for combines.
Agricultural Equipment's worldwide market share performance was up for both tractors and combines. For tractors, market share was down in LATAM as a result of destocking, and up or flat in all other regions. For combines, market share was down in APAC, but increased in all other regions.
In Q1 2015, Agricultural Equipment's worldwide unit production was 4% above retail sales in support of the expected seasonal increase in demand from dairy and livestock customers. In row crop related products comparable production units were cut significantly with production for worldwide combine and high horsepower tractors in NAFTA down 40% versus last year as part of the company's efforts to balance inventory with forecasted demand.
Agricultural Equipment's operating profit was $204 million for the quarter ($464 million in Q1 2014). Operating margin decreased 4.6 p.p. to 7.9% (12.5% in Q1 2014), driven by negative volume and mix including negative industrial absorption, with production hours declining nearly 40% in NAFTA and LATAM, partially offset by net positive price realization, purchasing efficiencies and a positive contribution from structural cost reductions.
Construction Equipment registered net sales of $602 million for the quarter, down 16.9% compared with Q1 2014 on a constant currency basis (down 22.2% on a reported basis), due to negative volume and mix primarily in LATAM. The geographic distribution of net sales for the period was 53% NAFTA, 21% EMEA, 17% LATAM and 9% APAC.
In Q1 2015, Construction Equipment's worldwide heavy and light industry sales were down 19% and 4%, respectively. Industry heavy and light equipment sales were up in NAFTA and EMEA, but down in LATAM and APAC. Construction Equipment's worldwide market share was mainly in line with prior year for heavy and light construction equipment in all regions except for LATAM, where municipality-driven demand declined significantly.
Construction Equipment's worldwide production levels were 36% above retail sales, in support of the seasonal increase expected in NAFTA and EMEA.
Construction Equipment reported breakeven operating profit compared to $3 million gain for Q1 2014, as improved profits in NAFTA and EMEA and a reduction of structural costs were able to offset the negative effects of the challenging trading conditions in LATAM.
Commercial Vehicles posted first quarter net sales of $2,037 million, up 5.6% compared to Q1 2014 on a constant currency basis (down 11.7% on a reported basis) primarily as a result of favorable volume and mix in EMEA. Excluding negative currency translation, net sales increased in EMEA driven by higher volumes for trucks and buses. In LATAM, net sales were slightly down due to lower volumes for trucks, partially offset by favorable performance for buses and specialty vehicles, and positive pricing. In APAC, overall net sales were flat with a decline for trucks, mainly in Russia, offset by increased bus sales. The geographic distribution of net sales for the period was 77% EMEA, 14% LATAM and 9% APAC.
The European truck market was up 12.4% compared with Q1 2014, with light vehicles (GVW 3.5 to 6.0 tons) and heavy vehicles (GVW >16 tons) increasing while medium vehicles (GVW 6.1 to 15.9 tons) declined. In LATAM, new truck registrations declined 32.5% compared to Q1 2014, affecting all ranges.
In Q1 2015, the company's market share in the European truck market was 10.8%, down 0.4 p.p. compared with Q1 2014. The company's share of the LATAM market was 10.8%, down 1.1 p.p. compared to Q1 2014 as a result of the weighting of the Company's business in Argentina.
A total of 27,458 vehicles (including buses and specialty vehicles) were delivered in the quarter, representing a 1% decrease compared to Q1 2014. Volumes were higher in the light segment (up 4%), while in the medium and heavy segments volumes were down 8% and 10%, respectively. Commercial Vehicles' deliveries increased 9% in EMEA, while LATAM and APAC were down 28% and 35%, respectively.
Commercial Vehicles' ending book-to-bill ratio as of Q1 2015 was 1.40, an increase of 11% over Q1 2014. Q1 2015 order intake in EMEA Trucks increased by 15% compared to Q1 2014, with a 43% increase in Heavy Trucks in Europe.
Commercial Vehicles closed the first quarter with an operating profit of $1 million compared with a loss of $70 million for Q1 2014 (up $68 million on a constant currency basis), as a result of improved volume and mix, and cost reductions in SG&A expenses, primarily as a result of the Efficiency Program. In EMEA, the increase in operating profit is mainly attributable to trucks, as a result of favorable volume and mix, and SG&A cost reductions. LATAM, despite the negative market trend, started to recover relative to 2014. Results in APAC were negatively affected by decreased industry volumes in Russia, Turkey and Australia.
On April 10, 2015, CNH Industrial announced that, in line with the ongoing Efficiency Program launched in 2014, it plans to focus the operations of its Iveco commercial vehicles manufacturing facilities in Madrid and Valladolid, Spain. Under the announced plan, Madrid will be fully dedicated to the assembly of Stralis and Trakker heavy commercial vehicles and Valladolid will be transformed into a center of excellence for heavy commercial vehicles cab production. The transfer of cab operations from Madrid to Valladolid will be executed in two steps beginning mid-2015 and concluding at the end of 2016. In addition, the production of the extra heavy special vehicles and the chassis cab versions of the Iveco Daily light-duty commercial vehicles, currently carried out, respectively, in Madrid and in Valladolid, will be transferred to existing facilities in Italy. The Iveco Astra plant, located in Piacenza, Italy, will assume production of the extra heavy special vehicles from Madrid in the second half of 2015 and the CNH Industrial's facility in Suzzara, Italy, will become the central production hub for the Iveco Daily by the end of 2016.
Powertrain reported first quarter net sales of $901 million, a decrease of 10.3% compared to Q1 2014 on a constant currency basis (down 25.0% on a reported basis) on lower volumes mainly in the captive portion of the business as a result of decreased agricultural equipment demand and the 2014 buildup of Tier 4 Final transition engine inventory for the off-road segment. Sales to external customers accounted for 47% of total net sales (37% in Q1 2014).
During the quarter, Powertrain sold a total of 129,714 engines, a decrease of 17.6% compared to Q1 2014. By major customer, 11% of engines were supplied to Agricultural Equipment, 30% to Commercial Vehicles, 5% to Construction Equipment and the remaining 54% to external customers. Additionally, Powertrain delivered 15,860 transmissions and 41,374 axles, a decrease of 8.2% and an increase 3.1%, respectively, compared to Q1 2014.
Despite the decline in engine volumes, Powertrain closed the first quarter with an operating profit of $36 million, up $2 million from the same period in 2014, with an operating margin of 4.0% (2.8% for Q1 2014). The improvement (up $12 million on a constant currency basis) was mainly due to positive product mix, industrial efficiencies and SG&A expense reduction.
Financial Services reported first quarter revenues of $413 million, an increase of 7.3% compared to Q1 2014 on a constant currency basis (a decrease of 6.1% on a reported basis), primarily due to a larger average portfolio during the quarter, partially offset by a decrease in interest yields.
Net income was $85 million for the first quarter, flat compared to the same period in 2014, as the negative impact of currency translation and lower interest margin were offset by reduced SG&A costs and lower provisions for credit losses. In Q1 2014, SG&A expenses were affected by increased costs associated with new activities launched in EMEA and LATAM to support Commercial Vehicles.
Retail loan originations in the quarter were $2.1 billion, down $0.2 billion compared to Q1 2014, mostly due to the decline in Agricultural Equipment sales. The managed portfolio (including unconsolidated joint ventures) of$25.2 billion as of March 31, 2015 (of which retail was 65% and wholesale 35%) was down $2.1 billion compared to December 31, 2014. Excluding the impact of currency, such portfolio decreased $0.3 billion, primarily in NAFTA (retail).
2015 U.S. GAAP Outlook
Full-year guidance is confirmed reflecting current currency exchange rates; therefore, CNH Industrial is revising its 2015 guidance as follows:
- Net sales of Industrial Activities in the range of $26 to 27 billion, with an operating margin of Industrial Activities between 6.1% and 6.4%;
- Net industrial debt at the end of 2015 between $2.1 billion and $2.3 billion.