CNH Industrial N.V. announces consolidated revenues of $6,948 million for the second quarter of 2017, up 2.9% compared to the second quarter of 2016. Net sales of Industrial Activities were $6,655 million in the second quarter of 2017, up 3.2% compared to the second quarter of 2016. Reported net income was $247 million for the second quarter of 2017 and includes a charge of $17 million ($11 million net of tax impact) related to the early redemption, in June 2017, of all outstanding Case New Holland Industrial Inc. 7⅞% Senior Notes due 2017. Adjusted net income was $266 million for the second quarter, with adjusted diluted EPS of $0.19, up 19% compared to the second quarter of 2016.
Operating profit of Industrial Activities was $481 million for the second quarter of 2017, a $28 million increase compared to the second quarter of 2016, with an operating margin of 7.2%, up 0.2 p.p. compared to the second quarter of 2016.
Income taxes were $113 million in the second quarter of 2017 ($107 million in the second quarter of 2016). Adjusted income taxes(4)(5) for the second quarter of 2017 were $123 million ($107 million in the second quarter of 2016). The adjusted effective tax rate (adjusted ETR)(4)(5) was 34% (36% in the second quarter of 2016).
Net industrial debt was $2.1 billion at June 30, 2017, in line with March 31, 2017, with cash flow generation from industrial operations of more than $400 million in the second quarter, offset by the payment of $161 million in dividends to shareholders in May 2017 and a foreign exchange impact on euro denominated debt. Total debt was $25.5 billion at June 30, 2017, compared to $24.5 billion at March 31, 2017. At June 30, 2017, available liquidity(4)(5) was $8.3 billion, up $0.8 billion compared to March 31, 2017.
During the quarter, the company redeemed all of the outstanding $636 million aggregate principal amount of its 7⅞% Senior Notes due 2017 (the “2017 Notes”). The $17 million one-time charge related to the early redemption of the notes will be more than offset by interest cost savings achieved through the remaining original term of the 2017 Notes.
On June 15, 2017, S&P Global Ratings raised its long-term corporate credit rating on both CNH Industrial N.V. and CNH Industrial Capital LLC from “BB+” to “BBB-” with stable outlook. The short-term rating of CNH Industrial N.V. was raised from “B” to “A-3”. The issue-level ratings of both CNH Industrial N.V. and CNH Industrial Capital LLC were also raised to “BBB-”.
Segment Results
Agricultural Equipment’s net sales increased 3.0% in the second quarter of 2017 compared to the second quarter of 2016 (up 3.3% on a constant currency basis), as a result of a strong rebound in demand in LATAM. Net sales increased in APAC, mainly driven by favorable volume in Australia, and in the EMEA region. Net sales, as forecast, were down in NAFTA due to unfavorable industry volume in the small grain and hay & forage product lines.
Operating profit was $303 million in the second quarter ($301 million in the second quarter of 2016), with an operating margin of 10.5% (down 0.2 p.p. compared to the second quarter of 2016). Favorable volume in LATAM including improved fixed cost absorption, and disciplined net price realization across all regions, offset negative volume and mix in NAFTA and increased spending on research and development.
Construction Equipment’s net sales increased 13.6% in the second quarter of 2017 compared to the second quarter of 2016 (up 13.5% on a constant currency basis), as a result of a strengthening of NAFTA and APAC markets.
Operating profit was $17 million in the second quarter of 2017, flat compared to the second quarter of 2016, with an operating margin of 2.5% (down 0.4 p.p. compared to the second quarter of 2016). The favorable volume trend was offset by foreign exchange impact on product cost. Net pricing was stable across the major markets.
Commercial Vehicles’ net sales decreased 0.8% in the second quarter of 2017 compared to the second quarter of 2016 (up 1.4% on a constant currency basis). Higher volumes in APAC and LATAM were more than offset by lower truck and bus volume in EMEA, mainly due to the 2016 Euro VI pre-buy effect in the light vehicle range.
Operating profit was $91 million for the second quarter of 2017 ($100 million in the second quarter of 2016), with an operating margin of 3.5% (down 0.4 p.p. compared to the second quarter of 2016). The decrease was primarily due to lower volume and unfavorable mix in EMEA, partially offset by manufacturing efficiencies and material cost reductions.
Powertrain’s net sales increased 11.0% in the second quarter of 2017 compared to the second quarter of 2016 (up 13.8% on a constant currency basis), as a result of higher volumes. Sales to external customers accounted for 47% of total net sales (46% in the second quarter of 2016).
Operating profit was $98 million for the second quarter of 2017, a $32 million increase compared to the second quarter of 2016, with an operating margin of 8.6%, up 2.1 p.p. compared to the second quarter of 2016 as a result of higher volumes and manufacturing efficiencies.
Financial Services’ revenues totaled $400 million in the second quarter of 2017, flat compared to the second quarter of 2016. In the second quarter of 2017, retail loan originations (including unconsolidated joint ventures) were $2.3 billion, flat compared to the second quarter of 2016. The managed portfolio (including unconsolidated joint ventures) was $25.6 billion as of June 30, 2017 (of which retail was 63% and wholesale 37%), up $0.3 billion compared to June 30, 2016.
Net income was $87 million in the second quarter of 2017, flat compared to the second quarter of 2016.
2017 Outlook
During the first half of 2017, market conditions across major segments have been better than originally expected, despite continued inventory destocking efforts in high horsepower tractors in NAFTA row crop, weakened demand in hay & forage product lines, and persisting end-market weakness in France. Therefore, the company is leading its 2017 guidance for sales and EPS to the upper end of the range while keeping the net industrial debt guidance unchanged as follows:
- Net sales of Industrial Activities of approximately $24 billion;
- Adjusted diluted EPS(6) of approximately $0.41;
- Net industrial debt at the end of 2017 between $1.4 billion and $1.6 billion.
