CNH Industrial N.V. announces consolidated revenues of $6,753 million for the second quarter 2016, down 2.9% compared to the second quarter 2015. Net sales of Industrial Activities were $6,450 million in Q2 2016, down 2.8% compared to the same period in 2015. Reported net income was $129 million in the second quarter, which includes an additional non-tax deductible charge of $49 million following finalization of the European Commission settlement on the truck competition investigation. Adjusted net income was $216 million for the quarter.
Operating profit of Industrial Activities was $453 million for the second quarter, a $52 million increase compared to the same period in 2015, with an operating margin of 7.0%, up 1.0 p.p. compared to the second quarter 2015. “Our second quarter results were solid; we continued to demonstrate our ability to execute across the breadth of our business and geographic portfolio despite the large disparity of demand conditions prevalent in the capital goods sector,” says Richard Tobin, Chief Executive Officer of CNH Industrial. “Our ability to increase operating profit in the Agricultural Equipment segment and our trend of improved results in Commercial Vehicles solidify our belief that the benefits of our efficiency plan on product cost and quality are taking hold.”
Excluding the impact of the additional non-tax deductible charge for the EC settlement, the effective tax rate was 37% for the quarter, resulting in a 46% effective tax rate year-to-date. The company’s long-term effective tax rate objective remains unchanged at between 34-36%.
Net industrial debt was $2.1 billion at June 30, 2016, after the payment of $0.2 billion in dividends to shareholders in April 2016. The $0.3 billion improvement compared to March 31, 2016 was primarily attributable to the $0.6 billion operating cash flow generated from Industrial Activities in the second quarter 2016. Total Debt of $26.3 billion at June 30, 2016, was $0.5 billion higher than at March 31, 2016 primarily as a result of the issuance of new notes for €550 million in the second quarter, and in line with December 31, 2015. As of June 30, 2016, available liquidity (including cash, cash equivalents and restricted cash of $5.8 billion, and undrawn committed facilities of $3.0 billion) was $8.8 billion, up $0.6 billion compared to March 31, 2016 and down $0.5 billion compared to December 31, 2015.
Segment Results
Agricultural Equipment’s net sales decreased 7.5% for the second quarter 2016 compared to the same period in 2015 (down 6.3% on a constant currency basis), as a result of lower industry volume, unfavorable product mix in the row crop sector in NAFTA and unfavorable industry volume in the small grain sector in EMEA. Net sales increased in APAC, mainly driven by higher volume in Australia. Sales in specialty tractors and harvesters in EMEA remain strong, and in LATAM sugar cane harvester demand offset the industry decline for tractors.
Operating profit was $301 million for the second quarter ($263 million in the second quarter 2015). The increase was primarily due to positive pricing and cost containment actions, including material cost reductions, and favorable foreign exchange impact. Operating margin increased 2.0 p.p. to 10.7%.
Construction Equipment’s net sales decreased 19.6% for the second quarter 2016 compared to the same period in 2015 (down 18.4% on a constant currency basis), due to negative industry volumes primarily in the heavy product class in all regions.
Operating profit was $17 million for the second quarter 2016 ($35 million in the second quarter 2015). Operating margin decreased 1.8 p.p. to 2.9%, as a result of lower volumes in NAFTA and negative industrial absorption partially offset by lower product cost and other cost containment actions. Second quarter production was 13% lower than the previous year to balance channel inventory with current demand conditions.
Commercial Vehicles’ net sales increased 5.1% for the second quarter 2016 compared to the same period in 2015 (up 6.0% on a constant currency basis), as a result of increased truck deliveries in EMEA. In LATAM, net sales decreased due to lower industry volumes in Brazil and Argentina. Specialty vehicle unit deliveries declined 53% as a result of reduced deliveries of defence vehicles in Europe.
Operating profit was $100 million for the second quarter 2016, a $33 million increase compared to Q2 2015, or a $58 million increase excluding the $25 million operating profit recorded by the Venezuelan subsidiary in Q2 2015 before the currency re-measurement in the second half of 2015. The increase was primarily a result of positive pricing, material cost reductions and manufacturing efficiencies in EMEA offsetting the difficult trading conditions in LATAM commercial vehicles, and reduced activity levels in the specialty vehicle business. Operating margin increased 1.2 p.p. to 3.9%.
Powertrain’s net sales increased 8.0% in the second quarter 2016 compared to the same period in 2015 (up 7.0% on a constant currency basis) due to higher sales volumes to third parties. Sales to external customers accounted for 46% of total net sales (42% in Q2 2015) as the benefits of the company's SCR-only technology solutions continue to gain market recognition.
Operating profit was $66 million for the second quarter, a $13 million increase compared to the second quarter 2015, with an operating margin of 6.5% (up 0.9 p.p. compared to Q2 2015). The improvement was due to higher sales volumes, improved product mix and manufacturing efficiencies.
Financial Services’ revenues totaled $399 million in the second quarter 2016, a 5.7% decrease compared to the same period in 2015 (down 3.4% on a constant currency basis), due to a lower average portfolio, a reduction in interest spreads and the negative impact of currency translation. In the second quarter 2016, retail loan originations (including unconsolidated joint ventures) were $2.3 billion, down $0.1 billion compared to the second quarter 2015, primarily due to the decline in Agricultural Equipment sales. The managed portfolio (including unconsolidated joint ventures) of $25.3 billion as of June 30, 2016 (of which retail was 64% and wholesale 36%) was down $0.1 billion compared to June 30, 2015 (up $0.2 billion on a constant currency basis).
Net income was $87 million for the second quarter 2016, a decrease of $11 million over the same period in 2015, primarily due to the lower average portfolio and the reduction in interest spreads.
2016 Outlook
CNH Industrial is confirming its 2016 guidance as follows:
- Net sales of Industrial Activities between $23 billion and $24 billion, with an operating margin of Industrial Activities between 5.2% and 5.8%;
- Net industrial debt at the end of 2016 between $1.5 billion and $1.8 billion excluding the European Commission settlement (approximately $500 million).
