CNH Industrial N.V. announced consolidated revenues of $5,749 million for the third quarter of 2016, down 1.7% compared to the third quarter of 2015. Net sales of Industrial Activities were $5,461 million for the third quarter of 2016, down 1.6% compared to the third quarter of 2015. Reported net income was $39 million in the third quarter, and includes a charge of $38 million ($24 million net of tax impact) related to the repurchase of a portion of the Case New Holland Industrial Inc. 7.875% Notes due 2017. Adjusted net income was $68 million for the quarter, up 79% compared to the third quarter of 2015.
Operating profit of Industrial Activities was $248 million for the third quarter of 2016, in line with the third quarter of 2015, with an operating margin of 4.5%. “Our third quarter results were consistent with our expectations,” says Richard Tobin, Chief Executive Officer of CNH Industrial. “Despite the challenging demand environment in our agricultural equipment business we have been able to increase our comparable profit margin for the quarter in the segment as a result of proactive cost control measures, and improved equipment demand in Latin America. Our commercial vehicles business continues to gain market share in Europe as our new vehicle product launches continue to gain traction in the market.”
The effective tax rate was 55.2% for the third quarter of 2016. Excluding the impact of the exceptional non-tax deductible charge of $551 million incurred in the first half of 2016 following finalization of the European Commission settlement, and the impact of the inability to record deferred tax assets on losses in certain jurisdictions, the effective tax rate year-to-date was 34%, in line with the company’s long-term effective tax rate objective of between 34-36%.
Net industrial debt was $2.7 billion at September 30, 2016, a $0.5 billion increase compared to June 30, 2016 primarily attributable to non-inventory related timing differences in the production cycle and their impact on net working capital. Total debt of $26.3 billion at September 30, 2016, was in line with June 30, 2016 and December 31, 2015. As of September 30, 2016, available liquidity was $8.9 billion, up $0.1 billion compared to June 30, 2016 and down $0.4 billion compared to December 31, 2015. During the quarter, the company issued $600 million in aggregate principal amount of 4.50% Notes due 2023. In addition, the company repurchased $450 million of the outstanding 7.875% Notes due 2017 issued by its subsidiary Case New Holland Industrial Inc. The $38 million one-off charge related to the repurchase will be more than offset by interest cost savings achieved through the remaining term of the 2017 Notes.
“We have had some very positive developments in the quarter,” says Tobin. “We demonstrated our commitment to technological advancement and Precision Farming with our autonomous tractor concept vehicle at Farm Progress in August. We have announced our agreement to acquire the tillage, seeding and hay and forage segments of Kongskilde Industries. Furthermore, we announced a new exclusive alliance with Hyundai Heavy Industries in the mini-excavator segment which will become operational in the first quarter of 2017, and CNH Industrial was confirmed Industry Leader for the sixth consecutive year by the Dow Jones Sustainability Indices. We are effectively managing our businesses through some challenging market conditions by reducing our structural costs, retaining our leading market share positions and positioning ourselves to take full advantage of opportunities as they arise in the cycle.”
Agricultural Equipment’s net sales decreased 3.0% for the third quarter of 2016 compared to the third quarter of 2015 (down 3.4% on a constant currency basis), as a result of unfavorable industry volume and product mix in the row crop sector in NAFTA and unfavorable industry volume in the small grain sector in EMEA. Net sales of specialty tractors in EMEA remain strong. Net sales increased in LATAM due to market improvements in Brazil and Argentina, and slightly decreased in APAC due to lower market demand in China, while Australia continues to improve.
Operating profit was $155 million for the third quarter of 2016 ($137 million in the third quarter of 2015). The increase was primarily due to net price realization and lower material costs, partially offset by unfavorable volume, including fixed cost absorption, and unfavorable product mix in NAFTA and EMEA. Operating margin increased 1.0 p.p. to 6.6%.
Construction Equipment’s net sales increased 0.7% for the third quarter of 2016 compared to the third quarter of 2015 (up 0.5% on a constant currency basis), driven by favorable volume in APAC, partially offset by lower sales in NAFTA.
Operating profit was $1 million in the third quarter of 2016 compared to $37 million in the third quarter of 2015, as a result of unfavorable market mix and product mix and negative price realization primarily in NAFTA, partially mitigated by cost containment actions.
Commercial Vehicles’ net sales decreased 3.4% for the third quarter of 2016 compared to the third quarter of 2015 (down 3.7% on a constant currency basis), primarily as a result of lower volume in all ranges in LATAM mainly due to continuing deterioration of market conditions in Brazil and the Euro V pre-buy impact in the Argentinian market in the second half of 2015. Net sales were flat in EMEA as a volume increase in trucks was offset by decreases in buses and specialty vehicles.
Operating profit was $64 million for the third quarter of 2016 ($60 million in the third quarter of 2015), with an operating margin of 3.0% (up 0.3 p.p. compared to the third quarter of 2015). The increase was due to positive pricing and manufacturing efficiencies in EMEA trucks and buses, partially offset by lower volume in the specialty vehicle business. In LATAM, market conditions remained challenging primarily in Brazil. In APAC, operating profit improved mainly as a result of positive pricing.
Powertrain’s net sales increased 6.3% in the third quarter of 2016 compared to the third quarter of 2015 (up 5.9% on a constant currency basis) due to higher volumes primarily in on-road engine applications. Sales to external customers accounted for 48% of total net sales (44% in the third quarter of 2015).
Operating profit was $52 million for the third quarter of 2016, a $17 million increase compared to the third quarter of 2015 primarily due to favorable volume and industrial efficiencies. Operating margin increased 1.7 p.p. to 6.1%, the highest third quarter margin ever reported in the segment’s history, confirming the positive contribution of a well-balanced portfolio of engine applications.
Financial Services’ revenues totaled $386 million in the third quarter of 2016, a 1.0% decrease compared to the third quarter of 2015 (down 2.9% on a constant currency basis), due to a lower average portfolio and reduced interest spreads, partially offset by the positive impact of currency translation. In the third quarter of 2016, retail loan originations (including unconsolidated joint ventures) were $2.2 billion, flat compared to the third quarter of 2015. The managed portfolio (including unconsolidated joint ventures) of $24.8 billion as of September 30, 2016 (of which retail was 65% and wholesale 35%) was up $0.3 billion compared to September 30, 2015 (down $0.2 billion on a constant currency basis).
Net income was $77 million for the third quarter of 2016, a decrease of $17 million compared to the third quarter of 2015, primarily due to the lower average portfolio and the reduction in interest spreads.
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 $2.0 billion and $2.3 billion (or $1.5 billion and $1.8 billion excluding the European Commission settlement of $0.5 billion).