CNH Industrial N.V. has announced consolidated revenues of $6,686 million for the third quarter of 2018, in line with the third quarter of 2017. Net sales of Industrial Activities were $6,245 million in the third quarter of 2018, flat compared to the third quarter of 2017 (up 4% on a constant currency basis). Net income of $231 million for the third quarter of 2018 included a pre-tax gain of $30 million ($23 million net of tax impact) as a result of the amortization over approximately 4.5 years 2018 of the $527 million positive impact from the modification of a healthcare plan following the favorable judgment issued by the United States Supreme Court, as previously announced by the company on April 16, 2018. In the third quarter of 2017, net income included a charge of $39 million related to the repurchase of Notes, as well as $53 million of restructuring charges (compared to $8 million in the third quarter of 2018).
Adjusted net income was $222 million for the third quarter of 2018 compared to $151 million in the third quarter of 2017, with an adjusted diluted EPS of $0.16 ($0.11 in the third quarter of 2017).
Adjusted EBIT of Industrial Activities was $321 million in the third quarter of 2018, an increase of $63 million (or up 24%) compared to the third quarter of 2017. Adjusted EBIT margin increased 1.0 percentage points (p.p.) to 5.1%.
Adjusted EBITDA of Industrial Activities was up 13% to $591 million for the third quarter of 2018 compared to $522 million in the third quarter of 2017, with an adjusted EBITDA margin of 9.5%, up 1.1 p.p. compared to the third quarter of 2017, as a result of improvements in operating profitability.
Income taxes were $131 million in the third quarter of 2018 ($62 million in the third quarter of 2017). Adjusted income taxes for the third quarter of 2018 were $118 million ($63 million in the third quarter of 2017). The adjusted effective tax rate (adjusted ETR) was 36% in the quarter (33% in the third quarter of 2017). The adjusted ETR year-to-date was 28%, in line with the Company’s full year 2018 expectation.
Net industrial debt of $2.0 billion at September 30, 2018 increased by $0.7 billion from June 30, 2018 due to the seasonal increase in net working capital. Total debt of $24.0 billion at September 30, 2018 was down $0.4 billion compared to June 30, 2018. At September 30, 2018, available liquidity was $8.3 billion, down $0.1 billion compared to June 30, 2018.
On August 8, 2018, S&P Global Ratings raised its long-term issuer credit ratings on CNH Industrial N.V. and its subsidiary, CNH Industrial Capital LLC, to “BBB” from “BBB-.” The short-term rating was raised to “A-2” from “A-3.” The outlook of both companies is “stable.”
During the quarter, CNH Industrial Capital LLC issued $500 million in principal amount of 4.200% Notes due 2024, and CNH Industrial Finance Europe S.A. issued €500 million in principal amount of 1.875% Notes due 2026.
Segment Results
Agricultural Equipment’s net sales increased 4% in the third quarter of 2018 compared to the third quarter of 2017 (up 8% on a constant currency basis). The increase was primarily the result of price realization across all regions and higher sales volumes in NAFTA, partially offset by a revenue decrease in APAC, primarily Australia.
Adjusted EBIT was $196 million in the third quarter of 2018, a $23 million increase compared to the third quarter of 2017. Adjusted EBIT margin increased 0.6 p.p. to 7.4% compared to the third quarter of 2017. The increase was mainly attributable to favorable net price realization, while the anticipated raw material cost increase was offset by manufacturing efficiencies and lower warranty cost due to improved quality performance. Similar to previous quarters, Agricultural Equipment maintained increased product development spending by 10%, related primarily to precision farming and compliance with Stage V emissions requirements.
Construction Equipment’s net sales increased 18% in the third quarter of 2018 compared to the third quarter of 2017 (up 21% on a constant currency basis), as a result of positive net price realization and favorable end-user demand, primarily in NAFTA and APAC.
Adjusted EBIT was $26 million in the third quarter of 2018, a $24 million increase compared to the third quarter of 2017, with an adjusted EBIT margin increase of 3.3 p.p. to 3.6%, as a result of higher volume, favorable product mix, and net price realization, more than offsetting raw material cost increases. In the quarter, production levels were 13% above retail demand, in anticipation of the fourth quarter retail seasonality.
Commercial Vehicles’ net sales decreased 7% in the third quarter of 2018 compared to the third quarter of 2017 (down 3% on a constant currency basis), as a result of lower sales volume primarily in heavy vehicle trucks in EMEA partially offset by favorable pricing across all regions. Total deliveries were down 8% year-over-year, as increased volumes in light commercial vehicles and in buses (as a result of increased end-user demand in EMEA and Brazil) were more than offset by the impact of lower EMEA volumes in heavy vehicles. The decline in heavy vehicle sales is attributable to a strategy shift, which focuses sales on a more profitable product portfolio, including alternative propulsion vehicles.
Adjusted EBIT was $68 million for the third quarter of 2018, a 58% increase compared to the third quarter of 2017, with an adjusted EBIT margin of 2.8% (up 1.1 p.p. compared to the third quarter of 2017). The increase was the result of favorable product mix and positive net price realization, primarily in the truck product line-up.
Powertrain’s net sales decreased 10% in the third quarter of 2018 compared to the third quarter of 2017 (down 6% on a constant currency basis), due to lower sales volume, primarily attributable to a different calendarization of the engine sales associated with the transition to the new Stage V regulation. Sales to external customers accounted for 52% of total net sales (48% in the third quarter of 2017).
Adjusted EBIT was $82 million for the third quarter of 2018 compared to $88 million for the third quarter of 2017. Adjusted EBIT margin slightly increased to 8.4% as favorable product mix more than offset a 9% decline in engine volumes and higher product development spending.
Financial Services’ revenues totaled $469 million in the third quarter of 2018, a 2% decrease compared to the third quarter of 2017 (up 2% on a constant currency basis), primarily due to a lower average portfolio balance in NAFTA, partially offset by growth in other regions.
In the third quarter of 2018, retail loan originations (including unconsolidated joint ventures) were $2.4 billion, relatively flat compared to the third quarter of 2017. The managed portfolio (including unconsolidated joint ventures) was $25.5 billion as of September 30, 2018 (of which retail was 63% and wholesale 37%), down $0.5 billion compared to September 30, 2017. Excluding the impact of currency translation, the managed portfolio increased $0.4 billion compared to the same period in 2017.
Net income was $92 million in the third quarter of 2018, an increase of $6 million compared to the third quarter of 2017.
2018 Outlook
Despite increasing uncertainties related to the trade policy environment and raw material inflationary headwinds, together with foreign exchange volatility in the emerging economies, CNH Industrial is confirming its 2018 guidance as follows:
- Net sales of Industrial Activities at approximately $28 billion;
- Adjusted diluted EPS(2) between $0.67 and $0.71 per share. In light of the 2018 third quarter earnings results, current expectations are at the high end of the range;
- Net industrial debt at the end of 2018 between $0.7 billion and $0.9 billion.
