CNH Industrial N.V. announces consolidated revenues of $7,567 million for the second quarter of 2019, down 6% compared to the second quarter of 2018 (down 2% on a constant currency basis). Net sales of Industrial Activities were $7,068 million in the second quarter of 2019, down 7% compared to the second quarter of 2018 (down 2% on a constant currency basis). Net income was $427 million for the second quarter of 2019 ($408 million in the second quarter of 2018).
Adjusted net income was $430 million for the second quarter of 2019 compared to $397 million in the second quarter of 2018, as a result of a lower consolidated adjusted EBIT more than offset by the non-repeat of foreign exchange losses incurred in 2018 primarily due to the volatility in emerging markets. Adjusted diluted EPS was $0.31 in the second quarter of 2019, compared to $0.28 in the second quarter of 2018.
Adjusted EBIT of Industrial Activities was $527 million in the second quarter of 2019 ($571 million in the second quarter of 2018), with an adjusted EBIT margin of 7.5%, flat compared to the second quarter of 2018.
Adjusted EBITDA of Industrial Activities was $768 million in the second quarter of 2019 ($843 million in the second quarter of 2018), with an adjusted EBITDA margin of 10.9% (11.1% in the second quarter of 2018).
Income taxes were $135 million in the second quarter of 2019 ($118 million in the second quarter of 2018). Adjusted income taxes(1)(2) for the second quarter of 2019 were $130 million ($114 million in the second quarter of 2018). The adjusted effective tax rate (adjusted ETR)(1)(2) was 24% (23% in the second quarter of 2018). Full year 2019 adjusted ETR is expected to be approximately 27%.
Net debt of Industrial Activities was $1.5 billion at June 30, 2019, in line with March 31, 2019. In the second quarter the Company generated a free cash flow of Industrial Activities(1)(2) of $382 million, and paid $275 million in dividends to shareholders. Total debt was $24.4 billion at June 30, 2019, up $0.6 billion compared to March 31, 2019. At June 30, 2019, available liquidity(1)(2) was $9.9 billion, down $0.2 billion compared to March 31, 2019.
On July 2, Fitch Ratings (Fitch) improved the outlook of CNH Industrial N.V. to positive from stable. Fitch also affirmed CNH Industrial N.V.’s and CNH Industrial Capital LLC’s long-term issuer default rating at “BBB-”.
On July 3, CNH Industrial Finance Europe S.A. issued €500 million in principal amount of 1.625% notes due 2029 and guaranteed by CNH Industrial N.V.
Segment Results
Agriculture’s net sales decreased 7% in the second quarter of 2019 compared to the second quarter of 2018 (down 3% on a constant currency basis) due to lower sales volume in Europe and Rest of World, partially offset by positive price realization performance across all geographies.
Adjusted EBIT was $341 million in the second quarter of 2019 ($396 million in the second quarter of 2018), with adjusted EBIT margin at 11.0%. Positive net price realization was more than offset by unfavorable volume and mix, higher product costs primarily related to increased raw material costs and tariffs, and increased product development spending driven by investments in precision farming and the introduction of Stage V engine applications.
Construction’s net sales decreased 5% in the second quarter of 2019 compared to the second quarter of 2018 (down 3% on a constant currency basis). Positive price realization was more than offset by unfavorable volume and mix in North America due to selective inventory destocking actions in our dealer network, and weaker end-user demand in certain key markets in Rest of World.
Adjusted EBIT was $25 million in the second quarter of 2019 ($33 million in the second quarter of 2018), with adjusted EBIT margin of 3.3%. Positive net price realization, mainly in North America, was more than offset by higher product costs primarily related to increased raw material costs and tariffs.
Commercial and Specialty Vehicles’ net sales decreased 7% in the second quarter of 2019 compared to the second quarter of 2018 (flat on a constant currency basis). Higher industry volume, mainly in Europe, was more than offset by unfavorable mix and negative impact of foreign currency translation.
Adjusted EBIT was $100 million in the second quarter of 2019, up $8 million compared to the second quarter of 2018, driven by positive net price realization and lower selling, general and administrative expenses, partially offset by higher product content cost and unfavorable foreign exchange impacts. Adjusted EBIT margin increased 50 basis points (bps) to 3.7% compared to the second quarter of 2018.
Powertrain’s net sales decreased 7% in the second quarter of 2019 compared to the second quarter of 2018 (down 1% on a constant currency basis), due to slightly lower sales volume. Sales to external customers accounted for 48% of total net sales (49% in the second quarter of 2018).
Adjusted EBIT was $102 million in the second quarter of 2019 ($108 million in the second quarter of 2018), with manufacturing efficiencies more than offset by higher product development investments and negative foreign exchange impacts. Adjusted EBIT margin was 9.0% in the second quarter of 2019 (8.9% in the second quarter of 2018).
Financial Services’ revenues totaled $519 million in the second quarter of 2019, a 4% increase compared to the second quarter of 2018 (up 7% on a constant currency basis), primarily due to increased used equipment sales in North America and higher average portfolio in South America and Rest of World, partially offset by pricing.
In the second quarter of 2019, retail loan originations (including unconsolidated joint ventures) were $2.5 billion, relatively flat compared to the second quarter of 2018. The managed portfolio (including unconsolidated joint ventures) was $26.9 billion as of June 30, 2019 (of which retail was 60% and wholesale 40%), up $1.0 billion compared to June 30, 2018. Excluding the impact of currency translation, the managed portfolio increased $1.3 billion compared to the same period in 2018.
Net income was $91 million in the second quarter of 2019, a decrease of $11 million compared to the second quarter of 2018 primarily attributable to pricing and the one-time credit loss provision releases incurred in 2018, partially offset by higher average portfolio in South America and Rest of World and lower income taxes.
2019 Outlook
While uncertainties in the agricultural end-markets related to the trade tensions remain unresolved, and negative impacts from recent weather events (in North America, Australia and Northern Europe) are persisting, which has impacted planting and harvesting patterns and market sentiment, cyclical replacement demand remains stable, with used equipment inventories at low levels supporting new equipment sales in North America.
End-user demand in the construction industry remains healthy, supported by spending for public and infrastructure investments. Despite this strength, conditions in the construction industry are still challenged in the residential sub-segment.
European demand in the truck and bus industries continues to hold at a high level, supported by a low interest rate environment, and by the transition to lower emission vehicles including full electric and hybrid buses, and LNG and CNG powered trucks.
As a result of the updated end-markets outlook, the company is revising its full year net sales guidance reflecting the impact on net sales of the euro/dollar exchange rate performance of the first 6 months of the year, while confirming all the other 2019 targets as follows:
- Net sales of Industrial Activities between $27 and $27.5 billion, with sales up year-over-year 1% to 2% at constant currency;
- Adjusted diluted EPS(2) up year-over-year between 5% and 10% at a range of $0.84 to $0.88 per share;
- Net debt of Industrial Activities at the end of 2019 between $0.4 billion and $0.2 billion.