CNH Industrial closed 2014 with revenues of $32.6 billion, net income of $708 million and net income before restructuring and other exceptional items of $940 million
Financial results under U.S. GAAP(*) (**)
- Revenues totaled $8.4 billion for the fourth quarter and $32.6 billion for the full year 2014 ($9.3 billion and $33.8 billion for the same periods in 2013). Net sales of Industrial Activities were $8.0 billion for the quarter and $31.2 billion for the year ($9.0 billion and $32.7 billion for the same periods in 2013), down 5.9% and 2.8%, respectively, on a constant currency basis.
- Operating profit of Industrial Activities was $376 million for the quarter ($389 million in Q4 2013), with an operating margin at 4.7% (up 0.4 p.p.). For the full year operating profit of Industrial Activities was $1,988 million ($2,095 million in 2013). Operating margin stood at 6.4%, flat year over year.
- Net income was $87 million (or $0.06 per share) for the quarter and $708 million (or $0.52 per share) for the full year. Net income before restructuring and other exceptional items was $167 million (or $0.12 per share) for the quarter and $940 million (or $0.69 per share) for the full year, up $50 million compared to Q4 2013 and down $7 million for the full year.
- Net industrial debt was $2.7 billion at December 31, 2014 ($3.9 billion at September 30, 2014 and $2.2 billion at December 31, 2013). Available liquidity totaled $8.9 billion ($8.7 billion at December 31, 2013).
- The Board of Directors is recommending for 2014 a dividend of €0.20 per common share, totaling approximately $307 million (€271 million).
- For 2015 CNH Industrial expects net sales of Industrial Activities at approximately $28 billion, with operating margin of Industrial Activities between 6.1% and 6.4%. Net industrial debt expected between $2.2 billion and $2.4 billion.
(*) Beginning with the filing with the U.S. Securities and Exchange Commission (“SEC”) of its annual report on Form 20-F for the fiscal year ended December 31, 2013, prepared in accordance with U.S. GAAP, CNH Industrial reports quarterly and annual financial results both under U.S. GAAP for SEC reporting purposes and under IFRS for European listing purposes and Dutch law requirements. Financial statements under both sets of accounting principles use the U.S. dollar as the reporting currency. In addition, as disclosed in the Form 20-F, CNH Industrial has expanded its reportable segments from three (Agricultural and Construction Equipment inclusive of its financial services activities, Trucks and Commercial Vehicles inclusive of its financial services activities, and Powertrain) to five (Agricultural Equipment, Construction Equipment, Commercial Vehicles, Powertrain and Financial Services). The following tables and comments on the financial results of the Company and by segments are prepared in accordance with U.S. GAAP. Financial results under IFRS are shown in specific tables at the end of this press release. Prior period results under IFRS, prepared in Euro, have been consistently recast into U.S. dollars. A summary outlining the Company’s transition to U.S. GAAP and the U.S. dollar as the reporting currency is available on the Company’s website, www.cnhindustrial.com.
(**) Refer to the Non-GAAP Financial Information section of this press release for information regarding Non-GAAP financial measures.
London (UK) – (January 29, 2015) CNH Industrial N.V. (NYSE:CNHI / MI:CNHI) today announced consolidated revenues of $32,555 million for 2014, down 3.8% compared to 2013 (down 2.1% on a constant currency basis). Net sales of Industrial Activities were $31,198 million in 2014, down 4.5% from 2013 (down 2.8% on a constant currency basis). Net sales increases in Construction Equipment and Powertrain were offset by a decline in Agricultural Equipment, mainly due to unfavorable volume and product mix, particularly in LATAM and NAFTA, and in Commercial Vehicles in LATAM, as well as by the negative impact of currency translation, primarily relating to the Brazilian real.
Operating profit of Industrial Activities was $1,988 million in 2014, a 5.1% decrease compared to 2013 (down 3.6% on a constant currency basis), with an operating margin for the year at 6.4%, in line with 2013. Operating profit improved in Construction Equipment and Powertrain and declined in Agricultural Equipment and Commercial Vehicles. Construction Equipment benefitted from favorable volume and mix in all regions, positive price realization, and cost efficiencies. For Powertrain, the improvement was due to the increased activity with third parties, and continued industrial cost efficiencies. For Commercial Vehicles, positive performance in EMEA and APAC and significant reductions in selling, general and administrative (“SG&A”) expenses were offset by the negative effects of challenging trading conditions in LATAM, due to a significant decline in market demand. In Agricultural Equipment, lower volume and negative product mix were partially offset by positive net price realization, industrial efficiencies and structural cost reductions in SG&A and research and development (“R&D”) expenses. Foreign exchange translation impacts were not material to the operating profit of Industrial Activities.
Restructuring expenses totaled $184 million for the year, as part of the Company’s Efficiency Program announced in July 2014. Agricultural Equipment recorded $43 million primarily due to the closure of a joint venture in China and cost reduction activities as a result of negative demand conditions. Commercial Vehicles recorded $102 million mainly due to actions to reduce SG&A expenses and business support costs as a result of the transition to CNH Industrial’s regional structure, and costs related to the completion of manufacturing product specialization programs. Construction Equipment recorded $39 million mainly due to the realignment of the dealer networks in EMEA as a result of the re-positioning of the Case and New Holland brand offerings , and the announced closure of the Company’s Calhoun, Georgia, USA facility. For 2013, restructuring expenses were $71 million, mainly related to Commercial Vehicles primarily related to manufacturing product specialization programs.
Interest expense, net totaled $613 million in 2014, $65 million higher than 2013, primarily due to an increase in average net industrial debt during the year, partially offset by more favorable interest rates primarily related to the new notes issued during the year.
Other, net was a charge of $313 million for 2014 (charge of $284 million for 2013). The increase of $29 million was mainly due to higher foreign exchange losses, which included a $71 million pre-tax charge for the re-measurement of Venezuelan assets denominated in Bolivars.
Income taxes totaled $467 million for 2014, representing an effective tax rate of 42.9% (2013 effective tax rate of 48.8%), in line with the Company’s expectations for the year, and well above the expected long term target.
Equity in income of unconsolidated subsidiaries and affiliates totaled $86 million for the year ($125 million for 2013); the decrease was mainly due to lower results from APAC joint ventures as a result of more difficult trading conditions.
Net income of Financial Services was $364 million for 2014, compared to $342 million for 2013, as a result of a larger comparable portfolio and one-time items in the previous year.
Consolidated net income was $708 million for 2014 ($828 million for 2013). Net income attributable to CNH Industrial N.V. was $710 million ($677 million for 2013), or $0.52 per share ($0.54 per share for 2013). Net income before restructuring and other exceptional items (a non-GAAP measure) was $940 million for 2014 ($947 million for 2013), or $0.69 per share ($0.63 per share for 2013).
Net industrial debt of $2.7 billion at December 31, 2014 was $0.5 billion higher than at December 31, 2013. Cash generation in the operations before changes in working capital contributed for $1.3 billion. Changes in working capital negatively impacted by $1.0 billion, mainly due to lower payables as a result of the relevant production curtailments in Agricultural Equipment in the fourth quarter, and of Commercial Vehicles in EMEA returning to normalized levels of production as compared to prior year’s Euro V pre-buy activity, as well as in LATAM operations. Capital expenditure activity totaled $1.0 billion and dividend payments were $0.4 billion. Currency translation differences on euro-denominated debt positively affected net industrial debt by $0.6 billion.
Available liquidity at December 31, 2014 was $8.9 billion, inclusive of $2.7 billion in undrawn committed facilities ($2.2 billion at December 31, 2013), compared to $8.7 billion at December 31, 2013. During the year, a €1.75 billion five-year committed revolving credit facility was signed, replacing an existing three-year €2 billion facility due to mature in February 2016.
Fourth Quarter
The Company reported consolidated revenues of $8,365 million for the fourth quarter of 2014, down 10.0% compared to Q4 2013 (down 4.9% on a constant currency basis). Net sales of Industrial Activities were $8,018 million in Q4 2014, down 10.9% from Q4 2013 (down 5.9% on a constant currency basis), largely as a result of the difficult demand conditions in Agricultural Equipment.
Operating profit of Industrial Activities totaled $376 million for the fourth quarter ($389 million in the comparable period), with an operating margin of 4.7% (4.3% in Q4 2013). Construction Equipment operating performance improved as a result of lower SG&A and R&D expenses, and positive volume and mix. Agricultural Equipment operating profit was negatively affected by unfavorable volume and mix, including negative industrial absorption primarily related to production curtailments to realign inventory to market demand, partially offset by favorable pricing and cost efficiencies. Commercial Vehicles operating performance was stable compared to Q4 2013 as improved EMEA operations were able to offset challenging trading conditions in LATAM and negative foreign exchange currency impacts. Powertrain operating performance was stable, with industrial efficiencies offsetting reduced volumes with captive customers.
Restructuring expenses totaled $86 million in the quarter, mainly due to actions to reduce SG&A expenses and business support costs, as well as costs related to the completion of manufacturing product specialization programs for Commercial Vehicles, and to cost reduction activities as a result of negative demand conditions within Agricultural Equipment. For Q4 2013, restructuring expenses were $39 million, mainly related to Commercial Vehicles.
Interest expense, net totaled $164 million for the quarter, compared to $166 million for Q4 2013, with more favorable interest rates offset by an increase in average net industrial debt.
Net income of Financial Services was $98 million for the quarter, compared to $122 million for Q4 2013, as the positive impact of the higher average portfolio and lower provisions for credit losses was more than offset by higher income taxes.
Consolidated net income was $87 million for the quarter ($54 million for Q4 2013). Net income attributable to CNH Industrial N.V. was $83 million for the quarter ($60 million for Q4 2013), or $0.06 per share ($0.04 per share for Q4 2013). Net income before restructuring and other exceptional items (a non-GAAP measure) was $167 million for the quarter ($117 million for Q4 2013).
Agricultural Equipment
Net sales for Agricultural Equipment were $15,204 million for 2014, down 9.3% from 2013 (down 7.9% on a constant currency basis), driven by unfavorable volume and product mix, particularly in LATAM and NAFTA with a significant decrease for high horsepower products. This impact was partially offset by positive pricing. All of the regions reported decreases in net sales with the largest proportionate decline reported in LATAM. The geographic distribution of net sales for the year was 45% NAFTA, 31% EMEA, 13% LATAM and 11% APAC.
Worldwide agricultural equipment industry unit sales were down compared to 2013, with global demand for tractors down 7% and combines down 18%. NAFTA tractor demand was up 3%, largely concentrated in the lower horsepower segment (under 140 hp). The over 140 hp segment and combine demand were both down 25% year over year. LATAM tractor and combine markets decreased 15% and 24% respectively. EMEA markets were down 8% for tractors and 10% for combines, with a significant deceleration in tractor demand in Q4 2014. APAC markets decreased 8% for tractors and 9% for combines.
Agricultural Equipment’s worldwide market share performance was in line with the market for tractors but below the market for combines, mainly due to transition to Tier 4B engine compliant products in NAFTA and a negative market mix in APAC.
Agricultural Equipment’s worldwide production units was 5% higher than retail sales during 2014 but 19% below retail sales for the fourth quarter, as the Company implemented its planned production slowdown to reduce Company and dealer inventory.
Agricultural Equipment’s operating profit was $1,770 million for the year ($2,008 million in 2013). Operating margin was 11.6% (12.0% in 2013), with decreased volumes, unfavorable product mix, and negative industrial cost absorption, offset by positive net pricing as well as SG&A and R&D expense reductions.
For the fourth quarter 2014, net sales totaled $3,403 million, a decrease of 17.8% compared to the same period in 2013 (down 14.2% on a constant currency basis), due to negative volume and product mix, partially offset by positive pricing.
Operating profit was $241 million in the fourth quarter, compared to $312 million for Q4 2013, with an operating margin of 7.1% (7.5% in Q4 2013). The decrease was driven by unfavorable volume, mix and industrial costs (primarily related to production curtailments to realign inventory to market demand), partially offset by favorable pricing, as well as SG&A and R&D expense reductions.
Construction Equipment
Net sales for Construction Equipment were $3,346 million in 2014, up 2.7% from 2013 (up 5.1% on a constant currency basis), due to positive pricing in NAFTA and LATAM, along with positive volume and mix in NAFTA and EMEA. This was partially offset by weakened activity in LATAM and APAC. The geographic distribution of net sales for the year was 44% NAFTA, 20% EMEA, 27% LATAM and 9% APAC.
In 2014, worldwide heavy and light construction equipment industry sales were down 9% and up 5%, respectively, from the prior year. Industry heavy construction equipment sales were up in NAFTA and EMEA but decreased in LATAM and APAC. Industry light construction equipment sales were up in NAFTA and EMEA, flat in APAC and down considerably in LATAM.
Construction Equipment’s worldwide market share was in line with the market overall. For heavy construction equipment, market share increased in all regions. For light construction equipment, market share was down slightly in APAC and EMEA, while up in LATAM.
Construction Equipment’s worldwide production was in line with retail sales for 2014.
Construction Equipment reported operating profit of $79 million for 2014 compared to an operating loss of $97 million for 2013, with an operating margin of 2.4%, as a result of favorable pricing in NAFTA and LATAM, positive volume and mix in all regions and lower SG&A and R&D expenses.
For the fourth quarter 2014, net sales totaled $800 million, a decrease of 3.8% compared to the same period in 2013 (down 0.5% on a constant currency basis), with weakness in LATAM, APAC and EMEA being mostly offset by favorable trading conditions in NAFTA.
Operating profit was $9 million in the fourth quarter, compared to an operating loss of $53 million for Q4 2013, with an operating margin of 1.1%, due to lower SG&A and R&D expenses as well as favorable volume and mix.
Commercial Vehicles
Net sales for Commercial Vehicles were $10,888 million in 2014, a decrease of 3.5% compared to 2013 (down 1.6% on a constant currency basis) due to lower volumes and the negative impact of currency translation, partially offset by better pricing in all regions. Net sales increased in EMEA driven by higher volumes and favorable mix for trucks, despite lower deliveries in the bus business due to the transition to Euro VI applications. In LATAM, net sales decreased significantly (-31.4%) as a result of overall weak market conditions, production curtailments to realign dealer inventories to market demand, and the negative impact of currency translation. In APAC, net sales increased due to higher volumes, mainly for buses, partially offset by the negative impact of currency translation. The geographic distribution of net sales for the year was 74% EMEA, 16% LATAM and 10% APAC.
During 2014, Commercial Vehicles delivered a total of 128,163 vehicles (including buses and specialty vehicles), representing a 5.5% decrease from 2013. Volumes were higher in the light segment (+2.1%), primarily as a result of the launch of the new Daily, while volumes declined in the heavy (-8.7%) and medium (-24.5%) segments driven by weak trading conditions in LATAM and Euro V pre-buy demand in the second half of 2013 in EMEA. Commercial Vehicles deliveries increased by 3.9% in EMEA and 0.9% in APAC, but declined 37.5% in LATAM (with Brazil down approximately 33% and Argentina down approximately 39%).
The European truck market (GVW ≥3.5 tons) grew by 1.0% compared to 2013 to approximately 667,700 units. Light vehicles (GVW 3.5-6 tons) increased by 8.4%, while the medium vehicles market (GVW 6.1-15.9 tons) and heavy vehicles market (GVW >16 tons) decreased by 18.4% and 6%, respectively, mainly due to increased sales of Euro V vehicles in the second half of 2013 prior to the introduction of Euro VI emissions regulations in January 2014. The industry continued to experience large variations in demand across markets.
The Company’s market share in the European truck market (GVW ≥3.5 tons) remained unchanged year over year at an estimated 10.9%. In the light segment, the share is estimated to be 10.7% (down 0.6 p.p.). In the medium segment, the Company’s market share increased by 4.5 p.p. to 29.1%, with gains in nearly all markets, and in the heavy segment was up 0.6 p.p. to 7.5%.
In LATAM, new truck registrations (GVW ≥3.5 tons), at 188,800 units, were down 16.4% compared to 2013. The largest decrease was registered in Venezuela, down 73.1%, while Argentina was down 26.0% and Brazil decreased 9.4%.
The Company’s share of the LATAM market (GVW ≥3.5 tons) was down 0.9 p.p. from 2013 to 10.1%, mainly driven by a 1.0 percentage point decrease in Brazil to 7.8%. Market share increased by 0.8 p.p. and 0.4 p.p., respectively, in light and medium segments, while market share declined by 1.9 p.p. in the heavy segment.
Commercial Vehicles closed the year with an operating profit of $29 million compared to an operating profit of $74 million for 2013, with an operating margin of 0.3% (0.7% for 2013). Difficult trading conditions and negative foreign exchange currency impacts in LATAM were partially offset by the recovery in trucks in EMEA, and cost control actions in SG&A.
For the fourth quarter 2014, Commercial Vehicles’ net sales totaled $3,354 million, a decrease of 5.5% compared to the same period in 2013 (up 0.9% on a constant currency basis). Net sales increased in EMEA as a result of favorable mix for trucks, despite lower volumes due to 2013 Euro V pre-buy impact. In APAC, Commercial Vehicles registered higher volumes mainly for buses due to deliveries in certain markets within the region. LATAM volumes were down due to unfavorable market conditions.
Operating profit was $100 million for the quarter, compared to $98 million for Q4 2013, with an operating margin of 3.0% (2.8% in Q4 2013). Favorable pricing in all regions and continuing cost containment on SG&A expenses offset lower volumes and the negative fixed-cost absorption in EMEA, when compared to the positive effects in Q4 2013 mainly driven by the Euro V pre-buy, and in LATAM, where markets remained weak.
Powertrain
Net sales for Powertrain were $4,464 million in 2014, an increase of 1.2% compared to 2013 (up 1.4% on a constant currency basis), primarily attributable to higher volumes. Sales to external customers accounted for 41% of total net sales (34% in 2013).
During the year, Powertrain sold a total of 583,589 engines, an increase of 7.1% compared to 2013. By major customer, 24% of engines were supplied to Agricultural Equipment, 24% to Commercial Vehicles, 5% to Construction Equipment and the remaining 47% to external customers (units sold to third parties were up 25% compared to 2013). Additionally, Powertrain delivered 64,174 transmissions (+3.3% compared to 2013) and 156,921 axles, in line with the prior year.
Powertrain closed the year with an operating profit of $223 million, up $36 million from 2013, with an operating margin of 5.0% (4.2% for 2013). The improvement was due to the increase in volumes, a larger proportion of third-party business, and industrial efficiencies.
For the fourth quarter 2014, Powertrain net sales totaled $988 million, a decrease of 25.8% over the same period in 2013 (down 19.1% on a constant currency basis) due to a different quarterly cadence in engine production year over year.
Operating profit was $66 million for the quarter (operating margin of 6.7%), compared to $69 million (operating margin of 5.2%) for Q4 2013, with the impact of lower volumes partially offset by cost containment actions.
Financial Services
In 2014 Financial Services reported revenues of $1,828 million, an increase of 8.9% compared to 2013, primarily driven by the increase in the average value of the portfolio.
Net income was $364 million for the year, compared to $342 million for 2013 which was negatively affected by the dissolution cost, net of taxes, of $25 million related to the joint venture with the Barclays group. Excluding this item, the improvement mainly attributable to a higher average portfolio value was offset by higher provisions for credit losses and higher income taxes.
Retail loan originations in the year were $10.8 billion, a decrease of $0.6 billion compared to 2013. The managed portfolio (including joint ventures) of $27.3 billion (of which retail was 65% and wholesale 35%) was up $0.4 billion compared to December 31, 2013. Excluding the impact of currency, the managed portfolio increased $2.2 billion, primarily in NAFTA (retail and wholesale) and LATAM (wholesale).
For the fourth quarter 2014, Financial Services’ revenues totaled $465 million, up 7.6% compared to the same period in 2013, primarily due to the increase in the average value of the portfolio
Net income was $98 million for the quarter compared to $122 million for Q4 2013, as the increase in revenues, driven by higher average portfolio, and lower provisions for credit losses were more than offset by higher income taxes.
Dividends
Based on estimated 2014 profit and retained earnings available for distribution by CNH Industrial N.V., and subject to formal Board approval of the Company’s 2014 financial statements anticipated to occur on or before beginning of March 2015, the Board of Directors of CNH Industrial N.V. intends to recommend to the Company’s shareholders at the Annual General Meeting a dividend of €0.20 per common share, totaling approximately $307 million at the exchange rate of 1.134 U.S. dollars per euro on January 28, 2015 (€271 million).
2015 U.S. GAAP
Outlook The Company expects improved profitability in Commercial Vehicles and Construction Equipment, coupled with structural cost improvement measures from the Company’s Efficiency Program now extended to Agricultural Equipment. These actions are expected to buffer, but not fully offset the negative impact from the continuation of challenging trading conditions in the row crop sector of the agricultural industry, and the impact of the recent significant appreciation of the U.S. dollar against the Company’s other trading currencies, allowing the Company to hold operating margin unless there are further currency deteriorations from the current rate levels outside the United States.
Therefore, CNH Industrial is setting its 2015 guidance as follows:
- Net sales of Industrial Activities of approximately $28 billion, with an operating margin of Industrial Activities between 6.1% and 6.4%;
- Net industrial debt at the end of 2015 between $2.2 billion and $2.4 billion, with the expected cash generation during the year resulting primarily from the inventory reduction in the Agricultural Equipment segment.