• 29-JUL-2015

2015 Second Quarter Results

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CNH Industrial closed second quarter with revenues of $7.0 billion, operating profit of Industrial Activities of $401 million, and net income of $122 million

Financial results under U.S. GAAP(*) (**)

  • Second quarter revenues totaled $7.0 billion, down 10% compared to Q2 2014 on a constant currency basis (down 22% on a reported basis). Net sales of Industrial Activities were $6.6 billion, down 10% compared to Q2 2014 on a constant currency basis (down 23% on a reported basis).
  • Operating profit of Industrial Activities for the quarter was $401 million ($678 million in Q2 2014), with operating margin at 6.0% (7.9% in Q2 2014).
  • Costs for research and development and selling, general and administrative expenses were $851 million in Q2 2015, down $199 million or 19% compared to Q2 2014.
  • Net income was $122 million, or $0.09 per share. Net income before restructuring and other exceptional items was $141 million, or $0.11 per share, down $241 million compared to Q2 2014.
  • Net industrial debt was $3.0 billion at June 30, 2015 ($3.1 billion at March 31, 2015). Available liquidity totaled $7.8 billion ($7.2 billion at March 31, 2015).
  • Full year guidance updated as follows: net sales of Industrial Activities in the range of $26-27 billion, with operating margin of Industrial Activities between 5.6% and   6.0% and net industrial debt at the end of 2015 between $2.0 billion and $2.2 billion. (*) CNH Industrial reports quarterly and annual consolidated financial results under U.S. GAAP and IFRS. The following tables and discussion related to the financial results of the Company and its 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. (**) Refer to the Non-GAAP Financial Information section of this  press release for information regarding non-GAAP financial measures.

(*) CNH Industrial reports quarterly and annual consolidated financial results under U.S. GAAP and IFRS. The following tables and discussion related to the financial results of the Company and its 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.

(**) Refer to the Non-GAAP Financial Information section of this press release for information regarding non-GAAP financial measures.

London (UK) – (July 29, 2015) CNH Industrial N.V. (NYSE:CNHI / MI:CNHI) today announced consolidated revenues of $6,958 million for the second quarter of 2015, down 10.0% compared to Q2 2014 on a constant currency basis (21.9% on a reported basis). Net sales of Industrial Activities were $6,634 million in Q2 2015, down 10.0% compared to Q2 2014 on a constant currency basis (22.5% on a reported basis). Excluding the negative impact of currency translation, net sales increased for Commercial Vehicles (up 11.9%) confirming a positive trend in EMEA for trucks and buses. This increase was more than offset by the forecasted protracted decline in Agricultural Equipment, driven by lower industry volumes in the row crop sector and dealer inventory de-stocking actions, primarily in NAFTA, slightly offset by favorable net pricing in all regions. Furthermore, net sales decreased in Construction Equipment, due to negative industry volumes primarily in LATAM, and in Powertrain, due to lower sales to captive customers.

Operating profit of Industrial Activities was $401 million in Q2 2015, a $257 million decrease compared to Q2 2014 on a constant currency basis (down $277 million on a reported basis), with an operating margin for the second quarter of 6.0%, down 1.9 p.p. compared to Q2 2014. Operating profit declined in Agricultural Equipment, driven by negative volume and product mix in the row crop sector, primarily in NAFTA, and negative foreign exchange impacts, primarily resulting from the weakening of the euro and the Brazilian real. These negative factors were partially offset by positive net pricing, and cost control actions including purchasing efficiencies and structural cost reductions. Commercial Vehicles’ operating result improved due to favorable volume, product and market mix, and pricing, as well as manufacturing efficiencies and cost reductions in selling, general and administrative (“SG&A”) expenses. Construction Equipment’s operating profit improved as cost containment actions more than offset the negative impact from lower volume in LATAM, primarily in Brazil. Net of the negative impact of currency translation, Powertrain’s operating profit was substantially flat, as a result of lower volumes offset by favorable product mix and manufacturing efficiencies.

Restructuring expenses totaled $22 million for the quarter, $8 million lower than Q2 2014, and mainly relate to actions in Commercial Vehicles and Agricultural Equipment as part of the Company’s Efficiency Program launched in 2014.

Interest expense, net totaled $117 million for the quarter, a decrease of $41 million or 26% compared to Q2 2014, primarily due to a more favorable cost of funding and a lower average indebtedness in the quarter.

Other, net was a charge of $93 million for the quarter, an increase of $30 million compared to Q2 2014 mainly as a result of higher foreign exchange losses.

Income taxes totaled $126 million, representing an effective tax rate of 53.6% for the quarter (32.6% in Q2 2014, which had been impacted by certain discrete tax benefits as a result of the favorable resolution of tax audits). The Q2 2015 tax rate is negatively impacted by the inability to record deferred tax assets on losses in certain jurisdictions. The Company’s effective tax rate for the full year is expected now to be in the range of 48% to 52%. Nonetheless, the long-term effective tax rate target of between 34% to 36% range remains unchanged.

Equity in income of unconsolidated subsidiaries and affiliates totaled $13 million for the quarter ($31 million for Q2 2014). The decrease was mainly due to lower results of joint ventures in APAC.

Net income of Financial Services was $98 million for the quarter compared to $105 million for Q2 2014, mainly due to the negative impact of currency translation partially offset by a reduction in SG&A expenses.

Consolidated net income was $122 million for the quarter ($358 million for Q2 2014), or $0.09 per share ($0.26 for Q2 2014). Net income before restructuring and other exceptional items was $141 million for the quarter ($382 million in Q2 2014) or $0.11 per share ($0.28 for Q2 2014).

Net industrial debt was $3.0 billion at June 30, 2015 ($3.1 billion at March 31, 2015 and $2.7 billion at December 31, 2014). Net industrial cash flow generation of $0.5 billion in the second quarter 2015 was primarily attributable to a reduction in working capital as a result of inventory reduction actions in Agricultural Equipment and the increase in demand for Commercial Vehicles in EMEA. In addition, the change in net industrial debt in the second quarter includes $0.3 billion in dividends paid to shareholders in April 2015 and an unfavorable foreign exchange impact on euro denominated debt.

Available liquidity at June 30, 2015 was $7.8 billion, inclusive of $2.8 billion in undrawn committed facilities, $0.6 billion higher than March 31, 2015, mainly due to the new CNH Industrial Capital LLC $0.6 billion three year bond issuance and positive cash-flow from operating activities that more than offset bank debt reduction and dividend distribution.

Agricultural Equipment

Agricultural Equipment’s net sales were $3,035 million for the quarter, down 23.7% compared to Q2 2014 on a constant currency basis (down 31.6% on a reported basis). The decrease was driven by the anticipated decline in industry volumes in the row crop sector and dealer inventory de-stocking actions, primarily in NAFTA, slightly offset by favorable net pricing in all regions. The geographic distribution of net sales for the period was 38% NAFTA, 39% EMEA, 10% LATAM and 13% APAC.

In the Company’s key product segments in NAFTA, the over 140 horsepower (“hp”) tractor segment as well as the combine segment were down 31%. The under 40 hp tractor segment in the region was up 5%, and the 40- 140 hp tractor segment was up 2%. EMEA markets were down 7% for tractors and 9% for combines. In LATAM, tractor and combine markets decreased 26% and 19%, respectively. APAC markets decreased 3% for tractors and 17% for combines.

 Worldwide agricultural equipment industry unit sales were down 4% for tractors and down 17% for combines. The Company’s market share performance in Agricultural Equipment was mixed in the second quarter. Tractor market share improved in all markets, most significantly in the higher horsepower tractor segment in NAFTA, while market share declined in the under 40 hp tractor segment in NAFTA. For combines, market share decreased in all regions, after a strong performance in Q1 2015. For the six-month period, the Company’s market share was generally up in both tractors and combines.

In Q2 2015, Agricultural Equipment’s worldwide unit production was 14% below retail sales in the continued effort to reduce channel inventory and align production with current demand. The finished goods inventory for the Company and its dealers declined approximately a combined $700 million since Q2 2014, and current production levels are expected to further drive down total inventory levels in the second half of 2015.

Agricultural Equipment’s operating profit was $263 million for the quarter ($632 million in Q2 2014), with an operating margin of 8.7% (14.2 % in Q2 2014). The year-over-year change was driven by lower sales volume and less favorable product mix in the row crop sector, primarily in NAFTA, and by negative foreign exchange impacts, primarily as a result of the sharp weakening of the euro and the Brazilian real. Those effects were slightly offset by positive net pricing and cost control actions, including purchasing efficiencies and structural cost reductions.

Construction Equipment

Construction Equipment’s net sales were $740 million for the quarter, down 14.8% compared to Q2 2014 on a constant currency basis (down 20.5% on a reported basis), due to negative industry volumes primarily in LATAM. The geographic distribution of net sales for the period was 58% NAFTA, 20% EMEA, 12% LATAM and 10% APAC.

In Q2 2015, Construction Equipment’s worldwide heavy and light industry sales were down 18% and 1%, respectively. Industry light equipment sales were up in NAFTA and EMEA, but down in LATAM and APAC. Industry heavy equipment sales decreased in all regions, primarily in LATAM and APAC.

 Construction Equipment’s worldwide market share was mainly in line with prior year for both heavy and light construction equipment in all regions except for LATAM, where municipality-driven demand declined significantly as infrastructure investments, where the Company has a significant position, slowed.

Construction Equipment’s worldwide production levels were 16% above retail sales in the quarter to accommodate seasonal shutdowns scheduled for the third quarter in NAFTA and EMEA.

Construction Equipment reported operating profit of $35 million for the second quarter compared to $28 million for Q2 2014. Operating margin increased 1.7 p.p. to 4.7% (3.0% in Q2 2014), as cost containment actions more than offset the negative impact from lower volume in LATAM, primarily in Brazil.

Commercial Vehicles

Commercial Vehicles’ net sales were $2,470 million for the quarter, up 11.9% compared to Q2 2014 on a constant currency basis (down 8.7% on a reported basis), confirming a positive trend in EMEA for trucks and buses. In APAC, net sales increased mainly driven by positive performance of buses, while trucks’ performance was affected by the market decline in Russia. In LATAM, net sales decreased mainly due to a further decline in the Brazilian market for heavy trucks, partially offset by a modest market recovery in Argentina. The geographic distribution of net sales for the period was 77% EMEA, 14% LATAM and 9% APAC.

The European truck market (GVW ≥3.5 tons) was up 17.4% compared to Q2 2014. The light vehicle market (GVW 3.5-6.0 tons) increased 15.2%, the medium vehicle market (GVW 6.1-15.9 tons) increased 6.3% and the heavy vehicle market (GVW ≥16 tons) increased 24.1%. In LATAM, new truck registrations (GVW ≥3.5 tons), declined 35.2% compared to Q2 2014, with a decrease of 44.3% in Brazil and 26.3% in Venezuela, while Argentina increased by 26.1%. In APAC registrations declined 6.3%.

In Q2 2015, the Company’s market share in the European truck market (GVW ≥3.5 tons) was 11.5%, up 0.6 p.p. compared with Q2 2014. The Company’s market share in LATAM was 12.5%, up 3.2 p.p. compared to Q2 2014.

Commercial Vehicles delivered approximately 37,800 vehicles (including buses and specialty vehicles) in the quarter, representing a 14% increase compared to Q2 2014. Volumes were higher in all segments, with light up 14%, medium up 18% and heavy up 7%. Commercial Vehicles’ deliveries increased 22% in EMEA, while LATAM and APAC were down 8% and 17%, respectively.

Commercial Vehicles’ Q2 2015 ending book-to-bill ratio was 1.06, an increase of 17% over Q2 2014. Second quarter 2015 truck order intake in EMEA increased 49% compared to Q2 2014, with a 62% increase in heavy trucks in Europe.

Commercial Vehicles closed the second quarter with an operating profit of $67 million compared to a loss of $21 million for Q2 2014 (up $89 million on a constant currency basis), with an operating margin of 2.7% (negative margin of 0.8% in Q2 2014), as a result of higher volume, better product and market mix, positive pricing, manufacturing efficiencies and SG&A expense reductions. In EMEA, the increase in operating profit is mainly attributable to trucks and buses. Results in APAC were substantially flat compared to Q2 2014. LATAM, despite the significant negative market trend in Brazil, was able to reduce its cost base to partially offset the negative impact of reduced wholesale volumes. Furthermore, LATAM performance was positively impacted by a modest improvement in Argentina and a recovery of Company’s activity in Venezuela. However, the continuing economic uncertainty in Venezuela, including changes to government currency control mechanisms, may substantially impact Venezuelan operations in the future. CNH Industrial will continue to closely monitor these developments.

Powertrain

Powertrain’s net sales were $947 million for the quarter, a decrease of 6.9% compared to Q2 2014 on a constant currency basis (down 24.2% on a reported basis), on lower volumes mainly in the captive portion of the business as a result of decreased agricultural equipment demand and the 2014 build-up of Tier 4 final transition engine inventory for the off-road segment. Sales to external customers accounted for 42% of total net sales (41% in Q2 2014).

During the quarter, Powertrain sold approximately 134,800 engines, a decrease of 16% compared to Q2 2014. By major customer, 10% of engine units were supplied to Agricultural Equipment, 35% to Commercial Vehicles, 4% to Construction Equipment and the remaining 51% to external customers. Additionally, Powertrain delivered approximately 20,900 transmissions and 51,800 axles, an increase of 14% and 17%, respectively, compared to Q2 2014.

Powertrain’s operating profit was $53 million for the quarter, down $11 million compared to Q2 2014, with an operating margin of 5.6% (up 0.5 p.p. compared to Q2 2014). Net of the negative impact of currency translation, operating profit was substantially flat, as a result of lower volumes offset by favorable product mix and manufacturing efficiencies.

Financial Services

Financial Services’ revenues were $423 million for the quarter, an increase of 2.5% compared to Q2 2014 on a constant currency basis (down 9.6% on a reported basis), due to the geographical mix of the portfolio.

Financial Services’ net income was $98 million, down $7 million compared to Q2 2014, as the negative impact of currency translation was partially offset by reduced SG&A expenses.

Retail loan originations in the quarter were $2.4 billion, down $0.4 billion compared to Q2 2014, mostly due to the decline in Agricultural Equipment sales. The managed portfolio (including unconsolidated joint ventures) of $25.4 billion as of June 30, 2015 (of which retail was 65% and wholesale 35%) was up $0.2 billion compared to March 31, 2015. Excluding the impact of currency translation, the portfolio decreased $0.2 billion, primarily in LATAM (retail and wholesale).

2015 U.S. GAAP Guidance

As a result of continued demand weakness in the agricultural row crop sector and in order to foster additional clearing of finished goods inventory, primarily in the North American and LATAM markets, the Company will adjust production accordingly in the second half of 2015.

Full year guidance is therefore updated as follows to reflect the negative impact on operating margin and the positive impact on working capital due to these production adjustments:

  •  Net sales of Industrial Activities in the range of $26-27 billion, with an operating margin of    Industrial Activities between 5.6% and 6.0%;
  •  Net industrial debt at the end of 2015 between $2.0 billion and $2.2 billion.