CNH Industrial 2016 third quarter revenues of $5.7 billion, with net income of $39 million and net industrial debt of $2.7 billion at quarter-end
- Adjusted net income(2)(3) was $68 million in the third quarter of 2016, with adjusted diluted EPS(2) of $0.05
- Operating profit(2) of Industrial Activities was $248 million in the third quarter of 2016, with operating margin of 4.5%; year-over-year operating profit and margin improvements were achieved in Agricultural Equipment, Powertrain and Commercial Vehicles
- In the quarter the Company repurchased $450 million in principal amount of 7.875% Notes due 2017, and issued $600 million in principal amount of 4.50% Notes due 2023
- CNH Industrial announced today its agreement to acquire the agricultural grass and soil implement business of Kongskilde Industries to expand its offering in tillage, seeding and hay & forage segments
- Full year guidance reaffirmed
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,” said 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% to 36%.
Net industrial debt(1) 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(1) 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,” said Richard Tobin. “We demonstrated our commitment to technological advancement and Precision Farming with our autonomous tractor concept vehicle at Farm Progress in August. Today 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.”
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.
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).
(2) This item is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Information” section of this press release for information regarding non-GAAP financial measures.
(3) Refer to the specific table in the “Other Supplemental Financial Information” section of this press release for the reconciliation between “Net income (loss)” and “Adjusted net income”.