2014 First Quarter Results
CNH INDUSTRIAL FIRST QUARTER REVENUES OF $7.5 BILLION, NET INCOME OF $101 MILLION
FINANCIAL RESULTS UNDER U.S. GAAP(*) (**)
- First quarter revenues totaled $7.5 billion, in line with Q1 2013. Net sales of Industrial Activities at $7.2 billion decreased 0.6% vs Q1 2013 (+1.3% on a constant currency basis).
- Operating profit of Industrial Activities for the quarter was $412 million, down 2.1% against Q1 2013, with operating margin at 5.7%.
- Net income was $101 million, or $0.07 per share. Net income before restructuring and other exceptional items was $177 million, or $0.13 per share, down $8 million against Q1 2013.
- Net industrial debt was $4.0 billion at March 31, 2014 ($2.2 billion at December 31, 2013). Available liquidity totaled $8.1 billion ($8.7 billion at December 31, 2013), after the issuance of a €1 billion bond, due March 2019, with an annual fixed rate of 2.75%.
- CNH Industrial is releasing today its 2014-2018 Business Plan.
(*) 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 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 a subsequent section 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 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.
Basildon (UK) – (May 8, 2014) CNH Industrial N.V. (NYSE:CNHI / MI:CNHI) today announced consolidated revenues of $7,540 million for the first quarter 2014, in line with Q1 2013. Net sales of Industrial Activities were $7,213 million in Q1 2014, a 0.6% decrease compared to the prior year (+1.3% on a constant currency basis). Net of a 1.9% negative impact of currency translation, net sales increased in Construction Equipment and Powertrain, offsetting reduced net sales for Agricultural Equipment, primarily in LATAM. Net sales for Commercial Vehicles were substantially flat compared to Q1 2013.
Operating profit of Industrial Activities was $412 million in Q1 2014, a 2.1% decrease compared to Q1 2013 (+3.3% on a constant currency basis) with an operating margin for the first quarter of 5.7%. Operating profit increases in Construction Equipment and Powertrain, together with margin improvements in Agricultural Equipment, were more than offset by the negative effects of challenging operating conditions in LATAM affecting Commercial Vehicles mainly due to a significant decline in demand in Brazil and in manufacturing activities in Venezuela, as well as by a 5.3% negative currency translation impact.
Interest expense, net totaled $141 million for the quarter, $29 million higher than Q1 2013 primarily due to an increase in average net industrial debt, mainly due to working capital build-up to support expected increase in seasonal activity in Q2.
Other, net was a charge of $94 million for the quarter ($97 million for Q1 2013). In Q1 2014 Other, net included a pre-tax charge of $64 million due to the re-measurement of Venezuelan assets denominated in Bolivares following the changes in Venezuela’s exchange rate mechanism. In Q1 2013, Other, net included a pre-tax charge of $41 million related to the dissolution of the Financial Services joint venture with the Barclays group.
Income taxes totaled $143 million, representing an effective tax rate of 65.3% for the quarter. The significant increase over the 52.3% Q1 2013 effective tax rate is mainly due to the exceptional pre-tax charge relating to the re-measurement of Venezuelan assets, for which no corresponding tax impact has been book benefited. Excluding this item, the effective tax rate for the quarter was 50.5%, higher than the Company’s 2014 forecast range of 40% to 44% due to not book benefiting losses in certain jurisdictions.
Equity in income of unconsolidated subsidiaries and affiliates totaled $25 million for the quarter, in line with Q1 2013.
Net income of Financial Services was $86 million for the quarter ($59 million for Q1 2013). Q1 2013 was affected by the negative impact of $25 million, net of taxes, related to the dissolution of the joint venture with Barclays group.
Consolidated net income was $101 million for the quarter ($151 million for Q1 2013), or $0.07 per share ($0.09 for Q1 2013). Net income before restructuring and other exceptional items was $177 million for the quarter ($185 million in Q1 2013).
Net industrial debt of $4.0 billion at March 31, 2014 was $1.8 billion higher than at December 31, 2013. Net industrial cash flow absorption reflected the expected seasonal increase in working capital (mainly in Agricultural Equipment after de-stocking in Q4 2013).
Available liquidity of $8.1 billion, inclusive of $2.3 billion in undrawn committed facilities, decreased $0.6 billion during the first quarter mainly due to the anticipated seasonal increase in working capital, partially offset by a €1 billion bond ($1.4 billion equivalent) issued in March 2014 by CNH Industrial Finance Europe S.A., a wholly-owned subsidiary of CNH Industrial N.V. The notes were issued under the Global Medium Term Note Programme guaranteed by CNH Industrial N.V. at an annual fixed rate of 2.75% and are due March 2019.
2014-2018 Business Plan and 2014 US GAAP Guidance
CNH Industrial is setting its 2014 U.S. GAAP guidance consistent with the 5-year plan financial projections that will be presented at today’s Investor Day.
Net sales for Agricultural Equipment were $3,706 million for the quarter, down 6.0% from Q1 2013 (-3.9% on a constant currency basis), mainly as a result of decreased volumes primarily in LATAM and APAC and less favourable product mix. The geographic distribution of net sales for the period was 48% NAFTA, 31% EMEA, 11% LATAM and 10% APAC.
Worldwide Agricultural Equipment market share was lower for tractors and combines, mainly due to the expected timing impact from the transition to Tier 4B final emission regulations in major markets.
The Company’s worldwide production of Agricultural Equipment was 27% above retail sales for the quarter, consistent with past years as the Company increases inventory in the first quarter in anticipation of the spring and summer selling seasons.
Agricultural Equipment operating profit was $464 million for the quarter ($468 million in Q1 2013). Operating margin was 0.6 p.p. higher at 12.5%, with net price realization and improved industrial performance offsetting negative volume and mix.
Net sales for Construction Equipment were $774 million for the quarter, up 2.7% (+8.1% on a constant currency basis), as industry unit demand increased in every region except LATAM, with light equipment up 6% and heavy up 9% worldwide. The geographic distribution of net sales for the period was 38% NAFTA, 20% EMEA, 31% LATAM and 11% APAC.
Worldwide Construction Equipment share was largely unchanged for the period.
Worldwide Construction Equipment production levels were 5% above retail sales, in line with the recovery in most major markets except for LATAM.
Construction Equipment reported operating profit of $3 million compared to a $26 million loss for Q1 2013, as a result of favorable volume and mix mainly in heavy equipment, as well as positive price realization and positive contribution from containment actions on structural costs.
On April 28, 2014, the Company announced that it intends to enter into a new licensing agreement with Sumitomo (S.H.I.) Construction Machinery Co. Ltd., a wholly owned subsidiary of Sumitomo Heavy Industries, Ltd. Under this new technology license and component supply agreement, CNH Industrial will manufacture Sumitomo designed crawler excavators (models ranging from 13 to 35 tonnes) at designated plants within its manufacturing network. Start of production of the new localized models is planned for mid-2016. This agreement also extends the existing Global Product Supply agreement between CNH Industrial and Sumitomo (S.H.I.) Construction Machinery for the sourcing of excavators manufactured in Sumitomo plants. Since 1992, Sumitomo has been a supplier to the CNH Industrial global distribution network of excavators ranging from 7 to 80 tonnes. This next step will further strengthen the partnership between the two companies.
Commercial Vehicles posted first quarter net sales of $2,308 million, down 0.6% from the prior year (+0.3% on a constant currency basis), as positive performance in truck and bus in EMEA and APAC was offset by a significant decline in demand in Brazil, in manufacturing activities in Venezuela and by unfavorable calendarization of activity in parts and specialty vehicles.
A total of 27,752 vehicles (including buses and specialty vehicles) were delivered, representing a 2% increase over Q1 2013. Volumes were higher in the light (+6.1%) and the heavy (+3.7%) vehicle segments, while in the medium segment volumes were down 6.5%. Commercial Vehicles deliveries increased 9% in EMEA and 24% in APAC, while LATAM was down 28%.
The European truck market (GVW ≥3.5 tons) was up 8.1% over Q1 2013 to approximately 156,100 units. Light vehicles (GVW 3.5-6 tons) increased 7.8%, while medium vehicles (GVW 6.1-15.9 tons) posted a decline of 6.9%; the heavy vehicles market (GVW >16 tons) increased 12.3% mainly due to the end of Euro V registrations allowed in 2014 in almost all countries. With the completion of the Euro V registrations, we expect heavy vehicle market growth to slow.
The Company’s first quarter share of the European truck market (GVW ≥3.5 tons) was estimated flat at 11.3%, despite a negative market mix. In the light vehicle market, share declined by 0.6 p.p. to 10.7% largely as a result of the phase out in anticipation of the launch of the new Daily which is scheduled to begin shipments in June. In the medium vehicles market the Company achieved market leadership in Europe, with an increase of 3.8 p.p. up to a share of 31.5%. The heavy vehicle market share was up to 8.2%, with a growth of 1.0 p.p.
In LATAM, new truck registrations (GVW ≥3.5 tons) were down 11.6% compared with Q1 2013 to 43,500 units. The market decline affected all ranges and was due to the negative cycle affecting the medium and heavy market in Brazil and the instability in Venezuela. Argentina was the only market with a positive trend (+2.0%).
The Company’s share of the LATAM market (GVW ≥3.5 tons) was up 1.7 p.p. over Q1 2013 to 11.9%.
In APAC registrations were down 2.2%, while market share increased 0.4 p.p. compared with Q1 2013.
In EMEA, dealer inventories of new vehicles remained stable compared to year-end 2013, representing coverage of approximately 3 months of expected activity.
Commercial Vehicles closed the first quarter with an operating loss of $70 million compared with a loss of $28 million for Q1 2013, as a result of negative market mix related to a significant slowdown of activity in LATAM affecting volume and manufacturing operations, and transitional costs with the launch of the new Daily and Euro VI bus product line-up. In addition, price realization under-recovered negative foreign exchange impacts in emerging market currencies (mainly in Brazil, Turkey and Russia). EMEA performance in truck and bus was flat compared with Q1 2013, notwithstanding a slow Q1 2014 after the strong finish last year due to the pre-buy in advance of Euro VI introduction.
In April 2014, Commercial Vehicles announced it was temporarily suspending its manufacturing operations in Venezuela, effectively immediately, due to the continuing currency crisis which has caused difficulties for Venezuelan industry in the importation of key components and materials.
Powertrain reported first quarter net sales of $1,201 million, an increase of 23.3% over Q1 2013 (+19.7% on a constant currency basis) primarily attributable to higher volumes. Sales to external customers accounted for 37% of total net sales (31% in the same period in 2013).
During the quarter, Powertrain sold a total of 157,370 engines, an increase of 28% year-over-year. By major customer, 27% of engines were supplied to Agricultural Equipment, 25% to Commercial Vehicles, 4% to Construction Equipment and the remaining 44% to external customers. Additionally, Powertrain delivered 17,276 transmissions and 40,136 axles, an increase of 10% and 6%, respectively, over the same period in 2013.
Powertrain closed the first quarter with an operating profit of $34 million, up $20 million from the same period in 2013, with an operating margin of 2.8% (1.4% for Q1 2013). The improvement was mainly due to the increase in volumes and related industrial efficiencies.
Financial Services reported first quarter revenues of $440 million, an increase of 5.5% compared to Q1 2013, primarily driven by the increase in the average value of the portfolio.
Financial Services reported net income of $86 million, up $27 million over the same period in 2013, mainly driven by a higher average portfolio value offset by SG&A increases associated with new activities launched in EMEA and LATAM to support Commercial Vehicles. Further, Q1 2013 results were negatively affected by the dissolution cost, net of taxes, of $25 million related to the joint venture with the Barclays group.
Retail loan originations in the quarter were $2.3 billion, down $156 million compared to Q1 2013, due mostly to the decline in Agricultural Equipment sales. The managed portfolio (including joint ventures) of $27.8 billion (of which Retail was 65% and Wholesale 35%) was up $0.9 billion compared to December 31, 2013 (of which Retail was up $0.6 billion and Wholesale was up $0.3 billion).
FINANCIAL RESULTS UNDER IFRS (*)
(*) Refer to the Non-GAAP Financial Information section of this press release for information regarding Non-GAAP financial measures. Prior period results prepared in euro have been consistently recast into U.S. dollar.
On an IFRS basis, CNH Industrial posted revenues of $7,644 million for the first quarter 2014, a decrease of 0.2% from the same quarter in 2013 (+1.7% on a constant currency basis).
Consolidated trading profit was $510 million for the first quarter, down $28 million or -5.2% from Q1 2013 (-1.1% on a constant currency basis). Trading margin for the first quarter decreased 0.3 p.p. to 6.7%. Agricultural Equipment trading profit was $442 million ($446 million in Q1 2013), with a trading margin of 11.9% (11.3% in Q1 2013). Construction Equipment reported a trading profit of $1 million ($28 million loss in Q1 2013). Commercial Vehicles closed the first quarter with a trading loss of $74 million (trading loss of $23 million for Q1 2013). Powertrain closed the first quarter with a trading profit of $30 million, compared with $15 million for the same period in 2013, with a trading margin of 2.5% (1.5% for Q1 2013). Financial Services reported a trading profit of $130 million, down $5 million over the same period in 2013.
Profit before taxes totaled $291 million ($364 million for Q1 2013), down $73 million mainly reflecting the $28 million reduction in trading profit, as well as higher net financial expense which totaled $215 million for the quarter (inclusive of the $64 million pre-tax charge for the re-measurement of Venezuelan assets), compared with $149 million for the same period in 2013: excluding this exceptional charge, net financial expenses totaled $151 million, in line with Q1 2013, as increased financial expenses deriving from higher average net industrial debt were offset by lower foreign exchange losses. Result from investments totaled $26 million, in line with Q1 2013.
Income taxes for the first quarter totaled $145 million ($138 million for Q1 2013), representing an effective tax rate of 49.8% for the quarter. The significant increase over the 37.9% Q1 2013 effective tax rate is mainly due to the exceptional charge relating to Venezuela, for which no corresponding tax impact can be recorded. Excluding this item, the effective tax rate was 40.8%, higher than the Company’s 2014 forecast range of 36% to 40% due to not book benefiting losses in certain jurisdictions.
Consolidated net profit was $146 million, or $0.11 per share, compared with $226 million, or $0.15 per share for Q1 2013.
Net industrial debt of $4.0 billion at March 31, 2014 was $1.8 billion higher than at December 31, 2013, the same as under US GAAP.
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