CNH Industrial closes the year with strong results. Fourth quarter 2015 revenues of $7.1 billion, operating profit of Industrial Activities of $563 million, up 50%, at a margin of 8.2%, net income before restructuring and other exceptional items of $262 million and net industrial debt at $1.6 billion. Highest agricultural equipment operating margin amongst major OEMs, at 11.7% for the fourth quarter.
Financial results under U.S. GAAP(*) (**)
- Revenues totaled $7.1 billion for the fourth quarter and $25.9 billion for the full year 2015. Net sales of Industrial Activities were $6.9 billion for the quarter and $24.7 billion for the year.
- Operating profit of Industrial Activities was $563 million for the quarter, an increase of 50%, at an operating margin at 8.2%, up 3.5 p.p. compared to the same period in 2014. For the full year, operating profit of Industrial Activities was $1,432 million, with operating margin at 5.8%.
- Net income was $231 million ($0.17 per share) for the quarter and $248 million ($0.19 per share) for the full year. Net income before restructuring and other exceptional items was $262 million ($0.19 per share) for the quarter and $474 million ($0.35 per share) for the full year.
- Net industrial debt was $1.6 billion at December 31, 2015, a decrease of $1.1 billion or 40% from December 31, 2014. Available liquidity totaled $9.3 billion ($8.9 billion at December 31, 2014).
- The Board of Directors is recommending for 2015 a dividend of €0.13 per common share, or approximately $200 million (€177 million).
- The Board of Directors announces a buy-back of Company's common shares of up to $300 million.
- For 2016 CNH Industrial expects net sales of Industrial Activities between $23 billion and $24 billion, with operating margin of Industrial Activities between 5.2% and 5.8%. Net industrial debt expected between $1.5 billion and $1.8 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.
London (UK) – (January 29, 2016) CNH Industrial N.V. (NYSE:CNHI / MI:CNHI) today announced consolidated revenues of $7,144 million for the fourth quarter 2015, down 4.1% compared to Q4 2014 on a constant currency basis (down 14.6% on a reported basis). Net sales of Industrial Activities were $6,869 million in Q4 2015, down 3.6% compared to Q4 2014 on a constant currency basis (down 14.3% on a reported basis). The full year 2015 consolidated revenues were $25,912 million, down 9.2% compared to 2014 on a constant currency basis (down 20.4% on a reported basis). Net sales of Industrial Activities were $24,677 million in 2015, down 9.6% compared to 2014 on a constant currency basis (down 20.9% on a reported basis). Net sales of Commercial Vehicles increased 4.8% excluding the negative impact of currency translation, due to increased demand and market share gains in the EMEA region. Net sales of Agricultural Equipment declined 19.6% excluding the negative impact of currency translation, driven by lower industry volumes in the NAFTA and LATAM row crop sectors offset by positive net price realization. Net sales also decreased in Construction Equipment, due primarily to negative industry volumes in LATAM, and in Powertrain, due to lower volume to captive customers.
Operating profit of Industrial Activities was $563 million for the fourth quarter, a $187 million increase compared to the same period in 2014, with an operating margin of 8.2%, up 3.5 p.p. compared to Q4 2014. Operating profit for the quarter increased in Agricultural Equipment and in Construction Equipment, driven by net price realization, structural cost reductions and favorable material costs. Commercial Vehicles’ operating profit improved due to favorable pricing in all regions and manufacturing efficiencies in EMEA. Net of the impact of currency translation, Powertrain’s operating profit increased as a result of positive product mix and selling, general and administrative (“SG&A”) expense reductions. For the full year 2015, operating profit of Industrial Activities totaled $1,432 million, a $556 million decrease compared to 2014, with an operating margin for the year at 5.8%. Excluding the negative impact of foreign exchange translation, Commercial Vehicles’ operating profit improved due to increased volume in EMEA, positive pricing, manufacturing efficiencies and a reduction in SG&A expenses as a result of the Company’s Efficiency Program. Construction Equipment’s operating profit increased as net price realization and cost containment actions more than offset the negative impact of lower volumes in LATAM. Operating profit declined in Agricultural Equipment, driven primarily by reduced industry volume in the NAFTA and LATAM row crop sectors and by foreign exchange translation impact, partially offset by net price realization, material and structural cost reductions. Powertrain’s operating profit decreased mainly as a result of lower agricultural equipment demand and foreign exchange translation.
Restructuring expenses totaled $32 million in the quarter, $54 million lower than Q4 2014. In 2015, restructuring expenses were $84 million, $100 million lower than 2014, due to actions included in the Company’s Efficiency Program launched in 2014.
Interest expense, net totaled $138 million in the fourth quarter, a decrease of $26 million or 16% compared to the same period in 2014. In 2015, interest expense, net was $479 million, a reduction of $134 million or 22% compared to 2014 as a result of reduced average indebtedness.
Other, net was a charge of $102 million for the fourth quarter 2015 (charge of $59 million for Q4 2014), an increase of $43 million compared to the same period in 2014 mainly due to higher foreign exchange losses. In 2015, other, net was a charge of $505 million (charge of $313 million for 2014). The increase of $192 million was mainly the result of the third quarter exceptional pre-tax charge of $150 million related to the re-measurement of the net monetary assets of the Venezuelan operations.
Income taxes were $101 million in the fourth quarter 2015, representing an effective tax rate of 31.2%. In 2015, income taxes totaled $360 million, representing an effective tax rate of 63.5%. Excluding the impact of the exceptional pre-tax charge relating to the re-measurement of the Venezuelan operations, and the impact of the inability to record deferred tax assets on losses in certain jurisdictions, primarily Brazil, the effective tax rate for 2015 was 37%. The long-term effective tax rate target of between 34% to 36% range remains unchanged.
Equity in income of unconsolidated subsidiaries and affiliates totaled $8 million for Q4 2015. Full year equity in income was $41 million. The decrease compared to 2014 was mainly due to lower results of joint ventures in the APAC region, including the negative impact of foreign currency differences.
Net income of Financial Services was $91 million for Q4 2015, lower by $7 million due to reduced net interest margin and the negative impact of currency translation, partially offset by lower income taxes. For the full year 2015, Financial Services’ net income was $368 million, an increase of $4 million, due to lower provisions for credit losses, lower SG&A expenses and reduced income taxes, partially offset by the negative impact of currency translation.
Net income attributable to CNH Industrial N.V. was $231 million for the quarter, or $0.17 per share. Net income before restructuring and other exceptional items was $262 million for the quarter, or $0.19 per share. Net income attributable to CNH Industrial N.V. was $253 million for 2015, or $0.19 per share. Net income before restructuring and other exceptional items was $474 million for 2015, or $0.35 per share.
Net industrial debt of $1.6 billion at December 31, 2015 was $1.8 billion lower than at September 30, 2015 and $1.1 billion lower than at December 31, 2014. Net industrial cash flow was a net inflow of $1.8 billion in the fourth quarter and $0.8 billion in the year, as a result of reductions in working capital.
Available liquidity at December 31, 2015 was $9.3 billion, inclusive of $3.0 billion in undrawn committed facilities, compared to $8.9 billion at December 31, 2014.
Agricultural Equipment
Agricultural Equipment’s net sales totaled $2,982 million for the fourth quarter 2015, a decrease of 3.8% compared to the same period in 2014 on a constant currency basis (down 12.4% on a reported basis), due to lower industry volumes, partially offset by positive net pricing. In the full year 2015, Agricultural Equipment’s net sales were $11,025 million, down 19.6% compared to 2014 on a constant currency basis (down 27.5% on a reported basis), driven by declining industry volumes in the NAFTA and LATAM row crop sectors.
Operating profit was $348 million for the fourth quarter, a $107 million increase compared to Q4 2014, with an operating margin of 11.7%, up 4.6 p.p. over the same period in 2014 and the highest in the OEM space. The increase was due to net price realization, structural cost reductions and favorable material costs, partially offset by reduced industry volume in the row crop sector and negative foreign exchange translation. In the full year 2015, Agricultural Equipment’s operating profit was $952 million, with an operating margin of 8.6%.
For the full year 2015, worldwide agricultural equipment industry unit sales were down compared to 2014, with global demand for tractors and combines down 8% and 19%, respectively. The NAFTA row crop sector was down, with tractors over 140 horsepower down 31% and combines down 28%. The NAFTA tractor under 40 hp segment was up 6%, while the 40-140 hp segment was down 3%. EMEA markets were down 7% for tractors and 7% for combines. LATAM tractor sales decreased 27%, and combine sales decreased 39%. APAC markets decreased 9% for tractors and 4% for combines.
For 2015, Agricultural Equipment’s worldwide market share performance was flat to the prior year for both tractors and combines.
Construction Equipment
Construction Equipment’s net sales totaled $609 million for the fourth quarter 2015, a decrease of 18.7% compared to the same period in 2014 on a constant currency basis (down 23.9% on a reported basis), with demand weakness in NAFTA and LATAM markets. In the full year 2015, Construction Equipment’s net sales were $2,542 million, down 18.3% compared to 2014 on a constant currency basis (down 24.0% on a reported basis), due to reduced industry demand, primarily in LATAM and APAC.
Operating profit was $18 million for the fourth quarter 2015, with an operating margin of 3.0%, up 1.9 p.p. over the same period in 2014. The increase was a result of positive net price realization, and structural cost containment actions. In the full year 2015, Construction Equipment reported operating profit of $90 million, a 14% increase compared to 2014. Operating margin increased 1.1 p.p. to 3.5%, as net price realization and structural cost containment actions, more than offset the negative impact from lower volumes in LATAM and APAC.
In 2015, worldwide construction equipment industry units for heavy and light products were down 18% and 4%, respectively, compared to 2014. Decreased industry volumes in LATAM and APAC were partially offset by moderate growth in NAFTA. Demand for heavy and light construction equipment was flat in EMEA.
Construction Equipment’s worldwide market share was flat overall year over year, with a decrease in LATAM and NAFTA, offset by an increase in market share in APAC and EMEA.
Commercial Vehicles
Commercial Vehicles’ net sales totaled $2,846 million for the fourth quarter 2015, a decrease of 1.2% compared to the same period in 2014 on a constant currency basis (down 15.1% on a reported basis). EMEA net sales increased, excluding the impact of currency translation, driven by higher industry volumes and market share increases. In LATAM, net sales decreased due to the decline of the Brazilian market, partially offset by increased deliveries in Argentina. In the full year 2015, Commercial Vehicles’ net sales were $9,542 million, an increase of 4.8% compared to 2014 on a constant currency basis (down 12.4% on a reported basis) as a result of increased deliveries in EMEA. Excluding the impact of currency translation, EMEA net sales increased, driven by higher volumes, increases in market share and favorable pricing. In LATAM, net sales decreased mainly due to declining volume in the Brazilian market.
Operating profit was $155 million for the fourth quarter 2015, a 55% increase compared to Q4 2014, with an operating margin of 5.4%, up 2.4 p.p. over the same period in 2014. Favorable pricing in all regions, EMEA manufacturing efficiencies and material cost reductions drove the increase in profitability. In the full year 2015, Commercial Vehicles reported an operating profit of $283 million, a $254 million increase compared to 2014, with an operating margin of 3.0% (up 2.7 p.p. over 2014), due to higher volumes in EMEA, positive pricing, manufacturing efficiencies and SG&A expense reduction as a result of the Company’s Efficiency Program. In LATAM, positive pricing, as well as manufacturing and SG&A cost containment actions, offset a large portion of the lower volumes in Brazil.
In 2015, the European truck market (GVW ≥3.5 tons) grew by 16% compared to 2014. The light vehicles market (GVW 3.5-6.0 tons) increased 16%, while the medium vehicles market (GVW 6.1-15.9 tons) and the heavy vehicles market (GVW ≥16 tons) grew by 5% and 19%, respectively. In LATAM, new truck registrations (GVW ≥3.5 tons) declined 40% compared to 2014, with a decrease of 47% in Brazil and 42% in Venezuela, while Argentina increased 5%. In APAC, new truck registrations decreased 10% compared with 2014.
The Company’s estimated market share in the European truck market (GVW ≥3.5 tons) was 11.3%, up 0.4 p.p. year over year. In the light segment, the share increased by 0.6 p.p. to 11.3%, the Company’s market share increased by 1.4 p.p. to 30.6% in the medium segment and 0.3 p.p. to 7.9% in the heavy segment.
In LATAM, in 2015, the Company’s market share increased 2.4 p.p. to 12.4%.
During 2015, Commercial Vehicles delivered approximately 140,200 vehicles (including buses and specialty vehicles), representing a 9% increase from 2014. Volumes were higher in the light segment (up 13%), as a result of the launch of the new Daily, and in the heavy segment (up 9%), while volumes declined in the medium segment (down 1%). Commercial Vehicles deliveries increased 18% in EMEA, but declined 21% in LATAM and 15% in APAC.
Commercial Vehicles’ 2015 book-to-bill ratio was 1.03, an increase of 5% over 2014. In 2015, truck order intake in Europe increased 29% compared to previous year.
Powertrain
Powertrain’s net sales totaled $912 million for the fourth quarter 2015, an increase of 5.6% over the same period in 2014 on a constant currency basis (down 7.7% on a reported basis) due to positive mix on engine sales and increased volume of transmissions and axles. In the full year 2015, Powertrain’s net sales were $3,560 million, a decrease of 5.2% compared to 2014 on a constant currency basis (down 20.3% on a reported basis), primarily attributable to lower captive 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 46% of total net sales in 2015 (41% in 2014).
Operating profit was $62 million for the fourth quarter 2015 ($66 million in Q4 2014), at an operating margin of 6.8%. Net of the impact of currency translation, operating profit improved $5 million from favorable product mix and from SG&A expense reductions. In the full year 2015, Powertrain reported an operating profit of $186 million ($223 million in 2014), with an operating margin of 5.2% (5.0% for 2014). Net of the impact of currency translation, operating profit was in line with the previous year, as the lower volumes were offset by manufacturing efficiencies and SG&A expense reductions.
During the year, Powertrain sold 507,700 engines, a decrease of 13% compared to 2014. By major customer, 31% of engines were supplied to Commercial Vehicles, 10% to Agricultural Equipment, 4% to Construction Equipment and the remaining 55% to external customers (units sold to third parties were up 2% compared to 2014). Additionally, Powertrain delivered approximately 67,800 transmissions and 182,000 axles, an increase of 6% and 16%, respectively, compared to 2014.
Financial Services
Financial Services’ revenues totaled $377 million in the fourth quarter 2015, down 8.6% compared to Q4 2014 on a constant currency basis (down 18.9% on a reported basis), due to a reduction in interest yields and lower average outstanding portfolio. In the full year 2015, Financial Services’ revenues were $1,603 million, flat compared to 2014 on a constant currency basis (down 12.3% on a reported basis).
Net income was $91 million for the fourth quarter, a $7 million decrease compared to Q4 2014, mainly due to reduced net interest margins and the negative impact of currency translation, partially offset by lower income taxes. In the full year 2015, net income was $368 million compared to $364 million in 2014. Lower provisions for credit losses and SG&A expenses, coupled with reduced income taxes, were partially offset by the impact of currency translation.
Retail loan originations in the year were $9.4 billion, down $1.4 billion compared to 2014, mostly due to the decline in Agricultural Equipment sales in NAFTA and the negative impact of currency translation in EMEA and LATAM. The managed portfolio (including unconsolidated joint ventures) of $24.7 billion (of which retail was 65% and wholesale 35%) was down $2.6 billion compared to December 31, 2014. Excluding the impact of currency translation, the managed portfolio was flat compared to 2014.
Dividends
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 €0.13 per common share, totaling approximately €177 million (~$200 million). Subject to the AGM’s approval (expected on April 15, 2016), the ex-dividend date would be set at April 25, 2016[1].
Share Buy-Back Program
The Company today announced a buy-back program (the "Program") to repurchase up to $300 million in common shares from time to time, subject to market and business conditions, as previously authorized at the Shareholders’ Meeting held on April 15, 2015. The Program will be funded by the Company’s liquidity. Details of the Program will be disclosed in accordance with applicable laws and regulations.
2016 U.S. GAAP Outlook
The agricultural equipment industry in NAFTA is forecasted to decline in 2016, with the row crop sector down 15-20%; EMEA agricultural equipment markets are expected to be flat. The commercial vehicles segment is expected to increase up to 5% in EMEA; trading conditions in LATAM are expected to remain challenging. CNH Industrial is setting 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 $1.5 billion and $1.8 billion.
[1] The Italian Stock Exchange, after having ascertained that no constraints subsist, has authorized the Company to set April 25, 2016 as the ex-dividend date and to maintain April as the ex-dividend date month of the Company.