CNH Global N.V. announced financial results for the third quarter ended Sept. 30, 2010. For the quarter, net sales increased 19.6 percent (19.8 percent on a constant currency basis) to $3.5 billion due to solid performances delivered in the Americas and other regions augmented by a stabilization of trading conditions in Europe. Equipment operations posted an operating profit of $239 million as a result of higher volumes, reduced industrial costs, and favorable product mix.
Net sales were 78 percent agricultural equipment and 22 percent construction equipment for the quarter, as improving construction equipment unit demand continued to bring the group’s revenue distribution back to historical norms. The geographical distribution of revenue for the period was 44 percent North America, 19 percent Western Europe, 19 percent Latin America, and 18 percent Rest of World.
Equipment operations generated $1.2 billion in cash flow from operating activities over the first three quarters of the year. Year-to-date capital expenditures totaled $153 million, a 11 percent increase from the comparable period, primarily in preparation for new product launches and engine emissions compliance upgrade; full year capital expenditures are expected to be in the $300 million range.
CNH’s equipment operations ended the period with a net cash position of $1.8 billion, an increase of $1.9 billion compared to the end of the third quarter in 2009. The 33 percent effective tax rate for the third quarter 2010 is within the group’s long term expectations of 32 percent to 36 percent, as a result of tax incentives and tax return to provision filing differences, which largely offset the impact of not recording a tax benefit on losses in Europe for which conditions for their recognition are not currently satisfied.
Net income before restructuring and exceptional items for the period of $102 million ($83 million inclusive of exceptional items) resulted in the group generating a third quarter EPS of $0.43 ($0.35 inclusive of exceptional items) compared to a loss of $0.09 in the comparable prior year period.
2010 Market Outlook
CNH anticipates that global agricultural equipment markets will be up 0 to 5 percent for FY 2010. The CNH outlook for the global construction equipment markets is for an increase of 40 percent to 45 percent in 2010.
2010 CNH Outlook
In view of the group’s performance through the first three quarters and current forecasts for trading activity in the remainder of the year, CNH anticipates that it will achieve the following financial targets: Net Sales in excess of $14.3 billion, operating profit of $900 million and net industrial cash of $1.3 billion.
Equipment Industry and Market
Worldwide agricultural industry retail unit sales decreased 1 percent compared to the third quarter of 2009. Global tractor sales fell 1 percent while global combine sales grew 6 percent for the quarter.
North American markets rose 2 percent, with tractor sales up 2 percent and combine sales up 7 percent on continued strong demand from the large cash crop segments.
Sustained commodity prices and the continuation of government support programs drove demand in Latin America where tractor sales rose 21 percent and combine sales were up 16 percent. The decline in equipment demand moderated in Western European markets which were down 5 percent for the quarter, with tractor sales falling 4 percent and combine sales down 13 percent. Rest of World markets were down 6 percent, with a 6 percent drop in tractor sales and a 7 percent rise in combine sales.
CNH Agricultural Equipment Third Quarter Results
Net sales in the agricultural equipment segment increased 12.8 percent for the quarter (13.4 percent on a constant currency basis) on the back of growth in demand in the Americas that more than offset the difficult, but stabilizing, trading conditions in Europe and Rest of World markets. Operating margin increased to 8.5 percent from 6.5 percent from the comparable period in 2009. This improved profit performance was largely the result of improved industrial economics, product mix, and favorable geographic distribution of revenues.
Company and dealer inventories ended the period largely in line with estimated market demand and historical norms for the period. CNH production for the period was slightly below the pace of retail sales due to seasonal plant shutdowns, inventory balancing, and in preparation for new product launches.
CNH continued to invest in its agricultural equipment product portfolio and industrial capacity during the third quarter. The company continued to significantly invest in the launch of Tier IV/Stage IIIA product introductions with dealer and customer training programs completed during the period for the first products in the line-up, 4-wheel drive tractors. Investments in the group’s industrial footprint for both whole goods manufacturing and components supply continued in conjunction with the product plan announced in April 2010.
Equipment Industry and Market
Global construction equipment industry retail unit sales rose 47 percent in the third quarter compared to the prior year, with light equipment up 34 percent and heavy equipment up 59 percent. North American demand was up 34 percent, with light equipment volumes up 34 percent and heavy equipment rising 33 percent.
Western European markets rose 27 percent as the industry began to rebuild from the prior year’s low levels. In Latin America, the market was up 85 percent, driven by strong demand from projects in public and private sectors. Industry sales in Rest of World markets rose 54 percent with continued strong demand in the Asia-Pacific region, primarily the heavy equipment segment in China.
CNH Construction Equipment Third Quarter Results
CNH’s construction equipment segment net sales grew considerably, 52.4 percent (51.0 percent on a constant currency basis) driven by a robust recovery in demand in all regions compared with the low base in the third quarter 2009. The segment posted an operating profit for the quarter of $4 million, compared to the $88 million loss in the comparable quarter in 2009, largely as a result of increased volume, reduced industrial costs, and increased capacity utilization.
Finished goods unit inventory levels (company and dealer) for the segment declined from the comparative quarter. Due to inventory management in the prior period, production exceeded retail volume by 4 percent for the period as the group began to re-stock its dealer network with fresh product and in preparation for new product launches.
New product launches announced in April 2010 in both light and heavy construction equipment remain on track with performance, safety, styling, and emissions compliance features incorporated in the new designs. The first global launch of the new Tier IV compliant backhoe, produced in three different regions, is on schedule with product deliveries commencing in October.
Financial Services’ net income for the quarter ending Sept. 30, 2010, was $47 million, an increase of $15 million compared to the quarter ending Sept. 30, 2009, as a result of higher loan originations in the agricultural equipment business and improved interest margins which were partially offset by higher provisions for credit losses in the agricultural portfolio. Due to the adoption of new accounting standards on Jan. 1, 2010, Financial Services was required to consolidate $5.7 billion of receivables and related liabilities in its balance sheet. Consequently, on-book receivables are higher compared to September 2009.
The managed asset portfolio decreased $416 million from September 2009 due to lower retail originations in the construction equipment market over the last 24 months. Delinquency indicators showed improvements in all loan portfolios.
Equipment Operations Subsidiaries
Third quarter results for the group’s unconsolidated equipment operations subsidiaries improved to $15 million from a $5 million net loss in the comparable period in the prior year as a result of robust market conditions in Turkey in agricultural equipment and improved relative performance of the Group’s construction equipment joint ventures.
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