CNH Global announced financial results for the quarter ended March 31, 2011. For the quarter, net sales increased 17% (15% on a constant currency basis) to $3.8 billion as a result of favorable trading conditions for agricultural equipment in North America, Europe, Africa, Middle East and CIS (EAME & CIS) and Asia Pacific (APAC) markets. These results were driven by increased prices in global agricultural commodities, as well as higher construction equipment demand in the Americas and APAC regions. Equipment Operations posted an Operating Profit of $246 million as a result of higher revenues, increased industrial utilization and improved product pricing.
Net equipment sales for the quarter were 81% agricultural equipment and 19% construction equipment. The geographical distribution of revenue for the period was 40% North America, 33% EAME & CIS, 16% Latin America, and 11% APAC markets.
Equipment Operations used $240 million in cash flow from operations for the quarter due to an increase in net working capital as a result of an increase in equipment sales and increased inventories required to support full year growth. Year to date capital expenditures totaled $54 million, a 69% increase from the comparable period largely as a result of new product launches in both the agricultural and construction equipment segments; 85% of the capital spend was on new products and production capacity in the period. CNH's Equipment Operations ended the period with a net cash position of $1.9 billion. The 40% effective tax rate for the first quarter 2011 is slightly higher than the Group’s full year expectations of 32% to 38%.
Net income before restructuring and exceptional items for the quarter was $138 million as a result of improved top line and industrial operating performance, improved results from the Group's non-consolidated entities, and a lower tax rate. This resulted in the Group generating a significant increase in diluted earnings per share to $0.57 (before restructuring and exceptional items) compared to $0.16 per share in the comparable period of 2010.
On March 31, CNH acquired full ownership of L&T Case Equipment Private Limited, an unconsolidated joint venture established in 1999 in the construction equipment sector and based in India. As a result of this transaction, CNH recorded an after tax revaluation gain of $16 million which has been reflected as an exceptional item in the quarter. The Group has provisionally accounted for the transaction and expects to finalize it in the second quarter.
2011 Full Year Market Outlook
Demand in the agricultural and construction equipment markets are expected to remain firm for the balance of 2011 on the back of a positive environment in agricultural commodity prices and its influence on increased planting and farming income estimates; and a steadily improving environment in construction equipment.
FY 2011 World Wide Unit Growth Forecast
Agricultural equipment demand flat to up 5%
Construction equipment demand up 25%
Subsequent Events Update 2011 CNH Earnings Outlook:
CNH is monitoring the medium term effects from the earthquake in Japan on March 11, 2011, on both our business partners and component suppliers. While none of our business partners or Tier 1 suppliers has suffered irreparable damage, the company expects that component parts supply disruptions will necessitate periodic production curtailments in Q2 and Q3 primarily in the construction equipment segment. Further, the company anticipates that in certain product classes of whole goods (primarily excavators) availability will be constrained during the timeframe. As of the end of the first quarter, the Group estimates that the economic impact could negatively affect full year revenues between $300-500 million and operating profit between $40-60 million.
Despite this un-expected headwind, the CNH Group re-affirms its previously released full year revenue and earnings growth targets for 2011 of revenue growth of +10% at an operating margin range of 7.1% to 7.9%.
Agricultural Equipment Industry and Market
Worldwide agricultural industry unit sales increased 10% compared to the first quarter of 2010. Global tractor sales grew 10% while global combine sales grew 25% for the quarter. North American tractor sales were up 5% and combine sales were up 37% on continued strong demand from the large cash crop segments. Latin America sales of tractors increased 1% and combine sales decreased 2%. EAME & CIS markets improved for the quarter, with tractor sales up 35% and combine sales up 40%. APAC markets were up 7% in tractor sales and 6% in combine sales.
CNH Agricultural Equipment First Quarter Results
CNH’s net sales in the agricultural equipment sector increased 17% for the quarter (15% on a constant currency basis) as a result of solid trading conditions in every region but Latin America as previously forecast. Net sales in the EAME & CIS markets increased substantially (28%) but remain below the demand levels of 2007-2008. Operating margin increased 1.7 pts to 8.6% on the higher unit volume driving manufacturing efficiency, primarily in Europe, improved price realization and favorable product mix (to larger horsepower tractor and combine segments).
First quarter tractor market share performance was in line with the 10% overall market growth as a result of a positive performance in Europe, and in the important over 40 horsepower segment in North America. Combine market share was down with the exception of the APAC region during the quarter. The Group expects to recover market share over the balance of the year as a result of improved equipment availability. Worldwide production in agricultural equipment was increased in the period in order to satisfy retail unit deliveries in the quarter and to increase inventory levels to accommodate transition stocks for new product launches in the higher horsepower segment.
Company and dealer inventories ended the period either in line with or below industry averages largely driven by strong demand in Q1 and Tier 4A/Stage IIIB product transition down time at the manufacturing level. Capacity utilization climbed in Europe on the back of the improved demand outlook, which somewhat offset reduced utilization rates in Brazil.
In Europe, New Holland Agriculture launched the new CX5000 and CX6000 combines equipped with the ECOBlue SCR technology and today offers the industry's widest range of Tier 4A/Stage IIIB compliant products: 20 tractor and nine combine models. For tractors, the ECOBlue SCR solution means more efficient power generation, up to 10% lower fuel consumption and an increase of up to 7% in maximum horsepower versus previous models. The brand also introduced the T4 PowerStar new utility tractor range in Europe and North America, available with engines from 55 to 100 hp, a completely new cab that improves headroom, visibility and comfort and a newly designed fully integrated loader to facilitate ease of operation. In the U.S., New Holland also released the Roll Belt 450 Utility round baler (designed for small acreage farmers) that requires as little as 40 PTO hp to operate.
In Europe and North America, Case IH released the Tier 4A/Stage IIIB compliant Magnum 235-340 (hp) Series tractors with global arm rest controls. Additionally, in North America, Case IH began shipments of Tier 4A/Stage IIIB compliant Steiger 350–500 (hp) Series tractors with row crop frames and cab suspension, Farmall C Series tractors, as well as 3016 Pick Up Headers with wider belts for reduced seed loss and improved ground following, 3020 Flex Augers with the patented Terra-Flex cutter bar flex system with closer following of ground contour, and Planter Bulk Fill Systems that accommodate different seed treatments.
Construction Equipment Industry and Market
Global construction equipment industry unit sales rose 48% in the first quarter compared to the prior year, with light equipment up 44% and heavy equipment up 51%. North American demand was up 48%, with light equipment volumes up 47% and heavy equipment rising 49%. EAME & CIS markets rose 53% as the industry continued to rebuild from the prior year's low levels. In Latin America, the market was up 39%, driven by strong demand from projects in both the public and private sectors. Industry sales in APAC markets rose 47% with continued strong demand in the heavy equipment segment in China.
CNH Construction Equipment First Quarter Results
First quarter 2011 net sales in the construction equipment sector grew 19% (16% on a constant currency basis) as a result of significant market improvements in the Latin American and Asian markets, and from the improvement in conditions in the North American market largely as a result of ageing fleet replacements. Operating loss for the quarter was reduced more than 50% to $(17) million as increased revenue and improved product pricing helped to offset the significant costs of new product launches in North America and production ramp-up costs in Europe, and the negative currency (Japanese Yen) effect on purchased whole goods in the excavator product range.
First quarter market share was down in light equipment due to low inventory levels as a result of transitioning to new products in the high volume tractor loader backhoe and skid steer segments during the quarter. This reduction in share is expected to be resolved over the balance of the year as production in North America returns to normalized rates and the Group's European facilities progressively re-start and increase capacity utilization. In the heavy equipment segment increased market demand drove an increase in production units in the excavator and wheel loader segments, thereby maintaining market share.
During the first quarter of 2011, Case Construction expanded its compaction product line for soil and large-scale asphalt applications with three new DV Series double drum models and the PT240, Case's first pneumatic tire compactor. At the ConExpo trade show in Las Vegas in March, the new B-Series motor grader made its debut with the 865B variable horsepower model. Also launched at the show were the new F Series wheel loaders, expanding the wheel loader line into a new size class. The largest models, 1021F and 1221F, are specifically engineered for quarry, aggregate and truck-loading applications.
New Holland Construction presented its new C-series crawler excavator, featuring Tier 4A/Stage IIIB compliant SCR engines that deliver a 10% increase in productivity in terms of cubic meters per hour and up to 10% lower fuel consumption in ECO mode compared to the B Series. Also introduced in the quarter was the new 200 Series Skid Steer and Compact Track loaders, a total of nine new models were presented to the public both in Europe and North America, featuring the patented vertical lift Super Boom design delivering best-in-class forward dump height and reach.
CNH Financial Services First Quarter Results
Net Income attributable to Financial Services was $54 million for the quarter, compared with $51 million in the comparable period of 2010. Financial Services generated improved financial margins on a higher average portfolio as a result of increased industrial unit sales and improvements in market penetration.
Compared to Dec. 31, 2010, delinquent receivables greater than 30 days past due held steady at 5.3% of the total on-book portfolio and improved by 1.2 pts compared to March 31, 2010.
Unconsolidated Equipment Operations Subsidiaries
First quarter results for the Group's unconsolidated Equipment Operations subsidiaries improved to $24 million compared with $7 million in the comparable period of 2010. The major contributors were Turk Tractor (Turkey), Al Ghazi (Pakistan), the Group’s two joint ventures in Japan, and the recently acquired L&T in India the result of which will be fully consolidated as of the second quarter.
CNH Global N.V. is a world leader in the agricultural and construction equipment businesses. Supported by approximately 11,300 dealers in approximately 170 countries, CNH brings together the knowledge and heritage of its Case and New Holland brand families with the strength and resources of its worldwide commercial, industrial, product support and finance organizations. CNH Global N.V., whose stock is listed at the New York Stock Exchange (NYSE:CNH), is a majority-owned subsidiary of Fiat Industrial S.p.A. (FI.MI). More information about CNH and its Case and New Holland products can be found online at www.cnh.com.