CNH Industrial reports continued strength in its third quarter performance
November 08, 2022
Consolidated revenues of $5,881 million (up 23.9% compared to Q3 2021 for continuing operations, up 29% at constant currency)
Net income of $559 million, Adjusted Net Income of $557 million, with diluted EPS and adjusted diluted EPS of $0.41
Adjusted EBIT of Industrial Activities of $670 million (up $250 million compared to Q3 2021)
Net cash provided by operating activities of $272 million and Industrial Free Cash Flow of $202 million
Net sales for Industrial Activities expected up 16% to 18% for the full year, despite foreign exchange rates headwinds
CNH Industrial will now voluntarily file annual and quarterly reports on Forms 10-K and 10-Q, as used by US domestic filers
Financial results presented under U.S. GAAP
“The CNH Industrial team delivered another strong quarter, driving record 3rd Quarter consolidated revenues, up nearly 24% over the previous year. A mixture of favorable volume, price realization, outstanding operational execution and supportive product mix permitted us to increase our Industrial Activities Gross and EBIT margins by 260 and 270 basis points respectively, with Agriculture generating a record EBIT margin of 14.8%. While our solid results reflect some sequential improvement in the global supply chain, significant challenges persist, and inflation continues to run hot. Free Cash Flow of Industrial Activities was positive for the quarter, and we continue to target over $1 billion for the full year as we accelerate completion and shipment of inventory in Q4. Order books remain robust as soft commodity prices continue to support global agriculture and many construction end markets sustain their strength. We look forward to sharing our future precision, automation/autonomy, and alternative fuel technologies at our Tech Day in December. With this solid foundation and improving execution we have elevated our full year guidance. The coming quarters will challenge our team, but they have consistently proven their mettle and I remain confident we will continue to support our customers, deliver for our shareholders, and progress our strategic initiatives regardless of the business climate.”
Scott W. Wine, Chief Executive Officer
2022 Third Quarter Results
(all amounts $ million, comparison vs Q3 2021 continuing operations - unless otherwise stated)
| US-GAAP | |||||||
| Q3 2022 | PY(1) | Change | Change at c.c.(3) | ||||
| Consolidated revenue | 5,881 | 4,746 | +23.9% | +29% | |||
| of which Net sales of Industrial Activities | 5,396 | 4,336 | +24.4% | +30% | |||
| Net income | 559 | 460 | +99 | ||||
| Diluted EPS $ | 0.41 | 0.34 | +0.07 | ||||
| Cash flow from operating activities | 272 | 673 | (401) | ||||
| Cash and cash equivalents(6) | 3,154 | 2,855 | 299 | ||||
| Gross profit margin of Industrial Activities | 23.0% | 20.4% | +260 bps | ||||
| NON-GAAP(2) | |||||||
| Q3 2022 | PY(1) | Change | |||||
| Adjusted EBIT of Industrial Activities | 670 | 420 | +250 | ||||
| Adjusted EBIT Margin of Industrial Activities | 12.4% | 9.7% | +270 bps | ||||
| Adjusted net income | 557 | 463 | +94 | ||||
| Adjusted diluted EPS $ | 0.41 | 0.34 | +0.07 | ||||
| Free Cash flow of Industrial Activities | 202 | (70) | +272 | ||||
| Available liquidity(6) | 8,645 | 8,795 | (150) | ||||
Net sales of Industrial Activities of $5,396 million, up 24.4% mainly due to favorable price realization, despite more than 5% adverse currency conversion impacts.
Adjusted EBIT of Industrial Activities of $670 million ($420 million in Q3 2021), with both segments up year over year. Agriculture adjusted EBIT margin at record 14.8% and Construction at 2.7%.
Net income of $559 million, with diluted earnings per share of $0.41 (net income of $460 million in Q3 2021, with diluted earnings per share of $0.34). Adjusted net income of $557 million, with adjusted diluted earnings per share of $0.41 (adjusted net income of $463 million in Q3 2021, with adjusted diluted earnings per share of $0.34).
Gross profit margin of Industrial Activities of 23.0%, (20.4% in Q3 2021) with improvement in Agriculture and Construction despite continued cost pressures.
Reported income tax expense of $192 million and adjusted income tax expense(1) of $190 million, with adjusted effective tax rate (adjusted ETR(1)) of 26.2% affected by the jurisdictional mix of pre-tax profits.
Free cash flow of Industrial Activities was $202 million. Manufacturing inventories remain at high levels, although reduced from June 2022, amid supply chain constraints, and finished goods inventories continue being lean relative to sales. Total Debt of $20.9 billion at September 30, 2022 ($20.9 billion at December 31, 2021).
Industrial Activities Net Debt(1) position at $1.3 billion, an increase of $146 million from December 31, 2021, and Available liquidity at $8,645 million as of September 30, 2022. The Company completed a €100 million share buyback program with 5.3 million common shares purchased during the third quarter. Additionally, 1.4 million common shares were purchased during the third quarter under the first $50 million tranche of the $300 million common share buyback program approved on July 29, 2022.
Beginning with the reporting of third quarter 2022 financial results, the Company intends to voluntarily report its financial results under the periodic reporting forms for U.S. domestic filers (i.e., CNH Industrial will now voluntarily file annual and quarterly reports on Forms 10-K and 10-Q). Management determined that following the spin-off of the Iveco Group and the refocus as an agricultural and construction equipment leader with significant presence in the US, reporting according to the standards for US public companies is more consistent with the Company’s operating profile and its investor base.
| Agriculture | ||||||||
| Q3 2022 | Q3 2021(1) | Change | Change at c.c.(3) | |||||
| Net sales ($ million) | 4,501 | 3,563 | +26% | +32% | ||||
| Adjusted EBIT ($ million) | 666 | 415 | +251 | |||||
| Adjusted EBIT margin | 14.8% | 11.6% | +320 bps | |||||
In North America, industry volume was up 9% year over year for the third quarter for tractors over 140 HP and was down 16% for tractors under 140 HP; combines were up 13%. In Europe, Middle East and Africa (EMEA), tractor and combine demand was down 5% and 30%, respectively; combine demand in Europe alone was up 12%. South America tractor demand was up 12% and combine demand was up 20%. Asia Pacific tractor demand was up 8% and combine demand was up 12%.
Net sales were up 26%, due to favorable price realization and better mix, mostly driven by North America and South America, partially offset by the negative impact of foreign exchange rates.
Gross profit margin was at record 25.0%, with Gross Profit $340 million higher than in Q3 2021, mainly due to better mix and favorable price realization primarily in North America, South America and Asia Pacific regions, partially offset by higher production and raw material costs across all regions.
Adjusted EBIT was $666 million ($415 million for Q3 2021), with Adjusted EBIT margin at 14.8%. The $251 million increase was driven by favorable price realization and better mix, partially offset by higher SG&A costs, higher production and raw material costs, and increased R&D spend.
Order book in Agriculture was down less than 10% year over year for tractors. Order book for combines was down 21%, with declines in North America and South America offset partially by growth in EMEA. At above 2.5 times the pre-pandemic levels, order books remain strong in all regions and key products and orders are being kept curtailed as the medium-term cost scenario remains unclear.
| Construction | ||||||||
| Q3 2022 | Q3 2021(1) | Change | Change at c.c.(3) | |||||
| Net sales ($ million) | 895 | 773 | +16% | +20% | ||||
| Adjusted EBIT ($ million) | 24 | 21 | +3 | |||||
| Adjusted EBIT margin | 2.7% | 2.7% | - | |||||
Global industry volume for construction equipment decreased in both Heavy and Light sub-segments year over year in the third quarter, with Heavy down 3% and Light down 4%, mostly driven by a 9% decrease in Light and Heavy equipment demand for Asia Pacific, particularly in China. Aggregated demand increased 1% in North America, decreased 5% in EMEA and increased 21% in South America.
Net sales were up 16%, driven by favorable price realization and contribution from the Sampierana business acquired in December 2021.
Gross profit margin was 12.6%, up 0.4 p.p. compared to Q3 2021, mainly due to higher volumes in North America and favorable price realization, partially offset by higher freight and raw material costs.
Adjusted EBIT increased $3 million due to favorable volume and mix and positive price realization, partially offset by higher production, freight and raw material costs and increased SG&A spend. Adjusted EBIT margin at 2.7%.
Construction order book up more than 20% year over year in both Heavy and Light sub-segments, with increases in the North America, EMEA and South America regions.
| Financial Services | ||||||||
| Q3 2022 | Q3 2021(1) | Change | Change at c.c.(3) | |||||
| Revenue ($ million) | 482 | 405 | +19% | +21% | ||||
| Net income ($ million) | 86 | 96 | (10) | |||||
| Equity at quarter-end ($ million) | 2,207 | 2,157 | +50 | |||||
| Retail loan originations ($ million) | 2,478 | 2,357 | +5.1% | |||||
Revenues were up 19% due to favorable volumes in all regions, higher base rates across all regions, mainly in South America, and higher used equipment sales, partially offset by changes in North America product mix.
Net income decreased $10 million to $86 million, primarily due to margin compression in North America, increased SG&A costs, specifically labor costs, and normalized risk costs, partially offset by favorable volumes in all regions and higher recoveries on used equipment sales.
The managed portfolio (including unconsolidated joint ventures) was $21.2 billion as of September 30, 2022 (of which retail was 70% and wholesale was 30%), up $1.2 billion compared to September 30, 2021 (up $2.4 billion on a constant currency basis).
The receivable balance greater than 30 days past due as a percentage of receivables was 1.3% (1.4% as of September 30, 2021).
2022 Outlook
The Company is updating the 2022 outlook for its Industrial Activities:
- Net sales(5) up between 16% and 18% year on year including currency translation effects
- SG&A expenses lower than 7.5% of net sales
- Free Cash Flow of Industrial Activities(8) in excess of $1.0 billion
- R&D expenses and capital expenditures at around $1.4 billion
Significant uncertainties remain, including rising inflation, geopolitical instability, the war in Ukraine, and may affect our forecast for the year.
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022
Consolidated revenues of $16,608 million (up 18.5% year on year, up 22% at constant currency), net income of $1,447 million, with adjusted diluted EPS of $1.11, adjusted EBIT of Industrial Activities of $1,753 million, and Industrial Free Cash Flow absorption of $(453) million (Industrial Activities).
Results for the Nine Months Ended September 30, 2022
(all amounts $ million, comparison vs Q3 2021 continuing operations - unless otherwise stated)
| US-GAAP | ||||||||
| YTD Q3 2022 | PY(1) | Change | Change at c.c.(3) | |||||
| Consolidated revenue | 16,608 | 14,016 | +18.5% | +22% | ||||
| of which Net sales of Industrial Activities | 15,189 | 12,808 | +18.6% | +22% | ||||
| Net income | 1,447 | 1,337 | +110 | |||||
| Diluted EPS $ | 1.06 | 0.98 | +0.08 | |||||
| Cash flow from operating activities | (886) | 1,474 | (2,360) | |||||
| Cash and cash equivalents(7) | 3,154 | 5,044 | (1,890) | |||||
| Gross profit margin of Industrial Activities | 22.2% | 21.4% | +80bps | |||||
| NON-GAAP(2) | ||||||||
| YTD Q3 2022 | PY(1) | Change | ||||||
| Adjusted EBIT of Industrial Activities | 1,753 | 1,385 | +368 | |||||
| Adjusted EBIT Margin of Industrial Activities | 11.5% | 10.8% | +70bps | |||||
| Adjusted net income | 1,518 | 1,322 | +196 | |||||
| Adjusted diluted EPS $ | 1.11 | 0.97 | +0.14 | |||||
| Free Cash flow of Industrial Activities | (453) | 703 | (1,156) | |||||
| Available liquidity(7) | 8,645 | 10,521 | (1,876) | |||||
| Adjusted gross margin of Industrial Activities | 22.4% | 21.4% | +100bps | |||||
| Agriculture | ||||||||
| YTD Q3 2022 | YTD Q3 2021(1) | Change | Change at c.c.(3) | |||||
| Net sales ($ million) | 12,600 | 10,571 | +19% | +23% | ||||
| Adjusted EBIT ($ million) | 1,755 | 1,396 | +359 | |||||
| Adjusted EBIT margin | 13.9% | 13.2% | +70bps | |||||
| Construction | ||||||||
| YTD Q3 2022 | YTD Q3 2021(1) | Change | Change at c.c.(3) | |||||
| Net sales ($ million) | 2,589 | 2,237 | +16% | +18% | ||||
| Adjusted EBIT ($ million) | 90 | 70 | +20 | |||||
| Adjusted EBIT margin | 3.5% | 3.1% | 40bps | |||||