CNH Profit Slides 35% Even as Margins Recover From Q1 Trough
CNH Industrial reported second-quarter net income of $141 million, down from $217 million a year earlier, though sharply improved from the $10 million it earned in the first quarter.
CNH Industrial (CNH), the agricultural and construction equipment maker, reported second-quarter net income of $141 million, down 35% from $217 million a year earlier, as margin compression offset a modest revenue gain.
The results captured a company still working through a rougher patch than the headline revenue figure suggests. Consolidated revenues rose 2% to $4.80 billion and Industrial Activities net sales climbed 3% to $4.14 billion, but on a constant-currency basis growth was flat, meaning currency translation accounted for essentially all of the reported increase. Diluted earnings fell to $0.11 a share from $0.17.
The more telling comparison was sequential. Revenue climbed from $3.83 billion in the first quarter to $4.80 billion in the second, net income rose from $10 million to $141 million, and the Adjusted EBIT margin of Industrial Activities swung from negative 1.4% to positive 4.0%. Even with that recovery, the second-quarter margin remained 160 basis points below the 5.6% CNH posted a year earlier.
Agriculture, the company's largest segment, illustrated the same pattern of sequential repair against a still-negative year-over-year comparison. Its Adjusted EBIT margin improved to 5.2% in the second quarter from 1.0% in the first, but that was still down 290 basis points from the 8.1% implied a year earlier. Construction swung from an EBIT loss of $28 million in the first quarter to a $15 million profit in the second, with net sales up 12% year over year to $866 million after shipments delayed from the first quarter landed in the second; even so, segment profit remained below the $35 million CNH earned in the same period last year.
Financial Services added a separate drag. Net income there fell 18% to $71 million from $87 million, hurt by margin compression outside North America and by higher risk costs in Brazil. Delinquencies of more than 30 days past due on the managed portfolio rose to 4.4% as of June 30 from 3.9% a year earlier, due to economic pressure on farmers, particularly in South America.
Cash flow told a similar before-and-after story to earnings. Free cash flow of Industrial Activities went from a $589 million outflow in the first quarter to a $150 million inflow in the second, though the first half as a whole still consumed $439 million in cash, more than the $116 million used in the same period last year. Cash and equivalents fell to $1,868 million at June 30 from $2,578 million at year-end, a $710 million decline over six months.
Despite the uneven year-over-year comparisons, CNH narrowed its full-year guidance toward the higher end of previous ranges, projecting Agriculture EBIT margin of 5.0% to 5.5%, Construction margin of 1.8% to 2.3%, Industrial free cash flow of $200 million to $400 million and adjusted diluted earnings of $0.41 to $0.46 a share. That marks a firmer stance than the prior quarter, when the company had simply reaffirmed its full-year outlook without specifying ranges.
CNH cut its quarterly dividend 60% to $0.10 a share from $0.25 a year earlier, and restructuring and transformation expenses rose to $27 million from $5 million, a cost category the company had not emphasized in prior quarters.