CNH (CNHI) Down 4.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for CNH Industrial (CNHI). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CNH due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CNH Industrial Meets Q3 Earnings Estimates, Flat Y/Y

CNH Industrial's third-quarter 2019 adjusted earnings per share of 16 cents met the Zacks Consensus Estimate. The figure was flat year over year.

Adjusted net income of $221 million was flat year over year, mainly due to lower interest expenses and a drop in adjusted effective tax rate.

Consolidated revenues declined 4.9% from the year-ago quarter’s level to $6.36 billion and missed the Zacks Consensus Estimate of $6.51 billion. The decline was mainly led by lower revenues in the Agricultural Equipment, Construction Equipment, Commercial and Specialty vehicles, and Powertrain segments.

The company’s net sales for Industrial Activities were $5.9 billion and adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $523 million in the quarter due to lower sales volume and negative currency translation.

Segmental Performances

Net sales at the Agricultural Equipment segment declined 7.2% year over year to $2.45 billion in the quarter, due to industry volume deceleration combined with an unfavorable product mix, primarily in North America. Moreover, the segment’s adjusted EBIT was $152 million, down by $44 million from the year-ago quarter’s tally, mainly owing to higher product costs as a result of increased raw material cost and tariffs.

Construction Equipment segment’s sales declined 8.5% year over year to $664 million in third-quarter 2019. The decrease was mainly because of lower production and sales volume in North America to rebalance channel inventory. Further, the adjusted EBIT was down to $10 million from $26 million recorded in the year-ago quarter, owing to higher raw material cost and tariffs.

In the third quarter, revenues in Commercial and Specialty vehicles fell 3% year over year to $2.33 billion due to lower volumes of truck and bus in Europe and exceptionally-low industry demand in Argentina. The segment’s adjusted EBIT was $70 million, up from $68 million recorded in the prior-year quarter on gains realized from the access granted to Nikola Corporation to Iveco technology.

The Powertrain segment’s third-quarter revenues declined 3.3% year over year to $940 million. The segment’s adjusted EBIT was $81 million compared with $82 million in the third quarter of 2018, primarily aided by an unfavorable mix of engine sales and increased product development activity in order to support the segment’s electrification and alternative propulsion strategy.

Revenues at the Financial Services segment rose 3.8% year over year to $487 million in the third quarter of 2019. Adjusted EBIT was $117 million, down $6 million from the prior-year quarter’s figure.

Financial Details & Buyback

CNH Industrial had cash and cash equivalents of $3.4 billion as of Sep 30, 2019, compared with $5 billion as of Dec 31, 2018. The company’s debt was $23.91 billion as of Sep 30, 2019, compared with $24 billion as of Dec 31, 2018. The debt-to-capital ratio stands at 81.54%.

At the end of the third quarter, CNH Industrial’s net cash outflow from operations was $144 million compared with cash inflow of $1.2 billion in the prior-year quarter.

With the expiration of the previous buyback program, CNH Industrial recently announced a new share repurchase program of up to $700 million to optimize its capital structure.

Outlook

The company updated its projection for 2019. For the current year, it projects roughly $26.5-$27 billion in Industrial Activities’ net sales as against the prior guidance of $27-$27.5 billion. The adjusted earnings per share guidance has been kept intact at 84-88 cents. Net debt of Industrial Activities at the end of 2019 is expected between $400 million and $600 million versus the prior view of $200 million-400 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.45% due to these changes.

VGM Scores

Currently, CNH has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CNH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.