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CNH profit rises on strong equipment demand, shares down as guidance held

Published 07/28/2023, 07:51 AM
Updated 07/28/2023, 01:30 PM
© Reuters. Flags with CNH Industrial logo are pictured outside CNH Industrial building in Turin, Italy, February 5, 2020. REUTERS/ Massimo Pinca/File photo

By Bianca Flowers

CHICAGO (Reuters) -Farm and construction equipment maker CNH Industrial (NYSE:CNHI) reported better-than-expected operating profit on Friday, though shares fell as much as 6% as an unchanged revenue forecast cast doubt on future growth potential.

The Italian-American company maintained its revenue forecast for industrial activities between 8% and 11% and a free-cash flow (FCF) estimate of $1.3 billion to $1.5 billion for the year.

CNH holding steady on its 2023 sales projection, analysts said, suggests that the company is being more cautious than its peers, like AGCO which raised yearly guidance after delivering strong results.

"Investors are looking at that - it's almost like the market is wondering if this is a legitimate, sustainable kind of run," said Eric Greaser, a Vice President at Moody's (NYSE:MCO).

The manufacturer reported adjusted earnings per share of $0.52 compared with estimates of $0.48.

Globally, CNH, which houses brands such as Case IH and New Holland, was boosted by strong demand for its high-horsepower farm equipment and record construction sales.

However, sales for both agriculture and construction equipment contracted in South America. Company executives told shareholders on a conference call that sales projections were "slightly lowered" for combines and heavy construction machinery and that the company is working with dealers to maintain the right amount of inventory.

CNH's profit margins have been propped up by price increases across its machinery segments to help offset inflated input costs and a choppy supply chain.

Robust demand in its agriculture business accounted for $4.9 billion in total sales as the company was able to reach its highest production rate since 2015, a sign that supply chain constraints are further moderating, said Kristen Owen, executive director at Oppenheimer & Co Inc.

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With CNH's 2024 order books opening soon and manufacturing cost pressures abating, price increases will revert back to normal levels of between 2% to 3%, CNH's Chief Executive Scott Wine said in an interview. He also noted that dealers won't continue to accept double-digit price increases as inflation starts to cool.

Net sales for construction surpassed $1 billion with commercial customers' spending being driven by infrastructure projects in North America. Revenue in the region was up 55% from the same period last year.

CNH's second-quarter adjusted earnings before interest and tax (EBIT) of industrial activities increased 25% to $822 million from $654 million a year ago for the period ending in June.

Its quarterly margin on adjusted EBIT was 13.8%, up from 11.7% in the same period last year.

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