CNH Industrial NV (CNHI) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to today's CNH 2007 first quarter results conference call.

For your information today's conference is being recorded.

Your host today will be Rubin McDougal, the Chief Financial Office, Camillo Rossotto, Vice President and Treasurer and Al Trefts, Senior Director Investor Relations and Capital Markets.

At this time I would like to turn the call over to Mr.

Trefts.

Please go ahead, sir.

Thank you, operator.

Good morning everyone and welcome to CNH's first quarter 2007 results webcast conference call.

We are pleased to have with us today Harold Boyanovsky, our President and Chief Executive Officer, RubinMcDougal, our Chief Financial Officer and Camillo Rossotto, our Treasurer and CFO of Financial Services.

In recognition of Regulation [FD] we've provided public guidance in this morning's press release which will be elaborated on in today's call.

After this call guidance will not be updated until CNH issues a press release on the subject.

We will be making some forward-looking statements during the course of today's presentation, and in answering your questions as discussed on slide three.

Please refer to this morning's press release for the important risk factors and uncertainties in the Company's businesses that are subject to change and could cause actual results to differ materially from our expectations today.

As noted on the slides, the Appendix contains reconciliations to U.S.

GAAP and various non-GAAP measures we use in analyzing our performance.

Finally, this conference call and webcast are being recorded.

The contents are the property of CNH Global N.V.

and are not to be re-recorded or re-broadcast without our express written permission.

Now, I'd like to turn the call over to Rubin.

Thank you, Al.

A very early good morning and good afternoon.

I'd like to start on slide four where we will review the highlights of the quarter.

Starting with our diluted earnings per share before restructuring, net of tax, which more than doubled to $0.44 from $0.20 last year.

Net income before restructuring, net of tax, also more than doubled reaching $105m.

Favorable volume and mix, new products, our positive net price recovery, strong agricultural markets, strong construction markets outside of North America and manufacturing efficiencies contributed to a two percentage point increase in Equipment Operation's gross margin to 18.5%.

During the quarter our Agricultural Equipment share improved and our Construction Equipment share was stable.

Financial Services net income grew 25% to $65m.

Equipment Operations net debt declined, now down to $6m.

And during the quarter we acquired Kobelco-Case Machinery (Shanghai) Company Limited, which manages the Case Construction brand distribution network in China.

The best first quarter since the creation of CNH in 1999 and good progress towards our long-term objectives.

Taking a look, and I'm going to be on slide five, we see the trend of worldwide tractor and combine industry unit volumes in the first quarter.

The worldwide tractor industry decreased 4% from the high levels we experienced in 2006.

However, the higher horsepower segment, where we are stronger, experienced a lower decline.

The overall decline was driven by an 11% drop in Rest of World markets.

Markets in Western Europe and The Americas increased.

The overall combine industry increased 12% in the quarter.

Turning to slide six, we have worldwide tractor industry retail unit sales changes year over year by market.

Additionally, in North America within the over 40 horsepower category, industry sales of tractors in the 40 to 100 horsepower range, were up 9% from last year while sales of over 100 horsepower tractors were down 1%.

And four wheel drive tractor sales were down 10%.

Preliminary tractor industry sales in Western Europe were up 2% with all major markets up except Italy and Spain.

In Latin America, where the tractor market was up 17%, Brazil was up 33%.

Under 100 horsepower tractor sales were up 22% and over 100 horsepower tractor sales were up 43%.

Other Latin America markets were also up, with Argentina up 10%.

Driven by the significant turnaround in Latin America, worldwide combine industry unit sales improved 12%.

The Brazilian market was up 57%, Argentina was up 23% and, in aggregate, other Latin American markets were down slightly.

The combine market in Western Europe declined slightly in the quarter, although, performance varied significantly by market.

France, Italy, Spain and the U.K.

were up while Germany was down.

Other Western European markets in total were also down.

The combine market in North America was up 13%.

And industry sales in Rest of World markets were stronger than we had expected.

On a unit basis our tractor market share improved in North America, declined in Western Europe and was flat in Latin America and Rest of World markets.

In total, our share was stable with last year.

Our combine market share improved in both North and Latin America, was stable in Western Europe and declined in Rest of World markets; in total up from last year.

Turning to the first quarter Construction Equipment industry, retail unit sales trend on slide seven, we see continued strength, in total, up about 10%.

Industry unit sales in each segment, both heavy and light, were also up 10%.

Slide eight shows first quarter 2007 year-over-year percentage changes in the Construction Equipment industry retail unit sales by region.

The worldwide Backhoe Loader market was up 18%, with strong increases across most of Western Europe, Latin America and many Rest of World markets.

The Skid Steer Loader market was down 6% as the decline in North America continued for another quarter.

The Heavy Construction Equipment market was up 10% with strong increases outside of North America.

The U.K.

and Italy, again, saw the largest percentage increases in Western Europe where all markets were up.

Latin American markets were also up across the board as were most markets in Rest of World.

Our worldwide market share of total light, including all other light equipment products and heavy equipment was essentially unchanged from the first quarter of 2006.

Switching now to equipment sales, slide nine shows the first quarter trend for the past three years.

At $3.2b, net sales of equipment in the quarter were up 10% from last year, and up 6% net of currency variations.

Our presence in agricultural and construction equipment markets throughout the world help us increase sales, despite the weakness in North America.

In the quarter 60% of our sales came from markets outside of North America.

Worldwide net sales of agricultural equipment increased 5% in constant currency, and increased in each region except North America.

In North America we under-produced retail unit sales by 7%.

De-stocking efforts and strong retail sales helped keep our [trading] months of supply, in North American tractors and combines at the end of March, about one month lower than the industry.

In total, Agricultural Equipment net sales increased by $95m for volume and mix, and new products, $81m for currency translation and $7m for pricing.

Worldwide, on a forward months of supply basis, at quarter end, estimated dealer and company tractor and combine unit inventories were down about 1.3 months of supply from a year ago.

Speaking [to] Construction Equipment, net sales increased 6% net of currency variations; an increase in every region except North America.

Volume and mix increased net sales by $52m, despite an industry driven decline in volume and mix in North America.

Currency translation increased net sales by $46m and pricing added an additional $7m.

Worldwide, on a forward months of supply basis, at quarter end, estimated dealer and company unit inventories were down about one half month of supply from a year ago for total worldwide heavy and light Construction Equipment.

Slide 10 shows the segment split for the industrial operational margin for the first quarters of 2006 and 2007.

We measure business segment performance using IFRS accounting principles followed by [Fiat] as explained in footnote 13 of the press release.

At the top of the slide we see $161m in total industrial trading profit for the first quarter of 2007.

Below are the adjustments from trading profit in IFRS to the $219m industrial operating margin in U.S.

GAAP.

At the bottom is the industrial operating margin split between our Agricultural Equipment businesses -- as between our Equipment businesses, with Agricultural Equipment Industrial operating margin increasing by $54m to 6.3% of net sales.

This was mostly driven by a solid operating performance in Western Europe and Latin America and favorable mix and price recovery, partially offset by lower dealer stocking in North America.

Construction Equipment's margin improved by $11m to 7.7% of net sales, driven by improvements in Western Europe and Latin America, partially offset by the industry volume decline in North America.

Slide 11 shows the year-over-year changes the first quarter Industrial operating margin.

The improvement was driven by favorable volume and mix of $60m, positive net pricing of $14m and favorable economics and currency totaling $35m.

Gross margin, as a percent of net sales, increased two percentage points in the quarter with improvements at both Agricultural and Construction Equipment operations.

Excluding currency, SG&A increased $30m for increased brand support at trade shows and equipment fairs for our dealers throughout the world, for sales incentives and variable compensation programs.

Turning to Equipment Operations change in first quarter net debt on slide 12.

$330m of cash was generated by operating activities, primarily from earnings and seasonal increases in accruals.

Working capital decreased by $64m in the quarter, compared to an increase of $81m in the prior year; an improvement of $145m.

$73m of cash was used for investing activities, primarily capital investment and the acquisition of Kobelco-Case Machinery that I mentioned earlier.

The net of these factors was a $257m decrease in net debt.

At quarter end, Equipment Operations net debt totaled $6m.

Equipment Operation's position with Fiat affiliates was net cash of $521m.

On a consolidated basis the net position with Fiat affiliates was net debt of [$169m].

As Financial Services, net debt with Fiat offset the Equipment Operation's cash position.

Our agricultural industry outlook for a full year 2007 is on slide 13.

The agricultural tractor industry is expected to continue running at high levels, with better high horsepower tractor sales in North America, helped by higher corn prices and increased demand for corn for fuel ethanol.

Western Europe should see about the same level as 2006, while markets in Latin America and Rest of World are expected to be stronger.

Also supported by high corn prices, industry sales of combines are now expected to be up throughout the world, led by the rebound in Latin America.

Turning to construction equipment, on slide 14, we believe heavy and light equipment industry unit sales will be up about 5% for the full year, although, North American equipment sales will continue to be adversely impacted by the decline in U.S.

housing starts and general construction activity levels.

On slide 15 we've provided a recap of some of the more important new launches of the first quarter.

These include the Case IH Puma tractor and Axial-Flow 7010 Combine, the New Holland T6000 and T7000 tractors, Wheel Loaders and Hydraulic Excavators from Case Construction and new excavators and Skid Steer loaders from New Holland Construction.

Case IH's line of STX Steiger four wheel drives earned a 2007 FinOvation award from Farm Industry News Magazine.

And New Holland won the Eye on Biodiesel Award for innovations from the National Biodiesel Conference.

As we increase to full availability of these new products in our dealerships they will be helping us gain the full-year position improvements in our plan.

Our full year 2007 outlook remains consistent with the guidance we've provided last year.

Net sales of equipment should be approximately $13b, perhaps slightly higher.

In our industrial operating margin is expected to be between 7.6 and 8.4%.

Given these factors, we anticipate an earnings per share before restructuring, net of tax, between $2.15 and $2.30.

This concludes my comments.

We are now ready to begin the question and answer session.

Thank you, Rubin.

For the Q&A session we ask that everyone please limit themselves to one question and one follow up at a time.

Operator, could you please retrieve the first question?

Thank you.

[OPERATOR INSTRUCTIONS].

We take the first question from Mark Koznarek from Cleveland Research.

Please go ahead.

Hello, good morning [or evening wherever you] may be.

A question on the revision to the outlook, particularly with Ag Equipment.

It seems Latin America has really seen a very sharp upward revision and, clearly, commodity prices have a lot to do with that I suspect.

But I'm wondering if, in particular in Brazil, if there are any government-related incentives or other programs that are accelerating sales down there?

Mark, it's Camillo.

Good morning.

There's no anticipation of any 2007 government incentives.

This is purely driven by the improvement in the price of soya bean and corn.

The real, as you've seen, it's pretty strong still but that's kind of built in the base by farmers I guess at this point, so it's potentially driven by commodity prices improvement.

And there's also a very strong market there on the sugar cane side, Mark, and in fact sugar cane harvesters have been up sharply in the first quarter, again, driven by the fuel ethanol issue.

There's a little bit of the government support for the Ag input lenders, but nothing for the equipment inside.

Okay.

And then there's a follow up.

Your new product launches for '07, in terms of net revenue expectations for those net of models that they're replacing, what would you expect to target from these introductions in '07?

Just one moment and we'll come back on that.

Basically, right now we would be looking at something slightly below $100m for the year in the Agricultural Equipment side of the launches.

If you look at Ag and CE we would be over $100m for the full year on some of these new products we mentioned.

Great.

Thanks a lot.

We will take our next question from David Bleustein from UBS.

Please go ahead.

Good morning and good afternoon.

Hi, David.

Here's the question.

It looks like the combines faired extraordinarily well in Latin America.

The harvests were bigger than expected.

Would you tie in the size of the crops being harvested to the combine sales or do you think it's just a coincidence?

Let me jump in.

This is Harold.

How're you doing David?

Doing well, how are you?

Good.

On the combine business, as we shared with you gentlemen and ladies in earlier calls, a lot of the growth in the combine sales has been an expansion to the line and, particularly, with Case IH with the launch of the 7010 combine, in addition to the favorable commodity estimates the farmers are looking at.

But, just as important, we had a very, very strong pre-sale program last fall and so we're getting a significant number of combines that are being produced in our plants going directly to retail, which is a timing issue.

So how much of it would you call market share gains versus the market itself?

You're still forecasting a 32% increase in combines in Latin America, right, and that's the industry?

Are you saying that your availability is skewing the whole industry?

No, David, I was talking in general the combines, but we're forecasting the full year of combine business to be up 35% in Latin America as a [inaudible].

And do you think -- my question is this.

Do you think some of that is a function of just how much crop they produced in South America?

Yes, it is the industry.

It could be just a little bit of the function of the crop, David, but I think it's also a function that soya bean prices are up.

And so the outlook for the farmers down there is getting better and I think that that's probably why the higher horsepower tractors in Brazil are also up, much more significantly than the lower horsepower tractors in the first quarter.

I think we need to look as well at the comparisons last year.

The market was significantly down, so this is a catch-up year where we're recovering some of the market that wasn't there last year and the commodity price is high and people feeling better about the ability to service some of the loans.

We're seeing some recovery there.

And, remember, we are about a third of the market in Latin America.

Yes, it's pent up demand.

There is some back up demand here.

Okay, terrific.

And I know [Deere] takes a shot at it, I don't know if you guys do as well, but do you have estimates for planted acres in The States and yield expectations, or do you not publish those?

We do not publish those.

Thanks a bunch.

But, David, in general I'll make a comment.

Clearly, I think we've all read the U.S.

[DA data] and other economic data on what the planning intentions are, which drives a significant increase in corn which had an impact, as we all know, on the commodity prices.

But with the wet weather that we've had, and the delay in planning we really won't have a clear view on the mix, particularly in the mid west, between corn and soya beans until the middle of May, when they really have to get in the field and need to decide whether they can go with the corn or they have to switch to another crop because of the delay of the planning season.

It's going to make for an interesting summer.

Thanks a bunch.

Absolutely.

It will be -- as you know, it'll go strong up and down through the third quarter.

[OPERATOR INSTRUCTIONS].

Okay, if there are no more questions, we'd like to thank you all for participating with us today.

I know some of you are probably [at Valma] and very busy, but I'll be in my office.

If you have any further questions don't hesitate to give us a call.

Thank you for attending.

Thank you.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.