CNH Posts Solid Results But Outlook Looks Slower


CNH Global’s fourth-quarter and full-year results, filed Thursday, reflected a continued decent agricultural equipment selling environment coupled with further construction machinery challenges. Management expects relatively benign growth from these markets in 2013–a bit slower for ag, but more positive for construction–with roughly 5% revenue growth for the firm (including price increases).

With the higher sales level, CNH’s operating margin improved to 5.7% from 5.0% in last year’s fourth quarter. For the full year, the company hit its previously outlined target of 8.6%, led by double-digit margins in agriculture and break-even performance in construction. The lack of construction profitability was a bit disappointing given a 1.4% margin in 2011, although the aforementioned reduced production in the second half of the year, compared with inventory-building efforts in 2011, strongly contributed to this issue.

For 2013, CNH expects global agricultural and construction equipment volume to rise in a range of 0%-5%, with strong performance in Latin America offsetting flattening in North America and continued European weakness. Combined with price increases, CNH forecasts 5% revenue growth, better than our current projection for a slight sales decline.

However, the company forecasts relatively flat margin performance in the range of 8.5%-9.0%, slightly below analysts current 9.2% projection, because of negative geographic mix shift and an increasing contribution from construction machinery. Still, cash flow should improve in 2013, as the firm plans to manufacture product at retail levels rather than continued underproduction; inventory will rise in line with revenue, but accounts payable should rebound sharply from year-end levels.


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