CNH Global announced financial results for the quarter ended March 31, 2011. For the quarter, net sales increased 17% (15% on a constant currency basis) to $3.8 billion as a result of favorable trading conditions for agricultural equipment in North America, Europe, Africa, Middle East and CIS (EAME & CIS) and Asia Pacific (APAC) markets. These results were driven by increased prices in global agricultural commodities, as well as higher construction equipment demand in the Americas and APAC regions. Equipment Operations posted an Operating Profit of $246 million as a result of higher revenues, increased industrial utilization and improved product pricing.
Net equipment sales for the quarter were 81% agricultural equipment and 19% construction equipment. The geographical distribution of revenue for the period was 40% North America, 33% EAME & CIS, 16% Latin America, and 11% APAC markets.
Equipment Operations used $240 million in cash flow from operations for the quarter due to an increase in net working capital as a result of an increase in equipment sales and increased inventories required to support full year growth. Year to date capital expenditures totaled $54 million, a 69% increase from the comparable period largely as a result of new product launches in both the agricultural and construction equipment segments; 85% of the capital spend was on new products and production capacity in the period. CNH's Equipment Operations ended the period with a net cash position of $1.9 billion. The 40% effective tax rate for the first quarter 2011 is slightly higher than the Group’s full year expectations of 32% to 38%.
Net income before restructuring and exceptional items for the quarter was $138 million as a result of improved top line and industrial operating performance, improved results from the Group's non-consolidated entities, and a lower tax rate. This resulted in the Group generating a significant increase in diluted earnings per share to $0.57 (before restructuring and exceptional items) compared to $0.16 per share in the comparable period of 2010.
On March 31st, CNH acquired full ownership of L&T Case Equipment Private Limited, an unconsolidated joint venture established in 1999 in the construction equipment sector and based in India. As a result of this transaction, CNH recorded an after tax revaluation gain of $16 million which has been reflected as an exceptional item in the quarter. The Group has provisionally accounted for the transaction and expects to finalize it in the second quarter.
2011 Full Year Market Outlook
Demand in the agricultural and construction equipment markets are expected to remain firm for the balance of 2011 on the back of a positive environment in agricultural commodity prices and its influence on increased planting and farming income estimates; and a steadily improving environment in construction equipment.
FY 2011 World Wide Unit Growth Forecast
Agricultural equipment demand flat to up 5%
Construction equipment demand up 25%
Subsequent Events Update 2011 CNH Earnings Outlook:
CNH is monitoring the medium term effects from the earthquake in Japan on March 11, 2011 on both our business partners and component suppliers. While none of our business partners or Tier 1 suppliers has suffered irreparable damage, the company expects that component parts supply disruptions will necessitate periodic production curtailments in Q2 and Q3 primarily in the construction equipment segment. Further, the company anticipates that in certain product classes of whole goods (primarily excavators) availability will be constrained during the timeframe. As of the end of the first quarter, the Group estimates that the economic impact could negatively affect full year revenues between $300-500 million and operating profit between $40-60 million.
Despite this un-expected headwind, the CNH Group re-affirms its previously released full year revenue and earnings growth targets for 2011 of revenue growth of +10% at an operating margin range of 7.1% to 7.9%.
Construction Equipment Industry and Market
Global construction equipment industry unit sales rose 48% in the first quarter compared to the prior year, with light equipment up 44% and heavy equipment up 51%. North American demand was up 48%, with light equipment volumes up 47% and heavy equipment rising 49%. EAME & CIS markets rose 53% as the industry continued to rebuild from the prior year's low 3/31/20113/31/2010Net Sales of Equipment $ 726 $ 611 18.8%Gross Profit $ 92 $ 59 55.9%Gross Margin12.7%9.7%3.0 ptsOperating Profit $ (17) $ (36)52.8%Operating Margin(2.3)%(5.9)%3.6 ptsQuarter Ended
Change(US $ in millions, except percentages)
levels. In Latin America, the market was up 39%, driven by strong demand from projects in both the public and private sectors. Industry sales in APAC markets rose 47% with continued strong demand in the heavy equipment segment in China.
CNH Construction Equipment First Quarter Results
First quarter 2011 net sales in the construction equipment sector grew 19% (16% on a constant currency basis) as a result of significant market improvements in the Latin American and Asian markets, and from the improvement in conditions in the North American market largely as a result of ageing fleet replacements. Operating loss for the quarter was reduced more than 50% to $(17) million as increased revenue and improved product pricing helped to offset the significant costs of new product launches in North America and production ramp-up costs in Europe, and the negative currency (Japanese Yen) effect on purchased whole goods in the excavator product range.
First quarter market share was down in light equipment due to low inventory levels as a result of transitioning to new products in the high volume tractor loader backhoe and skid steer segments during the quarter. This reduction in share is expected to be resolved over the balance of the year as production in North America returns to normalized rates and the Group's European facilities progressively re-start and increase capacity utilization. In the heavy equipment segment increased market demand drove an increase in production units in the excavator and wheel loader segments, thereby maintaining market share.
During the first quarter of 2011, Case Construction expanded its compaction product line for soil and large-scale asphalt applications with 3 new DV Series double drum models and the PT240, Case's first pneumatic tire compactor. At the ConExpo trade show in Las Vegas in March, the new B-Series motor grader made its debut with the 865B variable horsepower model. Also launched at the show were the new F Series wheel loaders, expanding the wheel loader line into a new size class. The largest models, 1021F and 1221F, are specifically engineered for quarry, aggregate and truck-loading applications.
New Holland Construction presented its new C-series crawler excavator, featuring Tier 4A/Stage IIIB compliant SCR engines that deliver a 10% increase in productivity in terms of cubic meters per hour and up to 10% lower fuel consumption in ECO mode compared to the B Series. Also introduced in the quarter was the new 200 Series Skid Steer and Compact Track loaders, a total of 9 new models were presented to the public both in Europe and North America, featuring the patented vertical lift Super Boom design delivering best-in-class forward dump height and reach.