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CNH Industrial N.V. (CNHI)·Q3 2023 Earnings Summary

Executive Summary

  • Consolidated revenue rose 2% year over year to $5.99B and diluted EPS was $0.42; Agriculture margins hit a record despite softer demand, while Construction delivered strong price/mix and margin expansion .
  • Guidance was lowered for Industrial Activities net sales (+3–6% vs. +8–11% prior) and free cash flow ($1.0–$1.2B vs. $1.3–$1.5B prior), while EPS target of ~$1.70 and SG&A/R&D plans were maintained; the company also announced a $1.0B buyback and Euronext Milan delisting to single-list on NYSE, a potential stock reaction catalyst .
  • Management initiated a restructuring targeting ~5% salaried workforce cost reduction and a broader SG&A review (run-rate SG&A down 10–15%) to protect margins amid South America weakness and select product category softness .
  • A material weakness in IT controls (segregation of duties/user access) was disclosed with remediation underway; no misstatements identified, but it’s a risk factor to watch .

What Went Well and What Went Wrong

What Went Well

  • Record segment margins: Agriculture adjusted EBIT margin rose 50 bps to 15.3% and Construction adjusted EBIT margin rose 360 bps to 6.3%, driven by price realization and mix .
  • Cost discipline: CNH highlighted “aggressive cost containment,” CBS (lean/kaizen) benefits, and dealer inventory optimization contributing to profitability despite softening demand .
  • Strategic tech progress: Precision technology independence accelerated (Hemisphere GNSS acquisition; Raven product launches), reducing reliance on third parties and improving user experience .
  • Quote: “CNH achieved record margins in our Agriculture and Construction segments… Balancing continued investments in iron and technology with aggressive cost containment…” — Scott W. Wine, CEO .

What Went Wrong

  • Demand softness and regional headwinds: Industrial Activities net sales fell 1% YoY on lower Agriculture demand, particularly South America and EMEA combines; NA combines also down modestly YoY .
  • Free cash flow: Industrial Activities absorbed -$127M in Q3 (vs. +$202M Q3’22), reflecting working capital and investment cadence; consolidated CFO was $232M (down from $272M Q3’22) .
  • Controls disclosure: Material weakness in ERP IT controls (segregation/access) raises governance risk until remediated .

Financial Results

MetricQ1 2023Q2 2023Q3 2023Consensus (Q3 2023)
Consolidated Revenue ($USD Billions)$5.342 $6.567 $5.986 $6.32
Industrial Activities Net Sales ($USD Billions)$4.776 $5.954 $5.332 $5.767 (Zacks)
Net Income ($USD Millions)$486 $710 $570 —
Diluted EPS ($)$0.35 $0.52 $0.42 $0.42 (Zacks)
Gross Profit Margin – Industrial Activities (%)24.4% 25.0% 23.9% —
Adjusted EBIT – Industrial Activities ($USD Millions)$555 $822 $657 —
Adjusted EBIT Margin – Industrial Activities (%)11.6% 13.8% 12.3% —
Cash Flow from Operating Activities ($USD Millions)-$701 -$139 $232 —
Industrial Free Cash Flow ($USD Millions)-$673 $386 -$127 —

Segment breakdown (Q3 2023):

SegmentNet Sales ($USD Millions)Gross Profit ($USD Millions)Gross Margin (%)Adjusted EBIT ($USD Millions)Adjusted EBIT Margin (%)
Agriculture$4,384 $1,122 25.6% $672 15.3%
Construction$948 $151 15.9% $60 6.3%
Financial Services (rev., NI)Revenue $653; Net Income $86 ————

KPIs (Q3 2023):

KPIQ3 2023Q2 2023Q1 2023
Cash & Cash Equivalents ($USD Millions)$2,979 $3,194 $3,213
Total Debt ($USD Millions)$24,958 $24,870 $23,552
Effective Tax Rate (%)25.8% (reported) 22.9% (reported) 27.6% (reported)
Adjusted ETR (%)25.7% 24.0% 28%
R&D Expense ($USD Millions)$266 $269 $231
CapEx ($USD Millions)$176 (Q3 spend) $131 (Q2 spend) $90 (Q1 spend)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Industrial Activities Net Sales GrowthFY 2023+8% to +11% YoY +3% to +6% YoY Lowered
SG&A vs. 2022FY 2023Up no more than 5% Up no more than 5% Maintained
Industrial Activities Free Cash FlowFY 2023$1.3B to $1.5B $1.0B to $1.2B Lowered
R&D + CapExFY 2023Around $1.6B Around $1.6B Maintained
Adjusted Diluted EPSFY 2023~ —Target ~$1.70 Reiterated
Capital ActionsNear term$300M buyback execution (ongoing in 2023) $1.0B buyback Nov 8, 2023–Mar 1, 2024; delisting from Milan, single-list NYSE New program

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2023)Current Period (Q3 2023)Trend
Precision tech independenceQ1: bolt-ons (Augmenta, Bennamann), R&D ramp; Q2: strong adoption; record margins Hemisphere GNSS acquisition solidifies in-house guidance/navigation; Raven launches (Cart Automation, DirecSteer) Accelerating vertical integration
Cost management (CBS/lean)Q1: $550M+ operational efficiencies target; Q2: CBS driving efficiencies Aggressive cost containment; restructuring to cut salaried SG&A ~5% now and 10–15% run-rate SG&A reduction Intensifying
Regional demand/macroQ1: NA row crop strong; SA mixed; EMEA mixed; Q2: NA resilient, SA softness, APAC mixed SA weakness, EMEA combines down; NA HHP tractors +19% YoY; pricing favorable Mixed; South America softer
Dealer inventory managementQ2 call discussed proactive inventory moderation and replenishment balance “Aggressive actions to optimize dealer inventory” highlighted Active management continues
Regulatory/controls—Material weakness in ERP IT controls disclosed; remediation underway Risk identified
R&D executionQ1–Q2: R&D up; digital/electric investments mix Q3 R&D $266; Ag R&D ~5.5% of sales Sustained investment

Management Commentary

  • “Balancing continued investments in iron and technology with aggressive cost containment positions us to maintain our full year adjusted EPS target of around $1.70 and demonstrate higher through-the-cycle margins.” — Scott W. Wine, CEO .
  • “Our precision technology evolution is accelerating as we execute our longstanding plan to reduce our reliance on third parties.” — Scott W. Wine, CEO .
  • “Application to delist from Milan filed… single listing on NYSE beginning of January 2024… $1B share buyback program announced today.” — Investor presentation .

Q&A Highlights

  • Capital allocation and buyback rationale: “We’re trading below intrinsic value and there’s a large flowback expected with the delisting… we want to lean in… part of our capital allocation strategy… committed to ratings and R&D funding.” — Scott W. Wine (Q&A) .
  • Inventory strategy: Proactive dealer inventory optimization to balance HHP replenishment with LHP reductions; sequential moderation expected in low horsepower categories (Q2 framing carries through) .
  • Delisting timing and preparedness: Management reiterated end-of-year plan and preparation to offset flowback with buybacks (Q2 call) .

Estimates Context

  • S&P Global consensus could not be retrieved due to missing mapping in our system; thus we cannot provide SPGI numbers (unavailable).
  • External sources indicate Q3 EPS inline with consensus at $0.42 and revenue below consensus ($5.99B actual vs. ~$6.32B consensus); Industrial Activities net sales missed Zacks consensus ($5.332B vs. $5.767B) .

Key Takeaways for Investors

  • Margin resilience despite demand softness: Agriculture and Construction margins expanded on price/mix and cost discipline; restructuring and CBS initiatives should help defend margins through a softer 2024 industry backdrop .
  • Guidance reset lowers growth and FCF expectations; EPS target maintained: Expect investor focus on execution vs. new net sales/FCF ranges and progress on SG&A run-rate reductions; monitoring South America demand is critical .
  • Capital return and listing simplification: $1B buyback and single NYSE listing are potential near-term stock supports, countering any flowback from delisting; watch program pace through March 1, 2024 .
  • Controls remediation watch item: Material weakness in ERP IT controls is a governance overhang until resolved; no misstatements identified, but progress updates will matter .
  • Tech stack verticalization: Hemisphere and Raven moves reduce third-party reliance and enhance precision/ag autonomy roadmap; likely supports medium-term margin uplift and product differentiation .
  • Regional mix matters: NA strength (HHP tractors) offsets EMEA/SA softness; sustained pricing helps, but dealer inventory actions in LHP could dampen volumes near term .
  • Trading implications: Near term, expect reactions to guidance cuts vs. EPS hold, buyback cadence, and SA demand headlines; medium term thesis hinges on cost takeout, tech-led margin curve shift, and normalized cash conversion .