CNH REPORTS SIGNIFICANTLY IMPROVED FIRST QUARTER RESULTS
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Lake Forest, Illinois (April 28, 2004) CNH Global N.V. (NYSE:CNH) today reported first quarter net income of $4 million compared to a first quarter 2003 net loss of $40 million, excluding restructuring charges in both periods. In the first quarter of 2004, CNH took a $13 million restructuring charge, net of tax, related primarily to the execution of its manufacturing rationalization plan. Including this restructuring charge, the company recorded a first quarter 2004 net loss of $.07 per share, compared to a first quarter of 2003 net loss of $.35 per share, which included restructuring charges of $6 million, net of tax.
"The improved margins and higher volumes we saw in the first quarter are the direct result of our product renewal program," Paolo Monferino, CNH president and chief executive officer said. "Thanks to strong sales in the Americas, particularly for combines, CNH is off to a good start in 2004. As our recently launched products become more widely available, and more new products enter production, our bottom line should benefit through the second half of the year."
First quarter sales of agricultural equipment.
Net sales of agricultural equipment increased to $1.919 billion for the quarter, compared to $1.600 billion for the first quarter of 2003. The increase in revenues from the sale of agricultural equipment was due mainly to improved volume and pricing in North and Latin America, as well as currency variations.
First quarter 2004 North American industry unit sales of over-40 horsepower agricultural tractors increased significantly compared to the same period last year, while combine sales were up slightly. In Western Europe, industry unit sales of tractors were unchanged from year-earlier levels; industry sales of combines declined moderately, however. Industry sales in Latin America were up substantially in the quarter for both combines and tractors.
During the quarter, retail unit sales of CNH agricultural equipment increased in nearly all markets, with the greatest gains coming from combines, where the company gained share in all three major regions. Retail sales of the company's over-40 horsepower tractors increased in North and Latin America, but declined slightly in Western Europe.
First quarter sales of construction equipment.
Net sales of construction equipment totaled $744 million, compared to $677 million for the first quarter of 2003. Much improved wholesale activity in North America, along with currency variations, were partially offset by lower than expected wholesales in Europe.
First quarter industry sales of heavy equipment improved dramatically in North America and Asia, and increased slightly in Western Europe. Industry sales of light equipment showed moderate to significant gains in all regions.
Retail unit sales of CNH heavy construction equipment increased in North and Latin America, as did sales of most lines of light equipment. First quarter retail sales of CNH construction equipment in North America were constrained by limited availability of certain models, particularly backhoe loaders. In Western Europe retail sales of CNH heavy and light equipment declined more than expected for nearly all product lines.
Equipment Operations first quarter financial results .
First quarter net sales of equipment were $2.663 billion, compared to $2.277 billion for the same period in 2003. Net of currency variations, sales increased by 7% compared to the same period last year.
CNH Equipment Operations' first quarter gross margin improved year-over-year, reflecting the positive impact of pricing, currency variations, reduced product cost, and volume increases in both the agricultural and construction equipment businesses. The improvement in gross margin was the primary factor driving the company's first quarter industrial operating margin of $117 million, or 4.4% of net sales, compared to $50 million, or 2.2% of net sales, in the first quarter of 2003.
CNH Equipment Operations adjusted EBITDA was $128 million for the quarter compared to $65 million in the same period last year. Interest coverage was 2.0 times for the first quarter of 2004, compared to 1.0 times for the same period last year.
Financial Services first quarter financial results .
In the first quarter of 2004, CNH Capital reported net income of $27 million, compared to $6 million in the same period last year. The difference is due mainly to the timing of the company's ABS transactions and lower risk costs in 2004. During the first quarter of 2004 the company completed the fulfillment of late-2003 ABS transactions, while in 2003, the first ABS transactions occurred in the second quarter. The steady improvement in the quality of CNH Capital's loan portfolio accounts for the year-over-year reduction in bad debt expenses. The total managed portfolio at the end of the quarter increased by 2% compared to the December 31, 2003 level.
Balance sheet .
Equipment Operations net debt was $1.944 billion on March 31, 2004, compared with $1.902 billion on December 31, 2003, reflecting the normal seasonal build up of working capital. Equipment Operations working capital was approximately $132 million higher on March 31, 2004 than on December 31, 2003, net of currency variations. The normal seasonal buildup of working capital in the first quarter of 2004 was somewhat less than in the first quarter of 2003.
Agricultural equipment market outlook for 2004 .
CNH expects North American industry sales of combines and over-40 horsepower tractors to remain strong in the second quarter and return to a more sustainable level of growth in the second half. In Europe, industry sales of tractors and combines are expected to decline slightly for the year. Industry sales in Latin America should be flat to up slightly from 2003 levels for the full year.
Construction equipment market outlook for 2004 .
Industry sales of both heavy and light construction equipment are expected to increase moderately in North America in 2004, although not at the exceptionally high level of industry sales seen in the first quarter. In Western Europe, where there is still no clear sign of recovery, CNH continues to believe that industry sales of both heavy and light construction equipment should be flat.
CNH outlook for 2004 .
First quarter improvements in CNH's industrial operating margin have confirmed the company's confidence that new products launched in 2002 and 2003 will yield both higher volumes and improved pricing realization. These new products should position CNH to take full advantage of the growth now evident in most markets, strengthening the company's bottom line in 2004.
Continued progress on the company's profit improvement initiatives should also yield tangible results with most of the benefits in 2004 coming from CNH's footprint rationalization actions. These initiatives, begun in 2000, have helped position CNH for continued bottom line growth in 2004 and beyond. In the current year, CNH expects to incur restructuring charges of about $100 million, pretax, as the company should complete most of its restructuring initiatives.
Through a combination of top line growth and stronger margins, CNH expects to achieve a 2004 improvement in the bottom line substantially better than what was achieved in 2003, excluding restructuring charges. Both the agricultural and construction equipment businesses are expected to be profitable, and CNH Capital's contribution to the bottom line should increase moderately.
CNH management will hold a conference call later today to review its first quarter results. The conference call webcast will begin at approximately 10:00 am U.S. Eastern Time. This call can be accessed through the investor information section of the company's web site at www.cnh.com and is being carried by CCBN.
CNH is the power behind leading agricultural and construction equipment brands of the Case and New Holland brand families. Supported by more than 12,000 dealers in approximately 160 countries, CNH brings together the knowledge and heritage of its brands with the strength and resources of its worldwide commercial, industrial, product support and finance organizations. More information about CNH and its products can be found on line at www.cnh.com
Forward looking statements.
This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this press release, including statements regarding our competitive strengths, business strategy, future financial position, budgets, projected costs and plans and objectives of management, are forward-looking statements. These statements may include terminology such as "may," "will," "expect," "should," "intend," "estimate," "anticipate," "believe," "continue," "on track," or similar terminology.
Our outlook is predominantly based on our interpretation of what we consider key economic assumptions and involves risks and uncertainties that could cause actual results to differ. Crop production and commodity prices are strongly affected by weather and can fluctuate significantly. Housing starts and other construction activity are sensitive to interest rates and government spending. Some of the other significant factors for us include general economic and capital market conditions, the cyclical nature of our business, customer buying patterns and preferences, foreign currency exchange rate movements, our hedging practices, our and our customers' access to credit, actions by rating agencies, political uncertainty and civil unrest or war in various areas of the world, pricing, product initiatives and other actions taken by competitors, disruptions in production capacity, excess inventory levels, the effect of changes in laws and regulations (including government subsidies and international trade regulations), results of legal proceedings, technological difficulties, results of our research and development activities, changes in environmental laws, employee and labor relations, pension and health care costs, raw material costs and availability, energy prices, real estate values, animal diseases, crop pests, harvest yields, government farm programs and consumer confidence, housing starts and construction activity, concerns related to modified organisms, and fertilizer costs. Additionally, our achievement of the anticipated benefits of our profit improvement initiatives depends upon, among other things, industry volumes as well as our ability to effectively rationalize operations and to execute our multiple brand strategy. Further information concerning factors that could significantly affect expected results is included in our Form 20-F for the year ended December 31, 2003.