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CNH (CNHI) Up 25.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for CNH Industrial (CNHI - Free Report) . Shares have added about 25.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CNH due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

CNH Industrial Q3 Earnings Top Estimates, Guidance Up

CNH Industrial posted third-quarter 2020 adjusted diluted earnings per share of 11 cents, comfortably surpassing the Zacks Consensus Estimate of earnings of 2 cents. Higher-than-anticipated revenues from the industrial activities (comprising of Agricultural Equipment, Construction Equipment, Commercial and Specialty vehicles and Powertrain segments) resulted in this outperformance.

However, the reported figure comes in slightly lower than the year-ago quarter’s earnings of 16 cents per share.

The company recorded adjusted net income of $156 million, down 29% from the prior-year quarter’s $221 million.

For the third quarter, consolidated revenues climbed 2% from the year-ago quarter level to $6,492 million. The reported metric also handily beat the Zacks Consensus Estimate of $5,468 million.

The company’s net sales for industrial activities came in at $6,107 million, up 4% year on year, primarily on robust performance of the Agricultural segment. Adjusted EBIT (earnings before interest and tax) for industrial activities was $238 million in the reported quarter, down 16% from the $284 million recorded in the prior-year quarter.

Segmental Performance

For the September-end quarter, net sales in the Agricultural Equipment segment climbed 10.9% year over year to $2,713 million. The metric also surpassed the Zacks Consensus Estimate of $2,394 million. Moreover, the segment’s adjusted EBIT came in at $274 million, soaring 80.3% from the year-ago quarter, on higher volumes, positive price realization, reduced selling, general and administration (SG&A) expenses and continued prioritization in research and development (R&D) spending.

The Construction Equipment segment’s sales dipped 13.3% year over year to $576 million in third-quarter 2020. Nonetheless, revenues from the unit outpaced the Zacks Consensus Estimate of $471 million. However, the segment incurred a pretax loss of $24 million, tanking 340% year on year, hurt by lower volumes and negative fixed cost absorption and negative price realization.

During the July-September period, revenues in Commercial and Specialty vehicles inched up 1.7% year on year to $2,371 million, beating the consensus mark of $1,441 million. However, the segment incurred pretax loss of $7 million, as against the year-ago quarter’s EBIT of $70 million. This downside primarily stemmed from unfavorable product mix and negative impact of fixed cost absorption due to lower production levels.

The Powertrain segment’s quarterly revenues slipped 3.3% year over year to $909 million. The reported figure, nonetheless, topped the consensus estimate of $799 million. However, the segment’s adjusted EBIT was $60 million, down from the year-ago quarter’s $81 million on lower volume.

The Financial Services segment revenues dropped 16.2% year over year to $408 million in the third quarter due to high risks costs, and lower average portfolios in North America and Europe. The reported figure also missed the consensus mark of $511 million.

Financial Details

CNH Industrial had cash and cash equivalents of $6,425 million as of Sep 30, 2020, compared with $4,875 million as of Dec 31, 2019. The company’s debt was $24,670 million as of Sep 30, 2020, compared with $24,854 million as of Dec 31, 2019.

The company has available liquidity of $13.2 billion as of Sep 30, 2020, compared with $11.3 billion as of Dec 31, 2019.

CNH Industrial’s net cash provided by operating activities was $2,228 million during the reported quarter compared with the net cash of $359 million provided in the prior-year quarter. The free cash flow (FCF) from industrial activities came in at $987 million for the third quarter, up from the negative FCF of $1,080 million recorded in the prior-year period.

2020 Outlook

CNH Industrial has updated the previously-issued guidance for 2020. It expects net sales from industrial activities (including currency-translation effects) for 2020 to be down 10-15% compared with the previous estimate of a 15-20% decline.

The company envisions FCF from industrial activities for the ongoing year to be at $0.4-$0.7 billion compared with the earlier projection of negative FCF.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 44.56% due to these changes.

VGM Scores

At this time, CNH has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, CNH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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