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CNH (CNHI) Down 4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for CNH Industrial (CNHI - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CNH due for a breakout? 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 drivers.

CNH Industrial Q3 Earnings Top Estimates, Revenues Lag

CNH Industrial reported adjusted earnings per share of 16 cents in third-quarter 2018, increasing from 4 cents in the prior-year quarter. Moreover, the bottom line surpassed the Zacks Consensus Estimate of 13 cents.

Reportedly, adjusted net income rose to $222 million from $151 million recorded in third-quarter 2017.

Consolidated revenues were flat year over year to $6.69 billion. However, the figure missed the Zacks Consensus Estimate of $6.9 billion. The company’s net sales in Industrial Activities were $6.2 billion while adjusted EBITDA (earnings before interest, tax, depreciation and amortization) of Industrial Activities increased 13% to $591 million.

Segmental Performances

Net revenues from the Agricultural Equipment segment rose 3.5% year over year to $2.6 billion. The rise was due to positive price across all regions and higher sales in NAFTA. Moreover, the segment’s adjusted EBIT was $196 million, marking a $23 million increase compared with the third quarter of 2017.

Construction Equipment segment’s revenues increased 17.5% to $726 million compared with the prior-year quarter. The gain was primarily due to favorable demand, majorly in NAFTA and APAC. Adjusted EBIT was $26 million, marking a $24 million gain compared with the prior-year quarter.

Revenues from the Commercial Vehicles slumped 6.6% to $2.4 billion compared with the prior-year quarter. Waning demand, primarily for heavy vehicle trucks in EMEA, led to this decline. The segment’s adjusted EBIT was $68 million, witnessing an increase of $25 million from third-quarter 2017.

Powertrain segment’s revenues declined 9.5% year over year to $972 million. The segment’s adjusted EBIT was $82 million, marking a $6 million decline compared with the second quarter of 2017.

Revenues from the Financial Services segment declined 1.9% year over year to $469 million. This decline was majorly due to a lower average portfolio balance in NAFTA. Adjusted EBIT was $123 million, a decline of $3 million from the prior-year quarter.

Financial Details

CNH Industrial had cash and cash equivalents of $4.1 billion as of Sep 30, 2018, compared with $5.4 billion as of Dec 31, 2017. The company’s debt was $24 billion as of Sep 30, 2018, recording a decline from $25.9 billion as of Dec 31, 2017.

In third-quarter 2018, CNH Industrial’s net cash outflow from operations was $620 million compared with an outflow of $152 million a year ago.

Outlook

For 2018, the company reaffirmed its net sales anticipation of Industrial Activities to be approximately $28 billion. Adjusted earnings per share are expected to be 67-71 cents. Also, net industrial debt is anticipated between $0.7 billion and 0.9 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.59% due to these changes.

VGM Scores

Currently, CNH has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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