CNH Industrial N.V. — Q2 2023 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2023; financial statements are unaudited and amounts below are in U.S. dollars. CNH Industrial operates Agriculture, Construction and Financial Services businesses. The company voluntarily filed this Form 10-Q as a Foreign Private Issuer.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $6.567 billion | $6.082 billion | $11.909 billion | $10.727 billion |
| Net sales | $5.954 billion | $5.613 billion | $10.730 billion | $9.793 billion |
| Net income attributable to CNH Industrial | $706 million | $548 million | $1.188 billion | $881 million |
| Diluted EPS | $0.52 | $0.40 | $0.88 | $0.65 |
| Industrial Activities Adjusted EBIT | $822 million | $654 million | $1.377 billion | $1.083 billion |
| Industrial Activities Adjusted EBIT margin | 13.8% | 11.7% | 12.8% | 11.1% |
Q2 revenue rose 8.0% (8.8% at constant currency); net sales increased 6.1% (6.9% constant currency). Management attributed growth mainly to favorable pricing and higher sales volume, offset in part by currency effects. The Q2 cost of goods sold ratio to Industrial Activities net sales improved to 75.0% from 78.0%, reflecting pricing and better production performance. SG&A and R&D expenses rose to $485 million and $269 million, respectively, from $424 million and $212 million.
Q2 Agriculture revenue was $4.890 billion and Adjusted EBIT was $821 million, with a 16.8% margin. Construction revenue was $1.064 billion and Adjusted EBIT was $72 million, with a 6.8% margin. Financial Services revenue was $603 million; its net income was $94 million versus $95 million a year earlier.
Cash flow, debt and liquidity
- For the first six months, operating cash flow was negative $840 million, compared with negative $1.158 billion in 2022. Management cited working-capital absorption, including higher receivables and inventories.
- Investing cash flow was negative $1.247 billion, including $224 million of property, plant and equipment and intangible-asset spending, $237 million of lease-asset spending, and $137 million for business acquisitions and other equity investments. Financing cash flow was positive $837 million.
- Cash and restricted cash totaled $3.925 billion at June 30, down from $5.129 billion at year-end 2022. Available liquidity, as defined by the company, was $9.394 billion, including $5.020 billion of undrawn unsecured committed facilities.
- Reported debt was $24.870 billion, versus $22.962 billion at December 31, 2022. Company-defined net debt was $20.535 billion, compared with $17.434 billion at year-end. Industrial Activities moved from $362 million net cash to $777 million net debt; Financial Services net debt was $19.758 billion.
- Financing receivables increased to $21.541 billion from $19.260 billion at year-end. Inventories rose to $6.411 billion from $4.811 billion.
Changes, outlook, risks and unusual items
- Industrial Activities Adjusted EBIT improved in both Agriculture and Construction, driven mainly by pricing, mix and operating performance; higher production costs, SG&A and R&D spending partly offset gains. Financial Services earnings were affected by North American margin compression and higher risk costs.
- Management said supply-chain disruption had improved in Q2, supporting manufacturing efficiency, although purchasing costs remained elevated. It continued to monitor inflation, interest rates, foreign exchange, recession concerns and geopolitical uncertainty. The filing provides no specific updated full-year financial guidance.
- Financial Services receivables more than 30 days past due were 1.8% of receivables, versus 1.5% a year earlier, with increases mainly in South America. Credit-loss reserves included higher specific needs primarily in South America.
- CNH Industrial acquired control of Augmenta and Bennamann in March. Acquisition accounting remained preliminary at quarter-end. The company recorded a $17 million loss on the Q2 sale of CNH Industrial Russia; the six-month period also included a $6 million loss on the sale of CNH Capital Russia and a $13 million gain from remeasuring previously held acquisition interests.
- Q2 effective tax rate was 22.9%, versus 30.3% a year earlier; the 2023 rate benefited from tax effects related to the CNH Industrial Russia sale. The prior-year comparison included Raven Engineered Films sale-related items and U.S. retiree healthcare-plan amortization gains.
- Risks include continued inflation and supply-chain or input-cost pressure, rising rates, currency volatility, equipment demand and pricing, geopolitical developments and legal or regulatory matters. Management said unresolved legal matters, after recorded accruals, were not expected to have a material effect; environmental reserves were $26 million. The filing reports no material change in previously disclosed risk factors.
- The company paid $529 million of dividends during the first six months and continued its announced share-repurchase program. It repurchased approximately 7.0 million shares in Q2; about $33.8 million remained under the program at June 30.
Important facts for investors to verify
- Whether Industrial Activities’ pricing and margin gains can persist as industry demand and regional equipment volumes vary.
- How working-capital needs, financing-receivable growth and inventory levels affect cash generation and net debt in subsequent quarters.
- Whether higher past-due receivables and risk costs, particularly in South America, lead to further credit-loss provisions.
- The final purchase-price allocations for Augmenta and Bennamann, and the continuing effects of the Russia divestitures and associated tax benefits.
- The maturity and refinancing profile of debt, including listed 2023 bond maturities, and continued access to committed credit facilities.
- Developments in disclosed litigation, product and emissions claims, environmental matters and other contingencies.