CNH Industrial N.V. — 2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017. Although the request specifies 2017 Q4, this filing is an annual report and does not provide a clear standalone fourth-quarter financial summary. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Business context
CNH Industrial is a global manufacturer of agricultural and construction equipment, commercial vehicles, buses and specialty vehicles, engines and powertrain products, with a captive Financial Services business. Its five segments are Agricultural Equipment, Construction Equipment, Commercial Vehicles, Powertrain and Financial Services.
Key financial results
Amounts below are in millions of U.S. dollars except per-share data, percentages and units.
| Metric | 2017 | 2016 | Change or context |
|---|---|---|---|
| Total revenue | $27,361 | $24,872 | Up 10.0% (8.1% at constant currency) |
| Net sales of Industrial Activities | $26,168 | $23,669 | Up 10.6% (8.6% at constant currency) |
| Net income attributable to CNH Industrial | $295 | $(252) | Returned to profitability |
| Basic and diluted EPS | $0.22 | $(0.18) | Returned to positive earnings |
| Operating profit, non-GAAP | $1,662 | $1,439 | Up $223 |
| Industrial Activities operating profit, non-GAAP | $1,519 | $1,291 | Operating margin 5.8%, up 0.3 percentage points |
| Cash provided by operating activities | $2,015 | $2,108 | Down $93 |
| Capital expenditures, excluding lease and buy-back assets | $492 | $503 | Down $11 |
| Cash and cash equivalents | $5,430 | $5,017 | Restricted cash was an additional $770 |
| Available liquidity | $9,380 | $8,744 | Includes $3,180 of undrawn committed facilities |
| Total debt | $25,895 | $25,276 | Includes $21,075 attributable to Financial Services |
| Net debt of Industrial Activities | $861 | $1,561 | Improved by $700 |
Industrial Activities generated $1,289 million of net industrial cash flow, up 23% year over year. Consolidated net income was $313 million; $18 million was attributable to noncontrolling interests. The reported 2017 effective tax rate was 66.9%; excluding specified items, management reported an effective rate of 37%.
Segments and changes versus 2016
- Agricultural Equipment: Revenue of $11,130 million, up 10%; operating profit of $949 million, up $131, with an 8.5% margin. Growth came primarily from EMEA, LATAM and APAC; NAFTA sales declined 1.5% amid dealer destocking.
- Construction Equipment: Revenue of $2,626 million, up 14%; operating profit rose to $21 million from $2 million. The 0.8% margin remained low despite stronger volumes.
- Commercial Vehicles: Revenue of $10,415 million, up 9%; operating profit fell to $272 million from $333 million, and margin declined to 2.6%. Higher volumes were offset in EMEA by unfavorable mix, emissions costs and currency effects.
- Powertrain: Revenue of $4,372 million, up 17.9%; operating profit rose to $362 million from $232 million, with an 8.3% margin. Engine sales increased 13% to approximately 606,700.
- Financial Services: Revenue of $1,625 million, up 3.5%; operating profit was essentially flat at $479 million. Segment net income increased to $452 million from $334 million, principally reflecting a favorable tax effect. Managed portfolio was $26.8 billion, up $2.0 billion.
Revenue growth was broad-based, and Industrial Activities operating margin improved. However, consolidated operating cash flow declined, Commercial Vehicles operating profit weakened, and total debt increased. Consolidated equity was $4,400 million, down from $4,451 million.
Outlook, commentary and material items
- Management said available liquidity, expected operating cash flow, financing facilities and planned funding sources should be sufficient for working capital, capital expenditure and debt service at least through the end of 2018. The filing does not provide a clear numeric 2018 revenue or earnings forecast in the supplied text.
- The Board proposed a dividend of €0.14 per common share, approximately €191 million, subject to shareholder approval. CNH Industrial paid €0.11 per share for 2017.
- Management cited stronger 2017 demand in several markets, investment-grade upgrades from S&P and Fitch, manufacturing efficiencies and continued product and R&D investment. R&D expense rose to $957 million from $860 million.
- 2017 included a $92 million non-cash charge from impairment and deconsolidation of Venezuelan operations after exchange restrictions and deterioration in conditions. The company said Venezuelan results were immaterial to group revenue and operating profit.
- The 2017 tax provision included a $123 million charge associated with U.S. tax legislation and tax changes in the U.K. and other jurisdictions. The company described amounts related to the U.S. tax law as provisional.
- In 2016, the company recorded and paid a €495 million European Commission truck antitrust fine. Follow-on private litigation in several European jurisdictions and Israel remained at an early stage; further claims were possible and outcomes uncertain.
- Major risks include cyclical agricultural, construction and vehicle demand; commodity prices and weather; supplier constraints; regulation and emissions compliance; foreign exchange and interest rates; financing and credit losses; significant debt; pension obligations; litigation; and political and economic uncertainty. The defined benefit, healthcare and other postemployment plans had a combined funded-status deficit of $2,254 million.
- Other notable exposures include approximately $368 million of guarantees for third-party debt or commitments and potential joint liability with FCA for approximately $0.2 billion of legacy liabilities; no specific provision was recorded for the latter.
Important facts for investors to verify
- Reconcile the $1,662 million non-GAAP operating profit and $1,289 million net industrial cash flow to their definitions and U.S. GAAP measures.
- Assess whether growth and margins are sustainable, particularly in Construction Equipment and Commercial Vehicles, and monitor dealer inventory and retail demand.
- Review debt by segment, maturities, securitization funding and the availability of committed facilities; Financial Services debt is linked to its financing portfolio.
- Check the final tax effects of U.S. and other tax-law changes, and the recoverability of deferred tax assets, including the Italian valuation allowance.
- Monitor Venezuela-related recoveries or further charges, antitrust follow-on litigation, environmental matters and other contingencies.
- Confirm shareholder approval and payment of the proposed €0.14 dividend and any subsequent share repurchase authorization.
Audit: Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and an unqualified opinion on internal control over financial reporting as of December 31, 2017.