CNH Industrial N.V. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparative periods ended September 30, 2022. The interim financial statements are unaudited. CNH Industrial filed voluntarily on Form 10-Q as a foreign private issuer.
Business context and results
CNH Industrial operates Agriculture and Construction equipment businesses and a Financial Services business that finances customers and dealers. For the quarter, total revenue increased despite lower industrial net sales, as Financial Services revenue rose substantially. For the nine months, revenue growth reflected higher industrial sales and Financial Services income.
| Metric (USD millions, except per-share data) | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $5,986 | $5,881 | $17,895 | $16,608 |
| Industrial net sales | $5,332 | $5,396 | $16,062 | $15,189 |
| Net income attributable to CNH Industrial | $567 | $556 | $1,755 | $1,437 |
| Diluted EPS | $0.42 | $0.41 | $1.30 | $1.06 |
| Industrial Activities Adjusted EBIT | $657 | $670 | $2,034 | $1,753 |
| Adjusted EBIT margin | 12.3% | 12.4% | 12.7% | 11.5% |
Financial position, cash flow and liquidity
- Cash and restricted cash: $3.685 billion at September 30, down from $5.129 billion at year-end 2022. The filing reports available liquidity of $8.743 billion, including cash, restricted cash, undrawn committed unsecured facilities and other specified liquid resources.
- Cash flow, nine months: Operating activities used $608 million, compared with $886 million used in 2022. Investing activities used $2.042 billion; financing activities provided $1.207 billion. Management attributed cash absorption mainly to working capital, receivables growth, dividends, investment and acquisitions.
- Debt: Total debt was $24.958 billion, versus $22.962 billion at December 31, 2022. Financial Services accounted for $21.848 billion of reported debt, largely supporting its financing portfolio. Consolidated net debt, including payables to Iveco Group in the company’s reconciliation, was $21.161 billion, versus $17.434 billion at year-end.
- Working capital and finance receivables: Inventories increased to $6.447 billion from $4.811 billion, and financing receivables to $22.240 billion from $19.260 billion. Financing receivables more than 30 days past due were 1.6% of receivables, up from 1.3% a year earlier.
- Capital returns: Nine-month dividends declared were $0.396 per common share, compared with $0.302 in 2022. The company also repurchased shares under its existing program.
Material changes and management commentary
- Q3 total revenue grew 1.8%, while industrial net sales declined 1.2% (3.0% lower at constant currency). Management cited weaker Agriculture demand, especially in South America and EMEA combines; Construction sales grew 5.9%.
- Nine-month total revenue rose 7.7% and industrial net sales rose 5.7%. Industrial Activities Adjusted EBIT increased 16.0%, with improved gross margins and price realization partly offset by higher SG&A and R&D spending.
- Q3 Agriculture revenue fell 2.6%; Construction revenue increased 5.9%. Financial Services revenue grew 35.5% in the quarter, but segment net income remained $86 million, as favorable volumes were offset by North American margin compression and higher risk costs. Nine-month Financial Services net income was $258 million, down from $263 million.
- Cost of goods sold was 76.1% of Industrial Activities net sales in Q3, versus 77.0%; for the nine months it was 75.5%, versus 77.8%. Management cited favorable pricing and operating performance, while noting elevated purchasing and manufacturing costs.
- Interest expense increased to $346 million in Q3 from $190 million and to $941 million for the nine months from $490 million. Management attributed much of the increase to Financial Services; Industrial Activities’ net interest expense was lower year over year.
Outlook, risks and unusual items
- The filing does not provide a clear numerical full-year earnings or revenue guidance in the supplied text. Management described continuing exposure to inflation, interest rates, foreign exchange movements, recession concerns, geopolitical events and remaining supply-chain disruptions; it said supply disruptions had improved but purchasing costs remained elevated.
- After quarter-end, CNH Industrial completed its $300 million buyback program, announced a new repurchase authorization of up to $1 billion through March 1, 2024, and announced a targeted reduction of approximately 5% of salaried workforce cost. It estimated up to $200 million of pre-tax restructuring and related charges.
- Also after quarter-end, the company acquired Hemisphere GNSS for $175 million to expand precision, automation and connectivity capabilities. Augmenta and Bennamann acquisition valuations remained preliminary at September 30.
- CNH Industrial reported a material weakness in IT general controls over ERP user access and segregation of duties; disclosure controls and procedures were therefore deemed ineffective at period-end. The company reported no resulting financial-statement misstatement and is implementing remediation, which is not considered complete until controls operate effectively for a sufficient period.
- Legal and environmental exposures include product, emissions, competition and other claims. Management said the reasonably possible loss range for unresolved legal matters, beyond amounts accrued, was not expected to have a material effect. Environmental reserves were approximately $24 million; the company cautioned actual remediation costs could differ.
- Reported results included Russia business sale losses totaling $23 million for the nine months, acquisition-related fair-value gains, and ongoing amortization gains from a U.S. healthcare-plan modification. Comparisons also reflect prior-year Russia write-downs and Raven divestiture and Iveco separation items.
Important facts for investors to verify
- Whether ERP access and segregation-of-duties control remediation is completed and independently assessed, and whether any additional weaknesses or reporting issues emerge.
- Whether Agriculture demand and dealer destocking weaken further, particularly in South America and EMEA, and how pricing and margins respond.
- Whether Financial Services credit delinquencies, risk costs and margin compression continue to rise as its receivables portfolio expands.
- How working-capital needs, industrial cash generation and financing-portfolio growth affect net debt and liquidity.
- The timing, cash cost and realized savings from the workforce restructuring, and the execution and returns of the Hemisphere acquisition and new buyback program.