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CNH foresees weaker times for ag machinery market

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CNH Industrial shares tumbled after the maker of Case tractors and Iveco trucks cautioned of weaker market conditions for its agriculture division, which has proved the group's strongest business.

CNH Industrial - in its first full-year results statement since being formed from a merger of CNH Group and Fiat Industrial – unveiled a 9.0% rise to E170m in earnings for the October-to-December period, despite a 1.1% slide to E6.93bn in revenues.

The increase in profits reflected in part lower foreign exchange expenses, but also a rise of 12.9% to E298m in trading profits in the agricultural and construction equipment division which offset a steep decline in takings from the trucks business.

And even within the agricultural and construction equipment division, it was the farm machinery unit which fared better, helped by a "strong performance, particularly in Latin America".

Latin America has proven one of the stronger markets, seeing industry growth of some 5% year on year in the last quarter of 2013, ahead of flat European and North American markets.

Market weakness

However, CNH Industrial forecast a weaker 2014 for farm machinery, highlighted a "projected decline in unit demand of agricultural product equipment forecasted for 2014".

The comments reflect the latest in a series of downbeat comment on prospects for the agricultural machinery sector, with a survey by Creighton University showed a decline already in train in the US industry, while a survey by Farm Journal Pulse showed US farmers unwilling to buy.

Of more than 1,500 US farmers surveyed, nearly 40% said that they would not buy any farm machinery this year, with a further 25% expecting to purchase only one piece, in face of weakening crop prices.

US net farm income it poised to drop to a four-year low of $101.5bn this year, according to IHS Global Insight, down $16bn from the analysis group's estimate for proceeds in 2013, and $29.5bn below the US Department of Agriculture figure for last year.

Sluggish growth

CNH forecast revenue growth of at best 5% this year, and potentially none at all, with trading margin seen at 7.8%-8.2%, compared with 7.7% for 2013.

The forecasts disappointed investors, who sent CNH shares down more than 5% in Milan at one point before the stock recovered some ground to close at E7.94, down 3.4% on the day.


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