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Cut to earnings hopes depresses shares in machinery group CNH


Shares in CNH Industrial dropped close to five-month lows after the maker New Holland equipment downgraded its guidance for 2020, blaming “prevailing market uncertainties”, which are weighing particularly on ag and construction divisions.


The UK-based group, whose portfolio also includes Iveco trucks and Steyr tractors, forecast adjusted earnings per share for 2020 at $0.78-0.86, below the $0.95-1.00 range it guided to in September.


The revised figure was also below the $0.89-per-share result expected by investors, and opened up the potential for a drop in earnings from 2019, which it reported at $0.84 per share.


For sales too, it flagging the potential for a decline in revenues from its industrial activities, seeing them coming in “flat to slightly down” for 2020.


CNH noted “prevailing market uncertainties”, but added that it was stepping “up our efforts on performance and cost initiatives to drive profitability”, maintaining investments in new technologies, including digitalisation and electric vehicles.


CNH shares, which are listed in Milan, stood 4.7% lower at E8.646 in late deals.


Ag, construction ‘headwinds’

The outlook downgrade followed an October-to-December quarter in which CNH reported a 5.1% fall to $279m in adjusted earnings, on revenues down 6.2% at $7.70bn.


Hubertus Mühlhäuser, the CNH chief executive, said that “headwinds were particularly acute in the agriculture and construction segments” both in North America and in the company’s “rest of the world” geography, which includes the likes of Asia and Oceania.


In fact, in agriculture revenues fell by 7.2% to $2.93bn, losing the division top rank in sales in CNH, with the commercial vehicle segment seeing a decline of a more modest 4.9% to $3.00bn.


The company’s worldwide sales of tractors during the quarter, with a 3% decline, actually outperformed a world market which shrank by 7%, although a fall of 15% in combines was worse than the industry average of a 12% drop.


‘Muted industry environment’

Nonetheless, the ag division retained by a distance its rank as the group’s top earner, with adjusted operating profits of $236m for the quarter, down 8.5% year on year, while the commercial vehicle arm only just managed to break even.


While noting setbacks from “higher product costs as result of increased raw material costs and tariffs”, the group managed some compensation to margins by passing on some of the extra expenses in terms of higher product prices.


The group added that in agriculture, “we expect farmers’ sentiment to gradually stabilise during 2020, despite a muted industry environment in the major markets in which we compete,” noting the impact of agricultural commodity prices that “remain under pressure.


“In this uncertain market scenario, we will continue to manage production prudently until we see signs of improved end-market demand.”


The group forecast flat ag machinery markets in all major geographies - European Union, North America, South America and Rest of the world - bar those for North American combines and large tractors which were forecast as poised for contraction of up to 5%.

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