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CNH cuts profit hopes as sales of high-powered ag machinery fall

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CNH Industrial shares tumbled on Wednesday, after the group lowered expectations for 2015 profits, citing weak agriculture markets, particularly in the Americas.

The maker of agricultural machinery and trucks, whose marques include Case and New Holland, is expecting demand to fall, thanks to "protracted market weaknesses in the row crop segment," especially in North and South America.

The group has reported a sharp fall in profits over the three months to June 30, thanks to falling sales, with sales of high powered tractors and combines hardest hit.

'Weak demand'

CNH is planning to reduce equipment production over the next six months due to "continued weak demand in the farming crop sector" as it moves to clear inventory.

In a call with investors, CNH chief executive Rich Tobin said the fall in production would be mostly in the high horsepower segment.

CNH adjusted its full-year guidance, forecasting an operating margin for its industrial activities of between 5.6 to 6.0%, down from a previous forecast of 6.1 to 6.4%.

The group maintained sales forecasts of $26 to 27bn.

Tractor sales were forecast to fall by 5 to 10% over 2015, while combine harvester sales were forecast to fall by 15 to 20%.

'Decline in volumes'

CNH reported that in the three months to June 30, operating profit for its industrial activities were down 41% to $401m, from $678m in the same time last year.

Revenues fell 22% to $6.958bn, from $8,911bn over the same time last year.

The group's agricultural equipment segment saw net sales fall by 32% year on year to $3.035bn for the three months to June 30.

"The decrease was driven by the anticipated decline in industry volumes in the row crop sector and dealer inventory destocking actions" CNH said.

Combines worst hit

The sharpest declines were seen in higher value machinery used by arable farmers, who have seen particularly large drops in the value of their produce.

Global combine harvest sales fell by 17%, while tractor sales fell by 4%.

In North America, sales of high power tractors and combines fell by 31%, while sales of tractors under 140 horse power rising, with the strongest rise for tractors below 40 horse power, which grew by 5%.

"The year-over-year change was driven by lower sales volume and less favourable product mix in the row crop sector," said CNH, also noting negative exchange rate effects, thanks to the fall of the euro and the Brazilian real against the dollar.

Falling sales

On Tuesday tractor maker Agco saw shares rise as the group reported a successful cost-cutting regime despite falling equipment sales.

CNH Industrial shares closed down 4.1% in Milan, at E7.90 a share.

By Agrimoney.com

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