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CNH Global N.V. (CNH)

Q3 2010 Earnings Call Transcript

October 21, 2010 8:00 am ET

Executives

Gerry Spahn – Senior Director, IR

Rich Tobin – CFO

Harold Boyanovsky – President & CEO

Marco Casalino – VP & Treasurer

Analysts

Andrew Obin – Merrill Lynch

Henry Kirn – UBS

Lawrence De Maria – Sterne, Agee

Greg Williams – JPMorgan

Matt Vittorioso – Barclays Capital

Jerry Revich – Goldman Sachs

Mark Koznarek – Cleveland Research

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to today’s CNH 2010 third quarter results conference call. For your information, today’s conference is being recorded. (Operator instructions) At this time, I would like to turn the call over to your host for today, Mr. Gerry Spahn. Please go ahead, Sir.

Gerry Spahn

Thank you, Tom. Good morning, good afternoon everyone. We’d like to welcome you to the CNH 2010 third quarter earnings conference call. Just a quick introduction. I’d like to remind everybody that you can refer to page three of our presentation, which was distributed today and posted on the internet regarding certain forward-looking statements.

Also, all information that will be used in the conference call today is available on our Web site at www.cnh.com. Today, we’ll have a presentation from Rich Tobin, the CFO of CNH Global, followed by a short Q&A. We have with us today, Rich Tobin; Harold Boyanovsky, CEO of CNH Global; and Marco Casalino, our Treasurer.

We would like to begin with a brief presentation. With that, I’d like to turn it over to you, Rich.

Rich Tobin

Thank you, Gerry. Good morning, everyone. We’ll turn to page four, the highlights for the quarter; go through this briefly. Net sales of equipment was $3.5 billion, up 20% for the quarter, $10.7 billion on a year-to-date basis up 12%. So you see the acceleration.

Agriculture equipment up 12.8% in the third quarter, better than we had forecasted earlier in the year, the drivers of that we can discuss in the Q&A and further in the presentation, but improvement in commodity prices, changes in tax legislation and some effect of Q4 transition has driven that number during the quarter.

Construction equipment is up albeit off a low base of 53% from the third quarter, 42% for the first nine months, which can be described as a general structural improvement in the construction equipment segment with North America improving quicker than our European operations.

Equipment operations operating profit increase of $167 million compared to Q3, 2009 and $441 million on a year-to-date basis. Q3 operating margin increased to 6.8% for the quarter compared to 2.4% in the comparable quarter of 2009, year-to-date operating margin at 6.7% compared to 2.8% in 2009.

Equipment operations net cash position increased by $1.2 billion to $1.8 billion for the first nine months of the year and net income before restructuring and exceptional items of $102 million in the third quarter and $280 million for the first nine months giving an EPS before restructuring and exceptional items for the quarter of $0.43 a share and year-to-date $1.18 a share. So these are the highlights.

I will go through some of the more granular data following the balance of the presentation. So next slide please. Slide #five. We won’t spend a lot of time here and this is more numerical presentation of the highlight slide that we just went through. So you can see the comparable quarters and the percent changes which I just described to you on the previous slide. Next slide please.

I will spend a little bit more time here. This is the net sales by geographic region, and you can see net sales year-over-year 20% starting from the bottom moving up on the 2010 basis for the third quarter.

North America up 29% on the back of the improvement in demand largely driven by agriculture; European operations down 11% quarter-over-quarter, Latin America, up 54% and the rest of the world markets up 16%.

We’ve added on the far right of the chart is the rate of change between the quarter versus what we reported at the half year to give you an idea of what markets are accelerating and decelerating, so overall rate of change in the quarter of 20%. So, in consolidation the 20% of that is an acceleration of the top line vis-à-vis where we were at the first half of the year.

The North American market improving largely. Western Europe improving. So we’re seeing some improvement in Western Europe. So the rate of deceleration in Western Europe has slowed down. We can talk about some of the drivers and then maybe some of the countries where we see some improvement largely driven by the movement in commodity prices.

Latin America, on a comparable basis is beginning to slow, largely driven by election periods and the fact that demand through the first half of the year or first three quarters of the year was up significantly across both sectors, and rest of the world market is accelerating in Q3 as compared to the first half of the year.

In the bottom right hand corner, you see percent of 2010 total net sales and the distribution of those sales, and as we mentioned on previous calls before, it is a healthy distribution of revenue in terms of 66% is garnered outside of North America and 44% in North America.

Next slide please. This is a slide we’ve been using for some time. So it’s a graphical representation of the third quarter of going back to 2006, and we highlighted those slides in terms of relative performance of the business that you can see comparable to some of the good years back in 2007 and 2008. In ‘08, largely in the construction equipment market where we stand in 2010, especially on the operating side in terms of margin potential and peak margin potential.

Read the rest of this transcript for free on seekingalpha.com