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CNH Global NV (CNH)
Q3 2007 Earnings Call
October 23, 2007, 10:00 AM ET

Executives

Albert Trefts, Jr. - Senior Director, IR and Capital Markets
Rubin J. McDougal - CFO
Camillo Rossotto - VP and Treasurer and CFO, Financial Services
Harold Boyanovsky - President and CEO

Analysts

Terry Darling - Goldman Sachs
Mark Koznarek - Cleveland Research Company
David Bleustein - UBS
Ann Duignan - Bear Stearns
Massimo Vecchio - Mediobanca
Paolo Mosole - InterMonte Securities

Presentation


Operator

Good morning ladies and gentlemen, and welcome to today's CNH 2007 Third Quarter Results Conference Call. For your information, today's conference is being recorded. At this time, I would like to turn the call over to Mr. Al Trefts, Senior Director, Investor Relations and Capital Markets. Please go ahead, sir.

Albert Trefts, Jr. - Senior Director, Investor Relations and Capital Markets

Thank you, Andrea. Welcome everyone to CNH's third quarter 2007 results webcast conference call. We are pleased to have with us today Harold Boyanovsky, our President and Chief Executive Officer; Rubin McDougal, our Chief Financial Officer; and Camillo Rossotto, our Treasurer and CFO, Financial Services.

In recognition of regulation FD, we've provided public guidance in this morning's press release, which will be elaborated on in today's call. After this call, guidance will not be updated until CNH issues another press release on the subject.

We will be making some forward-looking statements during the course of today's presentation and in answering your questions as discussed on slide 3. Please refer to this morning's press release for the important risk factors and uncertainties in the company's businesses or that subject to change, and could cause actual results to differ materially from our expectations today. As noted on the slide, the appendix contains reconciliations to U.S. GAAP of various non-GAAP measures we use in analyzing our performance.

Finally, this conference call and webcast are being recorded. The contents for the property of CNH Global NV and are not to be re-recorded or rebroadcast without our expressed or written permission.

Now, I'd like to turn the call over to Reuben.

Rubin J. McDougal - Chief Financial Officer

Thank you, Al. Good morning and good afternoon everyone. Beginning with slide 4, I'd like to review the highlights of another record quarter, starting with our diluted earnings per share before restructuring net of tax, which at $0.62 more than doubled from $0.30 last year. Net income before restructuring net of tax increased 108% to $148 million.

Equipment operations growth margin increased to 19.4%, the best third quarter results in CNH's history. Favorable volume and mix in the agricultural equipment area included combines and headers are worldwide, high horsepower tractors, our new cotton picker packagers and sugarcane harvesters.

In addition, construction equipment markets outside of North America remain strong in the quarter. These together with lower costs associated with continuously improving quality, all contributed to the margin increase. Agro... agricultural equipment market share improved in the quarter while construction equipment market share was stable. Financial services net income grew 16% to $72 million compared to the third quarter last year, its best quarterly result ever. Retail originations were up 33% and the quarter end service portfolio of retail loans and leases was up 14% from September 2006.

On August 1st, we redeemed our 9.25% senior notes due in 2011 to better manage our liquidity and reduce future net interest expense. Equipment operations remained in a net cash position throughout the quarter. Taking a look at slide 5, we see the trend of worldwide tractor and combined industry unit volumes in the third quarter.

The worldwide tractor industry increased again for the fourth consecutive year, up 2% from last year, despite a decline in the under 40 horsepower segment in North America, and a decline in rest of world markets.

The increase was driven by the over 40 horsepower segment in North America and improvements in Western Europe and Latin American markets. The combine industry also increased, in total up 11% in the quarter. Turning to slide 6, we have worldwide tractor industry retail unit sales changes year-over-year by market. Additionally in North America within the over 40 horsepower category, which represents 45% of the North American market in the quarter, industry sales of tractors in the 40 to 100 horsepower range were up 3%. And in categories where Case IH is particularly strong, sales of the over 100 horsepower tractors were up 40% and four-wheel-drive tractors were up 12%.

Preliminary tractor industry sales in Western Europe were up 7% with the markets in France, Germany, Spain and the U.K. up. In Latin America where the tractor market was up 49%, Brazil was up 64%, other Latin American markets were also up with Argentina up 35%. Driven by continued strength in the markets in North America and Latin America, worldwide combine industry unit sales improved 11%. The Brazilian market was up 2.5 times from last year's low level. Argentina almost doubled.

The market in Mexico was up 40% while in aggregate, other Latin American markets were also up significantly. The combine market in Western Europe was flat in the quarter, with Germany down while France, the U.K., Italy, Spain and all other Western European markets in total were up.

The combine market in North America was up 17% and as in the second quarter, the Class 7 segment was up almost 25% driven by sales of our new entry, the Case IH Axial-Flow 7010 combine. On a unit basis, our tractor market share improved in North America and rest of world was flat in Western Europe, and declined slightly in Latin America where we are capacity-constraint. In total, our share was up from last year and our combine sales were very strong in every market.

Slide 7 shows the September year-to-date trend of worldwide tractor and combine industry unit volumes. Worldwide, the tractor industry is leveled with last year despite the decline in the under 40 horsepower segment in North America. The combine industry increased in most markets and in total was up 17%.

Next on slide 8 are the worldwide tractor industry retail unit sales changes year-over-year buy market for the first nine months of the year. Additionally, in North America within the over 40 horsepower category, industry sales in tractors in the 40 to 100 horsepower range were up 4% from last year. Sales of the... of over 100 horsepower tractors were up 17% and four-wheel-drive tractor sales were up 10%. Preliminary tractor industry sales in Western Europe were up 3% with the markets in France and the U.K. up and Germany, Italy and Spain down. All of the other markets outside of these five countries in aggregate were up.

In Latin America where the tractor market was up 36%, notably Brazil was up 52% and Argentina was up 28%. Driven by the continued strengthening of the markets in Latin America, rest of world markets and North America, worldwide combine industry unit sales improved 17%. The Brazilian market more than doubled, Argentina was up 30% and in aggregate, other Latin American markets also were up sharply. The combine market in Western Europe declined about 1% in the nine months with France, Italy, Spain and the U.K. up while Germany and other Western European markets in total were down.

Combine market in North America was up 11% with the Class 7 segment up 22%. On a unit basis, our tractor market share improved in North America and rest of world markets, was flat in Western Europe and declined slightly in Latin America. In total, our tractor share was up from last year and our combine retail sales were very strong in every market.

Turning to the third quarter construction equipment industry, retail unit sales trend on slide 9, we see continued strength. In total up about 12%. The industry unit sales of heavy equipment were up about 15% with sales of light equipment up 10%.

Slide 10 shows third quarter 2007 year-over-year percent changes in construction equipment industry, retail unit sales by region. The worldwide backhoe loader market was up 28% with strong increases outside of North America. The skid steer loader market was down 1%, with North America down and all other markets up.

The heavy construction equipment market was up 15% with strong increases outside of North America just as we saw in the first half. Germany and the U.K. saw the largest percentage increases in Western Europe where all major markets were up except for France, which was flat. Latin American markets were also up except for Mexico, as were most markets in rest of world.

Our worldwide market share of total light, including all other light equipment products and heavy equipment was essentially unchanged from the third quarter of 2006. Next, the September year-to-date construction equipment industry retail unit sales trend on slide 11 where we see the markets up in total, about 13%. Heavy equipment was up about 16, the sales of light equipment up 11%.

Slide 12 shows first nine months year-over-year percent changes in construction equipment industry retail unit sales by regions. The worldwide backhoe loader market was up 25%, again with strong increases across most markets outside of North America.

The skid steer loader market was down 3% driven by the decline in North America. The heavy equipment market was up 16% with strong increases outside of North America, just as we saw in the quarter.

The U.K, Germany and Spain saw the largest percentage increases in Western Europe, where all major markets continued to be up as were the Latin American markets and most... most of the markets in rest of world. Our worldwide market share of total light including all other light products and heavy equipment was essentially unchanged from the first nine months of 2006.

Switching now to equipment net sales, slide 13 shows the third quarter trend for the past three years. At $3.6 billion, net sales of equipment in the quarter were up 33% from last year, including 6% related to currency variations.
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