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CNH Global NV (CNH)

Q3 2012 Earnings Call

October 31, 2012 10:00 AM ET

Executives

Manfred Markevitch – Head, IR

Rich Tobin – President and CEO

Camillo Rossotto – CFO

Analysts

Ashish Gupta – CLSA

Mike Shlisky – JPMorgan

Ross Gilardi – Bank of America

Eric Crawford – UBS

Alexander Virgo – Berenberg

Michael Cox – Piper Jaffray

Jerry Revich – Goldman Sachs

Larry De Maria – William Blair

Michael Tyndall – Barclays

Manfred Markevitch

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to today’s CNH 2012 Third Quarter Conference Call. For your information, today’s conference is being recorded.

At this time, I would like to turn the call over to Manfred Markevitch, Head of CNH Investor Relations. Mr. Markevitch, please go ahead.

Manfred Markevitch

Thank you, Paula. Good morning and good afternoon, everyone. We would like to welcome you to the CNH 2012 third quarter conference call. Let me make a brief introduction.

I would like to remind everybody they can refer to page three of our presentation which was distributed earlier 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 website at www.cnh.com.

Today, we will have the presentation followed by a short Q&A session. We are pleased to have our President and CEO, Rich Tobin; our CFO, Camillo Rossotto; and our Treasurer, Andrea Paulis, with us on the call today. We would like to begin with a brief presentation.

With that, I will hand over the call to Rich Tobin.

Rich Tobin

Good afternoon and good morning, everybody. I know that it’s a busy day of earnings because of the markets being shut down, so we’re going to try to speed this along and not go through the detailed presentation that we usually do and kind of go through it relatively quickly so we have ample time for the Q&A.

Just as some opening comments, it was a good quarter for CNH overall. I think it’s a record in terms of revenues and profits for the Group, and it sets us up to have – likely to have a good year overall and meet our expectations that we’ve held for the full year. Camillo will take you through some of the segmental results.

And the last – as with the last call, I know it may be disappointing, but I mean, if any of you have any questions in regards to the proposed merger between Fiat Industrial and CNH, I’m not in a position, or we’re not in a position to answer those questions. That is a matter between Fiat Industrial and the special committee of the Board of Directors of CNH, so I would refer you to the Fiat Industrial call later today to address those questions.

And with that, I’ll hand it over to Camillo and he’ll take you through the presentation.

Camillo Rossotto

Thank you, Rich. I’m on slide four. So net sales up 5% on a reported basis for the quarter, that would be 11% on a constant currency basis. So $4.8 billion in the quarter, and that’s 12% up for agricultural sales, 21% down for construction equipment sales on a reported basis.

Equipment Operations operating profit $464 million, that’s a 9.6% operating margin, and for the first nine months, cash flow is up 15% to $450 million for a net cash position ending balance of $2.9 billion, up $161 million. The resulting diluted earnings per share $1.34 gives a cumulative year-to-date $3.92 earnings per share through the end of September.

On slide five, I think the only point that I would highlight is the good performance of our Financial Services branch going up from $53 million last year to $71 million this year, and again, the closing position in terms of net cash of $2.9 billion.

Slide six provides some more color in terms of the dynamics by region in the quarter. Now, the North American piece of our business is in the quarter 46% of total revenues against 42% in 2011, and when you add up North and Latin America, you’re covering almost two-thirds of our revenues and those are the two regions that record the highest growth rates, 14% and 16%, respectively, on a constant currency basis.

On slide seven, just to the point of currency, the combined impact of the devaluation of the real year-over-year by 25% and the euro down by 13% impacts negatively revenues to the tune of $280 million, so that just gives you the walk in terms of organic growth and FX impact for the quarter.

Then on slide eight, you just get the basics to kind of reverse engineer the impact of currency on our revenues as we’ve been providing for the last couple of quarters given the relevance of that factor on our geographic distribution of sales.

On slide nine, the causals and the waterfall in terms of operating margin – operating profit evolution, as I think we’ve been commenting for the last three quarters now, volume and mix overall is positive, it’s positive in Ag, negative in CE, but overall positive, and net pricing is positive both for Ag and CE, and that’s net of direct material cost, so it’s a positive impact of $169 million. Production costs are just up on favorable economics.

SG&A and R&D is essentially, in relative terms, we’re staying as efficient as we were last year. In absolute terms, we have a slight increase in SG&A, and R&D, it’s mainly driven by the efforts across the board in terms of new product introduction and Tier 4 adoption across all the product range. Other is just the cumulative impact of FX across the P&L.

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