CNH Industrial Gains on Price Realization Amid Expense Woes

On Feb 12, we issued an updated research report on CNH Industrial N.V.CNHI .

The company announced fourth-quarter and 2018 earnings on Feb 7, 2019. In the recently reported quarter, its consolidated revenues declined 0.3% to $8.2 billion, which surpassed the Zacks Consensus Estimate. The company's adjusted earnings were 21 cents, beating estimates of 15 cents.

Operating efficiencies, higher sales volume and positive net price realization aided CNH Industrial in the fourth quarter and 2018. These factors are expected to drive growth across all segments of the company in 2019. Net sales for Industrial Activities are projected to be $28 billion for the current year, similar to the 2018 figure. Further, adjusted earnings are expected to be 84-88 cents per share in 2019. Adjusted earnings were 80 cents in the prior year.

CNH Industrial N.V. Price and Consensus

CNH Industrial N.V. Price and Consensus | CNH Industrial N.V. Quote

Agricultural Equipment and Commercial Vehicles segments, the two major contributors in net Industrial sales, witnessed revenue growth in 2018. Apart from strong pricing performance across all the regions, favorable cash crops in NAFTA (constituting the United States, Canada and Mexico) and recovery in the Brazilian market supported Agricultural Equipment's growth. For the Commercial Vehicles segment, positive pricing and favorable product mix were the major drivers.

Additionally, CNH Industrial is increasing investment in product development programs for all five business segments, which is likely to support long-term growth across regions. In 2018, the spending was $550 million, which is likely to rise in 2019. For the current year, it expects R&D and capital spending to increase to 2.5-4% of sales, which will back product development.

Beside investments to develop technology, rise in raw material owing to tariffs and overhead costs are expected to elevate the company's expenses. For the year, tariff-related costs of $50-$100 million are likely to hurt the profit margin. Continuous rise in expenses is likely to hamper CNH Industrial's profit margin.

The company's presence across the globe makes it vulnerable to foreign currency fluctuations. Its strong European presence is likely to create headwinds if a no-deal Brexit happens in March 2019.

Over the past three months, shares of CNH Industrial have gained 7.2% against the industry 's increase of 0.7%. The Zacks Consensus Estimate for the company's earnings in 2019 moved up 1.2% over the last seven days.

Zacks Rank & Stocks to Consider

CNH Industrial currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader auto sector are General Motors Company GM , Allison Transmission Holdings, Inc. ALSN , and Oshkosh Corporation OSK , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

General Motors has an expected long-term growth rate of 8.5%. Share price of the company has increased 8.6% in the past three months.

Allison has an expected long-term growth rate of 10%. Over the past three months, shares of the company have gained 4.1%.

Oshkosh has an expected long-term growth rate of 11.3%. Shares of the company have gained 18.3% in the past three months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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