CNH Industrial N.V. (NYSE:CNHI / MI:CNHI) today announced consolidated revenues of $29,706 million for the full year 2018, up 7% compared to 2017 (up 7% on a constant currency basis). Net sales of Industrial Activities were $27,831 million for the year, up 8% compared to 2017 (up 7% on a constant currency basis). In the fourth quarter of 2018, consolidated revenues were $8,202 million, in line with the same period in 2017 (up 3% on a constant currency basis). Net sales of Industrial Activities were $7,707 million in the fourth quarter of 2018, flat compared to the fourth quarter of 2017 (up 3% on a constant currency basis). Net income was $1,099 million for the full year 2018 and included a pre-tax gain of $80 million ($60 million net of tax impact) as a result of the amortization over approximately 4.5 years of the $527 million positive impact from a healthcare plan modification following the favorable judgment issued by the United States Supreme Court, as previously announced by the Company on April 16, 2018. Net income also included a pre-tax and tax effected charge of $22 million related to the repurchase of a portion of the CNH Industrial Finance Europe S.A. 2.875% Notes due 2021. In the fourth quarter of 2018, net income was $258 million and included a pre-tax gain of $30 million ($22 million net of tax impact) related to the amortization of the above-mentioned healthcare plan modification, as well as the pre-tax and tax effected charge of $22 million related to the repurchase of Notes.
Adjusted net income was $1,117 million for the full year 2018 compared to $651 million in 2017. Adjusted diluted EPS in 2018 was $0.80, up 74% compared to 2017. Adjusted net income was $294 million for the quarter, up $104 million compared to the fourth quarter of 2017. Adjusted diluted EPS in the fourth quarter of 2018 was $0.21, up 62% compared to the fourth quarter of 2017.
Adjusted EBIT of Industrial Activities was up 39% to $1,585 million for the full year 2018 compared to $1,143 million in 2017, with an adjusted EBIT margin of 5.7%, up 1.3 percentage points (“p.p.”). In the fourth quarter of 2018, adjusted EBIT of Industrial Activities was $432 million compared to $348 million in the fourth quarter of 2017, with an adjusted EBIT margin of 5.6%, up 1.1 p.p.
Adjusted EBITDA of Industrial Activities was $2,671 million for the full year 2018, an increase of $480 million (or up 22%) compared to 2017. Adjusted EBITDA margin increased 1.1 p.p. to 9.6%. In the fourth quarter of 2018, adjusted EBITDA of Industrial Activities was $690 million, an increase of $62 million (or up 10%) compared to 2017. Adjusted EBITDA margin increased 0.9 p.p. to 9.0%.
For the full year 2018, income taxes were $417 million ($457 million in 2017). Adjusted income taxes for the full year 2018 were $402 million ($345 million in 2017). The adjusted effective tax rate (adjusted ETR) was 27% (38% in 2017). For 2019, the adjusted ETR is expected to be flat compared with 2018.
Net industrial debt of $0.6 billion at December 31, 2018, down $1.4 billion and $0.3 billion compared to September 30, 2018 and December 31, 2017, respectively, as a result of a solid cash flow performance in the fourth quarter, primarily from working capital. Total debt was $24.4 billion at December 31, 2018, down $1.5 billion compared to December 31, 2017. The reduction of debt was mainly related to Industrial Activities. At December 31, 2018, available liquidity was $8.9 billion, down $0.4 billion compared to December 31, 2017.
On December 3, 2018, Moody’s Investor Service upgraded the senior unsecured ratings of CNH Industrial N.V. and its subsidiaries, CNH Industrial Capital LLC and CNH Industrial Finance Europe S.A., from “Ba1” to “Baa3”. The outlook is “stable”. The Company is now investment grade for all three rating agencies.
During the fourth quarter of 2018, the Company repurchased €268 million of the outstanding CNH Industrial Finance Europe S.A. 2.875% Notes due 2021.
Segment Results
Agricultural Equipment’s net sales increased 9% for the full year 2018 compared to 2017 (up 10% on a constant currency basis). The increase was driven by a sustained price realization performance, coupled with a stabilization of end-user demand in most of our markets, including emerging evidence of a replacement cycle in the row crop sector in North America. In the fourth quarter of 2018, Agricultural Equipment’s net sales slightly increased compared to the fourth quarter of 2017 (up 5% on a constant currency basis). Net sales increased in North America due to favorable volume and positive net price realization, partially offset by a decrease in the other regions.
Full year 2018 adjusted EBIT was $1,036 million, a $245 million increase compared to $791 million in 2017, mainly due to positive net price realization and favorable volume in most of our regions, partially offset by the sustained investment in product development, related primarily to precision farming and compliance with Stage V emission regulations. Adjusted EBIT margin increased 1.5 p.p. to 8.9%. In the fourth quarter of 2018, adjusted EBIT was $258 million, a $16 million increase compared to the fourth quarter of 2017, primarily due to favorable volume and price realization in excess of raw material and tariffs headwinds. In the fourth quarter of 2018, adjusted EBIT margin was 8.2% compared to 7.7% in the fourth quarter of 2017.
Construction Equipment’s net sales increased 19% in the full year 2018 compared to the same period in 2017 (up 20% on a constant currency basis), primarily due to increased end-user demand in all regions and favorable net price realization. In the fourth quarter of 2018, net sales increased 7% compared to the fourth quarter of 2017 (up 10% on a constant currency basis), driven by sustained end-user demand across most regions.
Full year 2018 adjusted EBIT was $91 million, a $107 million increase compared to 2017, with an adjusted EBIT margin of 3.0% (up 3.6 p.p. compared to 2017). The increase was due to higher sales volume, favorable mix and positive net price realization more than offsetting raw material cost increases, mainly in North America. In the fourth quarter of 2018, adjusted EBIT was $32 million, with an adjusted EBIT margin of 3.9%, up 3.1 p.p. Results were primarily impacted by positive net price realization and manufacturing efficiencies, more than offsetting raw material cost increases.
Commercial Vehicles’ net sales increased 4% in the full year 2018 compared to 2017 (up 1% on a constant currency basis), as a result of positive pricing and a favorable product mix. In the fourth quarter of 2018, net sales decreased 4% compared to the fourth quarter of 2017 (down 1% on a constant currency basis), as a result of lower volumes, primarily in heavy vehicle trucks in EMEA attributable to an enhanced focus on sales across a more profitable product portfolio, including alternative propulsion vehicles, partially offset by favorable pricing.
Full year 2018 adjusted EBIT was $299 million, a 53% increase compared to 2017, mainly due to a favorable product mix in light duty trucks and buses, and to the focus on sales of alternative propulsion solutions in heavy duty trucks. Positive price realization in trucks and manufacturing efficiencies also contributed to the improved results. Adjusted EBIT margin increased 0.9 p.p. to 2.7%. In the fourth quarter of 2018, adjusted EBIT was $90 million ($63 million in the fourth quarter of 2017), with an adjusted EBIT margin of 2.9% (adjusted EBIT margin of 1.9% in the fourth quarter of 2017). The increase was primarily driven by positive pricing, primarily in the truck product line-up.
Powertrain’s net sales increased 5% in the full year of 2018 compared to 2017 (up 1% on a constant currency basis), due to higher sales volume in engine applications. Sales to external customers accounted for 50% of total net sales (48% in 2017). In the fourth quarter of 2018, net sales increased 3% compared to the fourth quarter of 2017 (up 6% on a constant currency basis).
Full year 2018 adjusted EBIT was $406 million, a $46 million increase compared to $360 million in 2017, mainly due to favorable product mix and manufacturing efficiencies, partially offset by higher product development spending. Adjusted EBIT margin increased 0.7 p.p. to 8.9%. In the fourth quarter of 2018, adjusted EBIT was $121 million ($101 million in the fourth quarter of 2017), as a result of favorable product mix and manufacturing efficiencies, partially offset by higher product development spending. Adjusted EBIT margin was 10.2%, up 1.5 p.p. compared to the fourth quarter of 2017.
Financial Services’ revenues totaled $1,989 million in the full year 2018, a 2% decrease compared to 2017 (down 1% on a constant currency basis), primarily due to a lower average portfolio balance in North America. In the fourth quarter of 2018, revenues totaled $520 million, a decrease of 3% compared to the fourth quarter of 2017.
In 2018, retail loan originations (including unconsolidated joint ventures) were $10.0 billion, up $0.9 billion compared to 2017. The managed portfolio (including unconsolidated joint ventures) was $26.3 billion as of December 31, 2018 (of which retail was 62% and wholesale 38%), down $0.5 billion compared to December 31, 2017. Excluding the impact of currency translation, the managed portfolio increased $0.7 billion compared to 2017.
Full year 2018 net income was $385 million, a decrease of $67 million compared to the same period in 2017, primarily attributable to the one-time tax benefit of $118 million recorded in 2017 as a result of the write-down of deferred tax liabilities in connection with the enactment of the 2017 U.S. Tax Cut & Jobs Act (the “U.S. Tax Act”). In the fourth quarter of 2018, net income was $88 million, a decrease of $104 million compared to the fourth quarter of 2017.
Dividends
The Board of Directors of CNH Industrial N.V. intends to recommend to the Company’s shareholders a dividend of €0.18 per common share, representing an increase of approximately 30% over the prior year dividend, and totaling approximately €244 million (~$278 million). Subject to the approval of shareholders at the upcoming Annual General Meeting (expected on April 12, 2019), the ex-dividend date would be set at April 23, 2019.
2019 Outlook
The performance achieved in 2018 confirms the Company is on track with a profitable growth trajectory, despite a softer macroeconomic and business environment in the second part of the year, caused by escalating trade tensions and related tariffs across global markets, other economic and political uncertainties (including those concerning the outcome of the Brexit negotiations), and a general expectation of a slowdown in global economic growth. In addition, the emerging megatrends in the industries where CNH Industrial competes, such as digitalization, automation, and electrification, entail a re-assessment of the go to market approach and of the capital investment requirements in new technologies for new products and customer solutions.
Subject to this evolving scenario, CNH Industrial is defining 2019 guidance as follows:
· Net sales of Industrial Activities at approximately $28 billion;
· Adjusted diluted EPS up between 5% and 10% to previous year at a range of $0.84 to $0.88 per share;
· Net industrial debt at the end of 2019 between $0.4 billion and $0.2 billion.