CNH REPORTS 1999 FULL YEAR
CNH had net income, before restructuring, for the full year of $162 million, or $1.05 per share, versus $287 million, or $1.92 per share, for 1998. Revenues for 1999 were $6.3 billion, up from $5.7 billion for 1998. For the fourth quarter, the company had a net loss, before restructuring, of $32 million, or $0.21 per share, compared to a net loss, before restructuring, of $3 million, or $0.02 per share, for the fourth quarter of 1998. Fourth quarter revenues were $2 billion, a 66 percent increase from the prior-year period. In the fourth quarter of 1999, CNH incurred an after-tax restructuring charge of $3 million, or $0.02 per share, primarily for headcount reductions. In the fourth quarter of 1998, New Holland had an after-tax restructuring charge of $27 million, or $0.18 per share. Compared to 1998, 1999 full-year results were affected by lower volume and unfavorable product mix, exchange and the impact of acquisitions. These were partially offset by pricing increases and improved operating performance. In addition, earnings include significant purchaseaccounting adjustments and costs associated with the New Holland and Case merger.
Fourth quarter results, compared to prior year, reflect positive volume, improved operating performance, favorable pricing and exchange. These were more than offset by merger-related costs, including purchase accounting adjustments. Revenues for 1999 and the fourth quarter were higher primarily due to the acquisition of Orenstein & Koppel Aktiengesellschaft and the inclusion of seven weeks of Case results. For the full year, these gains were partially offset by lower agricultural equipment sales.
"The merger of New Holland and Case in the fourth quarter created a company with geographic and product line balance, and global size and scope, that is unmatched in our industry. We have begun the actions that will enable us to realize the tremendous cost savings that have been identified," said Jean-Pierre Rosso, chairman and chief executive officer. "We have solid, historic brands with outstanding market positions that are highly valued by our customers. We will leverage the greater resources at our disposal to add products and services for their benefit."
While the company anticipates somewhat higher production in the first quarter of 2000, as compared to the prior year period, the impact of merger integration expenses and unfavorable exchange will offset the higher production levels. Given these factors, the company expects a loss in the first quarter of 2000, which will be comparable to the first quarter of 1999, on a pro forma basis.
"We expect to increase production levels over last year, even with no improvement in the retail environment for agricultural equipment. As we progress through the year, we will also begin to realize synergies from the merger. As a result, we expect stronger operating performance for the full year," said Rosso.
CNH Moving Forward on Merger Synergies
CNH has identified $400 to $500 million in annual merger synergies to be achieved over the next three to four years, coming from four primary areas: purchasing and supply chain management, industrial restructuring, research and development, and SG&A expenses. As part of its integration plan to achieve these savings, the company is evaluating the divestiture or closure of approximately 20 percent of its manufacturing locations, as well as the closure of approximately one-third of its 45 parts depots. In addition, worldwide headcount will be reduced through consolidation of all functional areas within the company. Through these actions, the company expects to reduce its worldwide workforce by approximately 20 percent by 2002.
In November, New Holland launched five new models of its TM series tractors, with engine horsepower ranging from 92 PTO hp to 135 PTO hp. The TM line has added performance and operator comfort features and can be used in a wide range of applications, including utility, hay and forage, and row-crop work. These models are well-positioned to capture share in the highest volume segment of the mid-range tractor market.
Also in November, Case IH launched new combine and tractor models in Europe to broaden its product line. The new CVX tractor brings advanced technological and performance features of the company's high horsepower tractors to the mid-horsepower range line. A controller area network optimizes fuel economy and engine performance, while enhancing operation of the tractor's continuously variable transmission. The new Cross-Flow series combines complement the Axial-Flow series rotary combine line, providing farmers with a choice of harvesting equipment to meet their needs.
In January 2000, CNH completed the acquisition of Flexi-Coil Ltd., a leading provider of air seeding systems and tillage equipment based in Canada. The addition of the Flexi-Coil brand, which has strong customer loyalty in key market segments, is consistent with the company's multi-brand strategy and further strengthens its product offering to customers.
In addition, LBX Company LLC, a joint venture between CNH and Sumitomo (S.H.I.) Construction Machinery Co., Ltd, launched a new line of articulated dump trucks in January 2000 to add to its line of earth moving equipment. The trucks will be sold in North America through Link-Belt dealers.
Worldwide Equipment Sales
Fourth quarter retail unit sales of CNH agricultural and construction equipment businesses, on a pro forma basis, were lower worldwide as compared to the fourth quarter of 1998.
Retail unit sales of the company's construction equipment lines in the fourth quarter were higher in Europe, but lower in other markets. In Europe, retail unit sales of CNH equipment increased substantially, despite an industry decline. Gains in loader backhoes and heavy equipment were somewhat offset by slightly lower sales of skid steers. In North America, retail sales were lower in most product categories due largely to strong 1998 comparisons. In Latin America, retail sales were lower as part of an industry-wide decline. However, CNH brands performed better than the total industry. In the rest of the world, significant skid steer sales growth was offset by lower retail sales in other product categories.
Fourth quarter retail unit sales of CNH agricultural equipment brands worldwide declined consistent with ongoing market weakness. In North America, Europe and Latin America, growth in under 40 horsepower tractors was more than offset by lower sales of row-crop tractors and combines. These results reflect the continuing weakness in retail demand as a result of lower farm commodity prices. In the rest of the world markets, retail sales were lower for both CNH and the industry.
CNH Capital, the financial services division of CNH Global, reported fourth quarter and full year results that represent full periods of New Holland's financial services operations and approximately seven weeks (from November 12 to December 31, 1999) of Case Capital performance.
Fourth quarter net income was $25 million, up 67 percent from the prior year period. Full year net income was $72 million, a 20 percent increase year-over-year. Increased earnings for both periods are primarily attributed to the successful completion of New Holland's first retail asset-backed securitization.
CNH Capital's managed portfolio increased to $10.6 billion, up more than 10 percent, as compared to the pro forma prior year. While CNH Capital's geographic expansion and diversification initiatives contributed to the portfolio growth, weakness in the farm economy continues to put pressure on the agricultural equipment segment of the business.
"The merger of Case and New Holland created one of the world's largest equipment finance companies," said Ted R. French, chairman, CNH Capital. "New Holland's financial services extended geographic presence, combined with Case Capital's broad scope of products and services, offers tremendous opportunity to profitably grow this business throughout the world."
Global prices for agricultural commodities remained low in the fourth quarter of 1999, and, as a result, industry demand for agricultural equipment continued at depressed levels. The impact was strongest in combines and row-crop tractors in North America. Further, dairy prices have been under pressure. While a stabilization of Asian economies may stimulate increased farm commodity purchases in 2000, supply continues to be the primary driver. With grain inventory stocks at higher than normal levels, future commodity prices will largely depend upon the 2000 harvests from both the Southern and Northern Hemispheres. However, farmers have received significant government support and land values are relatively stable. This has resulted in farmers' overall financial conditions being stronger than expected. Given these market conditions, the company expects retail sales of agricultural equipment to be moderately lower in 2000 as compared to 1999. The global outlook for the construction equipment market in 2000 is expected to be unchanged from that of 1999. Western Europe is projected to be comparable to 1999 and significant improvement is expected in Latin America and in markets in the rest of the world, including Australia and New Zealand. These improvements will be offset by North America, where the market is anticipated to be slightly lower compared to the strong conditions of the last several years.
The information included in this news release contains forward-looking statements and involves risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.The company's outlook is predominantly based on its interpretation of what it considers key economic assumptions. Crop production and commodity prices are strongly affected by weather and can fluctuate significantly. Housing starts and other construction activity are sensitive to interest rates and government spending. Some of the other significant factors for the company include general economic and capital market conditions, the cyclical nature of its business, foreign currency movements, the company's and its customers' access to credit, political uncertainty and civil unrest in various areas of the world, pricing, product initiatives and other actions taken by competitors, disruptions in production capacity, excess inventory levels, the effect of changes in laws and regulations (including government subsidies and international trade regulations), the effect of conversion to the Euro, technological difficulties, changes in environmental laws, and employee and labor relations. Additionally, CNH's achievement of the anticipated benefits of the merger of New Holland and Case, including the realization of expected annual operating synergies, depends upon, among other things, its ability to integrate effectively the operations and employees of New Holland and Case, and to execute its multi-branding strategy.
With strong global brands, CNH is a leader in the agricultural equipment, construction equipment and financial services industries and had combined 1999 revenues of approximately $11 billion. CNH is the number one manufacturer of agricultural tractors and combines in the world, the third largest maker of construction equipment and is one of the world's largest equipment finance companies. Based in the United States, CNH has operations in 16 countries and sells its products in 160 markets through a network of more than 10,000 dealers and distributors. CNH products are sold under the following brands: Case, Case IH, Fermec, Fiatallis, Fiat-Hitachi, Link-Belt (earth moving equipment), New Holland, O&K and Steyr.