CNH REPORTS FIRST QUARTER RESULTS
On a net basis, CNH reported a loss, before restructuring, of $67 million, or $.24 per share compared to $54 million, or $.36 per share for the first quarter last year. When adjusted for the impact of the equity devaluation in Turkey of approximately $.05 per share, the company's EPS was slightly better than expectations. (Per share results for the 1999 period are based upon a lower number of shares -- see footnote 5.) After restructuring, the net loss was $70 million, or $.25 per share compared to $59 million, or $.40 per share for the first quarter last year. "Our overall performance was somewhat better than expected in the first quarter," said Paolo Monferino, president and chief executive officer. "Our sales of agricultural equipment in the Americas were encouraging and in Western Europe, our unit sales were up in a down market. However, our construction equipment sales were down in most markets, as was the industry, with the exception of Brazil.
"Our restructuring plan is on schedule as our gross margin and SG&A improvements demonstrate. We are confident that we will achieve our full year objective of merger-related profit improvements of at least $300 million. These improvements will help us bring our industrial operating margin up to $400 million for 2001. As a result, our financial outlook for the year remains unchanged: a year-over-year reduction of approximately $100 million in net loss."
Restructuring Actions and Synergies
During the first quarter, the company achieved additional merger-related profit improvements of approximately $60 million, through manufacturing efficiencies, reductions in material costs and reductions in SG&A expenses. As previously reported, the company completed the divestiture of the Doncaster, United Kingdom, and St. Dizier, France facilities.
On March 31, 2001, the company's employment level was approximately 29,700, down 1,300, or 4%, from 31,000 at year-end 2000. The decrease includes approximately 1,100 personnel employed in the divested businesses. Total employment has now been reduced by 18% since the merger.
First quarter net sales from Equipment Operations totaled $2.286 billion, down 6% compared to $2.423 billion for the same period in 2000. Compared to last year, our sales of agricultural equipment were up in the Americas and Europe and down in most other markets. Sales of heavy and light construction equipment were down across most markets, in line with the industry. Unfavorable currency fluctuations ($101 million) and divestiture-related revenue reductions of approximately $60 million negatively impacted revenues in the quarter.
Equipment Operations gross margin as a percent of net sales of equipment improved to 17.1% in the first quarter of 2001, compared to 15.7% for the same period last year, in spite of the decline in construction equipment sales and an unfavorable product mix.
SG&A expenses both in total and as a percent of net sales of equipment decreased significantly, reflecting the company's actions to achieve synergy targets and a favorable currency impact.
The success of the company's restructuring initiatives was reflected in the industrial operating margin, which increased from $31 million last year to $91 million in the first quarter 2001.
During the quarter, the company recorded a pre tax loss of $20 million reflecting the reduction in the value of its equity investment in two Turkish joint ventures incurred when that country's currency was devalued substantially.
CNH Capital, the financial services unit of CNH Global, reported a net loss of $3 million for the first quarter of 2001, compared to a net income of $14 million for the same period last year. The decline in net income was due primarily to a year-over-year increase in bad debt provisions, and the absence of asset-backed securitization of receivables transactions as compared to the prior year. CNH Capital's managed portfolio at the end of the first quarter was unchanged from $11.6 billion on December 31, 2000.
Balance Sheet and Cash Flow
Pre tax operating cash flow (defined as industrial operating margin plus depreciation, less capital expenditures and financial expense) generated by the core business was breakeven for the quarter and approximately $50 million better than last year. The increase in equipment operations net debt was driven primarily by the seasonal increase in working capital. This increase was less than in the first quarter of last year.
The significant increases in notes receivable and in short term debt shown in the balance sheet of financial services reflect the company's deferral of the asset-backed securitization of receivables until the second quarter.
Market Outlook for Agricultural Equipment
In the first quarter, sales in the Americas have been better than last year and somewhat better than expected, particularly in the United States and Brazil. Despite this positive result in the first quarter, we anticipate that for the full year the industry will be flat in the Americas compared to last year. The possible slight decline in North America should be offset by the significant increase in Latin America. In Europe, industry sales have been somewhat weaker in the first quarter. For the full year, without considering any major impact of foot and mouth disease and BSE, the impact of which is still unclear, sales in Europe may be down 8%.
Market Outlook for Construction Equipment
In the first quarter, sales in North America were lower than expected and significantly below last year in most product lines, while in Europe, industry sales were better than anticipated. In North America, demand for equipment is expected to be down 10-15% for the year, while in Europe, industry sales may be down slightly from record levels in 2000. Sales in Latin America, particularly Brazil, are expected to be up, while sales in the Asia-Pacific region should be flat to up slightly. The company does not expect a recovery in the market until the second half of the year, with worldwide sales for the full year down slightly from last year's levels.
CNH is the number one manufacturer of agricultural tractors and combines in the world, the third largest maker of construction equipment, and has one of the industry's largest equipment finance operations. Revenues in 2000 were over $10 billion. Based in the United States, CNH's network of dealers and distributors operates in over 160 countries. CNH agricultural products are sold under the Case IH, New Holland and Steyr brands. CNH construction equipment is sold under the Case, Fiatallis, Fiat-Hitachi, Link-Belt, New Holland, and O&K brands.
CNH management will hold a conference call later today to review its first quarter 2001 results. The conference call webcast will begin at approximately 10:00 am U.S. EDT. This call is being webcast by CCBN and can be accessed through the investor information section of the company's Web site at www.cnh.com.
Forward Looking Statements. The information included in this news release contains forward-looking statements and involves risk 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 our business, currency exchange rate movements, our hedging practices, 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, the impact in Europe of foot and mouth disease and BSE, 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. The timing and costs for implementing CNH's merger integration initiatives is subject to the outcome of negotiations with numerous third parties, including governmental regulators, purchasers of product lines required to be divested, labor unions, dealers and others. Further information concerning factors that could significantly impact expected results is included in the following sections of the company's Form 20-F for 1999, as filed with the Securities and Exchange Commission: Business--Business Strategy, Employees, Environmental Matters, Seasonality and Production Schedules and Competition; Legal Proceedings; and Management's Discussion and Analysis of Financial Condition and Results of Operations.
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