CNH REPORTS SECOND QUARTER 2006 NET INCOME OF $147 MILLION, UP $33 MILLION FROM THE SECOND QUARTER 2005
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Strong retail demand for CNH products continues
- Equipment Operations gross margin up 2.7 percentage points
- Significant reduction in Equipment Operations net debt
- Full-year 2006 outlook unchanged, with an expected range of diluted EPS of $1.30 to $1.40 before restructuring
LAKE FOREST, Illinois (July 24, 2006) - CNH Global N.V. (NYSE:CNH) today reported second quarter 2006 net income of $147 million, up 29% compared to net income of $114 million in the second quarter of 2005. Results include restructuring charges, net of tax, of $7 million in the second quarter of 2006, and $4 million in the second quarter of 2005. Second quarter diluted earnings per share were $0.62, compared with $0.49 per share in 2005. Before restructuring, net of tax, second quarter diluted earnings were $0.65 per share, compared with $0.50 per share in 2005.
"CNH's renewed focus on customers and dealers is delivering increasingly better results," said Harold Boyanovsky, CNH president and chief executive officer. "Our Equipment Operations gross margin improvement has continued into the second quarter, up 2.7 percentage points compared with last year, and we are firmly on track to meet our targets for the year."
Highlights for the quarter included the following:
- CNH's agricultural equipment brands, Case IH and New Holland introduced five new products in the quarter, and its construction equipment brands, Case and New Holland Construction introduced six new products.
- Pricing was higher than all economics and currency related cost increases, resulting in another quarter of positive net recovery for both Agricultural and Construction Equipment Operations. Pricing was strongest in theAmericas.
- Manufacturing efficiencies generated additional margin improvements by lowering production costs.
- Research and development spending increased 25% from the same period in 2005, reflecting CNH's investments in product innovation and quality.
- Equipment Operations reduced net debt in the quarter by $484 million, to $137 million at June 30, 2006. Positive cash flow from operating activities, including a $157 million reduction in working capital, was the principal contributor to the improvement.
- Case IH's logo was prominently displayed on the nose of the winning Ferrari at the Indianapolis Formula One Grand Prix race and at the Grand Prix of Canada in Montreal , to the delight of Case IH dealers and customers throughout the world.
EQUIPMENT OPERATIONS - Second Quarter Financial Results
Net sales of equipment, comprising the company?s agricultural and construction equipment businesses, were $3.5 billion for 2006, compared to $3.4 billion for the same period in 2005. Net of currency variations, net sales increased by 2% over the prior year.
Agricultural Equipment Net Sales
- Agricultural equipment net sales were $2.3 billion, down 1% from the prior year and down 2% excluding currency variations.
- Excluding currency variations, sales in Latin America were up 16%, sales in Rest-of-World markets were up 8%, and in Western Europe up 2%. Excluding currency variations, sales in North America declined by 9%, in line with the company's actions to reduce working capital by under-producing retail unit sales of major agricultural products by 15%, to reduce inventories in a declining industry environment.
- Case IH introduced the new JX95 Straddle version utility tractor in North America, the Patriot 350-200 cv sprayer and the 2399 Extreme combine in Latin America.
- New Holland won the prestigious National Agri Marketing Association ?Best of NAMA? award for its brand campaign. In North America, New Holland introduced two new models of higher horsepower Class II BoomerTM Compact Tractors (under-40 horsepower), two field sprayers and a new air hoe drill.
- Total retail unit sales of CNH's agricultural tractors and combines increased by approximately 7% compared to last year. Worldwide production of agricultural tractors and combines was approximately 4% lower than retail, following the company?s normal seasonal pattern to decrease company and dealer inventories during the spring selling season.
Construction Equipment Net Sales
- Net sales of construction equipment were approximately $1.2 billion, an increase of 12% compared to approximately $1.1 billion last year, and up 11% excluding currency variations.
- Excluding currency variations, sales in Latin America were up 51% and in Rest-of-World markets up 17%. Sales were up 11% in Western Europe and up 4% in North America.
- In North America, Case Construction Equipment introduced two new models of Compact Track Loaders, smaller-sized machines that round out the line launched in 2005. Debuting in the second half will be a new Tier 3 compliant excavator, two models of wheel loaders, three models of crawler dozers and two new articulated trucks. In Europe, during the quarter, Case launched the CX700 hydraulic excavator, a direct response to customer requests for a high-production heavy-duty machine between the existing CX460 and CX800 models.
- Looking to the second half of 2006, pilot control options will be available on New Holland Construction skid steer loaders and compact track loaders, and three new wheel loader models are scheduled to be launched to the public.
- While total retail unit sales of CNH's major construction equipment products increased by approximately 8% compared to last year, worldwide production was substantially the same as in 2005.
Equipment Operations gross margin (defined as net sales of equipment less cost of goods sold) for agricultural and construction equipment was $686 million, up 20% compared to $574 million last year. As a percent of net sales, gross margin was 19.6%, up 2.7 percentage points from 2005.
- Agricultural equipment gross margin increased in both dollars and as a percent of net sales compared to the prior year. The improvement was explained by positive price recovery and increased manufacturing efficiencies, which more than offset the impact of company actions to reduce dealer and company inventories.
- Construction equipment gross margin also increased in both dollars and as a percent of net sales. Positive price recovery, better volume and mix and manufacturing efficiencies contributed to the improvement.
Industrial Operating Margin
Equipment Operations industrial operating margin (defined as net sales of equipment, less cost of goods sold, SG&A and R&D costs) was $324 million, or 9.3% of net sales, up 31% compared to $248 million or 7.3% of net sales in 2005. The improvement was driven by the higher gross margin, noted above. Increased investments in SG&A and in R&D to increase product innovation by brand and to improve product quality were partial offsets.
Adjusted EBITDA for Equipment Operations (defined as net income excluding net interest expense, income tax provision (benefit), depreciation and amortization and restructuring) was $329 million, or 9.4% of net sales, up 20% compared to $274 million in 2005, or 8.1% of net sales. Interest coverage, on a last 12 months basis (defined as adjusted EBITDA for the past 12 months divided by net interest expense for the past 12 months) was 4.3 times for the period ended June 30, 2006, compared with 3.1 times for the similar period ended June 30, 2005.
FINANCIAL SERVICES - Second Quarter Financial Results
Financial Services operations reported net income of $49 million, up 11% compared to $44 million last year, reflecting the impact of higher balances of receivables under management. Financial Services recorded higher credit losses than in 2005, primarily related to its agricultural equipment receivables in Brazil.
CNH Year-to-Date Financial Results
CNH?s net income for the first six months was $190 million, up 47% compared to $129 million for 2005. Results include restructuring charges, net of tax, of $10 million in 2006, and $8 million in 2005. First half diluted earnings per share were up 47% to $0.81, compared to $0.55 per share in 2005. Before restructuring, net of tax, diluted earnings per share were $0.85, compared with $0.58 per share in 2005.
EQUIPMENT OPERATIONS - Year-to-Date Financial Results
Net sales of equipment, comprising the company?s agricultural and construction equipment businesses, were $6.4 billion, compared to $6.2 billion in 2005. Net of currency variations, net sales increased by 4% over the prior year.
Adjusted EBITDA for Equipment Operations was $486 million, or 7.5% of net sales, up 20% compared to $404 million in 2005, or 6.5% of net sales.
FINANCIAL SERVICES ? Year-to-Date Financial Results
Financial Services operations reported first half 2006 net income of $101 million, up 9% compared to $93 million last year, reflecting the impact of higher balances of receivables under management. Financial Services recorded higher credit losses than in 2005, primarily related to its agricultural equipment receivables in Brazil.
NET DEBT AND OPERATING CASH FLOW
Equipment Operations Net Debt (defined as total debt less cash and cash equivalents, deposits in Fiat affiliates cash management pools and intersegment notes receivables) was $137 million at June 30, 2006, compared to $719 million at December 31, 2005 and $824 million at June 30, 2005. Net debt to net capitalization was 2.5% at June 30, 2006, down from 12.5% at December 31, 2005. As of June 30, 2006, CNH had 235.7 million common shares outstanding.
In the quarter, net debt decreased principally because of $582 million of cash generated by operating activities, including positive net income and reduced working capital. Working capital (defined as accounts and notes receivable, excluding inter-segment notes receivable, plus inventories less accounts payables), net of currency variations, decreased by approximately $157 million in the quarter. At incurred currency rates, working capital at June 30, 2006 was $2.1 billion, substantially unchanged from December 31, 2005 and down more than $300 million from June 30, 2005.
On June 20, CNH?s wholly owned subsidiary, Case New Holland, Inc. commenced an exchange offer for its recently issued 7.125% Senior Notes due 2014, for 7.125% Senior Notes due 2014 that have been registered under the Securities Act of 1933, as amended. The exchange offer, initially set to expire on July 21, 2006, has been extended until July 26, 2006. Any original notes not tendered prior to the expiration of the exchange offer will remain unregistered securities, subject to the conditions of the 144A market.
Financial Services Net Debt increased by approximately $973 million to $5.0 billion at June 30, 2006 from March 31, 2006, reflecting increases in the receivables portfolio, mostly in North America.