CNH REPORTS RECORD THIRD QUARTER NET INCOME OF $252 MILLION, UP 107%

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  • Continued robust agricultural industry demand and market share gains drove net sales of equipment to $4.3 billion in the third quarter, up 22%
  • Agricultural Equipment Gross Margin improvement continues as pricing actions continue to offset higher input costs, primarily plate steel and tires
  • Construction Equipment sales continue to weaken, with net sales of equipment down 8% year-over-year; market share remains stable
  • Full year 2008 financial outlook improved - expected range of diluted EPS before restructuring, after tax, now forecast to be $3.50 to $3.90

BURR RIDGE, IL. - (MARKETWIRE) - CNH Global N.V. (NYSE: CNH - News) October 22, 2008:
Continuing strong sales growth in the agricultural equipment business combined with a favorable mix of higher horsepower equipment sales drove CNH's third quarter 2008 diluted earnings per share to more than double that of the third quarter of 2007. New product introductions, an enhanced international presence and an emphasis on quality have built a solid base for continuing net sales and earnings growth.
Third Quarter & First Nine Months Highlights
(Unaudited, US$ in millions, except per share data)
 
Quarter Ended
Percent
Nine Months Ended
Percent
 
9/30/08
9/30/07
Change
9/30/08
9/30/07
Change
Net Sales of Equipment
$ 4,326
$ 3,557
21.6%
$ 13,704
$ 10,894
25.8%
Equipment Operations Operating Profit
$ 339
$ 300
13.0%
$ 1,188
$ 960
23.8%
Financial Services Net Income
$ 69
$ 72
(4.2)%
$ 191
$ 195
(2.1)%
Consolidated Net Income
$ 252
$ 122
106.6%
$ 711
$ 445
59.8%
Restructuring (After Tax)
$ 7
$ 26
(73.1)%
$ 25
$ 55
(54.5)%
Net Income Before Restructuring, After Tax
$ 259
$ 148
75.0%
$ 736
$ 500
47.2%
Diluted Earnings Per Share (EPS)
$ 1.06
$ 0.51
107.8%
$ 2.99
$ 1.87
59.9%
Diluted EPS Before Restructuring, After Tax
$ 1.09
$ 0.62
75.8%
$ 3.10
$ 2.10
47.6%

"We are pleased to report another quarter of significant growth in sales, operating profit and net income, making this our eleventh consecutive quarter of year-over-year improvement," said Harold Boyanovsky, CNH President and Chief Executive Officer. "Our Agricultural Equipment business growth continues in all regions, particularly in the cash grain market segments. Our Construction Equipment sales remain close to last year's levels, where growth in Latin America and Rest-of-World partially offset the market weakness in North America and Western Europe. Pricing and operational actions are delivering positive results in offsetting rising material cost pressures. Our Agricultural Equipment Gross Margin improvement continues, up 60 basis points in the quarter compared with last year. Accordingly, we are increasing our full year 2008 guidance to $3.50 to $3.90 diluted EPS, before restructuring, after tax."
Third Quarter 2008 Brand Activities

Case IH Agriculture publicly debuted its new Mid-Range Magnum row crop tractors to be built in Racine, WI and an expanded line-up of high efficiency, Axial-Flow Combines to be built in Grand Island, NE including two new Class VII models and introducing a new Class IX model in the industry's largest combine segment. It also introduced upgraded models of small square balers, a new pull-type rotary cutter and continued its worldwide distribution of new JXU Utility tractors, Axial-Flow combines and Module Express Cotton Pickers into the Australian market.
New Holland Agriculture's new 591 horsepower CR9090 Class IX Combine set a new Guinness world record in the UK on September 26, by harvesting 551 tons of wheat in 8 hours, beating the previous record by 19.5 tons while consuming only 13.3 liters of fuel per hectare - highlighting the machine's efficiency. It upgraded its VN2080 Grape Harvesters for worldwide markets and introduced new T7000 and upgraded T6000 higher horsepower tractors for the Latin American market.
Case Construction added new models of its B Series crawler excavators with reduced noise levels and increased fuel efficiency for worldwide distribution, new compact track loaders in Europe, new compaction equipment in the Americas and new crawler dozers, backhoe loaders and skid steer and compact track loaders in Rest-of-World markets. Case also unveiled a new Web-based training system for its dealers.
New Holland Construction presented its newest models of crawler excavators, expanding the breadth of its product line, complete with improved hydraulics and cab ergonomics and an integrated noise and dust reduction system, destined for the North American and Western European markets. It introduced new models of graders, telehandlers and skid steer loaders in the Latin American market and new crawler excavators and graders in Rest-of-World markets.
Third Quarter and Nine Months 2008 Operating Review - Equipment Operations

Strong worldwide Agricultural Equipment ("AG") industry retail unit sales growth in the third quarter and first nine months of this year, combined with improved market share, drove net sales of AG up 38% for the quarter and for the first nine months of 2008. In the quarter, industry sales of higher horsepower tractors and combines increased, particularly in North America, while the overall market was flat compared with the prior year, contributing to a more robust product mix of CNH's AG sales. Positive effects of exchange rate changes (4%) also drove the robust AG sales growth in the quarter. For the first nine months, growth in industry sales of higher horsepower tractors and combines exceeded the growth of the overall AG market.
Net Sales of Equipment
Quarter Ended
Percent
Nine Months Ended
Percent
(Unaudited, US$ in millions, except percents)
9/30/08
9/30/07
Change
9/30/08
9/30/07
Change
 
Agricultural Equipment
$ 3,171
$ 2,299
37.9%
$ 9,935
$ 7,205
37.9%
Construction Equipment
$ 1,155
$ 1,258
(8.2)%
$ 3,769
$ 3,689
2.2%
Total Net Sales of Equipment
$ 4,326
$ 3,557
21.6%
$ 13,704
$ 10,894
25.8%

Construction Equipment net sales declined 8% in the third quarter as worldwide construction equipment industry retail unit sales declined approximately 12%. Increased industry sales of heavy construction equipment did not offset the moderate decline in industry sales of light equipment. In addition, increased industry retail unit sales of 39% and 6% in Latin America and Rest-of-World markets respectively in the third quarter and increases of 33% and 17% respectively for the first nine months, together with pricing actions, did not offset declines caused by weakness in North America and Western Europe for both the quarter and the first nine months of the year. Positive effects of exchange rate changes (6%) also partially offset Construction Equipment net sales declines in the third quarter. The worldwide industry retail unit sales decline, which started in the second quarter, intensified in the third quarter, bringing the nine month total approximately 3% below the prior year period. Construction Equipment's market share was stable for both the quarter and the nine month period.
Equipment Operations Gross Profit and Margin

CNH's AG sales growth, mix improvements, pricing actions and positive effects of exchange rate changes drove an 18% increase in CNH's Gross Profit in the third quarter compared with 2007 and offset the weakness in Construction Equipment caused by the North American and Western European industry declines. In the quarter, net pricing and positive effects of exchange rate changes exceeded economic cost increases resulting in a positive net price recovery impact on Gross Profit of $44 million. AG's third quarter Gross Margin improved 60 basis points ("bps") compared with 2007 while Construction Equipment's Gross Margin declined.
For the first nine months of 2008, CNH's Gross Profit increased $459 million compared with 2007, including positive net price recovery of $68 million. AG's Gross Profit improved $548 million compared with 2007 while Construction Equipment's Gross Profit declined by $89 million.
Equipment Operations
Quarter Ended
 
Nine Months Ended
 
(Unaudited, US$ in millions, except percents)
9/30/08
9/30/07
Change
9/30/08
9/30/07
Change
 
Gross Profit
$ 816
$ 689
18.4%
$ 2,580
$ 2,121
21.6%
 
Gross Margin
18.9%
19.4%
(0.5) pts
18.8%
19.5%
(0.7) pts

Equipment Operations Operating Profit and Margin

Equipment Operations Operating Profit grew 13% in the third quarter compared with 2007 driven by significant improvements in AG Gross Profit.
Equipment Operations
Operating Profit and Margin
Quarter Ended
 
Nine Months Ended
 
(Unaudited, US$ in millions, except percents)
9/30/08
9/30/07
Change
9/30/08
9/30/07
Change
 
Agricultural Equipment
$ 297
$ 175
69.7%
$ 1,024
$ 635
61.3%
Construction Equipment
$ 42
$ 125
(66.4)%
$ 164
$ 325
(49.5)%
Total Operating Profit
$ 339
$ 300
13.0%
$ 1,188
$ 960
23.8%
 
Agricultural Equipment
9.4%
7.6%
1.8 pts
10.3%
8.8%
1.5 pts
Construction Equipment
3.6%
9.9%
(6.3) pts
4.4%
8.8%
(4.4) pts
Total Operating Margin
7.8%
8.4%
(0.6) pts
8.7%
8.8%
(0.1) pts

AG Operating Margin reached a third quarter record of 9.4%, reflecting the Gross Margin improvement and operating leverage on R&D and SG&A costs, which increased significantly less than the growth in net sales. AG Operating Margin for the first nine months of 10.3% also was a record high for the period. AG's Gross Margin improvement was complemented by significant operating leverage on R&D and SG&A costs compared with the same nine month period in 2007.
Construction Equipment Operating Margin declined to 3.6% in the third quarter as positive net price recovery ($20 million) did not offset the impact of the industry volume declines and negative operating leverage on R&D and SG&A costs. Construction Equipment Operating Margin for the first nine months was 4.4%, primarily reflecting the results of the second and third quarters. Net price recovery was positive ($33 million) compared with the same nine month period in 2007.
Third Quarter and Nine Months 2008 Operating Review - Financial Services

Financial Services Highlights
Quarter Ended
Percent
Nine Months Ended
Percent
(Unaudited, US$ in millions, except percents)
9/30/08
9/30/07
Change
9/30/08
9/30/07
Change
 
Net Income
$ 69
$ 72
(4.2)%
$ 191
$ 195
(2.1)%
On-Book Asset Portfolio
$ 11,457
$ 8,756
30.8%
$ 11,457
$ 8,756
30.8%
Managed Asset Portfolio
$ 18,824
$ 17,990
4.6%
$ 18,824
$ 17,990
4.6%

CNH Financial Services' on-book asset portfolio totaled $11.5 billion at September 30, 2008, up 31% from the prior year but down 7% from June 30, 2008. Third Quarter Net Income of $69 million reflects higher net interest revenues from the larger on-book asset portfolio partially offset by a reduction in net ABS revenues, compared with the prior year. Loss provisions were stable.
For the nine months ended September 30, 2008, Net Income was $191 million, down $4 million from the prior year period, reflecting the impact of the larger on-book asset portfolio offset by the decline in ABS revenues and higher loss provisions related to the increased value of the portfolio.
Financial Services' funding requirements have been met with a combination of funding from Fiat affiliates and various market transactions. Subsequent to the close of the quarter, the Company increased its Master Trust facility in the U.S., with a new $300 million asset backed commercial paper conduit facility for wholesale receivables.
Third Quarter and Nine Months 2008 Net Income

Third quarter 2008 consolidated net income of $252 million was more than double the $122 million reported in 2007. The primary drivers of the improvement were increases in Equipment Operations Operating Profit and decreases in Other, net and interest expenses. The decrease in Other, net for the quarter was due to foreign currency gains, decreases in inactive pension expense and litigation expense (PGN). Results include restructuring charges, after tax, of $7 million in the third quarter of 2008, compared with $26 million in the prior year. Net income excluding restructuring charges, after tax, was $259 million, up 75% compared to $148 million in the prior year. The consolidated effective tax rate of 25.8% in the quarter reflected an increase in earnings in countries with tax losses where no tax benefit was previously recognized and for enacted tax credits in certain jurisdictions.
For the first nine months of 2008 consolidated net income of $711 million was up 60% from $445 million reported in 2007. The primary drivers of the improvement were increases in Equipment Operations Operating Profit and decreases in Other, net. The decrease in Other, net for the quarter was due to foreign currency gains, decreases in inactive pension expense and litigation expense. Results include restructuring charges, net of tax, of $25 million in 2008, compared with $55 million in the prior year. Net income excluding restructuring charges, after tax, was $736 million, up 47% compared to $500 million in the prior year. The consolidated effective tax rate for the nine month period was 33% percent.
Equipment Operations Cash Flow and Net (Cash) / Debt

Equipment Operations Cash Flow and Net Debt
Quarter Ended
 
Nine Months Ended
(Unaudited, U.S. GAAP, US$ in millions)
9/30/08
9/30/07
 
9/30/08
9/30/07
 
Net Income
$ 252
$ 122
 
$ 711
$ 445
Depreciation & Amortization
61
67
 
194
210
Changes in Working Capital*
(728)
(123)
 
(1,101)
(47)
Other***
(217)
(186)
 
209
185
Cash Generated/(Used) by Operating Activities
(632)
(120)
 
13
793
Net Cash from Investing Activities**
(68)
(59)
 
(255)
(181)
All Other, Including FX Impact for the Period
(85)
61
 
(200)
64
Increase/(Decrease) in Net Cash
$ (785)
$ (118)
 
$ (442)
$ 676
Net Debt (Cash)
$ (44)
$ (413)
 
$ (44)
$ (413)
 
* Net change in receivables, inventories and payables including inter-segment receivables and payables, net of FX impact for the period.
** Excluding Net (Deposits In) Withdrawals from Fiat Cash Pools, as they are a part of Net Debt (Cash).
*** Changes in Other items such as marketing programs and tax accruals

Equipment Operations' net cash position decreased in the quarter by $785 million. Cash generated from earnings was offset by increases in working capital, a $120 million contribution to the U.S. defined benefit pension plan, and capital expenditures of $108 million. During the quarter, CNH received a payment of $61 million for the sale of its 50% stake in Consolidated Diesel Corporation to Cummins, Inc. which is included in Net Cash from Investing Activities. At September 30, 2008, CNH's Equipment Operations' net cash position was $44 million.
The increase in working capital represented increases in inventories and receivables and decreases in payables, all of similar amounts. Inventories increased both to position higher horsepower AG equipment for future sales, particularly in Rest-of-World markets, and because the decline in construction equipment industry sales was not compensated by production reductions in the quarter. Planned construction equipment production schedules, including temporary plant shutdowns, in the fourth quarter should reduce these inventory levels. The increased receivables reflect higher levels of sales in Rest-of-World markets. The decrease in payables reflects the normal seasonal decrease in third quarter production compared with the second quarter and the additional reductions taken in European construction equipment production to more closely align with the expected sales impact of the decline in the European construction equipment industry.
During the first nine months of 2008, Equipment Operations' net cash position decreased by $442 million, as cash generated by operating activities was utilized to fund higher levels of working capital which occurred primarily in the third quarter, a $120 million contribution to the U.S. defined benefit pension plan, $262 million of capital expenditures to meet demand growth and improve operating efficiency and the $118 million annual dividend payment to shareholders that occurred in the second quarter.
Financial Services Net Debt decreased by $741 million during the third quarter to $9.8 billion at September 30, 2008. Compared with December 31, 2007, Financial Services net debt increased by $1.9 billion from $7.9 billion, reflecting higher levels of retail financial receivables.
In the third quarter of 2008, CNH expanded its receivables discounting facilities, adding two new lines which were utilized for a total of $423 million at September 30, 2008.
2008 Market Outlook

We believe the global agricultural industry will remain strong. Cash grain commodity prices remain at historically high levels, although off their peak of the past few months. Corn and wheat stock-to-use ratios remain at historically low levels providing strong support for continued growth of higher horsepower agricultural tractor and combine markets throughout the world. U.S. Net Farm Cash Income is expected to be at record levels, which coupled with accelerated depreciation benefits available to purchasers of new equipment, are driving sold out order boards for fourth quarter high horsepower tractors and combines, with continuing strength through the first half of 2009. CNH expects the 2008 Western European tractor market to remain strong while the combine market will continue to grow significantly. In Eastern Europe and the CIS, we expect the markets to continue to grow, spurred by high cash grain commodity prices and the need to update equipment. We expect Latin American markets to show continued strong growth, supported by increases in sugar cane use in ethanol production and cash grain commodity prices. Overall, we expect AG market growth to be constrained by key component supply issues rather than by demand, as most suppliers and manufacturers are producing at capacity.
We now expect the global construction equipment industry to be down 15 to 20% in the fourth quarter resulting in a 5 to 10% decline compared with full year 2007. For the full year, we do not believe growth in heavy equipment industry sales will offset light equipment industry sales declines. We expect continuing strength in Latin American and Rest-of-World markets driven by growing economies and infrastructure spending. Construction equipment demand in Western Europe should decline from recent record levels as GDP growth and construction activity levels weaken while North American construction equipment industry demand continues its decline from already low levels.
2008 CNH Outlook

Taking advantage of strong global agricultural equipment demand and the strength of the construction equipment markets in Latin America and Rest-of-World, CNH expects equipment net sales for full year 2008 to be almost $19 billion, up 25% compared to 2007. The Company is continuing its investments in manufacturing capacity to meet demand for its higher horsepower tractors, combines and crop production equipment and to remove industrial bottlenecks. High levels of industry demand and market share gains caused CNH to continue production in its Goodfield, IL plant, reversing an earlier decision to close the facility. CNH intends to expand the workforce at Goodfield and at the Company's Saskatoon, Saskatchewan facility. The Company is also investing to improve worldwide processes and information systems to accelerate its World Class Manufacturing efforts in addition to driving customer service and cost efficiency throughout CNH.
CNH expects full year Operating Margins of approximately 8.5%. The Company expects pricing actions will continue to offset increases in raw material costs, however, weakness in construction equipment industry retail sales in North America and Western Europe will continue to impact production volumes and price recovery. To align production with softer market demand for construction equipment, CNH expects fourth quarter production of construction equipment to be approximately 40% of expected retail unit sales. Planned Construction Equipment plant shutdowns in the fourth quarter will improve inventory levels but adversely impact Construction Equipment margins in the quarter and for the year. AG margins for full year 2008 will continue to reflect improvements compared with 2007.
Financial markets are expected to remain volatile, but our customers should have continued access to adequate sources of funding to finance their equipment purchases. The Company expects Financial Services' continued emphasis on strict underwriting controls and disciplined receivables management will enable continued solid performance of the portfolio.
Based on the continuing strength of the worldwide agricultural equipment and construction equipment markets outside of North America and Western Europe, CNH expects to continue generating higher than previously anticipated earnings in countries with unutilized tax losses. This should reduce the consolidated effective tax rate for the full year to about 32%. CNH is increasing its expected full year Diluted EPS, before restructuring, after taxes to $3.50 to $3.90 based on a lower tax rate and reduced operating expenses.
Restructuring costs, after tax, are now expected to be approximately $30 million for the full year 2008, primarily related to previously announced actions.
CNH believes it remains well positioned in both the rapidly growing worldwide agricultural equipment markets and in the growing construction equipment markets outside of North America and Western Europe. CNH further believes that its continued higher level of investment in new products, increased capacity and enhanced processes will continue to appropriately position the Company for continued growth through 2009 and 2010.
###

CNH Global N.V. is a world leader in the agricultural and construction equipment businesses. Supported by more than 11,000 dealers in 160 countries, CNH brings together the knowledge and heritage of its Case and New Holland brand families with the strength and resources of its worldwide commercial, industrial, product support and finance organizations. CNH Global N.V., whose stock is listed at the New York Stock Exchange (NYSE:CNH), is a majority-owned subsidiary of Fiat S.p.A. (FIA.MI). More information about CNH and its Case and New Holland products can be found online at www.cnh.com.
###

CNH management will hold a conference call tomorrow, October 23, 2008, to review its third quarter 2008 results. The conference call Webcast will begin at approximately 7:30 a.m. U.S. Central Time; 8:30 a.m. U.S. Eastern Time. This call can be accessed through the investor information section of the company's Web site at www.cnh.com and is being carried by CCBN.
Forward-looking statements. This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this press release, including statements regarding our competitive strengths, business strategy, future financial position, operating results, budgets, projected costs and plans and objectives of management, are forward-looking statements. These statements may include terminology such as "may," "will," "expect," "could," "should," "intend," "estimate," "anticipate," "believe," "outlook," "continue," "remain," "on track," "goal," or similar terminology.
Our outlook is predominantly based on our interpretation of what we consider key economic assumptions and involves risks and uncertainties that could cause actual results to differ. Crop production and commodity prices are strongly affected by weather and can fluctuate significantly. Housing starts and other construction activity are sensitive to the availability of credit and to interest rates and government spending. Some of the other significant factors which may affect our results include general economic and capital market conditions, the cyclical nature of our business, customer buying patterns and preferences, foreign currency exchange rate movements, our hedging practices, our customers' access to credit, actions by rating agencies concerning the ratings of our debt securities and asset backed securities, risks related to our relationship with Fiat S.p.A., political uncertainty and civil unrest or war in various areas of the world, pricing, product initiatives and other actions 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 results of legal proceedings, technological difficulties, results of our research and development activities, changes in environmental laws, employee and labor relations, pension and health care costs, relations with and the financial strength of dealers, the cost and availability of supplies from our suppliers, raw material costs and availability, energy prices, real estate values, animal diseases, crop pests, harvest yields, government farm programs and consumer confidence, housing starts and construction activity, concerns related to modified organisms and fuel and fertilizer costs. Additionally, our achievement of the anticipated benefits of our margin improvement initiatives depends upon, among other things, industry volumes as well as our ability to effectively rationalize our operations and to execute our brand strategy. Further information concerning factors that could significantly affect expected results is included in our annual report on Form 20-F for the year ended December 31, 2007.
We can give no assurance that the expectations reflected in our forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in these forward-looking statements. All written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the factors we disclose that could cause our actual results to differ materially from our expectations. We undertake no obligation to update or revise publicly any forward-looking statements.