Excerpted from the CNH’s Third Quarter and Nine Months financial statement to investors.
CNH (Case New Holland) has just released its Third Quarter financial earnings statement to its investors. Highlights include a statement of continued robust agricultural industry demand and market share gains, driving net sales of agirultural and construction equipment to $4.3 billion in the third quarter, up 22%.
They report that 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.
"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.”
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.
Third Quarter and Nine Months
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.
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 AG's Gross Profit improved $548 million compared with 2007 while Construction Equipment's Gross Profit declined by $89 million.
2008 Market Outlook
According to CNH, they 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.
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.
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.
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.