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CNH Global N.V. (CNH)

Q2 2012 Earnings Call

August 1, 2012 7:00 AM ET


Manfred Markevitch – VP, IR

Richard Tobin – President and CEO

Camillo Rossotto – CFO


Henry Kirn – UBS

Michael Cox – Piper Jaffray

Ann Duignan – JP Morgan

Jerry Revich – Goldman Sachs

David Raso – ISI

Monica Bosio – Banca IMI

Martino Ambroggi – Equita

Ashish Gupta – Credit Agricole

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Larry De Maria – William Blair



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Good afternoon, ladies and gentlemen, and welcome to today’s CNH 2012 First Half and Second Quarter Conference Call. For your information today’s conference is being recorded. At this time I would like to turn the conference over to Mr. Manfred Markevitch, Head of CNH Investor Relations. Mr. Markevitch, please go ahead.

Manfred Markevitch

Thank you, Carline. Good morning and good afternoon, everyone. We would like to welcome you to the CNH 2012 first half and second quarter conference call. Let me make a brief introduction. I would like to remind everybody they can refer to Page 3 of our presentation which was distributed earlier today and posted on the Internet regarding certain forward-looking statements. Also, all information that will be used in the conference call today is available on our website at

Today we’ll have a presentation followed by a short Q&A session. We are pleased to have our President and CEO, Rich Tobin; our CFO, Camillo Rossotto; and our Treasurer, Andrea Paulis, with us on the call today. We would like to begin with a brief presentation. And with that I will hand over the call to Rich.

Rich Tobin

Okay, good morning or good afternoon everybody. I’ll make some opening comments and then I’ll hand it over to Camillo to go through the party of the presentation and then he will hand it back to me at the end and that we can start with the Q&A.

So thankfully overall it was a good quarter with satisfactory market performance in terms of market share and product introductions which I think that we talked about. At the end of last year that this year was going to be a critical year in terms of our ability to launch products, because it’s a pretty heavy schedule for us and so far so good. So we have successfully executed through the second quarter on product launches and through that has had good product availability in the marketplace, which has been reflected in our earnings and market share.

Good performance on gross margin that Camillo will get into in the presentation with satisfactory price realization and improved year-over-year industrial performance. And, at the end of the presentation we will discuss some of the headwinds or areas of concern that are out there, largely some weakening in the global economy in certain areas. We will have some comment on the drought in the North America, and what we believe that the impact will be there. And, then as you can see from the translation effect in Q2 on our financial results, where we’ve got some additional information in the main body of the presentation in terms of FX.

So with that, I’ll hand it over to Camillo and he’ll take us through the main body of the financial presentation.

Camillo Rossotto

Thanks, Rich. I’ll start on slide 4, which lays out the highlights for the quarter. As you seen from or report earlier today, net sales were up 3%, 9% of constant currency based and I’ll get back to the currency in a couple of slides down the body of the presentation up to $5 billion, of which $4 billion were essentially agricultural equipment sales, up 5%, 11% in constant currency and the construction equipment that 20% of our sales in the quarter was down 3% on a reported basis plus 4% constant currency. As Rich mentioned, gross margin was up, we closed that 1% in terms of gross margin in the quarter, that’s 80 basis points better than last year on the back of volumes and pricing, offset partially by higher production cost as we will see in a second.

Equipment Operation’s operating profit of $524 million, that’s 1% better than last year, and the margin that’s implied this 10.4%, 30 basis points lower than last year. The first half operating cash flow of $281 million, that’s up 21% versus last year, but more importantly in Q2 in the quarter itself, we record $789 million of positive operating cash flow, which is 67% better than Q2 of last year and that embeds a positive contribution from working capital, which on a year-to-date basis becomes a negative number. The net income before restructuring, it translates into an EPS of $1.47 versus $1.33 last year.

On slide five, we continue with some of the highlights that I’d just like to touch upon the third line item, which is Financial Services net income being up 50% versus last year on better risk cost of funding and overall higher portfolio’s under management at the level of our Financial Services arm.

And again, Equipment Operation operating cash flow $789 million in the quarter that yields a net debt at the end of the quarter of $2.8 billion. Positive net cash at the end of the quarter that’s $400 million better than what we added at the end of March.

Slide six, provide you with the evolution of the geographic split of our net sales quarter-to-quarter. Not much change in terms of the mix. We still have 43% of North American revenues, 35% Europe and CIS, 13% Latin America and 9% APAC. And all the regions have contributed on a constant currency basis, favorably in terms of growth of revenues in the quarter.

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