CNH Global N.V. (CNH) recently reported its fourth quarter financial results of 2011. Net income (before restructuring and exceptional items) came in at $189 million falling 13% year over year and around 31% sequentially. Diluted EPS was 79 cents compared to 90 cents in the previous year quarter, beating our Zacks Consensus Estimate of 72 cents.
In 2011, net income amounted to $918 million, rising 85% compared to 2010 with diluted EPS at $3.82, beating our estimate of $3.75. This was attributable to a number of factors such as reduced tax rate and strong subsidiary revenues. However, industrial operative efficiencies and elevated top-line growth were the primary reasons for this comprehensive annual increase in net income.
Revenues
Net sales for the final quarter amounted to $4.8 billion, rising 27% year over year and 3.4% sequentially, beating our estimate of $4.4 billion.
Segment-wise, agricultural equipment amounted to $3.7 billion, increasing 24% year over year and about 4% sequentially. Construction revenues came to $1.1 billion with a 39% yearly rise and about 5% sequential growth.
In 2011, total net sales were $18.1 billion, growing 25% annually with agricultural equipment contributing 79% of revenues and construction equipment sales contributing the rest 21%. Geographically, 42% of revenues came from North America, 32% from the EMEA, 16% from Latin America and 10% from Asia Pacific.
In the full year, agricultural equipment sales grew 23% annually to $14.2 billion, whereas construction revenues increased 32% to $3.9 billion.
Agriculture equipment’s gross margin in the December quarter dropped year over year to 18.5% from 18.8% in the December quarter of 2010 and 21.8% in the previous quarter. Gross margin for the construction equipment increased to 12.3% from 9.9% in the previous year period but fell from 16.0% in the last quarter.
Operating margin, however, was disappointing in the agricultural equipment segment, falling to 6.5% from 7.1% in the previous year quarter and 11.5% in 3Q11. Construction equipment’s operating margin ameliorated to (0.3%) from (4.5%) in the previous year period but dropped from 4.7% in the last quarter.
Full year gross margin for CNH amounted to 19% as compared to 17.8% in 2010. Operating margins, on the other hand, came to 8.1% for 2011 as compared to 6.1% in 2010. This was mainly due to the sales growth coupled with efficiency in plant utilization and favorable pricing effects.
Effective tax rate for the full year 2011 were below management’s previously provided forecast, coming in at 30%.
Balance Sheet and Cash Flows
Net cash from operating activities dropped to $994 million in 2011 from $1,402 million in 2010, whereas cash and cash equivalents increased $650 million from the previous year period to reach $5.2 billion for full year 2011.
Capital expenditures for 2011 amounted to $408 million, rising from $301 million at the end of 2010.
Outlook
The company provides an overall optimistic outlook for both its segments for 2012. Agricultural equipment sales are expected to rise 5% and construction equipment to soar 15% – 20% for the full year 2012.
Moreover, a number of new product launches such as new tractors in emerging markets, construction equipment launches in North America and Europe etc. are expected to occur next year which would hopefully boost sales even further.
GAAP revenues are expected to grow around 5% annually in 2012 with operating margins above 8.6% and effective tax rate for 2012 is projected at 32% – 35%.
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