CNH Global N.V. (CNH) recently reported its first quarter financial results of 2012. Net income (before restructuring and exceptional items) came in at $269 million, rising 94.9% year over year and 42.3% sequentially.
Diluted EPS was $1.11 versus 63 cents in the previous year quarter and 79 cents in the previous quarter, comprehensively beating our Zacks Consensus Estimate of 73 cents.
The approbatory surge in net income was brought about by operational efficiencies achieved during the quarter coupled with increased top-line growth and a marginally low tax rate.
Net sales for the first quarter amounted to $4.64 billion, rising 22.2% year over year but declining 3.3% sequentially, beating the Zacks Consensus Estimate of $4.11 billion. This was primarily attributable to trading profitability achieved in the agricultural equipment segment and the surge in American construction equipment sales during the quarter.
Segment-wise, agricultural equipment sales amounted to $3.6 billion, increasing 17.7% annually but down 2.7% sequentially. North American revenues accelerated growth a great deal in this segment but were partially offset by weakness in the Asia Pacific region sales.
Construction equipment sales came to $1.0 billion with a 41.0% yearly rise but with a 9.1% sequential decline. The annual rise in sales was attributable primarily to gains across all geographic regions with a remarkable performance in North America.
Margins
Agriculture equipment’s gross margin in the March quarter surged year over year to 21.0% from 19.2% in the March quarter of 2011 and 18.5% in the previous quarter. Gross margin for the construction equipment segment increased to 15.1% from 12.7% in the previous year period and 12.3% in the last quarter.
Operating margin for Agricultural equipment increased to 10.3% from 8.6% in the previous year quarter and 6.5% in the last quarter. This was a result of product and pricing mix benefits along with improved sales and optimum factory utilization.
The North American and European sectors proved highly favorable for Construction equipment sales and operations for CNH during the quarter, due to which operating margin ameliorated to 3.3% from (2.3%) in the previous year period and (0.3%) in the last quarter.
Effective tax rate for the first quarter of 2012 were below management’s previously provided forecast of 32% – 35% for full year 2012, coming in at 31%.
Balance Sheet and Cash Flows
Cash and cash equivalents came in at $950 million down from $2.1 billion at the end of December 2011. Long-term debt was $13.2 billion at the end of March 31, 2012 compared to $13.0 billion at the end of the previous quarter.
Net cash used by operating activities during the first quarter of 2012 increased to $820 million from $320 million in the previous year quarter. Capital expenditures incurred during the first quarter of 2012 amounted to $101 million compared to $54 million at the previous year period.
Outlook
As CNH traverses through 2012, the company looks forward to an overall accelerated performance. The industry’s Agricultural equipment retail unit demand is expected to be flat to up 5% and construction equipment demand is expected to soar 5% – 10% for the full year 2012 which would hopefully bolster demands for the company’s segments too.
The company’s GAAP revenues are expected to grow around 5% in 2012 with operating margins above 8.6% and effective tax rate within 32%-35% range.
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