CNH adds to hopes for improvement in Latin America ag market

01.11.2016

Machinery maker CNH Industrial, while revealing results below market expectations, underlined the improved conditions in the Latin American farm machinery market.

The group, maker of Case and New Holland farm equipment, still forecast contraction in the Latin American market this year, but reduced to 10-15%, from 15-20%, its estimate for the pace of decline.

The revision, which echoes that from rival Agco last week, adds support to the idea that farmer spending in the region is finally recovering.

Like Agco, CNH also revealed an improvement in Latin American sales in the July-to-September period.

Nonetheless, the company's profits for the quarter fell short of expectations, a miss which was blamed on sluggish demand in other regions.

Bullish on Brazil, Argentina

 CNH's agricultural machinery business reported sales down 3.0% over the three months to September 30, compared with the same period a year ago.

The company cited "unfavourable industry volume and product mix in the row crop sector," in North America, as well as "unfavourable industry volume in the small grain sector in EMEA[Europe, the Middle East, and Africa]".

Sales were also down in Asia, due to lower Chinese demand.

'Market improvements'

But the company was bullish on demand in South America, citing "market improvements in Brazil and Argentina".

"Despite the challenging demand environment in our agricultural equipment business we have been able to increase our comparable profit margin for the quarter in the segment as a result of… improved equipment demand in Latin America," said Richard Tobin, chief executive at CNH Industrial.

CNH reported operating profit of $155m for its agricultural business over the July-to-September quarter, up 13% year on year

Improving macro-economic conditions in South America have boosted prospects for the machinery market, which suffered earlier in the year to tight credit and squeezed farmer budgets.

Last week, tractor maker Agco also reported an improving market in Latin America, as it reduced its forecast for the total drop tractor sales in the region this year.  

This is especially true in Brazil, where former president Dilma Rousseff was impeached and recently interest rates were cut, while in Argentina, Mauricio Macri's supportive agricultural policies have contributed to higher sales.

 Revenues decline

CNH reported consolidated revenues of $5.749bn for the July-to-September period, down 1.7% year on year.

Adjusted net income was up 130%, to $69m.

And operating profit rose marginally, up 1.2% to $248m.  This was shy of the $269m forecast by a Reuters poll of analysts.

CNH also announced the purchase of the agricultural grass and soil implementation business of Kongskilde Industries, which it said would "expand its offering in tillage, seeding and hay and forage segments".

CNH shares were down 1.0% in afternoon deals in Milan, at E7.035.
    


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