CNH (CNHI) Down 11% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for CNH Industrial (CNHI). Shares have lost about 11% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CNH due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

CNH Industrial Q4 Earnings Meet Estimates

CNH Industrial's fourth-quarter 2019 adjusted earnings per share of 20 cents came in line with the Zacks Consensus Estimate, mainly owing to better-than-expected performance of the Financial Services segment. The segment posted revenues of $531 million in the quarter, beating the Zacks Consensus Estimate of $520 million. In the prior-year quarter, adjusted earnings were 21 cents per share.

The company reported adjusted net income of $279 million, reflecting a decline from the prior-year quarter’s $294 million.

Consolidated revenues declined 6.2% from the year-ago quarter level to $7,695 million, missing the Zacks Consensus Estimate of $8,173 million. This decline primarily resulted from lower revenues in the Agricultural Equipment, Construction Equipment, Commercial and Specialty vehicles, and Powertrain segments.

The company’s net sales for Industrial Activities came in at $7.2 billion, down 7% year on year. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $541 million in the quarter, marking a decrease of $149 million from the prior-year quarter.

Segmental Performances

Net sales in the Agricultural Equipment segment declined 7.2% year over year to $2.93 billion in the quarter, due to industry volume deceleration. Moreover, the segment’s adjusted EBIT was $236 million, down $22 million from the year-ago quarter tally, thanks to unfavorable volume and mix.

The Construction Equipment segment’s sales slid 13.1% year over year to $707 million in fourth-quarter 2019. This decline chiefly resulted from unfavorable volume and mix in North America. Further, the adjusted EBIT was down to $3 million from the $32 million recorded in the year-ago quarter, impacted by unfavorable volume and mix due to weaker market conditions, and product costs.

In the December-end quarter, revenues in Commercial and Specialty vehicles fell 4.9% year over year to $2.99 billion due to volume calendarization and unfavorable foreign-currency translation impact. The segment’s adjusted EBIT came in at $3 million, down from the prior-year quarter’s $90 million. This downside primarily stemmed from unfavorable impact of the remeasurement of certain provisions and foreign-currency translation.

The Powertrain segment’s fourth-quarter revenues declined 15.2% year over year to $1.01 billion. The segment’s adjusted EBIT was $84 million compared with $121 million in the fourth quarter of 2018, due to unfavorable volume and mix.

The Financial Services segment revenues climbed 2.1% year over year to $531 million in the final quarter of 2019. Adjusted EBIT was $118 million, up from the year-earlier period’s $109 million.

Financial Details & Buyback Programs

CNH Industrial had cash and cash equivalents of $4.87 billion as of Dec 31, 2019, compared with $5.03 billion as of Dec 31, 2018. The company’s debt was $24.85 billion as of Dec 31, 2019, compared with $24.44 billion as of Dec 31, 2018. The debt-to-capital ratio stands at 80.24%.

At the end of 2019, CNH Industrial’s net cash inflow from industrial activities was $1,341 million compared with cash inflow of $1,783 million in the prior-year quarter.

In 2019, CNH Industrial returned a total of $332 million to shareholders through cash dividends and its share buyback program. With the expiration of the previous buyback program, CNH Industrial recently announced a new share-repurchase program of up to $700 million to optimize its capital structure.

2020 Outlook

For full-year 2020, the company projects industrial activities’ net sales to remain flat to slightly down, compared with 2019.The adjusted earnings per share guidance has been kept between 78 cents and 86 cents. Net debt of industrial activities is projected in the range of $400-$600 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -40% due to these changes.

VGM Scores

At this time, CNH has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, CNH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.