CNH Industrial expects replacement buying will give its ag business a boost next year. The company also reiterated that it’s not looking to off load its construction equipment segment any time soon.
Following the AEM Investor Conference at the CONEXPO Show in Las Vegas, Michael Shlisky, market analyst for Seaport Global Securities, reported that CNHI’s CEO Rich Tobin said, in agriculture, the company believes that regular replacement will begin to take place in 2018, even if there is no major improvement to farmer cash receipts. “This is a positive, in our view, though our cash-receipts model currently suggests a decline next year with risk to the downside,” Shlisky said in a March 13 note to investors.
In construction equipment, CNHI noted that orders are up year-over-year in the first quarter of 2017. Management emphasized the importance of the segment to the overall company, even though volumes and profitability are challenged. Reasons include the leveraging of the ag dealership platform as well as the powertrain designs across the portfolio, according to the SGS analyst.
“As such, in our view, the CNHI construction equipment business may not be for sale despite challenging returns in recent years. Importantly, CNHI noted that it does not take much growth from recent low levels to bring returns to levels the company would consider adequate; this would include high single-digit operating margins,” Shlisky said. “Overall, CNHI did not seem to have much interest in pursuing an M&A deal in construction, believing that the current footprint can eventually deliver these adequate returns once volumes ramp back up.”
— Ag Equipment Intelligence, March 2017
