In today's analysis, we'll focus on a company that operates in the global agricultural and construction equipment market and has seen significant growth, and dividend growth, over the past three years. Between 2020 and 2023, its revenue grew by more than 67%, showing strong expansion and the ability to adapt to market dynamics. Despite current challenges such as falling commodity prices and a drop in demand, the company still maintains a stable position and pays regular dividends.

An important factor that attracts investors' attention is its global presence and flexibility in relation to regional specificities. Even in difficult times, the company focuses on optimising costs and improving operational efficiency. Although this year brought a decline in sales, the company is still preparing for a recovery in 2025, when it will present a new strategic plan focused on long-term growth and efficiency.

Company introduction

CNH Industrial $CNHI is one of the world's leading companies focused on the manufacture and sale of agricultural and construction equipment. Its roots date back to 2013 when the merger between CNH Global and Fiat Industrial took place, creating CNH Industrial. Today, the company operates globally in more than 180 countries and employs more than 63,000 people. Its manufacturing plants and research centers are located throughout Europe, the Americas, Asia and other key regions, enabling the company to effectively serve the global market and respond to regional needs.

CNH Industrial specializes in the manufacture of machinery for the agriculture and construction industries, with its best-known brands including New Holland Agriculture, Case IH, Steyr and CASE Construction Equipment. These brands are known for their reliable tractors, combines, loaders, excavators and other equipment that are key to the efficient operation of agricultural and construction businesses around the world.

CNH Industrial's history is filled with significant acquisitions and strategic mergers that have helped it solidify its market position. One of the most important events was the aforementioned merger in 2013, but the company's roots go back much further. Case Corporation, for example, was founded in 1842, while New Holland appeared on the market in 1895. These long-standing brands have become the cornerstones of what is now CNH Industrial. The acquisition of the construction machinery division from Kobelco was also a significant event, expanding CNH's portfolio in this area.

CNH Industrial is of particular interest to investors due to its strong market position and broad portfolio. The company has a significant share of the global agricultural equipment market, where it is one of the top three players. In construction machinery, it regularly ranks among the top 10 manufacturers, reflecting the steady demand for its products. The company's financial stability and its ability to generate profits even in times of economic fluctuations is another factor that attracts the attention of investors.

In terms of financial performance, CNH Industrial boasts solid revenues in the billions of dollars a year, with much of these revenues coming from emerging markets in Asia and South America. The company has a healthy long-term debt-to-equity ratio, making it a stable player in the capital markets. At the same time, CNH pays regular dividends, which is another attraction for investors seeking stable and long-term appreciation.

Unlike some of its competitors, CNH Industrial is not as dependent on a single geographic region, giving it greater resilience to regional economic crises.

Steps for a better future

CNH Industrial recently announced a restructuring of its global leadership team (GLT) to streamline operations and improve strategic management in the agricultural segment. This new management team, which became operational on August 1, includes experienced professionals from across the company and is focused on delivering the company's long-term growth objectives quickly and efficiently.

The company's CEO, Gerrit Marx, personally oversees the agricultural segment, drawing on his many years of experience in the industry. Humayun Chishti assumes the role of President, Construction, bringing a strong financial background. Douglas MacLeod continues as president of financial services, leveraging his 15 years of experience with the company.

The new leadership team also includes confirmed and newly appointed regional presidents. Vilmar Fistarol continues as President for North America, Carlo Alberto Sisto for EMEA, Rafael Miotto remains President for Latin America, Luca Mainardi takes over Asia Pacific, excluding India, and Narinder Mittal remains President for India.

Gerrit Marx (CEO) expressed confidence in the newly restructured team and its ability to improve the customer experience through quality products and services. The new strategic plan will be unveiled at Investor Day in early 2025, indicating that the company is on track to achieve ambitious growth and efficiency targets.

The company faced a challenging first quarter in 2024, with consolidated revenue down double-digit percentages. Adjusted earnings per share (EPS) came in at $0.33, and the company revised its full-year outlook, forecasting declines in both its agricultural and industrial segments and estimating free cash flow in the industrial sector at $1.1-1.3 billion.

Still, CNH, like other agricultural machinery makers, faces challenges from falling crop prices and high interest rates. The drop in sales has led to a surge in inventory at dealers, who have been forced to cut prices and auction equipment at lower values to make up for excess inventory.

Dividends

CNH Industrial NV's dividends have been attracting increasing attention from investors, particularly due to their growth. The company recently announced a dividend of $0.47 per share, which was paid on May 29, 2024.

CNH Industrial has maintained a regular annual dividend payout cycle since 2021, which is an important signal to investors.

Earnings and dividend growth

CNH Industrial's current 12-month dividend yield is 4.1%, and is expected to grow to 4.3% or more over the next year. This upward trend signals a continued improvement in shareholder returns. Adjusting for five-year dividend growth, the current five-year dividend yield is approximately 3.40%, indicating the company's long-term ability to generate value for its investors.

Dividend sustainability: payout ratio and profitability

The payout ratio is key to assessing the long-term sustainability of the dividend. CNH Industrial has a payout ratio of 24%, which means that the company retains a significant portion of earnings for reinvestment and future growth. This ratio also indicates that the company has room to sustain dividends even in the event of unforeseen economic fluctuations.

Future growth and prospects

In addition to dividends, CNH Industrial's ability to grow in other areas is key. The company has seen average revenue growth of 18.7% per year, which puts it among the world's leading competitors. Earnings per share (EPS) has grown an average of 59.4% per year over the past three years, indicating the company's strong performance. The company's EBITDA has grown 20.7% over the past five years, again confirming its competitiveness and ability to generate value.

How was the last quarter?

In the last quarter of 2024, CNH Industrial N.V. reported a 16% decrease in consolidated revenue compared to the same period of the previous year. This decrease was mainly due to lower market demand and reduced inventory requirements from vendors. The Company's net income was $438 million, a significant decrease from $710 million in the second quarter of 2023. Diluted earnings per share decreased from $0.52 to $0.34.

The Industrial division saw net sales decline 19%, reflecting lower shipment volumes and weaker demand in all major markets, particularly in the agriculture and construction sectors. Earnings before interest and tax (EBIT) fell to US$536 million, compared to US$822 million in 2023. The EBIT margin also fell from 13.8% to 11.2%.

The Agriculture segment saw sales decline by 20%, mainly due to lower demand for tractors and combines in Europe, South America and Asia. The decline was partly offset by favourable price developments, particularly in North America. The Construction segment also suffered a 16% decrease in net sales, with declines in all regions, mainly due to lower market demand.

Despite these unfavorable results, CNH continued to implement cost-saving initiatives that helped mitigate the impact of unfavorable market conditions. The company also returned $1.2 billion to shareholders through dividends and share repurchases in the first half of 2024.

The overall outlook for the second half of 2024 has been revised downwards with expectations that sales in both of its core segments - agriculture and construction - will continue to be weaker. However, the company remains focused on improving profitability and optimising costs to prepare for a potential recovery in 2025.

Why are the results not ideal?

First, farmers are struggling with declining commodity prices that are weighing on farm income. Second, high interest rates have caused more farmers to question taking on expensive financing to purchase new equipment. The company is also wary of dealer inventories.

Long-term results

The company has seen significant growth over the past five years, particularly between 2020 and 2023, as evident in its revenue trends, profitability and other key financial metrics. Looking at revenues, we see that the company will peak in 2023 with $24.687 billion, an increase of more than 67% from 2020's $14.779 billion. This growth reflects strong expansion and a successful increase in turnover, but this has fallen slightly in the last 12 months (TTM) to USD 23.084 billion, suggesting some slowing in the pace of growth.

Similarly, a positive trend can be seen in net profit. While the company reported a loss of USD -0.493 billion in 2020, already in 2021, net profit has risen to USD 1.723 billion, peaking at USD 2.371 billion in 2023. However, there has been a slight decline to USD 2.017 billion in the last 12 months. This development clearly shows that the company has overcome the period of losses in 2020 and has significantly increased its profitability in the following years. Even though TTM's profits declined slightly, they remain at a relatively high level, which may indicate temporary factors affecting the firm's performance.

Significant growth is also evident at the operating level, where EBIT (earnings before interest and tax) is only USD 0.481 billion in 2020, but climbs to USD 4.048 billion in 2023. This dramatic increase demonstrates the company's improved operational efficiency and ability to generate higher profits from every dollar earned. However, in the last 12 months, EBIT has fallen to $3.657 billion, which may indicate less pressure on operating margins or cost growth.

A similar trend can be seen in EBITDA (earnings before interest, taxes, depreciation and amortization). EBITDA is expected to reach US$1.019 billion in 2020, reflecting a challenging period, but by 2023, this figure has climbed to US$4.612 billion. However, in the last 12 months, it has fallen again to US$4.250 billion, which may signal some slowdown in profitability growth and the need to better manage operating costs.

Looking at costs, it is clear that they are rising in parallel with sales. The company's total costs have risen from $12.941 billion in 2020 to $19.742 billion in 2023. This increase is logical given the company's higher activity, but in the last 12 months costs have fallen slightly to $18.479 billion, which could be the result of better cost management or optimization of operating expenses.

Earnings per share (EPS) is another important metric that shows how performance has improved for shareholders. In 2020, EPS was negative (-0.36) as a result of the net loss, but by 2021, EPS had already increased to 1.27 and peaked at 1.76 in 2023. In TTM, EPS decreased slightly to 1.54 but still remains at higher levels compared to previous years. This trend points to improving returns for investors as well as the company's ability to generate sustainable profits.

Analysts' expectations

The average target price is $14.48 with a high forecast of $17.00 and a low forecast of $13.00.

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The information in this article is for educational purposes only and does not serve as an investment recommendation. The authors present only the facts known to them and do not draw any conclusions or make any recommendations to the reader.

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