CNH Industrial N.V. Reports Fourth Quarter and Full Year 2023 Results

AGÊNCIA DE COMUNICAÇÃO Conteúdo de responsabilidade da empresa 14 de fevereiro de 2024

CNH Industrial N.V.

Fourth quarter net income increased by 4% year-over-year despite consolidated revenue declining by 2%

Fourth quarter Agriculture segment adjusted EBIT margin up 40 bps year-over-year to 13.5%; Construction up 230 bps to 5.8%

Full year net income up 17% year-over-year on a 5% increase in consolidated revenue

Full year diluted EPS reaches $1.76; adjusted diluted EPS at $1.70

Cost reduction programs expected to improve through-cycle margins

Company announces additional $500 million share buyback program

Basildon, UK – February 14, 2024 – CNH Industrial N.V. (NYSE: CNHI) today reported results for the three and twelve months ended December 31, 2023, with Q4 2023 net income of $617 million and diluted earnings per share of $0.46 compared with net income of $592 million and diluted earnings per share of $0.43 in Q4 2022. Consolidated revenue was $6.79 billion in the quarter (down 2% compared to Q4 2022) and Net sales of Industrial Activities were $6.02 billion (down 5% compared to Q4 2022). Net cash provided by operating activities was $1,515 million and Industrial Free Cash Flow was $1,630 million in Q4 2023.

Full year 2023 consolidated revenues were $24.7 billion, up 5% year-over-year, with Net sales of Industrial Activities at $22.1 billion, up almost 3%. Full year net income was $2,383 million, compared to 2022 net income of $2,039 million. Full year diluted earnings per share was $1.76, up $0.27 from $1.49 in 2022. Adjusted net income was $2,313 million, a 15% increase over 2022, with adjusted diluted earnings per share of $1.70, compared to $1.46 in 2022. Full year net cash provided by operating activities was $907 million and Industrial Free Cash Flow was $1,216 million.

Two years ago, we established ambitious margin targets for our Agriculture and Construction segments, which we achieved earlier than planned. These results, in conjunction with record full year revenue and net income, reflect the CNH teams tireless efforts to simplify the company, expand through-cycle margins, integrate world-class technology with our great iron, and put our customers at the center of everything we do. With more challenging end markets in Q4, robust contributions from our cost reduction focus and disciplined commercial execution drove margin expansion and we will remain aggressive on these fronts moving forward. I have tremendous confidence in this CNH teams ability, regardless of market conditions, to create a bright future for our company, our customers, and our dealers.

Scott W. Wine, Chief Executive Officer

2023 Fourth Quarter Results

(all amounts $ million, comparison vs Q4 2022 – unless otherwise stated)

US-GAAP
		Q4 2023		Q4 2022		Change		Change at c.c.(1)
Consolidated revenue		6,792		6,943		(2)%		(4)%
of which Net sales of Industrial Activities		6,018		6,352		(5)%		(7)%
Net income		617		592		+4%
Diluted EPS $		0.46		0.43		+0.03
Cash flow from operating activities		1,515		1,443		+72
Cash and cash equivalents(2)		4,322		4,376		(54)
Gross profit margin of Industrial Activities		21.8%		21.6%		+20 bps

NON-GAAP(3)
		Q4 2023		Q4 2022		Change
Adjusted EBIT of Industrial Activities		696		680		+16
Adjusted EBIT margin of Industrial Activities		11.6%		10.7%		+90 bps
Adjusted net income		557		486		+71
Adjusted diluted EPS $		0.42		0.36		+0.06
Free cash flow of Industrial Activities		1,630		2,049		(419)

Net sales of Industrial Activities were $6.02 billion, down 5% when compared to the corresponding period from the previous year. This decline is mainly due to lower volume and mix in Agriculture, specifically as it relates to lower industry demand for all product categories in South America and for combines in North America and EMEA. Construction net sales grew by approximately 9% driven by net price realization and higher volume in North America.

Net income was $617 million, with diluted earnings per share of $0.46 (net income of $592 million in Q4 2022, with diluted earnings per share of $0.43). In Q4 2023, adjusted net income was $557 million and diluted earnings per share was $0.42. In comparison, in Q4 2022, CNH reported adjusted net income of $486 million and adjusted diluted earnings per share of $0.36.

Gross profit margin of Industrial Activities was 21.8% (21.6% in Q4 2022) with improvement from the corresponding period in the previous year in both Agriculture and Construction, reflective of favorable price realization and lower production costs despite the lower net sales.

Reported income tax expense was $58 million for the fourth quarter of 2023 ($168 million in Q4 2022), which includes a $99 million tax reduction from recognizing certain deferred tax assets, with an effective tax rate (ETR) of 10.1% (23.2% in Q4 2022). The adjusted ETR⁽³⁾ was 27.1% (33.6% in Q4 2022).

Cash flow provided by operating activities in the quarter was $1,515 million ($1,443 million in Q4 2022). Free cash flow of Industrial Activities was $1,630 million. Consolidated Debt was $27 billion as of December 31, 2023 ($23 billion at December 31, 2022).

Agriculture
		Q4 2023		Q4 2022		Change		Change at c.c.(1)
Net sales ($ million)		4,947		5,369		(8)%		(9)%
Adjusted EBIT ($ million)		669		701		(32)
Adjusted EBIT margin		13.5%		13.1%		+40 bps

In North America, industry volume was up 19% year-over-year in Q4 2023 for tractors over 140 HP and was down 7% for tractors under 140 HP; combines were down 32%. In Europe, Middle East and Africa (EMEA), tractor and combine demand was up 5% and down 20%, respectively, of which Europe tractor and combine demand was down 2% and 44%, respectively. South America tractor demand was down 8% and combine demand was down 13%. Asia Pacific tractor demand was down 13%, and combine demand was down 73%.

Agriculture net sales decreased for the quarter by 8% to $4.95 billion primarily as a result of lower industry volume, dealer inventory management, and unfavorable mix.

Gross profit margin was 23.3% (23.1% in Q4 2022) up 20 bps, driven by favorable price realization in North America and lower purchasing and product costs.

Adjusted EBIT was $669 million, down $32 million for the quarter ($701 million in Q4 2022), as a result of lower industry demand, partially offset by lower cost of components and production costs, and reductions in SG&A expenses, while R&D investments grew to 5.0% of net sales (4.4% in 2022). Income from unconsolidated subsidiaries increased $61 million year-over-year. Adjusted EBIT margin was 13.5% (13.1% in Q4 2022). Quarterly adjusted EBIT margins grew year-over-year in all quarters of 2023.

Construction
		Q4 2023		Q4 2022		Change		Change at c.c.(1)
Net sales ($ million)		1,071		983		+9%		+8%
Adjusted EBIT ($ million)		62		34		+28
Adjusted EBIT margin		5.8%		3.5%		+230 bps

Global industry volume for construction equipment decreased in both Heavy and Light sub-segments year-over-year in Q4 2023, down 12% and 2%, respectively. Aggregated demand decreased 7% in EMEA, 2% in North America, 25% in South America and 6% for Asia Pacific.

Construction net sales increased for the quarter by 9% to $1,071 million, driven by favorable price realization and positive volume and mix mainly in North America, partially offset by lower net sales in EMEA and South America.

Gross profit margin was 14.8%, up 150 bps compared to Q4 2022, mainly due to favorable product mix and price realization, partially offset by higher product costs.

Adjusted EBIT was $62 million, up $28 million for the quarter ($34 million in Q4 2022), primarily due to favorable price realization, while SG&A spend was slightly reduced year-over-year in the quarter. Adjusted EBIT margin at 5.8% increased by 230 bps vs the same quarter of 2022.

Financial Services
		Q4 2023		Q4 2022		Change		Change at c.c.(1)
Revenue ($ million)		768		577		+33%		+32%
Net income ($ million)		113		75		+38
Equity at quarter-end ($ million)		2,789		2,285		+504
Retail loan originations ($ million)		3,412		2,898		+18%

Financial Services Revenue increased by 33% due to favorable volumes and higher base rates across all regions.

Net income was $113 million in the fourth quarter of 2023, up $38 million compared to the same quarter of 2022, primarily due to favorable volumes in all regions and improved margins, mainly in North America, and lower risk costs, partially offset by a higher effective tax rate, primarily in South America.

The managed portfolio (including unconsolidated joint ventures) was $28.9 billion as of December 31, 2023 (of which retail was 64% and wholesale 36%), up $5.1 billion compared to December 31, 2022 (up $4.4 billion on a constant currency basis).

At December 31, 2023, the receivable balance greater than 30 days past-due as a percentage of receivables was 1.4% (1.3% as of December 31, 2022).

Results for the Full Year 2023

(all amounts $ million, comparison vs FY 2022 – unless otherwise stated)

US-GAAP
		FY 2023		FY 2022		Change		Change at c.c.(1)
Consolidated revenue		24,687		23,551		+5%		+5%
of which Net sales of Industrial Activities		22,080		21,541		+3%		+2%
Net income		2,383		2,039		+17%
Diluted EPS $		1.76		1.49		+0.27
Cash flow from operating activities		907		557		+350
Cash and cash equivalents(2)		4,322		4,376		(54)
Gross profit margin of Industrial Activities		23.7%		22.0%		+170 bps

NON-GAAP(3)
		FY 2023		FY 2022		Change
Adjusted EBIT of Industrial Activities		2,730		2,433		+297
Adjusted EBIT margin of Industrial Activities		12.4%		11.3%		+110 bps
Adjusted net income		2,313		2,004		+309
Adjusted diluted EPS $		1.70		1.46		+0.24
Free cash flow of Industrial Activities		1,216		1,596		(380)

Agriculture
		FY 2023		FY 2022		Change		Change at c.c.(1)
Net sales		18,148		17,969		+1%		+1%
Adjusted EBIT		2,732		2,456		+276
Adjusted EBIT margin		15.1%		13.7%		+140 bps

Construction
		FY 2023		FY 2022		Change		Change at c.c.(1)
Net sales		3,932		3,572		+10%		+10%
Adjusted EBIT		238		124		+114
Adjusted EBIT margin		6.1%		3.5%		+260 bps

Financial Services
		FY 2023		FY 2022		Change		Change at c.c.(1)
Revenue		2,573		1,996		+29%		+29%
Net income		371		338		+33

2024 Outlook

The Company forecasts that 2024 global industry retail sales will be lower in both the agriculture and construction equipment markets when compared to 2023. While projections vary among geographies and product types, in the aggregate for key markets where the Company competes, CNH estimates that agriculture industry retail sales will be down 10-15% and construction equipment industry retail sales will be down around 10% when compared to 2023.

CNH is continuing its efforts to improve through-cycle margins with its two previously announced cost reduction programs. The first program is focused on reducing product costs through logistics normalization, lean manufacturing principles, and strategic sourcing, and was first announced at the 2022 Capital Markets Day. The second program is focused on restructuring SG&A expenses and was announced in conjunction with Q3 2023 earnings. Both programs are progressing as planned and are expected to partially offset the impact of the lower industry demand.

Consequently, the Company is providing the following 2024 outlook:

• Agriculture segment net sales⁽⁵⁾ down between 8% and 12% year-over-year including currency translation effects
• Agriculture segment adjusted EBIT margin between 14.0% and 15.0%
• Construction segment net sales⁽⁵⁾ down between 7% and 11% year-over-year including currency translation effects
• Construction segment adjusted EBIT margin between 5.0% and 6.0%
• Free Cash Flow of Industrial Activities⁽⁶⁾ between $1.2bn and $1.4bn
• Adjusted diluted EPS between $1.50 to $1.60

CNH also announces today that its Board of Directors has approved an additional $500 million share buyback program to commence after the completion of the existing $1 billion share buyback program.
Share repurchases under the program will be made from time to time in private transactions, open market purchases or other transactions as permitted by securities laws and other legal requirements. The timing and amounts of any purchases will be based on market conditions and other factors including but not limited to price and regulatory requirements. The program does not require the purchase of any minimum dollar amount or number of shares and the program may be modified, suspended, or discontinued at any time.

Notes

CNH reports quarterly and annual consolidated financial results under U.S. GAAP and EU-IFRS. The tables and discussion related to the financial results of the Company and its segments shown in this press release are prepared in accordance with U.S. GAAP. EU-IFRS reports will be published on approximately February 29, 2024.

1. c.c. means at constant currency.
2. Comparison vs. December 31, 2022.
3. This item is a non-GAAP financial measure. Refer to the Non-GAAP Financial Information section of this press release for information regarding non-GAAP financial measures. Refer to the specific table in the Other Supplemental Financial Information section of this press release for the reconciliation between the non-GAAP financial measure and the most comparable GAAP financial measure.
4. Certain financial information in this report has been presented by geographic area. Our geographical regions are: (1) North America; (2) Europe, Middle East and Africa (EMEA); (3) South America and (4) Asia Pacific. The geographic designations have the following meanings:
   1. North America: United States, Canada, and Mexico;
   2. Europe, Middle East, and Africa: member countries of the European Union, European Free Trade Association, the United Kingdom, Ukraine and Balkans, Russia, Turkey, Uzbekistan, Pakistan, the African continent, and the Middle East;
   3. South America: Central and South America, and the Caribbean Islands; and
   4. Asia Pacific: Continental Asia (including the India subcontinent), Indonesia and Oceania.
5. Net sales reflecting the exchange rate of 1.10 EUR/USD.
6. The Company is unable to provide this reconciliation without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence, the financial impact, and the periods in which the adjustments may be recognized. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.

Non-GAAP Financial Information

CNH monitors its operations through the use of several non-GAAP financial measures. CNHs management believes that these non-GAAP financial measures provide useful and relevant information regarding its operating results and enhance the readers ability to assess CNHs financial performance and financial position. Management uses these non-GAAP measures to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions as they provide additional transparency with respect to our core operations. These non-GAAP financial measures have no standardized meaning under U.S. GAAP and are unlikely to be comparable to other similarly titled measures used by other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with U.S. GAAP.

CNHs non-GAAP financial measures are defined as follows:

• Adjusted EBIT of Industrial Activities under U.S. GAAP is defined as net income (loss) before the following items: Income taxes, Financial Services results, Industrial Activities interest expenses, net, foreign exchange gains/losses, finance and non-service component of pension and other post-employment benefit costs, restructuring expenses, and certain non-recurring items. In particular, non-recurring items are specifically disclosed items that management considers rare or discrete events that are infrequent in nature and not reflective of on-going operational activities.
• Adjusted EBIT Margin of Industrial Activities: is computed by dividing Adjusted EBIT of Industrial Activities by Net Sales of Industrial Activities.
• Adjusted Net Income (Loss): is defined as net income (loss), less restructuring charges and non-recurring items, after tax.
• Adjusted Diluted EPS: is computed by dividing Adjusted Net Income (loss) attributable to CNH Industrial N.V. by a weighted-average number of common shares outstanding during the period that takes into consideration potential common shares outstanding deriving from the CNH share-based payment awards, when inclusion is not anti-dilutive. When we provide guidance for adjusted diluted EPS, we do not provide guidance on an earnings per share basis because the GAAP measure will include potentially significant items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end.
• Adjusted Income Tax (Expense) Benefit: is defined as income taxes less the tax effect of restructuring expenses and non-recurring items, and non-recurring tax charges or benefits.
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