CNH Industrial Capital’s portfolio of outstandings grew in the first quarter of 2023 due to consumer demand — despite rising interest rates and increasing bank challenges.
The financial services arm of equipment manufacturer CNH Industrial, CNH Industrial Capital, posted $24.5 billion in managed portfolio outstandings at the end of Q1, up 2.9% quarter over quarter and 17.8% year over year, according to the earnings release. The company’s portfolio mix was 60% retail transactions, 34% wholesale transactions and 6% operating leases.
Q1 retail originations were $2.2 billion, down 23.9% QoQ but up 5.1% YoY, according to the release. Originated loans were on CNH’s CASE IH, New Holland, and Streyr agricultural products as well as the company’s CASE Construction Equipment and New Holland Construction products.
“With interest rates rising and banking challenges increasing, it is imperative that we have a healthy captive finance to serve our dealers and customers,” Scott Wine, chief executive at CNH Industrial, said during today’s earnings call. “It is reassuring to have a sound and conservatively managed finance business where the portfolios continued to grow even as interest rates temporarily pressure markets.”
CNH Industrial Capital’s net income for Q1 was $78 million, up 4% QoQ but down 4.9% YoY, according to the company’s earnings release. The YoY decline was due to continued interest rate increases and margin compression, Oddone Incisa, chief financial officer and president of financial services at CNH Industrial, said during the earnings call.
“We saw favorable volumes in all regions … more than offset by margin compression in North America, higher risk cost and increased labor costs,” Incisa said. “While rapid rate increases contributed to the margin pressure, they are managed through a tight asset-liability ratio.”
The company’s greater than 30-day delinquency rate was 1.4% in Q1, up 10 basis points QoQ and YoY.
Agriculture sales up 16% YoY
CNH Industrial agricultural sales in Q1 were $3.9 billion, down 26.9% QoQ but up 16.3% YoY, according to the company’s earnings release. North American industry volume was up 19% YoY in Q1 for tractors greater than 140 horsepower and down 16% YoY for tractors less than 140 horsepower, while combines were up 116% YoY, according to the company’s earnings release.
“Robust demand for large agricultural equipment continues, especially in North America,” Wine said. “Ongoing industry demand in the North America row crop market, strong year-over year-pricing and a favorable mix all contributed to higher sales.”
The company estimates low-powered tractor industry volume in North America to land between a 5% decline and flat YoY for 2023 and high-powered tractor and combine industry volumes in North America to increase between 5% and 10% YoY for 2023, according to the company’s earnings presentation. CNH continues to navigate increased demand and reduced dealer inventory for agriculture equipment, Wine said during the call.
“Our dealers remain on allocation for products where demand is outstripping our ability to produce, especially our large agricultural equipment with precision technology,” he said. “Dealer inventories for high horsepower tractors and combines remain at historically low levels.”
Construction sales up 6% YoY
CNH Industrial construction sales in Q1 were $849 million, down 13.6% QoQ but up 5.7% YoY, according to the release. North American industry volume was up 2% YoY for light-duty construction equipment in Q1 and up 3% YoY for heavy-duty construction equipment in Q1, according to the presentation.
“Construction lead sales were up 6%, driven by favorable price realization as well as positive volume and mix in North America and in Europe,” Incisa said. “These more than offset the close of operations in China and Russia and lower wholesalers in South America where dealers were stocking.”
The company estimates light-duty and heavy-duty construction equipment industry volume in North America to land between a 5% decline and remaining flat YoY for 2023, according to the presentation. CNH remains optimistic about the rest of the year but expects construction to be more susceptible to economic conditions than agriculture, Wine said.
Shares of CNH Industrial NV [Nasdaq: CNHI] were trading at $14.20 at market close on Friday, up $0.57 or 4.18% from market open. CNH has a market capitalization of $19.48 billion.