CNH Industrial Capital originations grew in the third quarter as appetite increased for the captive’s offerings despite elevated interest rates and a decline in sales at its parent company.
BY THE NUMBERS:
CNH Industrial Capital saw growth in Q3 despite softer industrial sales at CNH Industrial on a year-over-year basis and an overall reduction in 2023 guidance for that company, according to CNH Industrial’s 10-Q filing with the Securities and Exchange Commission.
In a Q3 earnings supplement released Wednesday, CNH Industrial Capital reported:
- Originations of $3 billion, up 22.8% YoY;
- A managed portfolio of $26.8 billion, up 26.4% YoY;
- A portfolio mix of 60% retail transactions, 35% wholesale transactions and 5% operating leases.
- Delinquencies more than 30 days past-due inched up 30 basis points (bps) YoY to 1.6% but dipped 20 bps quarter over quarter.
Sales figures included:
- Global industrial sales of $5.3 billion, down 1.2% YoY.
- North American agriculture sales of $1.8 billion, up 5.2% YoY.
- North American construction sales of $544 million, up 24.2% YoY.
STATE OF PLAY:
CNH Industrial Capital’s growth was the result of increased customer demand for equipment financing through the captive, Oddone Incisa, chief financial officer and president of financial services at CNH Industrial, said during Wednesday’s earnings call.
“Most customers are using the captive company to finance their equipment investments, which highlights the strategic importance of running a healthy and nimble financial services operation,” he said. “Credit portfolios grew in all regions, generating higher interest revenues, partially offset by higher risk costs and margin compression because of the steep increase in interest rates in the last few quarters.”
NOTEWORTHY:
While CNH Industrial Capital achieved growth in Q3, the overall performance of CNH Industrial was “disappointing,” Scott Wine, chief executive of the parent company, said during the earnings call.
“Our third-quarter results were disappointing, but they also reflect the earnings power of CNH as we dealt with the challenging market environment in South America,” he said. “The sustained strength of our North American row crop and construction equipment demand continues to be helpful, offset by slowing demand in Brazil and continental Europe.”
South America — especially Brazil — had a negative impact on CNH earnings in Q2 and continues to limit the benefits created by the North American market on the company’s earnings.
FUTURE LOOK:
CNH Industrial’s outlook for 2024 remains mixed, as macroeconomic concerns persist and internal and external inventories continue to adjust to the post-pandemic landscape, Wine said.
“On one hand, soft commodity prices are likely to press farm incomes, while interest rates remain high and order backlogs and dealer inventories are normalizing,” he said. “On the other hand, fleet ages are still elevated and there is high demand for newer equipment, with the latest precision technologies.”
Equipment industry demand is expected to decline in 2024 compared with 2023 based on preorders, Wine said.
“We are gaining some early visibility into 2024 with order books open through the first half in major markets and, in many cases, we are already filling Q2 order slots,” he said. “It is too early to call 2024 industry demand, but we do expect it to be lower than 2023.”
THE BOTTOM LINE:
The “disappointing” performance for CNH Industrial in Q3 and a modestly pessimistic outlook for 2024 creates a complex outlook for the company and CNH is preparing for varying conditions, Wine said.
CNH Industrial Capital, the financing captive of multinational equipment manufacturer CNH Industrial, is the 13th-largest equipment finance company in the United States and the fourth-largest captive equipment finance company in the United States by total assets, according to the 2023 Monitor 100. The captive provides financing for CNH’s CASE IH, New Holland and Steyr agricultural products as well as the company’s CASE Construction Equipment and New Holland construction products.
Shares of CNH Industrial N.V. (NYSE: CNHI) dropped 10.5% or $1.19 as of market close on Wednesday following the company’s Q3 earnings release. Shares were down 1% or 10 cents from market open to $10.15 as of market close today. CNH Industrial has a market capitalization of $13.6 billion.
