April was a busy month for CNH Global. Not only did CNH issue its first-quarter earnings report this month, but it also announced that it plans to spin off its farm and construction equipment as well as its heavy truck businesses. As one report said, the move will "give birth" to a global auto company that could feasibly build 6 million cars a year by 2014. The company, controlled by Fiat of Italy, also released 5-year plan that focused on its strategies for growth.

1Q Revenues Rise 6%

On April 21, CNH, parent company of ag equipment makers Case IH and New Holland, reported first-quarter equipment revenues rose 6% year-over-year — +2% in Ag & +27% in Construction to ~$3.2 billion.

Equipment operating margins improved ~310bp year-over-year to 4.4%, as Ag margins increased 180bp year-over-year and Construction posted a $36 million loss vs. a $91 million loss in the first quarter of ‘09.

CNH now forecasts global ag equipment industry sales will be flat to up 5% year-over-year in 2010. They had previously forecasted a 5-10% year-over-year decline but now sees 15-20% year-over-year growth in global construction equipment industry sales. It previously projected CE sales would rise 5-10%.

The company is targeting combined equipment operating margins between 5.7% and 6.1%, compared with 2.9% in 2009.

5-Year Plan



In a separate announcement, CNH released its 5-year strategic plan with a 2014 GAAP equipment revenue target of $18.4 billion by 2014 and operating margins of 10.7-11.5% (mp 11.1%), which would get them to about $5 in EPS by 2014.

Looking ahead to 2014, CNH is targeting Ag revenues of $13.9 billion and Construction revenues of $4.5 billion, with combined equipment margins between 10.7% and 11.5%.

"CNH has demonstrated that it has the institutional knowledge to build products to meet the demands of our customers in their chosen markets. This new strategic growth plan is, in many ways, an extension of that commitment to our customers and partners through the provision of a 5-year roadmap of performance objectives and strategic intent," said Harold Boyanovsky, CNH president and CEO.

Longer Term

The biggest news, though, was the announcement that Fiat intends to spin off its industrial business. "We believe right now is the time produce the spin off," Fiat CEO Sergio Marchionne told analysts after presenting Fiat's 5-year business plan. "It's the perfect time to do the spinoff. If we can do it now, we can weather anything."

Marchionne said Fiat didn't do it earlier because it needed the collective strength of all the business to turn the company around financially after he took over in 2004.

"Now, however, that process is complete and there is no longer any reason to keep together sectors that work with such diverse logic. The existing structure no longer serves any useful purpose," Marchionne said.