Fiat’s Chairman, Sergio Marchionne, hosted an analyst meeting in New York City yesterday, where he introduced the Fiat Industrial management team and answered questions regarding the newly formed entity. In her report to investors, Ann Duignan, machinery analyst for JP Morgan says, “He had some interesting comments regarding M&A and business development in general.’
Here are her key takeaways from the meeting.
• The new conglomerate is a leader in its businesses.
Management made a point of highlighting that CNH is second only to Deere in agriculture, CNH is #5 in construction equipment, its Iveco brand is #3 in the truck industry, and its engine business is a top 3 player in the independent engine segment.
Overall, the conglomerate was ranked third by Fiat in machinery revenues for 2009 (not including financial services; including financial services Fiat Industrial is fourth). Additionally, its revenue CAGR over the next two years is expected to rank fifth/sixth and it expects to deliver a 2010-2014 CAGR of 11% and EBITDA expansion from 7.4% in 2010 to 14.1% by 2014 (trading profit from 3.0% to 11.4%).
• No room for consolidation in Ag equipment, not interested in selling Iveco without Fiat Powertrain being made whole.
In response to a question about uses of cash, Mr. Marchionne noted that he did not see any potential for further consolidation in the ag equipment space, which is in contrast to the recent comments made by the CEO of AGCO.
We agree with Fiat and believe that the opportunity for consolidation, especially in NA, is limited at best. On a potential buyout of Iveco, Marchionne noted that any offer would have to include a premium to make Fiat Powertrain whole, which likely makes a deal less attractive to potential buyers.
• Marchionne expects all costs related to emissions to be passed on to consumers.
He noted that margins have not deteriorated over time in the on-highway sector as a result of emissions standard changes and therefore he anticipates no margin impact on any of the Fiat Industrial businesses.