DBRS Confirms CNH Industrial N.V. at BB (high) with Stable Trend

DBRS has today confirmed the Issuer Rating of CNH Industrial N.V. (CNHI or the Company) at BB (high) with a Stable trend. The confirmation recognizes the Company’s stable business profile and modestly improved operating results. However, the financial profile weakened modestly in 2016 compared to the end of 2015, because of a temporary rise in debt levels from higher working capital usage, but remained compatible with the current rating. Going forward, a still soft agricultural equipment market would limit improvement in CNHI’s operating results. Hence, DBRS expects the Company’s current rating to remain stable in the near future.

CNHI has performed modestly above DBRS’s expectations in 2016. The diversity of its businesses and geographical markets positioned the Company to benefit from the varied operating environment, offsetting declines in some businesses (Agricultural Equipment (AG) and Construction Equipment (CE)) with gains from others (Commercial Vehicles (CV) and Powertrain). CNHI edged out a marginal increase in operating profit (as defined by DBRS) and operating margins despite lower sales in the first nine months of 2016, compared to the same period last year. Benefits from cost savings and productivity improvement initiatives and lower material costs were the key profit contributors.

The agricultural equipment market has been in a severe down cycle. Sequential sales results seem to support a stabilizing market but signs of a firm recovery remain elusive. Commercial vehicle demand appears to have peaked especially in southern Europe where the Company has a strong position. Powertrain is expected to maintain its gradual improvement from expanding its sales to external customers, which is an encouraging development. Construction equipment is expected to improve, albeit from a low base, buoyed by the improving United States economy. With ongoing benefits from cost savings and productivity measures, DBRS expects operating results at CNHI to show a modest improvement in 2017. The Company is unlikely to improve operating results meaningfully until AG is on a firm recovery path.

At the end of September 2016, net debt rose to $2.7 billion from $1.6 billion at the end of 2015, to fund a deficit in free cash flow because of high working capital cash usage, mostly on inventory. Q4 is traditionally a strong cash generating period and CNHI expects to reduce net debt to between $2.0 billion and $2.3 billion at the end of 2016. If not for the payment of EUR 495 million ($543 million) in fines related to a settlement with the European Union (see Earnings section for details), net debt at the end of 2016 would have been comparable to 2015. The Company has strong liquidity to help weather any unexpected deterioration in its operations.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Industrial Products Industry, which can be found on our web site under Methodologies.