April 24, 2008 / 11:48 AM / 11 years ago

CNH profit disappoints, shares tumble

CHICAGO (Reuters) - Farm equipment maker CNH Global NV CNH.N posted weaker-than-expected quarterly profit on Thursday due to internal bottlenecks and problems with outside suppliers, sending its shares tumbling 18 percent.

The problems offset the effects of a global commodity boom that is driving up sales of CNH tractors and combines.

Industrial inefficiencies in its construction equipment business, which has been hurt by the slowdown in North American residential building, also weighed on results.

CNH and rival farm equipment makers Deere & Co (DE.N) and Agco Corp (AG.N) are enjoying record demand for their products thanks to the surge in investment in biofuels as well as increased consumption in the developing world.

The two trends are lifting farm incomes, which are highly correlated with tractors and combine sales. But the ramp-up has put a strain on CNH’s plants and supplier.

“Sloppy operating performance persisted this quarter,” Bear Stearns analyst Ann Duignan said in a research note. “Margins were weak in a strong ag environment...”

CNH Chief Financial Officer Rubin McDougal said on a conference call with analysts, “On the ag side, we’re dealing with a lot of inefficiencies.”

“What we’re finding is that we have very limited capacity for certain key components and ... that is causing a lot of schedule changes, it’s causing a great deal of incremental cost ... and causing a lot of pain.”

CNH shares were down $10.49 to $45.56 in morning trade on the New York Stock Exchange.


CNH, controlled by Italian automaker Fiat SpA FIA.MI, said first-quarter net profit rose 18 percent to $112 million, or 47 cents a share, from $95 million, or 40 cents a share, a year earlier.

Excluding restructuring charges, earnings were 53 cents per share, well below the average Wall Street estimate of 65 cents, according to Reuters Estimates.

CNH, based in Burr Ridge, Illinois, said quarterly sales jumped 26 percent to $4.4 billion, topping a Wall Street forecast of $3.9 billion.

Agricultural sales jumped 38 percent, doubling in Latin America and rising up by double digits in other regions of the world.

The company, which said it was taking “corrective action” to improve results, repeated its full-year profit forecast of $3.30 to $3.60 a share before special items.

But it raised its estimate for restructuring charges this year to $30 million from $10 million, and said its full-year profit forecast excluded those charges.

“The industrial issues which negatively impacted margins in the fourth quarter of 2007 continued into the first quarter of this year as strong demand for our agricultural products pressured both our manufacturing operations and our supplier ranks,” Chief Executive Harold Boyanovsky said in a statement.

Additional reporting by Nick Zieminski, editing by Dave Zimmerman and John Wallace

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