Another large detractor from performance for the quarter was CNH Industrial (NYSE:CNHI) (Netherlands), a manufacturer of agricultural and construction equipment. CNH Industrial’s fiscal first-half revenue decline of 22% (-11% in constant currency) was larger than we estimated, as revenues dropped across segments. Earnings and margins also dropped more substantially than we expected. The core agriculture segment was the driving force behind these poor results as demand for tractors and combines fell across all geographies. In response, management reduced agriculture equipment production by 33% in the second quarter year-over-year. Conversely, the Iveco segment performed better than we anticipated, as revenue declined less than our forecasts (and gained 9% in constant currency) while margins expanded. Management updated full-year guidance with a reduced operating profit margin (to a range of 5.6%-6% owing to production cuts) and unchanged sales projections. Management continues to cut costs across the board, and in light of very challenging market conditions, we believe CNH Industrial’s leadership team is executing relatively well. Therefore, our investment thesis for this company remains intact.
From Biill Nygren and David Herro (Trades, Portfolio)'s Q3 Oakmark Global Select Fund commentary.
