The largest detractor from performance for the quarter and the past twelve months was CNH Industrial (MIL:CNHI), a manufacturer of agricultural and construction equipment. As expected, the company’s agricultural equipment business is experiencing reduced sales due to lower crop prices and farm profitability. However, we believe the agricultural segment to be a structurally appealing industry. Higher adoption of double cropping, increases in farm sizes in emerging and frontier markets, and the global need to increase yield will increase the demand for larger equipment. We believe CNH will continue to benefit from these trends as the second largest leader in this industry. In addition, the company’s commercial vehicles (Iveco) and construction equipment businesses have performed more poorly than expected. Weakness in Europe and Latin America, combined with adverse currency movements, have negatively impacted these businesses and led to very low levels of profitability. As these conditions return back to a more normal level, we believe these two segments will significantly improve. We believe management is taking important steps to enhance shareholder value with its continued focus on operational improvement and restructuring of the company’s balance sheet.
From David Herro (Trades, Portfolio)'s Oakmark International Fund Third Quarter 2014 Letter.
