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CAPITAL GOODS: CNH Industrial (Baa2/BBB+/BBB+): Rating Considerations

CAPITAL GOODS
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  • CNH lowered guidance at all three quarterly results this year. As the agricultural machinery subsector is struggling with a prolonged slowdown, we looked at credit metrics.
  • Moody’s last action was to upgrade CNHI by one notch in early 2022. They had expected margin improvement in the years ahead. Having improved from 9.5% in the two following years, EBITA margin consensus expects 8.1% and 7.2% in 2024 / 2025 (not Moody’s adjusted). With adjustments that may be towards the low end for the rating.
  • Industrial FCF guidance is negative again this year, with a third consecutive annual outflow now likely. FCF / debt has a 10% ratings threshold over a long period.
  • Leverage is the bright spot here. At the time of the last upgrade, that was above the 3x ratings threshold with deleveraging expected; it’s likely to be below 1.5x at FY24.
  • This is a cyclical sector and ratings account for that; it seems likely raters will look through FCF for now with leverage still low.
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  • CNH lowered guidance at all three quarterly results this year. As the agricultural machinery subsector is struggling with a prolonged slowdown, we looked at credit metrics.
  • Moody’s last action was to upgrade CNHI by one notch in early 2022. They had expected margin improvement in the years ahead. Having improved from 9.5% in the two following years, EBITA margin consensus expects 8.1% and 7.2% in 2024 / 2025 (not Moody’s adjusted). With adjustments that may be towards the low end for the rating.
  • Industrial FCF guidance is negative again this year, with a third consecutive annual outflow now likely. FCF / debt has a 10% ratings threshold over a long period.
  • Leverage is the bright spot here. At the time of the last upgrade, that was above the 3x ratings threshold with deleveraging expected; it’s likely to be below 1.5x at FY24.
  • This is a cyclical sector and ratings account for that; it seems likely raters will look through FCF for now with leverage still low.