- So this left me with Deere or CNH Global. I don't think you can go wrong with either, but due to market capitalization and relative valuation I decided on CNH Global, the Netherlands based company. Deere's market cap is $32 Billion whereas CNH Global is less than half that at $14 Billion. When given a choice of similar peers I always like the smaller company as its easier to grow quicker off a smaller base. To that end CNH has revenue of about $14 Billion this year, whereas Deere $23.5 Billion.
- Both companies are in the sweet spot, and the ever shrinking value of the dollar is only going to help Deere export more product overseas. With that said, I think CNH might be more of an undiscovered gem, as everyone (and their mother) knows Deere.
- So looking out to 2008 I have 2 companies with similar valuations, but one (CNH) growing at twice the near term rate. (note: CNH is not quite the pure play agricultural play as Deere is due to some construction equipment exposure)
From AP
- Dutch agricultural and construction equipment maker CNH Global NV, which makes Case and New Holland products, on Tuesday said third-quarter profit jumped 82 percent on higher sales volume.
- Net income for the three months ended Sept. 30 rose to $122 million, or 51 cents per share, compared with $67 million, or 28 cents per share, during the same period a year earlier. Excluding restructuring charges, earnings more than doubled to $148 million, or 62 cents per share, compared with $71 million, or 30 cents per share last year.
- Analysts surveyed by Thomson Financial expected earnings of 54 cents per share, on average. Wall Street forecasts typically exclude one-time charges.
- Revenue for the quarter increased to $3.83 billion, up from $2.92 billion a year ago. Analysts forecast third-quarter revenue of $3.22 billion.
- The company said agricultural demand in Western Europe and the Americas drove strong sales of tractors and combines, while sales of construction equipment outside North America also grew. Agricultural equipment sales rose to $2.3 billion, up 36 percent. Construction equipment sales climbed to $1.3 billion, up 28 percent.
- CNH expects North American sales of both heavy and light construction equipment to fall 10 to 15 percent year-over-year in 2007 in part because of a decline in homebuilding. Sales of equipment outside the U.S. should more than offset the decline, the company said.
- Sales of farm equipment are expected to rise in the U.S. because of higher commodity prices but remain flat in other parts of the world, the company said.
- "Our growth in the quarter exceeded industry performance, as our actions to revitalize our brands, enhance our customer and quality focus, and leverage our global footprint continue to gain traction," CNH Chief Executive Officer Harold Boyanovsky said in a statement.
- Worldwide agricultural retail unit volumes showed particular strength in higher horsepower tractors and combines, with increased agricultural industry demand throughout the Americas and Western Europe, the company said.
- Gross margins from equipment operations rose 1.9 percentage points to 19.4 percent. Its overall industrial operating margin rose 2.5 percentage points to 8.4 percent.
Takeaway: What more can you ask for from a boring old industrial company? Revenue up by a third; earnings doubling; smashing analysts estimates; gross margin expansion; operating margin expansion by a whopping amount. Looks like a home run.
Construction ex US is still strong. And interestingly they expect continued strength in US agriculture. I guess Iowa won't be heading into a recession anytime soon. On top of that we are still subsidizing those farmers - gotta love our tax dollars at work.
Long CNH Global in fund; no personal position
