CNH Industrial's Spin-Off Of IVECO Truck Unit To Unlock Value
Zacks Investment Research | Sep 03, 2019 10:15PM ET
As part of the five-year plan to boost profits, CNH Industrial N.V. (NYSE:CNHI) is set to separate the IVECO truck business from the agriculture and construction business, thereby creating two distinct world-leading businesses. Subject to certain precedent conditions, the industrial vehicle maker intends to complete the revamp by 2021, forming two independent publicly-listed companies in a bid to rev up asset values and optimize portfolio.
Details of the Spin-Off
Following a comprehensive portfolio review, CNH Industrial will split its business into two units — ‘On Highway’ and ‘Off-Highway’ businesses.
The ‘Off-Highway’ assets, which contributed around $15.6 billion to 2018 pro-forma combined revenues, will comprise agricultural and construction business along with specialty vehicles. The agricultural equipment division, including the profitable tractors business, will generate around 75% of revenues. The construction equipment and special vehicles divisions will likely account for 19% and 6% of revenues, respectively.
The ‘On-Highway’ assets, which represented 2018 pro-forma combined revenues of around $13.1 billion, will include Iveco, Iveco Bus and Heuliez Bus commercial vehicle brands (accounting for around 69% of revenues). The unit will also include the FPT Industrial powertrain business (roughly 31% revenues).
The strategic spin-off holds the promise of unlocking significant value by maximizing focus, optimizing costs and delivering synergies. The creation of two separate entities will allow both of them to pursue great opportunities in their respective market segments and better serve the needs of both investor groups.
Spin-Off Forms Part of the Ambitious Five-Year Plan
The company’s decision to hive off the Iveco brand and powertrain business into a separate company is part of its new five-year 2020-2024 business plan, Transform 2 Win. Per the plan, the company aims at operational efficiency through targeted restructuring efforts in order to enhance profits and streamline business. It expects full implementation of the plan by the end of 2022. However, the company is likely to incur within $450-$500 million in restructuring charges in the said period.
CNH Industrial aims to invest around $13 billion in product development over the course of the five-year plan and expects earnings per share to increase from the current level of $0.86 to $2 by 2024. Adjusted EBIT margins are projected to more than double from the current level to 10% by 2024.
Final Thoughts
While upgraded product offerings and digitalization initiatives are aiding the Zacks Rank #3 (Hold) company to achieve new business contracts, CNH Industrial is bearing the brunt of high capital spending, rising costs and tariff headwinds, which are denting profits. You can seeZacks Investment Research
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