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Executives

Manfred Markevitch – Head, IR

Sergio Marchionne – Chairman

Camillo Rossotto – Group Treasurer

Harold Boyanovsky – President and CEO, CNH

Alfredo Altavilla – CEO, Iveco

Giovanni Bartoli – CEO, FPT Industrial

Analysts

Martino De Ambroggi – Equita

Jochen Gehrke – Deutsche Bank

Alberto Villa – Intermonte

Yann Benhamou – Exane

Max Warburton – Bernstein

Fiat Industrial S.p.A (FIATY.PK) Q3 2011 Earnings Conference Call October 28, 2011 1:00 PM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to today’s Fiat Industrial 2011 third quarter results conference call.

For your information, today’s conference is being recorded.

At this time, I’d like to turn the conference over to Mr. Manfred Markevitch, Head of Fiat Industrial Investor Relations. Mr. Markevitch, please go ahead, sir.

Manfred Markevitch

Thank you, Casey. Good afternoon, afternoon. I would like to welcome you to the Fiat Industrial third quarter 2011 results webcast conference call.

Fiat Industrial Chairman, Mr. Sergio Marchionne, with Harold Boyanovsky, President and CEO of CNH; Alfredo Altavilla, CEO of Iveco; Giovanni Bartoli, CEO of FPT Industrial; and Camillo Rossotto, Group Treasurer, will host today’s call. They will use the material you should have downloaded from our website on fiatindustrial.com.

After introductory remarks, we will be available to answer the questions you may have.

Before moving ahead, let me just remind you that any forward-looking statements we might be making during today’s call are subject to the risk and uncertainties mentioned in the Safe Harbor statements included in the presentation material.

I would now turn the call over to Mr. Sergio Marchionne.

Sergio Marchionne

Thanks very much and good afternoon. This is the third of series of analyst calls that we’ve had since this afternoon. We’ve dealt with the car side for most of the afternoon. It’s time to move on for something which is at least structurally less problematic than making cars.

I’m going to make a couple of general remarks and I’ll pass it on to my colleagues here who can explain to you what happened by sector and then have Camillo certainly deal with the financial structure.

Overall, I think it’s been a great quarter. We’ve had the best third quarter for CNH in its history since inception. And it’s a good sign, I think, that we’re making significant process in improving the profitability of this business. It’s been at the heart of a lot of efforts that started way back in 2005 and they’re beginning to bear fruit. We still have a long way to go. We’ve been helped by relatively buoyant market certainly on the Ag side and by our recovering position in construction. But fundamentally we are pleased with the performance to date. And I think that the rest of the year looks promising and it gives us some comfort of the fact that we can get to the trading profit target and undoubtedly exceed it for 2011.

The truck side is also recovering. I think Alfredo has done a great job of trying to deal with some of the industrial inefficiencies within the system. There is a process that’s now underway in which will unfold as the rest of 2011 and 2012 progress. But the indications are good. I think that the prospects also for 2012 for both of those businesses are good and certainly in line with the guidance that we provided back in 2010 as part of the five-year plan.

The FPT side is also improving. We promised you on the last call that we will give you an idiots’ proof version of the margin development for this business. Hopefully, it will become clear at the end of this call as to how we intend to move margins up substantially from where we are today.

And the other thing that we have done which is certainly in line with the attempt to try and modernize a streamline governance here is to eliminate the three classes of shares. As a result of the demerger that we have inherited from Fiat, it’s time to move on from that structure. The proposal that we’re making is one that reflects the proper premium against the historical trading prices of both the savings and the preferred shares. I’ve threatened Camillo with physical violence if he tries to complicate the description of this process beyond a reasonable limit. I will step in the event that [inaudible] comes off the rails, but it’s a relatively simple process that requires the majority vote of a minimum number of attending shareholders of the two separate class of shares. So it’s something that we plan on doing as we hold the AGM next year either in March or of April of 2012, but it certainly should simplify life going forward for all concerned.

On that note, I’ll pass it on to Camillo, and he will handle at least the first few slides.

Camillo Rossotto

Thank you, Mr. Marchionne. Good evening, everybody.

So I would start with slide two. Going through this scorecard for the quarter, revenue is up 12% to EUR5.9 billion, trading profit up EUR154 million, and trading margin very importantly up 200 basis points versus the third quarter of last year. That translates into an improvement in net result and the net debt increase that we see on this slide from EUR1.7 billion to EUR1.9 billion, I’m going to deal with that in the cash flow section of the presentation.

Well, on this slide, I think it’s worthwhile remarking that the EUR4 billion of cash plus EUR1.6 billion in available liquidity is sort of an unchanged position versus the end of September slightly improved – versus the end of June, sorry. Guarantees, they were in a position extremely comfortable vis-à-vis the maturities of our debt. With this amount of cash on hand, we’re able to cover all the future maturities with the end of 2014 in the assumption of not our overall bank debt.

So on that note I would just move to slide three. The first point is going to be addressed more in detail, because it’s a point that makes us extremely proud having being able to become the leader in the Dow Jones Sustainability Index for our industry. So we’ll give a little bit of air to that topic later on.

I would just like to stress two points on the guidance. The improved guidance on the trading profit margin space where the company sits at the end of third quarter EUR100 million, up versus previously already improved guidance for the guidance, and the confirmation of the net Industrial debt level of EUR1.6 billion. So notwithstanding the seasonal increase in working capital and cash flow absorption in the third quarter, we’re still targeting at EUR1.6 billion net Industrial debt for the end of 2011.

Slide seven gives you the split of the revenues and profit by sector. All of our businesses have been actually walking the talk of delivering the results that were committed to in the strategic plan for 2011. We can see a very significant 9.7% trading profit margin for CNH. And Iveca at 5.6%, it’s a 160 basis points better than last year. FPT Industrial is delivering on its commitment in the quarter, which leads to an overall improve in profitability of 46%. That is, also in terms of operating leverage pretty satisfactorily when you look at it from a both CNH, Iveco, and the all group perspective.

When you go then to slide five please, this picture and the dynamics representing this picture have been with us all across 2011. It has to do with the headwinds coming from raw materials. You can see that there is a silver lining to the slide in terms of the curve that’s been steepening up in the last quarter, placing it out during the fourth quarter. That’s at least the expectation based on the dynamics that we’re seeing on the steel and rubber. The Japanese [inaudible] to our production and sourcing has been totally resolved, so that’s well behind us. And this gives you – also another important information is, that all of these material cost increases have been offset through pricing at all of our businesses during the quarter.

On slide six, I would just like to walk you through the reconciliation between trading profits and net results. The unusual items that you see on this slide, EUR28 million deal mostly with Iveco and the rationalization of the vast footprint in Europe; it’s mostly Spain and Italy there. And the financial charge is as usual in order to have an intelligent discussion on this number which is the largest number on this slide actually, the EUR134 million negative for the quarter. You can jump to slide 34 where I provide the usual split between the various components of financial charges. It breaks up pretty much 50-50 between net debt and cost of carrier related charges and the non-net debt types charges. And it’s relatively flat versus last year. I think it’s wise to expect that for the full year of 2011, will be a sniff below EUR500 million in terms of full-year financial expenses.

The investment income, it’s positive EUR80 million. It’s mostly coming from the CNH and consolidated subsidiaries through tractor Al-Ghazi and the Japanese joint venture being the largest contributor. Tax rate of 40% should come as no surprise to anybody and net of year up that’s always around 39%. And I think it’s a good proxy for the year.

With that, let’s go to the cash flow. As I said in the opening statement, we have a EUR200 million negative change in net Industrial debt in the quarter. It splits pretty much evenly between CNH and Iveco. As you can see from the chart, the EUR400 million of the change in working capital, the absorption there has to do with a couple of factors. For Iveco, Alfredo will deal with that in this section more in detail. It has to do with building stock for the daily launch and some pre-buy in Latin America for the Europe 5. One for CNH, it’s got to do with the reestablishing physiological levels of stocks mostly on the construction part of the business that was coming out of a pretty low inventory situation due to the Japanese tsunami and some other change over of phased out of production. So it’s reasonable to expect that the fourth quarter will see improvements for that working capital level and the continued strong performance at the cash flow from operation level to bring the number down to EUR1.6 billion.

On slide eight, I try to deal in a non-technical way with the transaction that was proposed and resulted upon by the Board of Directors of Fiat Industrial, which is the proposal to the shareholder for the conversion of the company’s preferred and saving shares into the Fiat Industrial ordinary shares. The proposed exchange ratio is equal to 0.7 ordinary shares for each preference and 0.725 ordinary shares for each saving share. Such proposal would be submitted for approval to the shareholders’ meeting. The publication of the notice of the call at DGM is expected for late February and the AGM is expected for sometime in April. Each of the proposed conversion will be conditional upon an aggregate cash amount that the company maybe required to pay in case of withdrawal not exceeding EUR100 million and these are the terms for these transactions. You’ve heard about similar structure I think if you were sitting in the Fiat calls. And other than the exchange ratio these mirrors is for all intent and purposes is net transaction.

So with this said, I would then hand it over to Harold, that will comment on the CNH piece of the business.

Harold Boyanovsky

Thank you, Camillo. On slide 11, CNH revenues approached $3.5 billion, up 16% in the quarter, and all regions contributed to the increase in revenue. On the Ag side of the business, revenues were up 18%; and on the construction equipment side, up 25%. The trading profit at EUR336 million, was up 56% quarter over quarter. And improvements were driven both from the Ag and the construction equipment side of the business with the Ag trading profit reaching 10.1%. Clearly, we were helped by higher volumes, improved mix of combines, large tractors, better utilization of our industrial system. Net pricing in the quarter was positive by $66 million, so it’s about 2%. The R&D increase that you see here was attributed to the continued investment in Tier 4 emissions compliance and new product launch.

Turning to page 12, looking at the global Ag industry, it was up 12% in the quarter as well as the tractor TIVs. The combine market was up 16%, driven by a strong growth in Europe, Africa, Middle East, as well as CIS, which was up 85%. CNH tractor market performance was positive in Europe. And despite an overall decline in Latin America, the market share was up. The same with the over 40 sector in North America were in one of our most profitable product lines, the over 140 plus in four wheel drive categories, share was up in each category. Combine market share was up in all regions in the quarter. We continued to see strong demand as we moved through to finish the year in the fourth quarter with the Ag being up 10%, tractors also 10%, and combines 15% to 20%.

If you turn to page 13, the overall construction equipment industry was up 15%. And again, all regions contributed with the exception of APAC to growth, and that was driven by the Chinese market being down about 19% during the quarter. On a global basis, our shares were in line with the market growth. We had a significant improvement on the supply side from our Japanese sources of heavy excavators, and so we’ve been able to refill the pipeline in the distribution in the third quarter and going into the fourth quarter. Full-year, we expect the light equipment to be up 25% to 30% and the heavy equipment demand to be up 15% to 20%.

Turning to page 14, this slide reflects inventory production in retail sales. And on the agricultural side of the business, we over produced to retail 3% during the quarter, but because of the strong retail demand actually reduced our four months supply by 3%. On the construction equipment side, I’d like to draw your attention to Q4 of 2010 and Q1 of 2011 in which our inventory levels at the dealer and company were extremely low due to the shortage of product coming out of Japan and also some phase-in, phase-out of new products such as skid steer loaders. As we conclude the third quarter and going into the fourth quarter, the inventory levels are a more appropriate to meet the retail demand.

Turning to page 15, it highlights three new agreements that we have signed during the quarter. The first is a vendor financing agreement with De Lage Landen, in which we are able to provide through our CNH capital lease financing to customers of all of our brands in Russia. We will start effectively the first of the year.

The second is an alliance with Semeato in Brazil, which gives us the ability to fill a product void for plate planters in our brands, and that will leverage up and be moving forward also in 2012.

The third agreement is with Kverneland, in which we have signed a supply agreement for cutting and crop preparation equipment for our hay and forage business for the New Holland brand in North America, again filling a product void that our distribution and customers require. Also in the quarter with our joint venture in Turkey, with TurkTraktor, we celebrated the 600,000th tractor being produced by that operation. TurkTraktor leads the industry in both tractor sales of supporting New Holland and also Case IH brands in the market.

On the right hand side, gives you a snapshot of the new product launches in the quarter. And I think the point here is we continue to rollout Tier 4-compliant vehicles and also product enhancements as we move forward. So in this case, we launched sprayers, combines, and a couple of models of heavy excavators to support the dealer network.

With that, I’ll turn it over to Alfredo.

Alfredo Altavilla

Thanks Harold. Good morning, good afternoon, everybody. Revenues for the quarter at Iveco were up 12% versus Q3 2010 to EUR2.2 billion. Thanks to the improvement in demand in Western Europe and still high demand in Latin America. Overall volumes were up 15.3% to 35,000. Pretty much, the growth was shared across all the different geographies; 10% in Western Europe, 20% in Eastern Europe, and 22% in Latin America. And the growth was experienced also across all the different segments; light, medium, and heavies. Heavies in particular were up 32% versus Q3 of last year; thanks to the full rollout of the new Iveco trolleys in all markets.

Trading profit came in at EUR123 million or 5.6%, up 1.6% versus last year, primarily thanks to higher volumes pricing and product cost optimization as you can see. The $5 million, the [inaudible] SG&A were basically advertising and commercial actions to support the introduction of new vehicles into different markets.

Turning to page 17, industry outlook; the growth in Western Europe in Q3 was 10%, a bit softer than we experienced in the first half of the year. And our focus is that we’ll close the year pretty much in line with 10% growth over 2010. Latin America was 20% higher than last year. And also in Latin America, thanks also to the pre-buying factor, the year is going to close between 15% and 20% higher than 2010. It’s worthwhile mentioning that Latin America is not only Brazil. Argentina grew 50% over last year and Venezuela 41%. And this is important for us, because we do have a manufacturing operations in both countries where we manufacture light, medium and heavies.

In terms of the expectation for the full year, as I said, we expect Western Europe to keep on recovering versus 2010, especially once again, unfortunately in Central and Northern Europe while Italy and Spain will be weaker than they were in Q4 of 2010. In terms of our – and this is reflected also in the order intake, we are 10% higher than we were in Q3 of 2010, so still positive, although less than in the first two quarters of this year.

Turning to page 18, we deal with the inventories of both the company level and dealer level. And as you can see they are perfectly aligned with the growth in revenues and the increase in order intake. We are still handling less than three months activity in terms of inventory.

Turning to page 19, we deal with the Western Europe market share growing in light segment to 13.8%, 0.6% higher than 2010; in medium, we are at 25.8%, 2.5% higher than 2010. On the heavy side, we are at 7.8%, which means 0.5% less than 2010. But the good news is that, as I said, the full rollout of Iveco trolleys has allowed a recovery market share compared with the first two quarter of the year.

On the right side, there is a brief outline of the new Daily which is very important product in our lineup. We introduced this vehicle 40 days ago. This is not just the Euro 5 version of the old Daily, but is encompassing a number of new features which we believe make this vehicle still the best in class in its segment. The two key features that make this vehicle very important, very good in the segment are the introduction of the new F1C Diesel Engine which is the most powerful engine in the segment more than 200 horsepower. And the fact that across all the powertrain line up this vehicle is capable of delivering fuel consumption reduction up to 10% compared with the old vehicle.

Moving to page 20 with over Brazil. Market share growing in the light segment to 20.1%, 1.6% higher than last year, and to 5% in the medium segment where we are now playing with the full plan up of the Vertis. On the heavy side the market is 12.3%, 1.9% lower than it was last year but this was expected since we have just introduced four days ago at Fenatran, the most important track show in Brazil, the new version of the Daily. So there was phase-out of the old model and we were expecting some of our most important customers to wait for the new truck to come out.

When it comes to the Vertis, as I said we have completed the rollout of the – of all of different versions. This is the only medium duty truck in Brazil ranging from 8 all the way up to 16 tons and delivering lowest fuel consumption of the market ranging between minus 2% and minus 7% compared with the current segment leader. And also the Vertis is capable of delivering a very low – very competitive maintenance cost, 20% lower than the current market leader. Of course the fact that the Vertis is a Chinese based products makes it extremely competitive when it comes to product cost.

Turning to page 21, with China. The overall market is down compared with 2010, 6.3%. Although as far as we are concerned the segments were the Daily is playing is up 6.1% and the part of the segment where we play with the Yuejin brand is down 5%. The heavy segment is down almost 14% and this is primarily due to the fact that the Tipper segment is down due to the slowdown of the housing market.

Our market share overall is at 4.4% down 0.2 point versus Q3 of last year. Overall volumes were at 29,300 units in the third quarter compared with the 32,000 of last year. And this concludes the vehicle and I’ll turn it over to Giovanni for FPT Industrial.

Giovanni Bartoli

Thanks Alfredo. We are on page 22. In the quarter three 2011, FPT reached revenues of Eur742 million, 33% more than the last year, mainly due to the increase volumes of CNH Iveco but also external sales 10% more than the last year. The big increase of the captive volumes reduced the effect in page out the third parties is reaching 29% versus the 35% last year, but we will recover in the last quarter in next year for sure.

Looking at the volumes, and it is the most important for us are the engines. The engines rise up 32% versus last year, 33% sold to Iveco, 30% to CNH, 37% to external customers. Also for the gearbox we had a rise up 15% up to 18,000 units and Axels 35% more than last year up to 40,000 units. The final phase of the ramp up of the new product this year finally allow us to reach a selling profit of EUR30 million this quarter, that’s much bigger than the first two quarter of this year. The margin is 4%. In this quarter, we rise up the capacity utilization up to 33% of compared to last year.

Going to page 23, we can see the new product launches. Alfredo already told about the engine of the new Daily. Very, very interesting is the three liter engine F1C with the Twin Turbo version, 205 HP that is the best in class. The only engine that our near our but below our six-cylinder engine and so they are much more expensive with much high weight and also fuel consumption. So we can reach very interesting performance in the vehicle.

The other version that we launched was the 2.3 liter specifically optimized for fuel economy. Always about the engine, we have some interesting application for CNH about the Tier 4A, the first application of Tier 4A, interim version in the agriculture, for the medium and heavy application. For the gearbox, we have launched the six speed specific transmission for the new Daily as we call 2835. Other important achievement was the homologation of EPA Tier 4A reaching almost on the four cylinder 3.4 liters for agriculture and construction application.

Page 24. In this page we have set a simple free cash about the way we want to reach a very and more interesting profit in the next future for FPT Industrial. If we look up the yellow line we see that the powertrain business is strongly connected to the volumes. We have a capital intensive business. We have already a big capacity installed. We can reach 800,000 engines that is at the end of industrial plan without significant improvement in investment. So it is a direct line but in addition to this performance we have started very important operation to increase efficiency.

We have started with the world class manufacturing. We will see a mixed change in our business. So we will run to the blue line of this picture. In addition to that we will change also the business model for its turnout phase. The new [inaudible] we are signing with the external customer, we will include engineering services, spare parts and other service that you know can bring us a much bigger margin of the business. Looking at the bottom of the chart, we can see that in 2014 our forecast is to reach 47% of external sales.

I can confirm you that this increase from 33% to 47% the volumes for this improved more than 85% up already secured by contracts already signed with current customers and some new additional customers that in the future we can explain better.

On slide 25, as I mentioned in the beginning, you listen to lot of people calling themselves a leader, in this case we are the leader. We’ve got the highest score on all three dimensions combined both in economic, environmental and social terms although we are young a company, we are very proud to have been able to achieve so much in Denmark productivity at Fiat Industrial.

Then on a similar note in the last month, we opened an industrial village which is a flagship retail store. It’s a Fiat Industrial experience built around products, services and maintenance, and it covers a pretty significant square footage here in Torino. So first time we have an event dealing with investors I think that would the appropriate house to host such an event.

And then, on that note, I would just pass it back to – before I pass it back to Sergio Marchionne [ph], on slide 27, is just a wrap up. I think we covered most of these points. Again added for an improved dream profit outlook for 2011 and a confirmation of the other items of the guidance. We are I think now ready to take questions.

Sergio Marchionne

Thank you. Now we are ready to start the Q&A session. Casey, please start with the first question.

Question-and-Answer Session

Operator

Certainly, sir. (Operator Instructions). We take our first question from Martino De Ambroggi of Equita. Please go ahead. Your line is now open.

Martino De Ambroggi – Equita

Yes, thank you very much for taking my question. Also, good morning, good morning, everybody. My first question is on the implicit Q4 guidance, which appears to be significantly lower than the usual seasonality. If I look at the long-term trend of CNH, usually Q4 is higher and for sure it is higher for Iveco. So I was wondering if you could expand a little bit more on the implicit guidance, because in my view it is reasonably quite higher figure. And other [inaudible] is also better performance in terms of net debt.

And the second question is on Iveco in China. Also in this case, I was wondering if it’s possible to add some additional figures in terms of economics, productivity into Q3 and year-to-date.

Sergio Marchionne

If I can just deal with the issue of guidance, we gave you our best indication of what we think 2011 will close at. I know that you’ve looked as we have looked at historical trends. And one would suggest that if the seasonal pattern were to repeat in the fourth quarter of 2011, then we will be significantly higher than the number that you see.

We’ve indicated this as a minimum operating performance target for 2011; we’re not going to change it on this call. So we’re going to wait with the uncertainty of perhaps better performance between now and December of 2011. I understand your concern. I think you’re totally free to make whatever assumptions you want about the fourth quarter for this year. We feel comfortable that we can deliver as the minimum the number that we gave you as guidance. We have never failed in that target so far, we’re not going to start it today.

It does have obviously some implications in terms of the net debt position which we’ll have to carry through. One of the things that CNH is currently has to deal with is how does it deal with the potential demand in the first quarter of 2012 to ensure that we have adequate supply into distribution channels. And so the question is to exactly how much money is going to be required to try and deal with the demand function and how that impacts cash generation in 2011, is a big issue the management is dealing with now.

And so I mean before we draw a conclusions of what our cash flow be, where net debt will be, I think we have to wait until the rest of the year unfolds. The numbers that we gave you are the numbers that are safe, you can count on them.

Alfredo Altavilla

As far as China is concerned for Iveco on – as you know both joint ventures are not considered line by line. But in terms of an equity pickup, Naveco is doing okay and it’s currently 10% higher than it was last year, and EUR3.8 million for the quarter compared with EUR3.4 million same quarter of last year. While SIH, the heavy-duty truck joint venture is worse in terms of economics than last year, because as I told you the strong reduction of the – in the deeper segment is affecting very much our performances. So from a 0.4 positive of last year, we are now negative in the quarter of EUR3.1 million. We are expecting to recover on SIH, because of the recent introduction of the new heavy truck. We have seen the news coming out two days ago and we expect to sell at least 2,000 trucks before the end of the year.

Martino De Ambroggi – Equita

Okay, thank you. And if I may, last question is inevitable question I have got in the European trend for Iveco, because we saw many signs of slowdown, also already confirmed by some competitors. So what’s your view going forward?

Alfredo Altavilla

Look, I think that it is premature to express a view for 2012. From our standpoint, we see a weaker market than in 2011 on the light and the medium duty segment, and ranging anyway between minus 5% and minus 10% in the first six months. But we believe we’re going to be flat on the heavy side. The second part of the year is more difficult to predict at this stage. Best case is that we’re going to go back to the same level we experienced in Q3 of this year.

Martino De Ambroggi – Equita

Okay, thank you.

Operator

For our next question, we’ll go to Jochen Gehrke of Deutsche Bank. Please go ahead sir, your line is open.

Jochen Gehrke – Deutsche Bank

Yes, good afternoon. If I can just briefly – obviously, also the decision to harmonize the share class structured of Fiat Industrial today. Just on a strategic basis, could you just tell us how and where this helps Fiat Industrial to achieve maybe some of the strategic elements we talked about when we met a year-ago about in Turin. I think at that time, the [inaudible] there are still structural deficiencies within this company that might be solved with some outside strategic actions. Do you still feel a need for that docking [ph] that all businesses are performing sizably better than at that time. And if so, how does that structure help you achieving it?

Sergio Marchionne

I think I would disconnect the simplification of the share structure from potential strategic moves. I think the simplification of the three classes into one will result to the capital markets as a means of providing clarity and certainly a better governance system going forward. It adds as an additional benefit the ability to use effectively only one currency in a potential transaction going forward if one were to be required. But we’re not in a position today to comment on what if any transaction maybe, can or could, should be envisioned vis-à-vis Fiat Industrial.

I’m comfortable that the geographic distribution of the assets for CNH is more than adequate to try and deal over its future. I know there have been issues that have been raised over some of the geographic deficiencies that they are going to have at least in terms of inadequate coverage in North America. That is an issue, which by the way I don’t know think it immediately requires any type of M&A transaction. I mean – I’ve also been public in connection with the discussion that we’ve had that the North America market is fundamentally different and it runs on parameters which are not common to other than what we do in Europe or we do it in Latin America, and so one has to be very careful.

And by the way we can see this in the performance of our competitors, of our European competitors who have established – or have acquired or established positions in North America, who are not faring as well against the traditional competitors in the North American context, because the market itself is governed by different set of rules. And so we need to be very careful, we need to understand that market a lot better before we start to draw conclusions about using the currency of Fiat Industrials to accomplish anything.

Having said this, I don’t – there is not a single doubt that the simplification of the class structure is going to make our life a lot easier if and when those issues get presented. We remain opened to examine them all as they become available, but certainly the move itself should not be viewed as a preamble or anything, I mean it should be viewed as a simplification process which as a result has the additional benefit of simplifying our life in the event of that offer were to become available.

Jochen Gehrke – Deutsche Bank

Thanks. It’s very good. Thanks.

Operator

And we’ll take our next question today from Mr. Alberto Villa of Intermonte.

Alberto Villa – Intermonte

Good evening, I have a couple of questions. One related to the CapEx guidance of EUR1 billion, given that you spent around EUR550 million in the first nine months, is that going to be probably overstating your needs of the CapEx in the fourth quarter, or if not can you elaborate a little bit on where are you planning to spend this more than EUR400 million?

Sergio Marchionne

It’s at the upper end – it’s the upper end of estimates.

Alberto Villa – Intermonte

Okay, all right. The second quarter – the second question relates to the net pricing of 2% – net positive pricing of 2% you mentioned at CNH. Given the trend that you showed in the slide in terms of a raw material cost, can you give us an idea on average what has been the increase in pricing across the major businesses for agri and then – and the construction?

Harold Boyanovsky

Well, the – relative to the material cost, we’d anticipate on similar volumes that we’d see the same inflation on material that you saw in the third quarter and the fourth quarter. Relative to pricing going forward, our attempt is to recover incremental cost at the Tier 4 emissions engines drive in our product line plus inflation.

Sergio Marchionne

If I can just add a general comment on this issue, I don’t know whether your question was directed at the past or at the future. But if you look – I think if you look at every presentation that we’ve made here at CNH, I don’t think there has been one in a quarter where we’ve indicated that we suffered on a net basis of pricing erosion as a result of raw material pricing. We’ve been able to pass it on the market. We’re not the only ones to do this obviously, but a market has been able to absorb this as part of a normal pricing cycle. So we don’t expect that position to change going forward.

Alberto Villa – Intermonte

Good, thanks. And the last question on dividend policy given the simplification, can you just give an idea of what we can expect on 2011 in terms of dividend policy?

Sergio Marchionne

I think that we were clear on the dividend policy, were we not? I’m looking Mr. Rossotto who has been sort of trapped a bit to step in. Go ahead.

Camillo Rossotto

We’ve been clear on the 25% of net income and the minimum payment of EUR100 million that was derived from the EUR150 million between us and Fiat. And then, as far as the result of 2011 to be similar in 2012 are concerned, then we made no further statement in terms of the evolution of that policy going forward that’s going to be.

Sergio Marchionne

But I think you can consider it to be as a viable policy of a dividend distribution for ’11.

Alberto Villa – Intermonte

Okay, thank very much.

Sergio Marchionne

You’re very welcome.

Operator

And we’ll take our next question today from Yann Benhamou of Exane. Please go ahead, sir.

Yann Benhamou – Exane

This is Yann Benhamou from Exane. If I come back to Iveco, given the kind of order base that you’re seeing in Q3, would you consider any pollution curtain? If yes, to which magnitude and which timing? Second question on the Iveco inventories, could you give us the kind of selling days inventories in Q3 compared to Q2, please? And maybe a last question with CNH, would you – where are you in your thinking about potentially dealing with the minorities? Thank you.

Sergio Marchionne

I’m nowhere with the minorities of Chrysler – I’m sorry of CNH. I’ve got so many minorities that I’m just being surrounded. But I’m no really nowhere, I’m different than I was on the issue of the minority shareholders of CNH as I’ve always been. I mean it’s something that we inherited. I would not have designed it this way, way back then, it is what it is, right? And the question is whether it’s detrimental to Fiat industrial. Today, the answer is no. There are some additional costs that we’re bearing as a result of a separate corporate governance system, they’re limited in nature and not significantly impacting the performance of CNH, they would not move guidance in the event that they were to be removed. And so at the end of the day it maybe inefficient but it’s – the cost benefit associated with that maneuver is not visible to me as we speak. So my position has not changed. If it does change, obviously we’ll move accordingly.

To go back to the first question that was asked which has to do with sort of the simplification of the share structure and whatever maybe available, I mean who knows that the future will hold. I mean let’s stay tuned.

Alfredo Altavilla

Okay. For Iveco in terms of reduction, the answer is, as I said at the beginning, we believe that Q4 is going to be pretty much in line with Q4 of last year. So we are prepared to cut production if that is required exactly as we did last year. Probably below the level for the very simple fact that we are managing the phase-in of the new Daily and so we do have an order backlog for that vehicle. When it comes to inventories, I thought I told you during the presentation that we are running a little less than three months of inventories, both at company level and the dealer level.

Yann Benhamou – Exane

Okay, thank you.

Sergio Marchionne

If I can just add one comment to what Alfredo said, the great thing about Iveco is that it shut the machine – you can shut the machine down pretty quickly. And so there is no drag-on effect from a desire to reduce capacity. It maybe unpleasant from an industrial standpoint, but it can be done. And I think we are watching this like a hawk.

As a general comment, I’m not as negative as some of our competitors are. I think that everybody I speak to now outside the circles on the truck side appears to be convinced that the economic cycle has now soft either here or anywhere else, all right, and there maybe a slowdown in its temporary nature. But I think the trend is untouched. We are seeing a recovery of the markets. I think we need to be patient as we work our way through it.

Yann Benhamou – Exane

Thank you. Maybe a last one on Brazil. Do you have any take on 2012? And when do you see the long run for margin given the capacities and the new entrants? Thank you.

Alfredo Altavilla

Look, 2012 at the beginning will be, of course slower than 2011, because of the introduction of Euro 5. I mean the older pre-buy we’re experiencing right now will be of course discounted from the next year first half. But I do see the second half of the year which will go back to a pretty high level of sales in Brazil. The – in terms of pricing the light and medium segment are still pretty stable. In the heavy segment we have seen the introduction of many other players. In the last couple of months we have experienced some price competition. But I’m not sure whether it’s a permanent trend or it’s related to the fact that people – competition is trying to sell as many Euro 3 vehicles as possible.

Yann Benhamou – Exane

Thank you.

Sergio Marchionne

Having said, I think we’re going to come back at the beginning of the year and give you a better read on Brazil as we work our way through the last quarter.

Yann Benhamou – Exane

Thanks.

Operator

And for our last question today, we go to Mr. Max Warburton of Bernstein. Please go ahead, sir.

Max Warburton – Bernstein

Yes. Hi, two questions on my side, please. The first is on Iveco Financial Services. I know you’ve been asked this before, but could you just give us the latest?

Alfredo Altavilla

The latest, Max? The latest of Iveco Financial Services? Yes. We are working proactively to look for a continuation of provision of financial services in Europe once Barclays will default the existing venture in May of 2012. And we think in the next call we’ll be in a position to give you a better update than this. But we’re definitely looking at alternatives there in order to continue to provide the rate of financing and auto financing across the European perimeter.

Sergio Marchionne

Yes, just to give some color. I think that, Max, one of the things that we need to do here is that we need to look at the European market in a segmented way because of the perceived risk associated across the geographies. And I think that we have enough options out there now to try and carve out a composition or a mosaic of solutions on the capital side that will address Iveco’s market needs. But we’re working our way through the details. I think by first quarter of 2012, we’ll be able to give you a definitive picture.

Max Warburton – Bernstein

And, meanwhile, the losses that it reports in its current structure, can you just remind us why that’s the case?

Alfredo Altavilla

Sorry, I didn’t get the question.

Max Warburton – Bernstein

Page 29, the way it reports, it looks like a –

Camillo Rossotto

Those losses deal with the portfolios, so they are fully consolidated by Iveco or outside of the scope of the joint venture. And they did amount with the non-European activities and they have to do with a revision and assessment that we did on those portfolios in terms of severity and the frequency of losses.

Max Warburton – Bernstein

Okay. And then just the second question – Eastern Europe, okay. The second question is nothing do with the –

Sergio Marchionne

Max, just for a clarity, this is a very singular position in a particular geography which is being addressed and which is reflected in the financials. Do not take this as an indication of performance of services across Iveco.

Max Warburton – Bernstein

Okay, I hear you. And the second question is just on the broader company of your industrialist capital structure. As an analyst, I get asked all the time about the cost of carry and the amount of cash you guys are holding, and I have to try to explain it from my side. Could you just give us an absolutely clear explanation of how long you are going to have to sit on this cash and what the rating agency is asking you guys to do. And if there are any opportunities near-to-medium terms to tidy up this balance sheet from a – on a cash point of view – maybe that’s a dumb question in this environment – but can you restructure it, refinance it, and get this huge cost of interest down?

Camillo Rossotto

I would distinguish the two parts of your question. What the agencies are asking us? That they look essentially at the next one year of maturities and they want to be satisfied that we could carry an application to pay those maturities under situations. So that only deals with a minor part of our carrying of our liquidity. I think what we did in 2011 was to get very quickly geared up or ready to hit the capital markets, because of the choppiness of the capital market themselves in 2011. And so by doing that, obviously whenever you ship volumes, you end up sitting on significant balances of cash and obviously that drives a very high cost of carry. Think in the terms of the things that we can do and we’re trying to do to get that issue to become less painful for the P&L is increasing the amount of the undrawn facilities and look at ways of asset liability management in terms of interest rate exposures.

Sergio Marchionne

If I can just give you the short answer – that was very incredibly tedious long answer to what I thought was a very simple question. The answer is we’re carrying excess cash today and we made a strategic position to carry it because of the uncertainty in the debt market, it’s that simply. We’ve done this in Fiat Industrial, we’ve done it at Fiat, we’ve done at Chrysler.

And if you look at the composite amount of cash available across the three organizations, there is a number that at least historically is enough to talk of ours. We have never carried this kind of cash in our lives. It is reflective I think of a very serious concern on our part is to how stable that that markets are and how supportive they will be of transactions going forward.

You raised the issue on the financial services side of Iveco as to what our intentions are. All these things need to be viewed in terms of the availability of resources trying to deal with the events going forward whether it would be for Iveco or CNH. I remind everybody that back at a time which the US market went dry on the ABS side, Fiat funded CNH Capital $6 billion to try and get the machine, continue to run and provide liquidity of the system that it come to an absolute stand still.

So maybe we’re being excessively paranoid at least in the short term. My view is on the medium term, we need to restore this to a relatively healthy level. We do have other ways in which that cash can be used and used effectively, especially within the wider context of a CNH capital utilization. So I feel relatively comfortable that we can make the problem disappear in the medium term. But in the short term, I think as long as this nonsense continues to plague the debt markets, we’re going to continue to play it safe.

Max Warburton – Bernstein

Okay, thanks for the answer.

Operator

This concludes the question-and-answer session. I would now like to turn the call over to Mr. Manfred Markevitch for any additional or closing remarks.

Manfred Markevitch

Thank you, Casey. We would like to thank everyone for attending today’s call with us. Have a good evening. Thank you.

Operator

This concludes our conference call today. Ladies and gentlemen, thank you for participation. You may disconnect your lines.

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