CNH Industrial.

Instead of making a separate cartoon character for each company, today we will switch to the same cartoon character every time - it makes our operations way easier. This is Max:

CNH is in the business of designing, producing and selling agricultural and construction equipment. They operate in three business segments: Agriculture, Construction, and Financial Services, with the last one used to ensure that customers can afford their expensive machines.

Here you can see their business explained visually:

Here you can see some highlights from their latest quarter:

Notice how much of their revenue comes from the US, and how much of their parts are supplied by US companies. It’s a great sight, as we all know the recent unfavourable developments with tariffs.

Look how they want to allocate their capital. In my opinion, it’s a great choice, as a clear dividend policy, organic growth and a health balance sheet are all sign of a healthy bsuienss. Why? Because only a healthy business grows by itself. An unhealthy usually, but not always, focuses on acquistions to fund their growth., constantly diluting shareholders. I have nothing against acquisitions, unless they don’t provide me with real value for my money.

Their business model is a complex operation, but I noticed some monopolistic traits along the way, which are useful to know:

• Capital-heavy equipment provides a barrier to entry. The cost of manufacturing and designing a product is too large for a startup to overcome.

• Dealer Network - How will you convince 2,500+ dealers, operating in 6,000+ locations, to sell your agricultural equipment? Or what about 427+ dealers in 1,694+ locations? Why would they sell your construction machinery? Such a big number of dealers is very, very unlikely to switch.

This is a company which, although it has a dominant position, I can’t seem to find ANY positive metrics on them, except for their positive profit margins (they don’t lose money), and their investments in the future. Everything else is just terrible.

Let’s go over the negative business metrics that they have:
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Financial health

Unfortunately, they have a negative cash balance, which can be unnecessary pressure on them in times of higher interest rates (higher debt payments) or when taking an opportunity.

Really low ROIC numbers - they are burning through investors cash. I think invetsors aren’t happy and will want to fire the CEO soon. :/

Low Market share position:

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Only 10.19%, compared to their biggest competitor - CAT at 33.29%.

The varied cash flow analysis:

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But that is only IF they stop dropping their revenue by 20% year over year. Right now, it will take them 9 years of negative 20% revenue growth to go to $3.53

This is a business to get as far away from as possible.

Benjamin Graham’s fair value (classic version): -$68.23

Revised version: -$31.03

A meme I made on them (laugh before the conclusion):

This is a business which is on a steady decline - big capital needs, and lagging behind the other major competitors is what’s causing this company to decline. I would personally avoid this company, but if someone believes in a turnaround play, this might be the company to look at. I rate it as a “SELL” - but of course, for someone else it might be a buy.

Stay monopolistic.

This isn’t financial advice.

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