CNH Industrial is reducing its labor costs amid a challenging market in South America, where sales have declined as farmers slow investments in response to lower commodity prices.
The U.K.-based company announced an immediate restructuring program that will cut 5% of its salaried workforce costs and eventually reduce its total labor and overhead expenses by 10% to 15%.
The decision came after a “disappointing” third quarter due to sluggish demand in Europe and South America for tractors and combines, CEO Scott Wine said in a recent earnings call. Despite profit margin improvements, sales in the company's agriculture segment declined 3% from last year to $4.4 billion. Adjusted segment earnings increased 6% to $672 million.
The sales downturn happened as farmers and dealers in Brazil hesitate to buy heavy machinery due to questionable returns, as well as steep declines in commodity prices.
With a weaker global market than initially expected in South America, CNH lowered its 2023 outlook to between 3% and 6% net sales growth. In the previous quarter, projections were as high as 11% compared to fiscal 2022.
“The pronounced decline in combines is especially unhelpful,” Wise said.
In South America, tractor demand was down 16% and combine demand was down 47% over last year. The Europe and Asia Pacific markets also reported sluggish heavy equipment sales offset by solid demand for row crop and construction equipment in North America as farmers were in the thick of harvest season.
Despite slower demand in certain regions, Wise said he is confident the company’s margin expansion and restructuring efforts will bolster profitability heading into the new year.
The 5% cost reduction in salaried workforce will be mostly completed by the end of the year, Wise said. CNH also plans to conduct a “comprehensive rightsizing” of its cost structure in early 2024.
CNH is coming off an acquisition spree, recently snapping up Hemisphere and Augmenta to improve its precision and smart agriculture portfolio. The company also purchased a controlling stake in Bennamann, a company that helps turn waste into biofuels.
As CNH grows its operations beyond what fits inside its two segments — agriculture and construction machinery — the company is navigating how to best serve its customers without relying on outsourced solutions. CNH's acquisition of Raven has allowed it to introduce a number of in-house products over the past quarter that automate guidance in tractor steering and enhance operator efficiencies.
“The innovative technology we're developing and launching reinforces my confidence in our strategy to transition to in-house solutions,” he said.
In addition to the restructuring plan, CNH’s application to delist its shares from Italian stock exchange Euronext Milan has been accepted. Company shares will be listed only in the U.S. as of Jan. 2.
CNH shares fell 2%, or roughly 24 cents, to close Thursday at $10 on the New York Stock Exchange.