FOCUS-New Hollandwarns on profits, cuts output
By David Jones
LONDON, Sept 25 (Reuters) - Farm machinery giant New Holland NV issued its second profit warning in nearly as many
months on Friday while its major shareholder, Italy's Fiat , set a share buy back less that two years after its flotation.
The world's largest farm tractor maker said its earnings for 1998 would be some 20 percent down on last year due to lagging demand for farm equipment on the
back of tumbling commodity prices, just weeks after warning on second quarter revenues.
Meanwhile, Italy's largest private industrial group Fiat which owns 69 percent of New Holland, said it now had the authority to buy back up to $250 million worth of
New Holland shares, after its shares had halved in price since its flotation on the New York stock market in November 1996.
The earnings' warning came as the group, with its global headquarters in London, said it had trimmed production schedules of farm equipment in line with the
anticipated lower demand for the balance of this year and into 1999.
The cutbacks follow signs of slowing in the second half of 1998 in the North American market, especially for high powered tractors, turmoil in Latin American
markets outside Brazil and worsening conditions in Asia, Africa and the Middle East.
The group warned that its earnings per share for the full year 1998, based on U.S. GAAP accounting, will be ''in the range of 20 percent below 1997 levels'' of
$2.60 a share, due largely to expected lower volumes and the costs that will be incurred to cope with the slowdown in demand.
The biggest impact comes from reduced demand for high horsepower tractors in North America and hence will likely mainly affect New Holland's plant in Winnipeg,
Canada, which makes all the group's farm tractors of above 160 horsepower.
The company added that its planned production cutbacks will limit the negative impact of its performance in 1999, which it expects to maintain in line with 1998
levels.
''We have seen a marked change in the industry's trend since the end of the second quarter,'' said the group's Chief Executive Officer Umberto Quadrino in a group
statement.
''In the second half, the North American markets are slowing down led by the reduced demand for high horsepower tractors. The turmoil experienced by Latin
American currencies is causing a drop in most markets of this area which more than offset the still positive trend in Brazil,'' he added.
New Holland is the third major player in the farm equipment market to warn on profits this month, following the world's biggest farm equipment maker Deere & Co
(NYSE:DE - news) which warned its fourth quarter earnings will be down, while Case Corp. (NYSE:CSE - news) said it expected a 25 percent drop in earnings
for 1999.
The other of New Holland's three big U.S. competitor AGCO Corp. (NYSE:AG - news) warned in July it would slash inventories and cut production by 17 percent
in Britain, France and the U.S. due to a decline in many European markets, especially Britain.
New Holland shares have more than halved in value since their flotation in November 1996 at $21.50, and were trading off $1/8 at $10 in early New York trade. If
Fiat bought the maximum allowed under the buy back at current prices it could push its stake to around 85 percent from 69 percent.
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