While the machinery trade at ground level is engrossed in serving its customers and bringing new products to the market, optimism at the higher end of the corporate system is starting to fade a little as companies start to contemplate a downturn.
Over the last year or so, senior management of the larger manufacturers have been remarkably upbeat about the performance of their companies, noting full order books and sales being constrained by the shortage of materials and components, rather price or lack of buying power.
Cooler sales environment
Things they are a changing though. In his latest report on the company’s performance, the CEO of Case New Holland Industrial, Scott W. Wine, started to apply the brakes to the runaway expectations of infinite growth.
Not that any self respecting CEO will jump straight in and declare a boom-time over, instead, there was talk of positive dealer sentiment and some buoyancy returning to commodity prices.
Yet, it was also noted that farmer sentiment was heading south as input prices, especially fertiliser, grew.
This decline is not immediately impacting on CNH’s cash flow as the company still cannot meet demand, due, mainly, to the continuing but gradually reducing component shortage issue.
Full factory yards
What has affected the ability to generate cash is a large factory inventory, by which, it may be assumed, he means unfinished tractors awaiting parts. He notes though, that they hope to clear this by the year’s end, indicating further easing of the component shortage.
While there are some implement manufacturers keen to stress that they are not taking advantage of the supply and demand imbalance to increase prices, CNH has shareholders to appease and Wine notes that the agricultural division “drove pricing up 13%, again, more than offsetting rising costs, and we expect this dynamic to continue through the back half of the year”.
So much for the present, it is when casting his vision forward that the picture becomes a little darker.
Gloomy days ahead
As mentioned before, large companies tend to suit their statements to whichever audience is being addressed and in a separate press statement, the CEO was a lot less enthusiastic about the future.
Unsurprisingly, in this press release destined for the agricultural sector, he failed to congratulate his management team in their successful pushing up of prices, instead, he chose to dwell on the gathering clouds of a recession and anticipated a…
“…decidedly less advantageous climate for the next several quarters. The strengthening US dollar is impacting soft commodity prices, risking further deterioration in farmer sentiment and income, while we see the likelihood of declining European industrial demand due to the war in Ukraine, energy risk and inflation”.
He rounded off the statement by declaring that “overall we are positioning for a recession”.
Fewer frills and fancies in downturn
This does rather sound like the light at the end of the tunnel being snuffed out for the time being, and it would be of interest to know just what preparations they are making for a downturn.
A clue might be gleaned in news from a Dutch media outlet which suggested that New Holland is preparing to release a budget-friendly duo in the T5 series of mid range tractors.
These are, it is reported, to be sold “without bells and whistles” and are aimed at farmers with a restricted budget, even as an alternative to good second-hand machines.
Whether this parsimonious ethic will spread further up the range if a recession does come to bite, is an interesting question.
The company is remaining tight lipped, merely saying that we will need to wait until early November before the details become public.