CNO Group’s IVECO spin-off may be part of an overall restructuring plan for CNH Industrial, that will be unveiled at a financial analyst meeting to be held on Sept. 4 in New York City. Its small commercial vehicles unit, that accounted for almost 37% of its second quarter profits, posted pre-tax income of about $101 million, around 20% of its overall revenue, during the period.
The unit is focused on the manufacturing of diesel engine parts, with about 40% of the entire business generated from IVECO’s small diesel engines division. It is also involved in the production of engine accessories and sells its vehicles primarily to small and medium-sized businesses. CNH has a long standing association with IVECO, and the two companies share the facilities for their operations in China, in addition to the IVECO brand name. CNO Group, on the other hand, does not have an official relationship with CNH and has been making acquisitions and other moves in this sector for the past few years.
The acquisition of IVECO by CNO Group, though, may be another step in consolidating CNO’s industrial business and allowing it to focus on its core competencies. This could result in a larger company, with a strong future, which can also compete with other large players in its business niche. Smaller organizations can also benefit from the acquisition, since they can then focus on their core markets and focus on their production capabilities.
CNH has also seen its revenues fall slightly in the past three months, as the economy continues to struggle with lower commodity prices. This decline, though, is only modest, compared to the sharp drop in revenues recorded by CNH’s parent company in the last quarter of last year. CNH’s second quarter net profit, which includes a non-cash accounting charge, declined slightly to $2.4.4 million, compared to the group’s profit of nearly $2.7 million recorded in the previous quarter.
IVECO was established in 1999 as a manufacturer of small diesel engines for the Chinese military and now has a wide range of other commercial applications as well. As it grows into the global market place, its products will be able to appeal to a wide variety of customers. It also plans to expand its manufacturing capabilities in China, and to increase its sales, which are expected to reach more than 100 million units by the end of the current financial year.
With a strong balance sheet, strong credit ratings and an effective management team, IVECO appears to have the potential to succeed in the highly competitive diesel engines segment. With CNH’s strong financial backing, the new acquisition will be a positive move for both companies.