Q1 2020 Earnings Call
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Thank you Michelle and good morning, getting up to 91, so first of all apologies for de it's a few minutes. The light was just to permit anybody to be connected.
So we would like to welcoming you to the webcast and conference call for CNH Industrial's first quarter Twentytwenty results for the period ending March 31st.
This call is being broadcast live on our website and its copyrighted by CNH industrial any other use recording or traditional any portion of these broadcast without the expressed written consent that CNH industrial district people meter.
We are pleased to have here.
Yesterday, our chair and acting feel says on April and our CFO with only a few that wouldn't be seeing today cool they wouldn't use them up to eat a lot able to pull down from the CNH industrial website.
Good day presentation, we wouldnt be holding accuray session is a final comments. Please note that any forward looking statements we might be making during two they called out of subject to the risks and uncertainties mentioning the safe Harbor statement, including the presentation with either a.
Additional information pertaining to factors that could cause actual results to be fair Mckee Ali it's containing the company. Most recent report 20-F, and you want or report as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and the Cleveland Toadies in the Netherlands anybody.
The company presentation. Many include certain non-GAAP financial measures additional information, including a reconciliation for the most directly comparable GAAP financial measures is included in the presentation Lucky.
One final remarks, as you can imagine our teammates collecting from different countries. So peaceful gave us if they are more mental silence during the cold why do we manage the towards each other between the speakers I will now turn the call it over to Suzanne.
Thank you Frederico and good morning, good afternoon to every well.
I want to begin today with a short update on how we're responding to the current pandemic and I focus as we prepare to emerge from it after that I'll go into the Q1 results well give you is complete the pictures like possibly can in these difficult at very unpredictable time.
Most importantly, I wanted to say upfront set our businesses in relatively good shape to navigate this crisis with adequate liquidity to withstand the most pessimistic salaries for our business that we've modeled this financial resilience is important and enabling us to whether this crisis, but soon we'll be our ability to respond quickly to the changing.
Okay government and social conditions in each of the countries in which we operate.
To do this I have been chairing a daily meeting with the global Executive Committee members I've seen a choice in which we've been focusing on for issues first and most importantly, the health and wellbeing of all our employees, particularly as we now begin to open back up our production facilities.
Secondly, the continuity of our business from a liquidity cost management to market presence perspective.
Thirdly, ensuring the strength of our dealer network and our supply base I lawfully, making sure that our customers and the communities in which we operate it also image strongly from this crisis.
In doing all of this what we've been very conscious of the role that see an H.I. plays in providing equipment that is essential to industries like transportation and agriculture on which our society dependence.
In addition to responding to the crisis in this way. We've also been continuing to work on the transform to win strategy that we presented at the capital markets Day in September 2019, we've accelerated our work in particular on the performance simplify initiatives that we described it as it is now more important than ever for us to have a flexible unless.
Lean cost structure for our organization.
We've also reconfirmed our commitment to spending all saw on highway activities. However, we all of its been extending the Twain table for that due to the market conditions into next year or beyond I will confirm the revised timetable when we have more clarity.
The full going into our results I would like to just take a moment to think all our employees for their works they fall in getting us through this crisis with many of them continuing to work throughout the pandemic I'm incredibly proud of our global team and I know how committed they all to making sure we effectively support our customers dealers I know.
Why did communities as we navigate our way through this very difficult period.
I will now move on to slide four which summarizes our Q1 results.
Net sales of industrial activities for the period with $5 billion down $8.8 billion or 14% on a constant currency basis due to the cave in 19 impact on the many markets in which our customers operate coupled with previously announced actions to reduce d. the inventory levels.
Industrial activities adjusted EBIT was a loss of $148 million sharply impacted by demand to disruptions in March negative absorption caused by plant shutdowns and actions to reduce inventory levels that we started in the previous quarter.
Industrial activities net debt at March 31st Twentytwenty was $2.3 billion. This was an increase of $1.5 billion from December 31st when she 19 as a result to seasonal working capital absorption on the adverse impact of covert 19, partially offset by actions.
I would use company inventory I'm by all the cash preservation measures.
Adjusted diluted EPS was a loss of six cents, primarily driven by the adjusted EBIT loss of $38 million.
Oh available liquidity position was $9.9 billion at March 31st Twentytwenty. This is the second highest level in our company's history at the end of the first quarter.
On February 28, before the cave in 19 outbreak affected the global financial markets, We extended our 4 billion euro committed revolving credit facility for one year with all lenders by exercising the first one year extension option.
The facility will now much a in March 2025, I do any will provide more details on a action to maintain strong liquidity later in this presentation.
Turning to slide five I would like to share with you some of the Q1 industry volumes as they will help put these results into context.
Let's look at the AG segment.
Worldwide demand for tractors was down 15% during the first quarter of Twentytwenty as you can see on the slide and demand for combines was down by 11%.
The impact to the caved harvest was how with off particularly acute in March and you'll see that we have a separate calling from auction. The fall like 10 side. If this page.
As shown in this call and the demand slowed down for tractors in much alone was 36%.
In North America tractor demand was down by 9% in the quarter.
Primarily in the level horsepower segment on 240 horsepower, while combined were down 22%.
In Europe tractor and combine markets were down by 10, and 20% respectively with tractors down 24% in March alone again looking at that that column.
In South America, the tried to combine markets decreased by six and 30%, respectively and the rest of the world demand decreased by 17% tractors and 2% for combined with attractive market slowing down by 43% again in March alone.
You can see across those different sequans, how much they pandemic affected us, particularly in March at the end at the segment.
Moving to the construction segment, all sub segments experienced double digit declines in all geographies. The one exception with South America, where compact and service equipment was down by any 1% well general construction equipment to root building and site preparation equipment bought by 12 and 13% respectively.
However, as you can see again in the right hand column. This downtime was it was severe in March with construction activity stopping or significantly slowing down in most geographies.
Lastly, I want to turn to the truck and bus markets.
European truck market was down by 19% year over year in the first quarter I would like duty trucks down, 14% and medium and heavy trucks down 27% again, if we focus in a much industry sales of light duty trucks and medium and heavy duty trucks in Europe declined by 34% and 38% Trust.
Actively.
The South American truck market was down by 17% in light duty trucks, and 6% to medium and heavy trucks in the first quarter within light duty truck market down by 26% in March alone.
The buses the European market decreased 9% in the quarter with a 30% <unk> decrease in March alone the South American market for buses decreased by 14% in this quarter with a 34% decrease in March.
Well the heightened industry uncertainty means that we cannot give precise full costs I would like shared with you free try make major segments I sense of how the industry might play out this year.
As I've just described the coverage crisis has impacted all of our end markets and this quarter, particularly at the ended the quarter. However across all of US segments. We expect the most severe impact will be seen in the second quarter. This year.
The agriculture, we expect the industry in North America, South America, and Europe to be down in the second quarter by minimum of 20% with some regions and product lines, reaching 40%.
Europe will be the most heavily impacted region. We believe we demand for both tractors and combines down 30%.
North America, we expect demand for high horsepower tractors and combines where as you know, we're well positioned to be less impacted with the cash cross crop segments down less than the livestock and dairy segments. Although we of course have even less visibility on the second half of the yeah. We currently expect the AG industry to begin to a couple of through the third and.
Fourth quarters.
I'll now do the same in construction, where we expect the market to be down at least 50% across all regions and sub segments in the second quarter. This year with the exception of rest of the world, where it looks like demand will be slightly up year over year in the second quarter, but of course I present this more limited.
We again expect some recovery in construction in the second half of the yet although we expect this to be less smokes then it will be for agriculture.
The second quarter will also be tough for commercial vehicles with demand expected to be down by almost 60% in Europe at around 70% in South America.
In the second half, we again expect some recovery in commercial vehicles, although like for construction expectation is that this will be more muted then it will be for agriculture.
I will now move on to slide six which shows CNH industrial specific units statistics for retail delivery and production data sets in the first quarter. This year compared with the same quiet period last year and also shows channel inventory levels.
So going into these details let me remind you that beginning of March the 11th we closed our Italian production facilities to protect our workforce and for March 20th we suspended the majority of our European Assembly operations.
In North and South America, where production was already slowed down before the pandemic, we suspended the men majority of our manufacturing operations from most associates, we closed our plants in India on March 20 said.
Despite these closures we've managed to keep most of our Pops depots service facilities and dealerships operational through the whole if this quarter. So that we could help our customers keep that machinery running through the crisis.
In doing this we fully complied with all the safety measures Monday to bundle in each country together with many additional measures agreed with our workforce.
As we announced yesterday, we announced bringing our manufacturing operations gradually back online while ensuring that we remain in full compliance with all emergency regulations in doing this we have agreed and implemented a wide range of new safety protocols without workforce to reduce the risk of harvest transmission.
You'll be glad to know that now more than 70% about 67 thoughts around the world our operational although most of those operating at full capacity.
On a regional basis move an 80% of production sites in Europe, and some 60% of sites in North America in South America, and the rest of the will to already operational in the cases, the rest of the world Disproportion approaches 90%. If you include joint ventures.
In bringing our Paul is back on line, we've deliberately prioritized agriculture impart powertrain manufacturing as they both service into industries in which the market demand for our products is greatest these are being followed by commercial and specialty vehicle manufacturing given the importance of transportation and civil protection sectors and.
Also it's by construction equipment manufacturing plants.
We plan to returned to full operation up sites by the end of the month, but we'll modify this if local regional situations deteriorate or if we need to respond to changes in end market conditions or to changes in our supply chain.
As I noted before.
End customers together with our dealer network of being fully supported through this quarter by CNH industrial off the market solutions and today almost all about 45 logistics hubs all operational the majority of which all running at full capacity.
Today, we also have 24000 device employees working able to work from home and about half of them a doing so in agreement without trade unions. We've also access government backed employee salary support Tomatoes, where they are available.
I now want to move to the quarterly performances that as shown on this slide slide six.
Hi worldwide track drunk combined production was down 40% and 26% respectively for the month of March a north American route crop production was down 16% in the full quota.
I will want channel inventory for tractors was up 3% predominantly low horsepower tractors, but down 3% for combines versus quarter Onetwenty 19.
North American Red Cross channel inventory was down 11% versus last year.
The slight increase in inventory would have been great to have we not already put in place plans to reduce inventory in this quick in this quarter in anticipation of weakening market demand.
There's also an increase in retail deliveries of combined in the quarter.
For construction as a whole the companies worldwide production was down 23% and channel inventory was up 1%.
If we focus on the you proposed portion of exactly truck specifically since it accounts for approximately 80% of the sub segments revenues production for light trucks was down 28% and medium heavy trucks was down 21% and you channel inventory for trucks was down 9%.
Our shares you truck market is 10.8% up 40 basis points with medium and heavy up to 250 basis points to 8.5% on the back of strong retail deliveries of our newly launched S. way heavy duty truck.
Truck book to Bill in the he was 1.44 and South America ended the quarter at 1.0 at full.
I'll now turn the call over to donate to take you through some of the key financial details.
Thank you Suzanne and good morning rational to everyone in the cold.
Before I get you some according to figures I will like to again, thank all of our employees Peters customers and other stakeholders being still supporting the mitigated.
And he's very difficult period, including the office colleagues, what we know working from home for a moment seven weeks.
It goes without saying that their passions and support has been pretty cutwater operations.
Moving on to key figures for the first quarter net change in our industry segments were down 14% in constant currency.
Adjusted EBITDA would not have figured he was a loss of one I'm going to than 40 immediately the first quarter.
Btwenty compared to what adjusted EBIT of 178 median.
First quarter Corrugating medium duty on profitable volume and mix, which more than offset positive pricing and cost management options.
Our adjusted effective tax rate for the quarter, what's sitting 1%, resulting in the income tax benefit, but typically meeting.
The first quarter adjusted net loss was 66 medium and adjusted diluted earnings per share was a loss of six cents.
As mentioned earlier, we finished the quarter wouldn't that have enough to equal <unk> billion, representing an increase of 1.5 billion compared to the beginning of the year.
And then available liquidity expense of 9.9 billion at the end of the first quarter.
I want to more detail later in my presentation.
As like line like eight sorry, we focus now on our investor feedback in that sense.
Foreign exchange Michelle how the magazine, we make the second so what.
The next seems to be region was almost like change there's just speaking here.
Accounting for more than house, although nights or total net sales almost 50% when looking at the state by currency.
I touched on net sales for the 2.2 billion to the first quarter four to 20.
7% on a constant currency basis in a piece was driven by loadings and see volumes across all geographies. So maybe could either be told me guys. You know break coupled with the auction stages, John even for signals and self Tonight.
Well he despite engaged by standardization across all regions.
Only partially offset the case.
Cool stacking the kids bolt on what I'm going to take it to median into first quarter Plenti Blanky dumped 30% on a constant currency babies.
It is out there that they lead market conditions across a we gauge which was particularly here in the month of March in most markets.
You can combine into the options threeg even inventory levels.
Commercial specialty vehicles not sales both of 2 billion in the first quarter can't get Blanky, some 15% on a constant currency gauge.
But the market slowed down in Europe into the embedded with key market for plots significantly impacted in the month book much.
Finally, altering that sales totaled seven I'm going to keep the median into first quarter Plenti blanky, some 25% on a constant currency babies.
Lower sales volumes should yield any China into first quarter.
Hey steps that customers accounted for 40, plus 44% before them that's changed.
The 7% reduction you've got the volume.
33% reduction in loan bucket volume.
Turning to slide.
By now.
With the look of the adjusted EBIT by segment and driver.
Adjusted EBIT for the first quarter other concern at the level was a loss of 48 million with a negative margin of Europe at 7%.
At the high level the majority of the that's on a quarter over quarter basis was due to negative volume and mix, which includes the negative six cost absorption.
Hi, your public cost stupid, many we're planting values Peter that shutdown as well as negative foreign exchange was partially it's totally offset by positive pricing and cost containment actions.
It would really donkey the segment specific level adjusted EBIT for was 24 meeting.
Positive price utilization, you should think cost management and favorable proceed performance.
More than offset by lower wholesale volumes marketing and product mix negative fixed cost absorption finale in Europe.
Hi, good cost you could fluctuate down and costs associated with what we saw the quality actions.
Foreign exchange impact was 93 moderately from South America.
For construction equipment adjusted EBIT loss was 83 million net pricing will impacted by retail program announcement in response to the take away the market condition.
I didn't need to good use due to inventory.
Got it cost increased due to the plant shutdown cost associated with a computer quality improving initiatives also affect that quarterly performance.
Commercial and specialty vehicles, adjusted EBIT loss of 56 million legacy beep up, but it's difficult market conditions, particularly in Europe and good luck with much.
Anything lower volumes and higher product costs due to the bloodshed, though.
As long as by unfavorable foreign exchange impacts, partially offset by positive price realization.
Lastly, quality in first quarter adjusted EBITDA of 31 million down from 96 million. It by your yet was mainly impacted by a favorable volume and mix, partially offset by double cost efficiencies.
We also like Ben and all financial services business net income was 18 million Bucks at the high and reduce costs do you want you expect the deterioration of credit conditions and the negative impact of currency translation, partially offset by lower income taxes.
In the quarter retailer originations were 2.1 billion and the managed portfolio at the end of the period was $44.7 billion.
Delinquencies were wrapping the flat to previous quarters with an increase of 10 basis points and remain work with all these starting from long for the first quarter.
Actions like 11, Alex will discuss the net free cash flow performance of our industry activities and provide an update of the balance sheet.
No I mean, that's activities, a bunch and well that 2.3 billion as an example of seasonal working capital absorption and your adverse impact of Colby 19.
Partially offset by actually when it gets company inventory, but other cash position makers.
If you going back to the growth in the first quarter was lower than in previous years, Despite get rough worsening of our end markets across regions. This was due to the anybody actions that were already planting a documentary levels.
As well down the production in many facilities that certainly not reduction of trade payables in the quarter with that resulted in negative change in networking topic of 1.3 billion compared with negative 1.1 billion interesting same period, reflecting 19.
Going to the next slide on consolidated available liquidity in debt maturities.
We ended the first quarter Fytwenty, we done available liquidity of 9.9 billion inclusive of 4 billion committed revolving credit facility. The extended right through the cases outbreak for wanting more here through March 30, 35, and these remain comfortable.
During the second highest much and available liquidity level in the group history with a solid liquidity to last 12 months Iranians nature of 37%.
During the quarter you negotiate those additional funding transactions for the total 1.1 billion equivalent would do in March for it doesn't mean young with remaining popping eight.
Additionally, just last week, we show a new 466 million in Canadian dollars, we take that yes.
And 600 million pounds in the commercial paper market to the drug Treasury and bank of England, Colby corporate financing facility.
You access to these facility demonstrate CNH Industrial's continues I spoke to preserve a sound level of liquidity, while these Peter that I'm sure thing.
Moving out of the room in the remainder Twentytwenty any twentytwenty, one we believe we'd be able to maintaining a strong liquidity position with no significant near term maturities of capital market that.
This borrowing on page 13.
For the split the maturity between industrial activities in financial services.
As you can see of the 3.9 maturity and Twentytwenty declared majority with 3.7 billion relates to financial services.
That is matched to its receivable portfolio.
We have one bond maturing in November 2020, and the rest is all bank that which we have historically been able to manage on enrollment basis.
We have started working on the values when you all of the upcoming months and at this stage, we do not exist any shoot with our banking partners.
On the bond market, we continue to have access to the capital markets, both in Europe and WASDE.
And we'll keep monitoring them opportunistically.
As a reminder, both the liquidity shown on page 12, and the maturity shown them do slide does not include the additional funding transactions completed in April and indicating that because like.
The company, we continue working to preserving liquidity and make sure good access to funding.
We're currently evaluating and implementing all possible improving actions to reduce cost and protect our financial position.
Greetings and capital structure and corporate base.
This concludes my presentation and I will now turn the line back to Suzanne and with the back for the QNX section.
Thank you Tony.
At this point I would like to share some more details with you will see emergency actions that we've put in place to keep our people safe during this period and to ensure that we are in full compliance with all the applicable national and state mandates.
First of all the manufacturer of essential products. We know that is important for us to keep our facilities, but but we also very concerned to do this in a safe and prudent way, we therefore decided to apply globally across all our facilities. The protocol mandated in March by the Italian authorities, which outlined safety procedures for returning to work.
Okay and techniques designed to prevent the spread of 'cause it 19.
In addition to ensure that we can access a good supply of personal protective equipment for our workforce without depleting the global stocks needed for healthcare workers, we've decided to stop production, a personal protective equipment and facilities in both China and Italy.
Although we had to play as many of our facilities for mid March we continued to support that customers and dealers through aftermarket network.
To protect the health of our business. We've also been working hard during this quarter as it don't they mentioned both to reduce our costs and to conserve cash.
This is included a wide range of measures, including decreasing our capex, reducing I use of consultants and agency stuff renegotiating supply contracts, putting in place a hiring freeze and accelerating work of corporate Rightsizing. We're also looking at our footprint globally for offices R&D centers in production facility.
Just to make sure that we maximize the efficiency and effectiveness or operations, while accelerating the digitalization of our processes.
As I mentioned before most of Idealists have remained open through this period and we've been working with them to help them access available government funding for them to find P for them, please and to help them support that customers.
Many of our suppliers have also of course being affected by Kevin 19 said were similarly in very close contact with them, but to understand the potential supply restrictions to each of our production plants and wherever quiet again to help them get through this difficult period.
We've also be mindful of the impact of this crisis has had on the many communities in which we operate with that will put in place more than 80 initiatives globally to help support local health care or other efforts and we donated $2 million to chargeable foundations that will work on capex related initiatives.
I will now move on to slide 16.
In the first quarter Twentytwenty organic capex was $63 million down 18% year on year and accounting for 1.3% about net sales.
Now with up Capex in new products and technology was up 9% versus last year.
R&D spend in the quarter was also down down 12% to $214 million, which is 4.3% about net sales.
In both of these areas, we've conducted detailed internal reviews involving all of our industry and functional leads to ensure that we have put prioritizing spend appropriately in this critical time.
Total spending on new products was $117 million up 6%. However, with the majority of this going towards our sustainable investments Wallace important frustrate Justin investments. During this critical period, we remained dedicated to investing in future growth initiatives that will enable us to emerge from this crisis ready to offer customers Uh huh.
Highly competitive and compelling range of products across all our end markets.
I'll turn that slide 17, which illustrates the continuing strength of our product innovation, which were determined to maintain.
During this quarter Keysight H. launched a new law and if articulated four wheel drive tractors with the new court track and style I got a F S connex see restructure.
The range will include food 14 models and total covering the Fourtwenty just sixtwenty horsepower range with several upgrades such as a completely redesigned cap that offers greater comfort and connectivity.
New Holland is also launched the work most detractors. These will be available at three horsepower ranges and have been designed to provide unmatched comfort and a low cost of ownership.
Turning to construction at Conexpo in Las Vegas during March the segment presented project disease. This back her load a prototype is fully electric with zero emissions lower operating costs and reduce maintenance.
If WRECO also won the prestigious East Design Award Twentytwenty this quarter in recognition of the design excellence, if the vacco S way heavy duty truck well F. B T was awarded diesel if the yet Fritz F 28 engine, which is stage four and tier four final compliant.
Next on slide 18, I would like highlighted a few of the inorganic growth initiatives from the past few months.
You heard in the past about our relationship with Nicola Motor Company, which continues to be in an important part of the future product innovation pipeline for passive echo and S.P.T.
In this quarter, we announced that the production to fund Nicola Trey would be in the effects of manufacturing facility in Germany.
As part of the initial stages, if the European JV with Nicola 40 million Euro will be invested to upgrades. This plant. The Nicola tray. Currently in development is based on the new if echo S way platform into which we are integrating Nicolas truck technology controls and infotainment system.
This nicolette collaboration which is underpinned by an industry disrupting business model will enable us to begin production Twentytwenty won a battery electric full by two and six by two articulated trucks.
These trucks will have modular scalable batteries, where the capacity of up to 720 kilowatt hour and then electric powertrain that will deliver up to 480 kilowatts of continuous power output.
Recent industry announcements confirmed that fuel cells are increasingly seen as the future technology of choice for alternative propulsion and heavy duty trucks.
In this quarter S.P.T. also announced the acquisition of potential technology, a company specializing in the design and development of electric and hybrid powertrain systems.
If P.T. also signed a memorandum of understanding with yen mom marine to develop and involves a marine engine capabilities.
All of these initiatives will further come out companies commitment to be the leading provider across a wide array of powertrain solutions for both internal and external customers.
In conclusion, I would like to thank.
Each and every member of I work force for the huge after which they have made to help us together without dealers customer supplies and the communities we work with to get through this crisis.
We have as a Tony has described a strong liquidity position and if demonstrates our ability to access both government funding programs and to work without banking partners to access additional capital.
We've reduced non discretionary expenses, including purchase surfaces travel and entertainment and our senior management, including the entire board of directors and almost 900 members of our board of management team have agreed to temporary reductions in that compensation.
Looking to the future, we're confident that we're well prepared to respond to the market as it evolves through Twentytwenty an inch 2021.
While we cannot of course be shows a future were determined to ensure that we're well placed to thrive and deliver profitable growth in the new normal that images.
The continuing and market uncertainties combined with possible further disruptions in our supply chain did not allow us to provide helpful guidance on the second quarter full year results. At this time. However, we will continue to communicate with the financial markets and with a little about other stakeholders as the implications of the evolving business environment for operations.
Performance become clearer.
And finally before concluding my remarks, I wanted to say something briefly about the recent management changes that see an HIV.
As you know six weeks ago I stepped in as acting CEO CNH I alongside my bolus chat.
We're trying USIO is now well underway head hunters are being appointed and the work is being led by our governance Committee, we will make disappointment as soon as we can and do not expected to be on Julie delayed by the 'cause it's crisis.
This concludes my prepared remarks, and I'll now hand back to Federico.
Thank you very much design. This concludes our prepared remarks, and we can now open up for questions all but after over to you.
Ladies and gentlemen.
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We conducted electronically.
You will need.
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Okay.
No.
We will now.
Yes.
From JPM. Please go ahead.
Hi, good morning, or good afternoon.
Hi.
[laughter]. My first question is around Q2, Oh, you ended the quarter with 151 days of inventory or 7.3 billion.
And with the comments on Q2 can you talk a little bit, but how much cash you expect to burn through in Q2 Q.
Q2 would normally be a positive working capital, Puerto with shipments up but it doesn't seem like that this year. So can you talk a little bit about you know how much cash you expect to burn versus at the inventories at quarter end and how you're going to reconcile excess inventory in an environment, where end market demand is going to remain.
And weaker for longer thank you.
So let me say something on inventory and then attorneys I passive to say something on cash.
So on inventories I think can think hopefully it was clear in the prepared remarks, you know we've actually been very deliberately trying to take action on inventory. We're conscious that that we were conscious actually coming into this quarter that that was something that we needed to do I'm on AG, we'd actually already sausage take action on inventory, which is one of the reasons why although weve ended the quarter.
Yep Company inventory, we're nowhere near as follow up as we would otherwise have being given the slowdown.
We all however, more up as you a you'll put you'll probably kind of see within up a within construction, let's say within commercial vehicles. So we had we actually have made quite a lot of progress in this quarter on inventory, but you're right you know where it's the second quarter will still be tough across all segments as I said in my prepared remarks.
Thanks.
Did you say something on cash in the second quarter.
Yeah I think.
We say when when we talk about the market expectation for the second quarter, that's going to be at the top fits for us and most probably is not going to be up cash generation quarter.
But as we've shown on our liquidity I mean, we're well prepared to withstand.
Whatever cash consumption, we may have.
And we expect the following quarter spend will be definitely better.
But based on the at least qualitative guidance you gave to US for Q2 do you have any idea of how the magnitude of the cash required or cash burn.
I will say, we'll be in the range that we had for the first quarter.
Okay. That's helpful. Thank you and then just a follow up on.
Next can you talk a little bit about a if the Rio stays where it is today I think you said in your prepared remarks, but that wasn't the biggest portion of the FX headwind is that a big incident be it very I'll stays as it is should we take kind of Q1 impact those as add to go forward.
Walter why don't we also had something coming from a into comparison with last year I would say, we will adopt their pricing in Q2 in ER in South America to respond to.
To the devaluation of the consensus.
There will be headwinds yes.
That's probably not the magnitude.
Yeah, we had we had a one off effect in this quarter to quarter on quarter. So I I didn't think it will be as large, but we would have to adjust pricing. If if we continue to get to currency weakness that.
Okay can you quantify the one off amount just so we know for modeling.
And I think the best way to look at that.
And you want to kind of given indication of that I think it's got a reasonably clear in one about charts.
I think the.
In that kind of on allocate it didn't the M FX.
You'll see on the on the adjusted EBIT walk I would've taken a range of 20 plus million.
[music].
Okay. That's very helpful. Thank you I'll get back in queue and leave it to others. Thank you. Thank you.
Thank you.
We will take now.
Yes.
Well.
Yes.
Please.
Thank you and Hello to everyone.
I wanted to asked two questions on agriculture, and obviously I understand all the different conflicting data points and signals.
The first question, though it just came to tease out how much of the two Q kind of outlook or demand that you're seeing is related to your dealers being more conservative and de stocking versus farmer pool and the reason I'm asking is when your competitors yesterday sort of noted that orders are down although up in Europe, Western Europe and that was a positive surprise I don't know if you're seeing that same kind of.
Positivity I don't know if there is a distinction between you know their dealers loading up or your farmers being more or less.
Conservative or not the second question is just do you have an estimate of your livestock exposure in the U.S. given that.
Dislocations in the protein market their crops for slot Soc. Thank you.
So in North America on they you know a rule that dealer inventory went slightly down in this quarter and that's partly because of the actions that we were taking a in support of idealists and I think what kind of relatively well positioned to North America. As you probably know were very strong when they high horsepower segment to know smell.
Okay.
And in spending four wheel drive so that's that's all very positive when I first came in we were modeling a number of different scenarios for the caveat impact we actually took the most negative and we've been working to though to that which is one of the reasons why as you will have heard INAP beds.
Fed statement, we we've taken quite a lot of actions in this quarter to make sure. The web we're well prepared for the rest of the yep.
Actually against that kind of wuest full cost a we've come slightly backup in the second quarter. So it's still going to be a tough quarter, but I think actually what I'm hearing from the segment is that things all through the dealers things are looking slightly more positive than they had thought we call 10 days ago.
But it's very very difficult to give precise numbers of where that's going to go to so many moving parts as you know.
As you probably also now we're very well with strong on the kind of <unk> upside.
Indeed, yeah, I don't know your exposure livestock in North America, I didn't expect half the pork production to be shut in two or three weeks ago. It's obviously very.
Area, but I.
I don't expect that's the biggest impact for you, but not enough for us.
Any quantification of it.
I didn't think when we would normally give quantification that that sort of level, but I can say <unk> as I say that you know kind of I think we're reasonably well positioned and in that market and some of the indications coming out for a little bit more positive than we did have a week or 10 days ago, but it's still going to be difficult quarter up so I don't want to.
See anybody on that.
Okay. Thank you.
Thank you we will now take.
Yes Stephen.
From <unk>. Please go ahead.
Thanks, Good afternoon, just really wanted to to pick up on that last comment there.
You talked about starting up some of the plants, but really curious what the extent of where you're starting to see any stabilization.
Any elements of your business operationally and from the demand side. It sounds like there's some elements of the AG like you're just saying procures more broadly any areas of stabilization.
So I think its was saying is that you know on name on the manufacturing site.
Sweep as we announced yesterday, we've been making significant amounts of progress with the kind of huge thinks of the team which has been.
Putting in a massive <unk> work as you can imagine to get the plants up and running an up and running in a safe way. So that everybody feel secure kind of coming to work. A you know we now have over 70% of our plants open globally.
Dave or eight cents about Paul typing in the you I think we're aiming to get pretty much all oh by one or two open on the AG side in North America by next week, we all prioritizing as I think I sit in the prepared remarks, we're prioritizing AG, partly because it's such a critical industry, partly because the end market that.
Is stronger and as I was indicating how to even think slightly stronger than we had been predicting a week or 10 days ago, because we've been conservatively working to a relatively pessimistic a set of Sonorities, which I think is a wise thing to do.
Given that the kind of nature of the crisis that we're working our way through I think in other markets.
Again, you know the kind of indications on the X. I just said it is beginning to spreads a little bit certainly above our worst case scenario and as I indicated in my prepared remarks, we are expecting to see it can start to recover in the second half of the yield that's very very difficult to give a predictions and as you understand.
One of the variables that we need to manage through is what happens with our supply chain, which we're working very very closely with I'm talking very regularly twice applies so that we can make sure that if were bringing our plants back up with bringing them back up with adequate supplies coming in.
So I think actually you know a rule I would say, we're seeing a fair amount of stabilization, but we are working very very uncertain times.
Fair enough and then did I hear you say in your prepared remarks that.
The spinoff as part of the transformation to win could be extended beyond 2021.
And I guess, even if not even if it's still somewhere around the middle of of 2021 as you were saying a few weeks ago, what would be the process for determining that timing and what would be the hurdles that would need to be overcome.
Yes, Youre correct in my prepared statement, what I said was that we've re committed to the spin.
Which we absolutely have I think all of the rationale, but we had a that capital markets day for why it makes sense to do the spin still hope none of that none of that has changed however, I'm sure. You'll appreciate you know given what's happened in the markets and all the city the impact on that business, we want to make sure that we do that at a point, where we can spin to strong.
Companies, you know, we won't be like X other company to be investment grade was lumpy. This one side of the company also to be very strong. So frankly, it depends on the performance of the businesses and the state of the markets I deliberately said in the prepared statements that it would be next year or beyond we'll obviously interested in doing it as as soon as make sense in them all.
Okay, but we don't want to do it at a point, where we're not going to be able to spin to the strong companies.
Got it thanks very much thank you.
Thank you and our next question comes from the line of my email them at all from Equita. Please go ahead.
Yes. Thank you. Good morning, good afternoon, everybody with his question is on the prices because in the question of these Ah you report, but I suppose I showed on both new and used vehicles.
Could be among the beliefs.
So what do you expect a in such a difficult been bottom and turn to.
I'm going to coach level.
I'm sorry.
The keep meant that the risk.
The first time after many years.
So all but positive price et cetera.
So as I think hopefully we'll be on the probably.
This was on should probably read that comment more on the construction and then they talk side of the business.
And more in Europe for the top titles that business.
The port Neal on yields equipment.
We have we have been launching as you know our goal heavy truck, yes way and we have been positive in pricing there and with will give you my Michael said as well so I mean, our own performance is positive, but we need to see how the market would react with this crossing the box HM.
Okay, why the agricultural is able to achieve positive price itself.
Right.
That's right and I think you'll see that you know in name in the document if you. If you look on the document for the EBIT walk you'll see that Weve.
Ah being able to maintain pricing in agriculture, and commercial and specialty vehicles in construction, we've had weaker pricing as we've helped that deal is de stocking.
Okay and the second question is on the cost cutting initiatives.
Maybe I'm wrong, but you didn't quantify a this some of your.
Actions.
Low end, but the plan or had a 600 million.
Savings.
What should we expect a in terms of Boucher in Costco connections.
Due to the crisis.
This year.
So the the work that we've been doing so first of all as I said in my prepared remarks, we all continuing with the transform to win program I'm, we've been prioritizing the performance and fly elements of that which obviously have a lot of cost reduction initiatives within those but we've actually doubled down on that effort in this quarter.
As I described a looking really at all of the elements of cost out of the business and challenging them and using this as an opportunity to make sure that we recently minimize the cost going after the a after the business.
We're targeting reduced cost based on that what we've done this quarter, we're looking at reducing cost out by about $1 billion up but we are prepared to go further if required one of the things that we've been doing very active life as you might imagine and others are doing is were modeling multiple different versions of how the year could evolve and we.
Perhaps can further actions that will take if we need to.
Hopefully that that would be required and we all prioritizing as I also kind of mentioned during my prepared remarks about things like a investment into new products, which we believe it very very important if we're going to emerge from this crisis strongly.
Okay. Thank you. Thank you.
Thank you and the next question comes from the line Ross.
From Bank of America. Please go ahead.
Hi, good morning, good afternoon, everybody.
Good afternoon.
Yeah. Yeah, obviously, you guys are delaying the very candid on that.
Sure.
You know is going.
I have to make some.
Pretty difficult decisions in the next several years in the and I wanted to.
Ask you specifically.
About construction and the heavy duty truck business.
And whether or not any thoughts being given good just simply exiting the businesses I mean these losses in the first quarter are pretty steep.
And are gonna get worse in the second quarter.
The multiyear outlook seems very challenging weather Colgate goes away in the next couple of months month, or two or not and aside from the interesting relationship you have with.
With Niccolo why not just exit these businesses rather than devoting significant time in financial resources to turn them around when the company has been trying to do that for years and really what are the barriers to exit in those markets rather than focusing on.
Turning everything around and splitting the company up.
So I think I think the answer to that is a little bit different in the two segments actually I think in construction you correctly identify and I am very conscious of it as it is my leadership team that the the performance in construction has not been adequate as you know we have changed over the lead shipping construction.
Oh and as you can imagine we now have a very syrup, a precious going on to look at that business pretty much from that kind of ground up to work out where we're positioned and what we want to do without business in the future.
And we would hesitate to make decisions to kind of thing that business back to profitable growth and that will be one of my priorities and they in the kind of current coming weeks and months up because we need to take action on that business I'm, we very much time and to do so.
I think the situation on the on commercial vehicles is a little bit different as I mentioned in my remarks first of all we have the relationship as you said with a with Nicolette, which is very much based on the S way and actually since the launch of the V S way, which is.
I was very successful launch we have gained market share a across all of the European markets on the heavy side. So I think we actually feel very positively about that that youre right that we all coming from a difficult position.
On the heavy but I think we see it kind of clear path forward on that and we remain excited about the joint venture that we have with nickel it which is based on the sway frame as well.
Well I.
I was asking specifically about heavy not the whole commercial vehicle segment, because I know you have a very interesting position to on the light and medium duty side, but given.
Is there a timeframe you have in mind.
Got to make a decision or what is one of these businesses or not.
It seems like the easiest way back to profitability.
Some of these positions that never make money.
Well as I, just said I think all construction you know I'm very conscious that we do need to have a somewhat looked at that business and no delay making decisions.
I think on commercial vehicles, it's a very different situation, where we are gaining market share and I think were very very pleased with the launch of the S way and how that's been welcomed by the market.
Which is on the heavy side.
And of course, as I said that kinda plays into our joint venture with Nicolette, because it's the best way, which will be the frame for the Nicholas joint venture, which will take isn't cheap electric and.
And into the whole fuel cell space as well. So I think we feel quite differently about the too, but we will keep all of our you know situations under other if you put up but the construction.
Construction equipment segment under its new leadership is very actively reviewing the business I'm looking at how to take it back to profitable growth.
Got it thank you and I realize it's the company's got a lot on it plays I just wanted to get your general no no absolutely.
Thank you very much thank you.
Thank you and the next question comes from the lot. They line up David Raso from Evercore. Please go ahead.
Hi, Thank you for the time.
Just to clarify on the spin decision, we used to speak to both businesses being investment grade ideally to be spawn.
That's still a prerequisite for the spin to take place.
I mean, yes. So I think it is one of the key considerations for us as we look at the I was as we look at circumstances for the spend you know what we what we didn't want to do as I said before is to be in a situation, where we spin companies, which are not going to be strongest.
They as they go into the market. So one of things that we will be looking at a and will be kind of actively thinking about is the investment grades at both companies get.
Okay that is onto the reasons why web reconsidering that you know why we have said that we won't be too like the timetable for it.
Okay. So it's not a set in stone parameter for the spend but that's obviously consideration it certainly is yes.
And did I hear correctly, the second quarter.
The cash flow comment.
He said similar to one Q.
Industrial company in the first quarter had negative operating cash flow.
Of over 1 billion 3 billion for.
And while I appreciate it's not going to be a profitable quarter.
You would think the working capital to do a little better selling out of inventory.
For whatever retail activity wholesale activity you have.
Did I hear correctly that you expect the operating cash flow to.
To be as negative in Twoq was once you see it seems clarify.
Yes, what else.
We saved in the range Inc. was saying that we have vertical shows all our.
Inc.
Or on just the margins were looking out.
A lot will also depend on how much production will.
In in the second quarter as she was on same here starting up now.
Or a solution. He was last week, so I don't will depend on the how much we will also come late.
So.
So that's on the whole samples.
Looking at sort of dovetails into my question about.
You had mentioned and I think you said.
You expect to recovery in the AG in the second half I think there were some tempering of a comment that leads the way I interpreted.
You expect some improvement in the back half an AG.
And I think the magnitude of working capital later this quarter to get ready for the second half.
It is an interesting.
Question do you expect enough a recovery in the second half.
You won't be selling.
Materially out of inventory for little while I'm, just trying to cooperate is it the cash flows negative in the second quarter that much in part as you expect to be ramping into the third quarter that strong one of which I guess is a positive demand statement from surprised you're taking that stronger view.
Or or is there just the cash flows that challenge in the second quarter, because I'm not reading it properly that you should be selling out of inventory a little bit more than.
Producing in Twoq, So I'm, just trying to square up the outlook for the second half an hour again.
How do I interpret the second.
And on relation to.
I think we're talking about implied company numbers not sub segments.
So you should take.
Altogether and.
Once you get the number but we have.
Highlighted as possible scenarios for the Q2.
Then probably you can vicals silent.
A negative possible number.
And occupancy negative just that magnitude and the related I apologize last question the book to Bill or how should we think about where AG stands.
Going into the quarter or even if you have kind of through the end of April just so we have some sense of the factories can open up or what's kind of order books, you really haven't place.
Thus, we can apply what kind of incremental orders you need to justify the level of ramp so any sense of book to bill on orders or however, you want to describe it for agriculture. Thank you that's it from it.
Sure David you want me to kind of pick this one I mean I just give you a sense of how how we see the year kind of playing out and obviously, we didn't have a cristobal POI than what we're trying what we're doing is we are.
As I mentioned before we're kind of playing with that a number of different scenarios that were being kind of cautious of making sure that we have a full liquidity and they full set of actions that we can take a depending on how it plays out but.
The way in which is looking at the moment is that we have a small build up of combined company inventory in the first quarter as we ramp up our production coming into the second quarter will mainly be a building to kind of retail neat and we think that we have a kind of a reasonable order book. So that's good to be.
That should be relatively.
Relatively clear I didn't think will be building up inventory in the second quarter up and if I didn't think will be building up inventory through most of the rest of the year I think we'll be kind of building too to kind of customer need.
And as I said in the prepared remarks, I think we see in the second quarter, we do see a degree of recovery in on the Xsight less so on the commercial vehicle side and on construction vehicles.
It's one of the reasons why we've been prioritizing bringing up the problems when the anchor side first also because its critical industry.
So at positive, but not the push but any quantification of the older booked at all just some order of magnitude where it stands year over year. This will give us some baseline of what's already on the books that when the factory start off you already have some set backlogs service.
I think we'd be very cautious kind of giving that sort of data at this point to almost nine right how to interpret that data as well because it's impacted by multiple things as you can imagine.
You end up with up.
Given that given the kind of downtime that we've gone through.
I appreciate that alright, thank you for the time.
Thank you.
Thank you.
Now we will take I one last question from team today.
<unk>.
Please go ahead.
Please go ahead.
Can you take keep your line is on mute places stasik.
Tim Please go ahead.
And that I have no further questions at the moment. So please go ahead.
That does conclude the question and answer session I will now.
Box Nicole over to visit equal to not be any additional closing remarks.
Thank you when she lives will like to thanks, everybody to participate today call. Thank you and that a good afternoon bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen, ma'am you may now disconnect.
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