Q3 2023 CNH Industrial NV Earnings Call

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Speaker 2: Hello and welcome to the CNH industrial third quarter conference call. Please note this conference is being recorded and for duration of the call your lines will be only listened only. However, you will have your opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your questions.

Industrial third quarter Conference call. Please note. This conference is being recorded and the duration of the call. Your lines would be only son, only however, you will have the opportunity to ask questions I just can't be done by pressing star one on your telephone keypad to register your question shall require assistance at any point.

Speaker 2: require a system at any point, please stress star zero and you'll be connected to an operator. How in that hand you...

Please press star zero, and you'll be connected to an operator.

I will now hand, you over to your host Jason or meso.

Speaker 2: Jason O'Mezzar, Vice President of Investors Relations, to begin today's conference.

Ice president of Investor Relations to begin today's conference.

Thank you Francois and good morning, and good afternoon to everyone. We would like to welcome you to the webcast and conference call for C. N H Industrial's third quarter results for the period ending September 30th 20 twenty-three.

Speaker 3: Thank you, Francois. Good morning and good afternoon to everyone. We would like to welcome you to the webcast and conference call for C&H industrials third quarter results for the period ending September 30th, 2023. This call is being broadcast live on our website and is copyrighted by C&H Industrial. Any other use, recording or transmission of any portion of this broadcast without the expressed written consent of C&H Industrial is strictly prohibited.

This call is being broadcast live on our website and is copyrighted by C N H industrial.

Any other use recording or transmission of any portion of this broadcast without the express written consent of <unk> industrial is strictly prohibited.

Speaker 3: Hosting today's caller, C&H's CEO , Scott Wine and CFO , Adonian Chesa. They will use the material available for download from the C&H website.

Hosting today's call are <unk>, CEO, Scott wine and CFO Oddone N cheese are they will use the material available for download from the C. N H website.

Speaker 3: Please note that any forward-looking statements that we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material.

Please note that any forward looking statements that we might make during today's call are subject to the risks and uncertainties mentioned in the safe Harbor statement included in the presentation material.

Speaker 3: Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and the equivalent reports and filings with authorities in the Netherlands and Italy.

Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K, as well as other periodic reports and filings with the U S Securities and Exchange Commission and the equivalent reports and filings with authorities in the Netherlands and Italy.

Speaker 3: The company presentation includes certain non- GAAP financial measures. Additional information including reconcilations to the most direct, early comparable US GAAP financial measures is included in the presentation material. I will now turn the call over to Scott.

The company presentation includes certain non-GAAP financial measures additional information, including reconciliations to the most directly comparable U S. GAAP financial measures is included in the presentation material.

I will now turn the call over to Scott.

Speaker 4: Thank you, Jason, and thanks everyone for joining our call.

Thank you Jason.

And thanks, everyone for joining our call.

Our third quarter results were disappointing.

Speaker 4: Our third quarter results were disappointing, but they also reflect the earnings power of C&H as we dealt with the challenging market environment in South America.

But they also reflect the earnings power of C. H as we dealt with the challenging market environment in South America.

Speaker 4: The sustained strength of our North American row crop and construction equipment demand continues to be helpful offset to slowing demand in Brazil and continental Europe .

The sustained strength of our north American row crop and construction equipment demand continues to be helpful offset to slowing demand in Brazil and Continental Europe.

Better efficiency with operational improvements supply chain normalization and productivity gains from our many C N H.

Speaker 4: Better efficiency with operational improvements, supply chain normalization and productivity gains from our mini-CNH.

Speaker 4: Business System Initiatives help drive record third quarter EBIT margins in both agriculture and construction.

Business system initiatives helped drive record third quarter EBIT margins in both agriculture and construction.

Speaker 4: Our tech evolution is accelerating the development of innovative customer driven solutions.

Our tech evolution is accelerating the development of innovative.

Customer driven solutions with key acquisitions strategic investments and a deep and talented team. We are largely in possession of the in house capabilities to build out our tech stack and fulfill customer's precision needs.

Speaker 4: key acquisitions, strategic investments, and a deep and talented team. We are largely in possession of the in-house capabilities to build out our tech stack and fulfill customers' precision needs.

Speaker 4: I am pleased to welcome the employees of Hemisphere who joined the San H family in a really October .

I am pleased to welcome the employees of Hemisphere, who joined the C and H family in early October.

Speaker 4: We are redoubling our efforts on cost savings and working capital efficiency.

We are redoubling, our efforts on cost savings and working capital efficiency.

Speaker 4: We're currently with the spin-off of VECO in 2022. We streamlined our corporate structure and eliminated about 20% of the managerial position.

Concurrent with the spin off of that go in 2022 we streamlined our corporate structure and eliminated about 20% of the managerial positions.

Speaker 4: After almost two years of operating as an ag and construction pure play, we understand how to further optimize and support of our customers and dealers.

After almost two years of operating as an AG and construction pure play.

We understand how to further optimize in support of our customers and dealers.

Speaker 4: Today, we are initiating an immediate restructuring program to achieve a 5% reduction in sourd workforce cost to be substantially completed by your end.

Today, we are initiating an immediate restructuring program to achieve a 5% reduction in salaried workforce cost to be substantially completed by year end. This.

Speaker 4: This will be coupled with a comprehensive right sizing of the company's cost structure to be implemented early next year.

This will be coupled with a comprehensive right sizing of the company's cost structure to be implemented early next year.

Speaker 4: We expect these two initiatives to deliver a run rate reduction of 10 to 15% of total labor and non-labor SGNAX.

We expect these two initiatives to deliver a run rate reduction of 10% to 15% of total labor and non labor SG&A expenses.

Additionally, we've announced today that we have formally applied to delist from the warrant exchange, which you don't I will discuss in more detail.

Speaker 4: Additionally, we've announced today that we have formally applied to D-list from the LONX change, which you don't, they will discuss in more D.

Speaker 4: Company revenues for the third quarter were up 2% to $6 billion, driven by higher volumes in construction and higher interest revenues in financial services, offsetting lower agriculture sales.

Company revenues for the third quarter were up 2% to $6 billion driven by higher volumes in construction and higher interest revenues in financial services offsetting lower agriculture sales.

Speaker 4: Positive price realization contributed to the 3% of the top line in both industrial sector.

Positive price realization contributed to the 3% to the top line in both industrial segments.

Speaker 4: Industrial net sales were down 1% as lower ag shipments offset 6% sales growth and construction.

Industrial net sales were down 1% as lower AG shipments offset 6% sales growth in construction.

Speaker 4: Adjusted even margin, including corporate cost, was 12.3 percent. Essentially flat compared to last year.

Adjusted EBIT margin, including corporate cost was $12, 3% essentially flat compared to last year.

Speaker 4: That income came in at 570 million and EPS was up 1 cent to 42.

Net income came in at 570 million and EPS was up one cent to 42 cents.

South American markets, primarily Brazil were weaker than expected in the quarter with industry wide retail deliveries down 16% year over year and tractors.

Speaker 4: South American markets primarily Brazil were weaker than expected in the quarter. With industry wide retail deliveries down 16% year-to-year, in tractors.

Speaker 4: 46% in combines and 27% in construction.

46% in combines and 27% in construction equipment.

Speaker 4: I was with our team in Brazil last month, speaking with dealers and farmers who are reluctant to engage with a steep year-over-year decline in soft commodity.

I was with our team in Brazil last month.

Speaking with dealers and farmers, who are reluctant to engage with the steep year over year declines in soft commodity prices.

Speaker 4: We're working closely with our dealers to maximize their retail sales, while also responding prudently with production and wholesale shipping.

We're working closely with our dealers to maximize their retail sales. While also while also responding prudently with production and wholesale shipment cuts.

Speaker 4: Very purposely, we did not sequentially increase dealer inventories in Brazil.

Very purposely we did not sequentially increased dealer inventories in Brazil.

Speaker 4: It's worth noting that we are also copying record harvest and results in the region last.

Worth noting that we are also comping record harvest in results in the region last year.

Speaker 4: We remain bullish on the long-term growth prospects for South American market, which is an increasingly important part of the global ag economy and our strong strongest market position.

We remain bullish on the long term growth prospects for South American market, which is increasingly important part of the global Agri caught me and our storm its strongest market position.

Speaker 4: We are pleased with the even margin expansion for both of our industrial segments, and we'll show later in our presentation how this is indicative of improved through the cycle of margin and performance.

We are pleased with the EBIT margin expansion for both of our industrial segments and will show later in our presentation. How this is indicative of a crew have improved through the cycle margin performance.

Derrick Nelson and his team are executing well and remain focused on driving benefits for our dealers and customers through an expanding product lineup innovative technology solutions, improving product quality and productivity gains they are expanding margins and maintaining our market share.

Speaker 4: Derek Mielsen and his team are executing well and remain focused on driving benefits for our dealers and customers.

Speaker 4: Through an expanding product lineup, innovative technology solutions, improving product quality and productivity gains, they are expanding margins and maintaining our market.

Speaker 4: I look forward to being in hand over next week with our team as we showcase our KSAH, New Holland and Steyr brands at AgriTech.

I look forward to being in Hanover next week with our team as we showcase our case age new Holland and Stier brands at Agra Technica.

Speaker 4: Collectively, we have won five innovation awards for the show, including the show's only gold medal for New Holland's twin-rotor combine harvester cost.

Collectively we have won five innovation awards for the show, including the shows only gold medal for New Holland twin rotor combine harvester concept.

Speaker 4: Our construction segment had a record breaking quarter driven by new product launches and solid retail sales growth in North America.

Our construction segment had a record breaking quarter, driven by new product launches and solid retail sales growth in North America.

Speaker 4: Revenue was up 6% year-to-year with notable expansion of gross profits.

Revenue was up 6% year over year with notable expansion of gross profit margins.

Speaker 4: North American demand for our equipment has been strong on the back of public infrastructure spending and Stefano, Pompelone and his team are doing an impressive job moving the business forward and delivering significant value to CUS.

North American demand for our equipment has been strong on the back of public infrastructure spending.

And Stefano Pablo and his team are doing an impressive job moving the business forward and delivering significant value to customers.

Speaker 4: dealer inventories have been normalizing for most products in most markets as supply availability recovered

Dealer inventories have been normalizing for most products in most markets and supply availability recoveries.

Speaker 4: We are judiciously balancing wholesale shipments with retail improvement to improve inventory levels by year-end.

We are judiciously balancing wholesale shipments with retail improvement to.

To improve inventory levels by year end.

Speaker 4: A company strategy remains centered with five key pillars, customer-inspired innovation, technology leadership, brand and dealer strength, operational excellence, and sustained stewardship. Today, we will...

Our company strategy remains centered with five key pillars customer inspired innovation technology leadership brand and dealer strength operational excellence and sustained stewardship.

Today, we will focus on advances in technology leadership.

Speaker 4: Over the past quarter, we bolstered our precision technology offerings with three key product innovation.

Over the past quarter, we bolstered our precision technology offerings with three key product innovations.

Speaker 4: All these solutions automate guidance and steering, enhance operator efficiency, and are first available as aftermarket solutions.

All these solutions automate guidance and steering enhance operator efficiency and our first available as aftermarket solutions.

Speaker 4: We commercially launched our Raven AutoCard solution with hands-on demo at FarmPra Gas in August .

We commercially launched our Raven auto card solution with hands on demo at farm progress in August.

Speaker 4: Early orders indicate strong demand for this solution that automatically thinks a grain card to a combine. They're by eliminating operator strain, decreasing spillage, and enabling operational, by less still would work.

Early orders indicate strong demand for this solution that automatically syncs, a grain car to combine thereby eliminating operator strain decreasing spillage and at ABB, enabling operational by less skilled workers by optimizing the harvest process Raven card automation maximizes yield and farmer profits.

Speaker 4: By optimizing the harvest process, raven card automation maximizes yield and farmer process.

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Speaker 4: Raven DirectSteer provides precision automated electric steering, which is backwards compatible across a wide range of brands, including other OEMs equipped.

Raven direct steer provides precision automated electric steering, which is backwards compatible across a wide range of brands, including other Oems equipment.

Speaker 4: Direct steer outperforms other similar steering mechanisms, and for KSAH and New Holland tractors, replaces third-party technology with the superior in-house solution.

Direct steer outperforms other similar steering mechanisms and for case, IH and new Holland tractors replaces third party technology with the superior in house solution.

We Additionally, previewed guidance and positioning kits that enable customers to replicate the factory fit displays and features from newer C and H machines on their existing fleet.

Speaker 4: We additionally previewed guidance and positioning kits that enable customers to replicate the factory fit displays and features from newer C&H machines on their existing fleet.

Speaker 4: These internally developed automated driving advancements boost customers' productivity and profitability. We are reducing our reliance on third party solutions and optimizing our products to meet customer needs.

These internally developed automated driving advancement boost customers' productivity and profitability, we are reducing our reliance on third party solutions and optimizing our products to meet customer needs.

Speaker 4: The innovative technology we're developing launching reinforces my confidence in our strategy to transition to in-house solutions.

The innovative technology, we are developing and launching reinforces my confidence in our strategy to transition to in house solutions.

We started this effort nearly four years ago accelerated it with the Raven acquisition and have been aggressively pursuing the strategy ever since.

Speaker 4: started this effort nearly four years ago, accelerated it with the Raven acquisition and have been aggressively pursuing the strategy ever.

Speaker 4: Recent developments in our industry will not change the course we set out years ago. In fact, we think they validate our direction.

Recent developments in our industry will not change the course, we set out years ago. In fact, we think they validate our direction.

Yeah.

You can see from the graph that our tech stack hit an inflection point in 2023 with the integration of Raven and the contribution of some of our recent acquisitions.

Speaker 4: You can see from the graph that our tech stack hit in an inflection point in 2023 with the integration of Raven and the contribution of some of our recent acquisitions.

Speaker 4: This activity allowed us to bypass years of organic development in key areas, such as autonomy, vision, and guidance, which we further expedited by rapidly scaling our own tech down.

This activity allowed us to bypass years of organic development in key areas, such as autonomy vision and guidance, which we further expedited by rapidly scaling our own tech talent.

Speaker 4: This steep increase in this ownership curve is no accident, and it is the manifestation of our strategy to take control of our tech off.

This steep increase in this ownership curve is no accident and it is the manifestation of our strategy to take control of our tech offerings.

Speaker 4: Earlier this year we announced the acquisition of Hemisphere and are excited to have finally closed the purchase in October . This is another highly

Earlier this year, we announced the acquisition of Hemisphere and are excited to have finally closed the purchase in October. This is another highly strategic acquisition for us.

Speaker 4: Not only does hemisphere have the most accurate position in heading technology in the business, but they also design and manufacture their complete positioning engine all the way down to the chip.

Not only this hemisphere have the most accurate position and heading technology in the business, but they also design and manufacture their complete positioning engine all the way down to the chipset.

Speaker 4: This acquisition allows C&H to create a seamless system to deliver optimal customer performance and experience.

This acquisition allows C H to create a seamless system to deliver optimal customer performance and experience with hemisphere, we own the foundation for positioning in guidance that powers, all aspects of automation and autonomy.

Speaker 4: With Hemisphere, we own the foundation for positioning and guidance that powers all aspects of automation and autonics.

Speaker 4: Vertical integration facilitates faster development times and gives us full control over feature performance and cost.

Vertical integration facilitates faster development times and gives us full control over feature performance and cost.

Hemisphere adds to our comprehensive portfolio of high Tech companies that are expediting the advancement of full autonomy throughout our product offerings in conjunction with Ravens expertise in autonomous technology and augment those unique Cincinnati solutions hemispheres capabilities significantly advance our ability to improve customer productivity.

Speaker 4: Hemisphere adds to our comprehensive portfolio of high-tech companies that are expediting the advancement of full autonomy throughout our product.

Speaker 4: In conjunction with Ravens expertise and autonomous technology and augmentes unique sense and act solutions, hemispheres capability significantly advance our ability to improve customer S Illustrator Windows print your file.

Speaker 4: We'll now turn the call over to Adonate who takes through the financial results. Thank you, Scott. And good morning. Good afternoon to everyone on the call.

I will now turn the call over to donate to take us through the financial results. Thank you Scott and good morning, good afternoon to everyone on the call.

Speaker 5: So, third quarter net sales of industrial activities of $5.3 billion were down about 3% of the cost of currency year-over-year.

So of course third quarter net sales of industrial activities of $5 $3 billion were down about 3% at constant currency year over year.

This was mainly due to lower industry demand in the agricultural segment, especially in South America, partially compensated by carryover price realizations in both segments.

Speaker 5: This was mainly due to lower industry demand, Indagricultural segment, especially in South America, partially compensated by carry-over price revolutions in both sides.

As demand slowed we produce around 20% fewer low horsepower tractors in Q3, 2023 globally compared to a year ago.

Speaker 5: As demands load, we produce around 20% fewer low horsepower tractors in Q3, 2023 globally compared to a year ago. While on our high-speed power tractors production was up 13%, and on combines was up 8%. We've only stopped the American plants down double digits for the three categories.

I don't know high horsepower tractors production was up 13% and combines was up 8% with only South America plants down double digits for the three categories.

Speaker 5: The structural machine production schedules were up 20% globally, except for South America, where we reduce assemblies in view of the low end demand.

Construction machine for the actual schedules were up 20% globally, except for South America, where we reduced assemblies in view of the slowing demand.

Lloyd margin in both segments were up year over year industrial EBIT margin for <unk> was slightly down in the quarter.

Speaker 5: Void margin in both segments were up year over year. Industrial EBIT margin for C&H was lightly down in the quarter. Our allocated costs were higher in 2023 due to inflationary impacts on support expenses and non-recurring favorable items in 2020.

Unallocated costs were higher in 2023 due to inflationary impacts all support expenses and non recurring favorable items in 2022.

Speaker 5: Addressing an income for the quarter was $570 million with a trusted deluded earnings per share of 42 cents at one cent versus less.

Adjusted net income for the quarter was $570 million with adjusted diluted earnings per share of <unk> 42 sets up <unk> versus last year.

Speaker 5: Prickish flow from industrial activities was announced or $127 million consistent with the seasonality of working capital in the third quarter. The September year to year.

Free cash flow from industrial activities was an outflow of $127 million consistent with the seasonality of working capital in the third quarter.

September year to year year to date figure.

Speaker 5: $414 million outflow is $39 million better than the $453 million outflow from the first nine months of 2022.

$440 million outflow is $39 billion better under $453 million outflow from the first nine months of 2022.

Yeah.

Speaker 5: Agricultural net sales were done 4% in constant currency discordr, driven in large part by two backs in demands in South America.

Agricultural net sales were down 4% in constant currency this quarter driven in large part by pullbacks in demands in South America.

We have reacted with lower production and lower deliveries towards dealers gross margin was 25, 6%, a 60 basis point improvement compared to last year.

Speaker 5: We have reacted with lower production and lower delivery store dealers. Gross margin was 25.6% a 60-base point improvement compared to last year. Price realization continues to more than compensate for the long tail of inflation in our material costs.

Price realization continues to more than compensate for the long tail of inflation in our material cost.

SG&A coastal was also slightly lower in Q3 of last year and sequentially lower than in the second quarter of this year.

Speaker 5: As DNA cost was also slightly lower in Q3 than last year and sequentially lower than in the second quarter of this.

Speaker 5: In the end, agricultural address is a bit increased by $6 million to $672 million with higher heavy income in Turkey. Here included in effects and other categories of setting higher added individual living

Indiana, Agriculture, adjusted EBIT increased by $6 million to $672 million with higher JV income in Turkey.

Here included in FX and other categories offsetting higher R&D investments.

Speaker 5: Well you know, despite the lower sales level, the higher girls margin got it to the bottom line with a maybe margin of 50 basis points higher than last year's record Q3 EBIT margin.

Well you know despite the lower sales level the higher gross margin got it to the bottom line with an EBIT margin of 50 basis points higher than last year's record Q3 EBIT margin.

Speaker 5: Journey to construction, net sales were up 4% accolade and currency driven by the mandate in North America mainly for heavy equipment.

Turning to construction net sales were up 4% at constant currency driven by demand in North America, mainly for heavy equipment.

Speaker 5: The man was weaker in Europe and South America, a bit mounting economic uncertainty.

Demand was weaker in Europe, and South America have been mounting economic uncertainties.

Speaker 5: Ross margin improved to about 60% over 300 basis points higher year over year. In the quarter, we started shipping new model studio for the US market and therefore we have increased their invent.

Gross margin improved to about 60% over 300 basis points higher year over year in the quarter. We started shipping new modern studio for the U S market and therefore, we have increased getting factories costar.

Speaker 5: Construction even margin came in at 6.3% with a year of a year improvement largely driven by favorable pricing with somehow from the original.

Construction EBIT margin came in at six 3% with a year over year improvement largely driven by favorable pricing with some help from lower SG&A.

For our financial services business net income was flat year over year at $86 million.

Speaker 5: For our financial services business, net income was flat every year at $86 million.

Speaker 5: Credit portfolios grew in all regions generating higher interest revenues, partially offset by higher risk-cost margin compression because of the steep increase in interest rates in the last few quarters.

Credit portfolios grew in all regions generating higher interest revenues, partially offset by higher risk cost of margin compression because of the steep increase in interest rates in the last few quarters.

Yeah.

Speaker 5: Ritado originations were $3 billion, up about $600 million compared to 2022. As most customers are using the captive company to finance their equipment investments, which highlights the strategic importance of running a healthy and nimble financial service operation.

Retained originations were $3 billion up about $600 million compared to 2022 as most customers are using the captive company to find out they will keep investments, which highlights the strategic importance of running a healthy and nimble financial services operation.

Speaker 5: The managed portfolio for the third quarter was nearly $27 million at $5.6 billion compared to the priori.

The managed portfolio for the third quarter was nearly $27 million up $5 $6 billion capacity compared to the prior year.

Speaker 5: The linkages on book, which saw a seasonal spike last quarter, were down sequentially to 1.6%. While still higher year over year, use low level of the linkages reflects the strong nature of agriculture equipment for dance.

Delinquencies on book, which saw a seasonal spike last quarter were down sequentially to one 6%, while still higher year over year as low level of delinquencies reflects the strong nature of agriculture equipment financing.

As announced earlier today, we have filed our application with Borsa Italiana till the leap C and H industrial shares for my relax Milan.

Speaker 5: This announcement is earlier today. We have filed our application with Borsi, Taliana, to believe C and H industrial shares from a very next Milan.

Speaker 5: We have just been notified that the application has been expected and so we can confirm now that as of January 2nd, 2024, our shares will be listed only on the New York Stock Exchange.

Have just been notified that the application has been accepted and so we can confirm now.

As of January <unk> 2024 shares were believed to only on the New York stock exchange.

Speaker 5: We have obtained a single listing within time frame. We have consistently communicated without needing a corporate organization. And we did it in a smooth.

We have obtained a single leasing within the timeframe, we have consistently communicated without needing a corporate reorganization and.

And we did it and that's a bit long process.

The single they stink represents a significant milestone for our business.

Speaker 5: single-listing represents a significant milestones for our business.

Is it will increase liquidity for our stock and streamline financial reporting.

Speaker 5: as it will increase liquidity for our stock and streamline financial reporting.

Speaker 5: C&H was added to the Russell 1000 in June and to the S&P Total Market Index in September . And we look forward to further share all the participation by a new class of investors.

<unk> was added to the Russell 1000 in June until the S&P total market indices in September and we look forward to further shareholder participation by a new class of investors.

Speaker 5: We also think that our global nature will continue to be attractive to shareholders around the globe.

We also think that our global nature will continue to be attractive to shareholders around the globe.

In conjunction with the lifting announcement, we also announced today that the board of directors has approved a new share buyback program of up to $1 billion of which approximately 400 million euros will be deployed to Milan before the leasing there.

Speaker 5: In conjunction with the delisting announcement, we also announced that today that the Board of Directors has approved a new share-by-back program of up to $1 billion, of which approximately 400 million euros will be deployed in Milan before the delisting. The remaining amount will be purchased in New York. This concludes my part.

The remaining amount would be purchase in New York.

This concludes my part and I'll turn it back to Scott.

Thank you Donna.

Speaker 4: For our 2023 industry outlook, we have lowered our estimates for South America in all businesses and product categories, given the weakened demand there.

For our 2023 industry outlook, we have lowered our estimates for South America in all businesses and product categories, given the weakened demand there.

Speaker 4: The pronounced decline in combines is especially unhelpful given our market leading presence. We also expect slightly lower demand.

The pronounced decline in combines is especially unhelpful given our market leading presence.

We also expect slightly lower demand in Asia Pacific.

Speaker 4: We have further lowered expectations for small tractors in North America, while increasing them for large tractors, as demand for cash crop equipment remains strong.

We have further lowered expectations for small tractors in North America, while increasing them for large tractors as demand for cash crop equipment remained strong.

Speaker 4: We also project slightly better demand for heavy construction equipment in North America and for light construction equipment in the MEA.

We also project slightly better demand for heavy equipment.

Heavy construction equipment in North America and for light construction equipment in EMEA.

Last quarter I said, our full year net sales would be contingent upon retail demand is.

Speaker 4: Last quarter, I set our full year net sales would be contingent upon retail demand, as we are moderating production and wholesale according.

We are moderating production in wholesales accordingly.

Speaker 4: South American market weaker than we for Saul. We are updating our financial guide.

With the South American market weaker than we first of all we are updating our financial guidance.

Speaker 4: We now see projected net sales growth of 3 to 6% versus 2022 and free cash flow of 1 billion to 1.2 billion dollars.

Now see projected net sales growth of 3% to 6% versus 2022 and free cash flow of 1 billion to $1 $2 billion.

Speaker 4: We reaffirm our SNA to be up no more than 5% compared to 2022 at constant currency and our combined R&D and CAPEX spending of about $1.6 billion. $1.2 billion. Q4 net pricing. Q4 net pricing.

We reaffirm our SG&A to be up no more than 5% compared to 2022 at constant currency and our combined R&D and capex spending of about $1 $6 billion.

Q4 net pricing.

We'll be about flat year over year.

As we will need to increase some incentive programs to address pockets of excess dealer inventory.

Speaker 4: is we will need to increase some incentive programs to address pockets of excess dealer in this.

Speaker 4: Volumes in Q4 will be down year by year, and where we follow the range again depends on retail.

Volumes in Q4 will be down year over year, and where we fall in the range again depends on retail demand.

Also previously noted that this year will likely be able to achieve some of the 2020 for EBIT margin and EPS targets from our 2022 capital markets day.

Speaker 4: I also previously noted that this year will likely be able to achieve some of the 2024 even margin in EPS targets from our 2022 capital market.

Speaker 4: Despite the slowest sales outlook, that statement holds true, and we still expect to get our adjusted EPS target of around $1.70.

Despite this lower sales outlook that statement holds true and we still expect to get our adjusted EPS target of around $1 70.

Speaker 4: We are confident that our margin expansion efforts will allow us to better sustain profitability through the industry cycle.

We are confident that our margin expansion efforts will allow us to better sustain profitability through the industry cycle.

Speaker 4: As shown on this chart, you see here. It is created from a 10 year average composite industry based on our mix of agriculture and construction.

As shown on this chart you see here is created from a 10 year average composite industry based on our mix of agriculture and construction with.

Speaker 4: with industry volumes and margins on the horizontal and vertical axes respect.

With industry volumes and margins on our horizontal and vertical axes, respectively.

In 2021.

Speaker 4: In 2021, when our estimated composite industry was about 110% of the 10-year average.

When our estimated composite industry was about 110% of the 10 year average.

Speaker 4: We achieved about 10% EBIT margin. Our business was operating along the gray curve.

We achieved about 10% EBIT margin our business was operating along the grey curve.

Speaker 4: At our 2022 capital market stay, we sent out an ambition to achieve 12 to 13% EBIT margin by 2024 if we stayed at 110% of the 10-year average. That's represented on the graph by the blue curve.

At our 2022 capital markets day, we set out an ambition to achieve 12%, 13% EBIT margin by 2024.

If we stayed at the 110% of the 10 year average.

That's represented on the graph by the Blue curve.

Speaker 4: When we talk about margin expansion, we are talking about shifting from the gray curve to the blue curve. Our margins vary with the industry demand, but every point of that blue capital market today curve is a higher margin than the 2021 gray curve. Higher profitability at any point in the cycle.

When we talk about margin expansion, we are talking about shifting from the gray curve to the blue curve, our margins vary with the industry demand, but every point of that Blue capital markets day curve is a higher margin in 2021 gray curve higher profitability at any point in the cycle.

Speaker 4: In 2022, we shifted up to the Black curve and achieved 11.3% margin through industry growth and our own operational improvement.

In 2022, we shifted up to the black curve and achieved 11, 3% margin through industry growth and our own operational improvements in.

Speaker 4: In 2023, we are shifting up to the red curve with better margins than 2022, even though we expect to composite industry level to be lower than 20.

In 2023, we're shifting up to the red curve with better margins than 2022, even though we expect the composite industry level to be lower than 2022.

Speaker 4: We are not prepared to say precisely where 2024 will land from an industry standpoint, but we are confident that we will shift up to the blue curve as a result of our operational and cost improvement.

We're not prepared to say precisely where 'twenty 'twenty four will land from an industry standpoint, but we are confident that we will shift up to the blue curve as a result of our operational and cost improvements.

Looking forward our margin improvement programs will continue delivering measurable results and protecting profitability in any market environment.

Speaker 4: Looking forward, our Margin improvement programs will continue delivering measurable results and protecting profitability in any market environment.

Speaker 4: We're on track for our $550 million operational efficiency targets through CBS and strategic sourcing and around 30% of that will be realized in 2023 with the remainder in 2024.

We are on track for our $550 million operational efficiency targets through CBS in strategic sourcing and around 30% of that will be realized in 2023 with the remainder in 2024.

Speaker 4: Couple that with the S-GNA cost improvement supported by a restructuring plan, and we will be well positioned to move up that blue margin curve that I introduced on the previous slide.

Couple that with the SG&A cost improvements supported by our restructuring plan and we will be well positioned to move up that blue margin curve that I introduced on the previous slide.

Speaker 4: As mentioned, South America is an increasingly important part of the global ag economy and the fundamentals there still support long-term growth.

As mentioned South America is an increasingly important part of the global AG economy, and the fundamentals, they're still support long term growth.

Speaker 4: Our strong brands and regional presence, especially in Brazil, give us a solid foundation for success in this vital mark.

Our strong brands and regional presence, especially in Brazil gives us a solid foundation for success in this vital market.

Speaker 4: Discipline Dealer Inventory Management is crucial as we close 2023 and will remain important for us next year.

Disciplined dealer inventory management is crucial as we closed 2023 and will remain important for us next year.

Speaker 4: We are actively leveraging the synergies between our recent acquisition, Raven's capabilities and our organic proficiency.

We are actively leveraging the synergies between our recent acquisition Ravens capabilities and our organic Proficiencies, we will continue to accelerate development of our precision Tech stack, taking more control of the factory fit and aftermarket solutions we offer.

Speaker 4: We will continue to accelerate development of our precision tech stack, taking more control of the factory fit and aftermarket solutions we all.

Speaker 4: As we look to 2024, mixed signals abound. On one hand, soft commodity prices are likely to press farm incomes while interest rates remain high and order backlogs and dealer inventories are normalized.

As we look to 2020 for mix.

Mixed signals a bound on one hand soft commodity prices are likely depressed farm incomes, while interest rates remain high and order backlogs and dealer inventories are normalizing.

Speaker 4: On the other hand, fleet ages are still elevated, and there's high demand for newer equipment with the latest precision technology.

On the other hand fleet ages are still elevated and there is high demand for newer equipment with the latest precision technologies.

Speaker 4: We are gaining some early visibility into 2024 with order books open through the first half in major markets. And in many cases, we are already filling Q2 orders.

We are gaining some early visibility into 2024 with order books opened through the first half in major markets and in many cases, we are already filling Q2 order slots.

Speaker 4: It is too early to call 2024 industry demand, but we do expect it to be lower than 2020.

It's too early to call. It 2020 for industry demand, but we do expect it to be lower than 2023.

Speaker 4: We look forward to finishing the year strong and completing our journey to become a single listed company.

We look forward to finishing the year strong in completing our journey to become a single listed company.

Speaker 4: I conclude our prepared remarks. We'll now open lines for questions.

That concludes our prepared remarks, we'll now open the lines for questions.

Thank you.

Speaker 2: Thank you. As a reminder, if you'd like to ask a question or make a contribution on today's phone, press star one on your telephone keypad. If you change your mind and want to withdraw your question, it's start to. Please ensure your lines are unmuted locally, as you'll be prompted when to ask your question.

A mind, though if you'd like to ask a question or make a contribution on todays call. Please press star one on your phone keypad. If you change your mind on want to withdraw your question, it's tall too because I'm sure you're all lines all unmerited locally how's it be prompted one to ask your question.

Our first question comes from line of Steven Fisher from UBS. Please go ahead.

Speaker 2: Our first question comes from a line of Steven Fisher from UBS. Please go ahead.

Thanks. Good morning, you mentioned that theres going to be some incentives to help move some inventory in Q4.

Speaker 6: Thanks. Good morning. You mentioned that there's going to be some incentives to help move some inventory in Q4. As you also mentioned, you have the water books open in the first half of 2024. Just curious to what extent do we know at this point about whether those incentives are going to be extending into those 2024 first half orders, or is that sort of a different set of kind of pricing cards?

Also mentioned you have the order books open.

First half of 2024, just curious to what extent do.

Do we know at this point about whether those incentives are going to be extending into those 2024 first half orders or is that sort of a different set of kind of pricing card.

Speaker 4: No, it's a great question, Stephen. Let's definitely not confuse the two. The Q4 discussion around getting flat pricing was related to actions to drive retail performance. So we're talking about incentives for retail performance, not to incentivize people to take orders from us. That's actually lowering list prices, which we're not, we've been very clear that we're not planning.

No. That's a great question, Steven I'll, let the other let's definitely not confuse the two the the Q4 discussion around you know getting flat pricing was related to actions to drive retail performance. So we're talking about incentives for retail performance not to incentivize people to take.

Orders from Us that's a that's actually lowering list prices, which were not.

<unk> been very clear that we're not planning to do.

Okay.

Speaker 4: Okay. Really, it's really about just it's just driving retail. That's what we're trying to

It's really about just it's just driving retail that's what we're trying to do.

Speaker 6: Okay, that's very helpful. And I guess it's a bigger picture question. I guess I'm curious for how you see what's different in 24 versus 23 that's actually not taking volumes down. I mean, it's not terribly surprising given what we've seen.

Okay. That's very helpful and I guess, just a bigger picture question.

I'm curious for how you see what's different in 24 versus 23 that they've actually now taking volumes down I mean, it's not terribly surprising given what we've seen in the.

Speaker 6: The Ike quantity prices, but farm income is going to be down in 23 also and there's a fade-out of bonus appreciation this year, but still 23 shows some growth. So is it just the magnitude of the decline that's kind of across the threshold where it makes a difference or is it the use value or the interest rate or there's like a tail of time that just has to play out for the demand decline to play out?

The AG commodity prices, but farm income and he is going to be down in 'twenty. Three also theres a phaseout of bonus depreciation this year, but still 23 shows some growth. So is it just sort of the magnitude of the decline that's kind of across the threshold, where it makes a difference or is it used values or interest rates or.

There's a tail of time that just has to play out for this demand declined to play out.

Yeah, well you know we still strongly believe in the sound fundamentals of the agriculture industry for the long term and it's especially in Brazil, where we're seeing weakness now I mean, the fundamentals couldnt be better, but the setup for 'twenty 'twenty four is certainly not ideal higher interest rates are certainly.

Speaker 4: well you know we still strongly believe in the sound fundamentals of the agriculture industry for the for the long term and it's it and especially in Brazil where we're seeing weakness now in the fundamentals couldn't be better uh... but but the setup for twenty twenty four is certainly not ideal higher interest rates are certainly weighing on you know when i talk to farmers you know they are they are just considering do i want to take that

Weighing on you know when I talk to farmers you know they are they are just considering do I want to take that new product. If they are financing. It. It's you know a good bit more expensive now so that is a consideration for them specifically in Brazil.

Speaker 4: new product, if they are financing, it's a good bit more expensive now. So that is a consideration for this.

Speaker 4: specifically in Brazil. They're just really worried about

They're just really worried about the soft commodity prices and they're waiting for those to come back and I think if we see a rebound for whatever reason and soft commodity prices I think it really gives a boost especially to Brazil, but for most markets were just not anticipating that in 2024. So we were being prudent with dealer inventories and we'll certainly be able to take advantage.

Speaker 4: the soft commodity prices and they're waiting for those to come back and I think if we see a rebound for whatever reason in soft commodity prices I think it really gives a boost especially to Brazil but for most markets we're just not anticipating that in 2024. So we're being prudent with dealer inventories and we'll certainly be able to take advantage if the market turns out to be better but you know our initial outlook and I think it's triangulated by what we're seeing by most everybody else prognosticating is it's going to be slightly less than this year.

If the market turns out to be better, but you know our initial outlook and I think its triangulated by what we're seeing by most everybody else prognosticating as it's gonna be slightly less than this year.

Okay. Thanks, Scott.

Speaker 2: The next question comes from a line of Nicole DiBlaze from Deutsche Bank. Please go ahead.

The next question comes from the line of Nicole onto plays from Deutsche Bank. Please go ahead.

Yeah. Thanks, good morning, guys.

Speaker 7: Maybe just first starting with the restructuring, the $200 million that you guys are talking about taking. What is the expected annual savings related to that program and is that separate from what you've already guided for for 24 and 25 or 23 and 24 or is this completely incremental.

Good morning, maybe just first just first starting with the restructuring the 200 million that you guys are talking about taking what is the expected annual savings related to that program and is that separate from what you've already guided for for 'twenty, four and 'twenty five I'm, sorry, 'twenty three 'twenty four or is this.

Clearly incremental.

In terms of restructuring that's incremental.

Speaker 5: And that's also incremental to the general, so COX cost reduction of 550 million that we're working on and that we're started delivering.

And that's also incremental tool b.

General soft Cogs cost reduction of $550 million that we are working on and that we just started delivering easier.

Speaker 5: In terms of spitting, a chunk of it will be this year because we are taking immediate actions on a headcount right now, as we speak. And the remainder will be in the first part of the next.

In terms of Sberbank.

Tranquil that will be this year.

We have taken immediate actions on on on on our head count.

Right now as we speak and and the remainder would be in the first part of next year.

Speaker 7: Thanks for joining us. And then shifting to dealer inventories, can you guys talk a little bit about how you see current dealer inventories just around the world? And if you still think that you can kind of produce in line with retail demand as we move into 24, thank you.

Okay. Thanks for that any of that's helpful. And then shifting to dealer inventories can you guys talk a little bit about how you see current dealer inventory is just around the world and if you still think that you can kind of produce in line with retail demand.

As you move into 'twenty four thank you.

Speaker 4: yeah you know we've seen over the last couple of years just wild swings you know we went from racing to catch up and then struggling to catch up with the other inventories uh... and then certainly in the low horse power tractors as we've talked about for quarters now you know that that slowed down rather quickly

Yeah, you know we've seen over the last couple of years, just wild swings, we went from racing to catch up and struggling to catch up with dealer inventories.

And then certainly in the low horsepower tractors as we've talked about for quarters now that that slowed down rather quickly.

Speaker 4: we've got what i i call pockets of inventory that are too high and pockets that are too low i'd say net net you know it's i i would call it up you know the mid single digit percent high that we'd like to get rid of so it's really not dramatic so i i believe if

We've got what I call pockets of inventory that are too high and pockets that are too low I would say net net.

I I would call it.

With a mid single digit percent high that we'd like to get rid of so it's really not dramatic. So I believe if we can get retail up and again that is our focus working with our dealers to drive retail.

Speaker 4: We can get retail up and again, that is our focus, working with our dealers to drive retail. We'll be able to keep wholesale shipments in line.

We will be able to keep wholesale.

Wholesale shipments in line.

Thanks, Scott I'll pass it on.

The next question comes from the line of Mike Home furniture from Bank of America. Please go ahead.

Speaker 2: The next question comes from a line of Michael Fanninger from Bank of America. Please go ahead.

Speaker 8: Yep, thank you for taking my question. I know that you guys kept the EPS where it is, but you cut the...

Yes. Thank you for taking my question I know that you guys kept the EPS, where it is but you cut the free cash flow for.

Speaker 8: you know, for cash was down year of a year in the quarter, it looks like there was a negative

Free cash flow was down year over year in the quarter. It looks like there was a negative used from cash from ops for financial services net of eliminations.

Speaker 8: use from cash from ops for you know finding services net of elimination. If you just talk about your your conviction on hitting the free cash row in the fourth quarter, just trying to understand the moving pieces with that cut is it just the cuts in that sales. And as we looked in that year, is a billion of free cash those still kinds of base case we kind of think about for next year just love to get any any sense in that thank you.

Talk about your conviction on hitting our free cash flow in the fourth quarter, just trying to understand the moving pieces with that cut is it just the cuts the net sales and as we look to next year is a billion of free cash flow still kind of the base case, we kind of think about for next year, just love to get any any sense of that thank you.

Speaker 5: Yeah, like you got it, the reduction in Frikaslo is mainly linked to the reduction in sales and some of the slowdowns in production we have. Basically, we probably will have some level of higher company inventory compensated by lower dealer inventory.

Yeah, you got it the reduction in free cash flow is mainly linked to the reduction in sales and some of the slowdowns in production we have.

And basically we probably would have some level of higher company inventory.

Compensated by lower dealer inventory, which are not part of our cash flow power our working capital.

Speaker 5: which are not part of our cash of our working time.

Speaker 5: The, in terms of next year, I mean, it's early to talk about next year, but we think that our

The.

In terms of next year.

It's early to talk about next year, but with things that are.

Speaker 5: 70% cash conversion rate is still consistent with the overall structure of our business.

70% cash conversion rate.

There's still consistent with the overall structure of our business.

Speaker 5: over time so we would target that range of

Overtime so.

At target Dot dot range of.

Cash generation for the year.

Thank you and just if I could add I understand youre, saying volumes potentially or likely down next year.

Speaker 8: Thank you. If I get to add, I understand you're saying volume potentially are likely down next year. There's these cost-save numbers that we're looking at plus the restructuring. Just can add margins.

These cost savings numbers that we're looking at plus the restructuring just Ken.

Ken can add margins.

Speaker 8: hope flat if volumes are down 5-10% is that kind of the range which we bracket in are we kind of looking at down 10 to 20 in that case obviously absorption it becomes a bigger head. We're just curious to be kind of talk about these moving pieces with volumes likely down next year but these big cost saving numbers coming in next year. Thank you.

Hold flat if volumes are down by 10%.

That kind of a range, what we should be bracketing or are we kind of looking at down 10% to 20 in that case, obviously absorption.

It becomes a bigger headwind just curious if you can kind of talk about these moving pieces with volumes slightly down next year, but the big cost saving numbers coming in in next year. Thank you.

Speaker 4: now i really like to to give a shout out to daryk nielsen in the work that he and his team are doing on this very topic you know i think it's

No I really like to give a shot out to Derek Nielsen and the work that he and his team are doing on this very topic.

Thank you.

Speaker 4: just to respond to your question, if it's down 10%, yes, we can hold margins flat. If it's down 28, we got a, that's a heavier lift, but I wouldn't want to bet against a team to find a way to get there. But the team's really been focused on driving margin performance and we're seeing the benefit today.

Just to respond to your question, if it's down 10%, yes, we can hold margins flat.

If it's down 20, we got a that's a that's a heavier lift but I wouldnt want to bet against the team to to find a way to get there, but no. It's the the team's really been focused on driving margin performance and we're seeing the benefits of that now.

Speaker 2: The next question comes from a line of David Razor from Avical ISI. Please go ahead.

Our next question comes from the line of David Raso from Evercore ISI. Please go ahead.

Speaker 9: Hi, thank you. A little more of a longer term and then more of a shorter term. So to the point you just made, when you were considering this incremental cost reduction program, right, the 10 to 15% of S-GNA, what magnitude of revenue decline were you assuming? Just there had to be some relationship to how you saw your revenue next year to the tough decision to take this kind of cost out on the S-GNA. And in the same vein of some of those hard decisions.

Hi, Thank you a little more of a longer term and then more of a shorter term sort of to the point you. Just made when you were considering this incremental cost reduction program right, the 10% to 15% of SG&A what magnitude of revenue decline. We were you assuming just there had to be some relationship to how you saw your.

Our revenue next year to the tough decision to take this kind of cost out on the SG&A and then the same vein of some of those those hard decisions.

Speaker 9: Were you thinking of those cuts in relationship to a traditional kind of two-year downturn that we see an ag? I know we've seen some longer ones, but you know maybe this one could be a little short. I'm just trying to get a sense of this incremental decision how you thought about next year and really been more importantly is this you know trying to enter a couple-year downturn and that was the magnitude of...

Were you thinking of those cuts in relationship to a traditional kind of two year downturn that we see in AG I know, we've seen some longer ones, but you know maybe this one could be a little short I'm just trying to get a sense of this incremental decision. How you thought about next year and really even more importantly is this you know trying to enter a couple of your DAU.

Ill turn and that was the magnitude of other cuts and then the shorter term question just and I appreciate all that you're doing to offset some of the weakness in the market.

Speaker 9: And then the short-term question, just, and I appreciate all that you're doing to offset some of the weakness in the market. But in the fourth quarter, your revenue growth sequentially is sort of, it's a normal, you know, 15 to 20%. In fact, it's 21% implied. Why such the strong incremental revenue, 3 to 4Q, if we're, you know, trying to prepare a bid for a weaker 24? Thanks.

But in the fourth quarter. Your revenue growth sequentially is is there's sort of a normal you know 15% to 20% in fact, it's 21% implied why such the strong incremental revenue three to four Q4, you know trying to prepare a bit for a week or 24. Thank you.

Speaker 4: All right, I'll take the first one and let Donny take the second one. You know, first of all, we don't-

Alright, I'll take the first one and let Don at the only take the second one.

You know first of all we don't take any.

Speaker 4: action or activity is it related to our you know head counter employees lightly you know we really it's not You know it's not something we ever want to do because we we invest a lot in our team and that's just it's a difficult action to take

Action or activity as it relates to our.

Head count or employees lightly we really it's not.

It's not something we ever want to do because we invest a lot in our team and that's just it's a difficult actions to take.

Speaker 4: But it's not a reaction to the market. It really is, you know, when we did the spin-off from a VECO, we took a...

But it's not a reaction to the market it really is.

You know when we did the spin off from Iveco, we took a shot at getting organized and understanding how we'd be we've just learned a lot about where we are as a company and how we can be more efficient.

Speaker 4: a shot at getting organized and understanding how we beat. We've just learned a lot about where we are as a company and how we can be more efficient. You know, we...

Speaker 4: We do a lot of employee surveys and we get a lot of feedback that despite a focus on being agile and customer focused, it's still difficult to do sometimes. So this is really about

We do a lot of employee surveys when we get a lot of feedback that despite our focus on being agile and customer focused it's still difficult to do sometimes so this is really about.

Speaker 4: you know, not a level of decrease in volume next year, but it's just recognizing that the market's not gonna grow.

No not as of a level of decrease in volume next year, but it's just recognizing that the market's not going to grow like we've seen over the past several years and we need to think about whats the proper structure to deal with that as effectively as efficiently as we can to create a better working environment for our employees and better for our customers. So that's what we're.

Speaker 4: like we've seen over the past several years and we need to think about you know what's the proper structure

Speaker 4: to deal with that is effectively as efficiently as we can to create a better working environment for our employees and better for our customers. That's what we're striving to do. And we see a good opportunity to do that and we think the timing is right.

We're striving to do and we see a good opportunity to do that and we think the timing is right.

Speaker 9: And give us an equation on this example. Sorry, don't make a bad.

And.

This is Michael.

Alright, Thank God right.

If you think youre going to abate me into a comment on the cycles try again, well know I'm just I'm just trying to be thoughtful around those are hard decisions to make and we knew the SG&A staying below 5% was it was getting hard right I mean, you're implying the fourth quarter SG&A is going to be flat despite revenues up 20% right. So.

Speaker 9: If you think you're gonna bait me into a comment on the cycle, try again. Well, no, I'm just trying to be thoughtful around those are hard decisions to make. And we knew the SGNA thing below 5% was getting hard, right? I mean, you're implying the fourth quarter SGNA is gonna be flat despite revenues up 20%. Right? So we needed to take some action and I appreciate those are not easy decisions. But when you were putting pen to paper, I was just...

We needed to take some action and I and I. Appreciate those are not easy decisions, but when you were putting pen to paper I was just just trying to think about it.

Speaker 9: Just trying to think about, you know, never easy to let people go. Obviously not always easy to hire people nowadays, find good people. Just trying to think about, yeah, we're just gonna approach this as a typical downturns to, yes, we've seen three in tougher, you know, three years in tougher eras. But I was just trying to get a sense of how you were really approaching this from a real structural view of the cycle. I'm trying to be just, you know, there's a tough division's made him. No, no.

Never easy to let people go obviously not always easy to hire people nowadays fine find good people just trying to think about yeah. We're just going to approach. This as a typical downturns to yes, we've seen three and tougher you know three years and tougher euros, but I was just trying to get a sense of how you. We're really approaching this from a real structural view of the cycle. So.

I'll just you know this is tough decisions made them that's no no no.

Uh huh.

Speaker 4: You know, it was putting the through the cycle margin chart together was actually helpful for us.

You know it was put in putting the the through the cycle margin chart together was actually helpful for us.

Speaker 4: And especially if you look at it in the middle of the chart, which reflects 100% of the market.

And especially if you look at it in the middle of the chart, which reflects a 100% of the market.

Speaker 4: And we're still talking about playing above that middle ground line. So the fundamentals in AG are just too good.

And you know, we're still talking about playing above that that middle ground line. So.

It's not like where the fundamentals in AG are just too good for a major downturn. It's just you know we've seen you know.

Speaker 4: for a major downturn. It's just, you know, we've seen, you know, a lot of demand, we've seen dealer inventories normalize and we think it's gonna be a little bit slower next year, but we don't, if you compare it to...

A lot of a lot of demand we've seen dealer inventories normalize and we think it's gonna be a little bit slower next year, but.

We don't if you compare to past downturns in the market. We we fully just don't see that coming right now.

Speaker 4: downturns in the market. We fully just don't see that coming right now.

That's helpful. So I appreciate the discussion thank you.

Speaker 9: That's helpful. I appreciate the discussion. Thank you.

And David on your second question about the growth in the fourth quarter, yet youll notice the growth that we have sequentially fourth quarter to third quarter is pretty typical.

Speaker 5: And David, on your second question about the growth in the fourth quarter, yet you notice, I mean, the growth that we have sequentially fourth quarter to third quarter is pretty typical in our, in our rhythm of sales and is predicated on higher retail sales in the fourth quarter, which are also typical for our business and for the way our leaders and our farmers operate.

In our in our.

Loan loss sales and and is predicated on higher retail sales in the fourth quarter, which which are also typical for our business and for the way our dealers and our farmers operate.

Speaker 9: But I guess that was the decision. Do we get the typical sequential revenue growth, which is what you're exactly correct. That's the normal third or fourth quarter. But the decision was to get that revenue where we're willing to clear out a bit with pricing, which is fine. That was the decision, right? Without that incentive, we probably wouldn't get the sequential revenue. But at least it clears out some inventory going to 24, which I appreciate. Thank you.

But I guess, that's the that was the decision do we get the typical sequential revenue growth, which is what you're exactly correct that that's the normal third to fourth quarter, but the decision was to get that revenue, we're willing to clear out a bit with pricing, which is fine. It's just that was the decision right without that incentive we probably wouldn't get the sequential revenue, but at least it clears out some.

Tori going into 'twenty, four which I appreciate it okay. Thank you that's it.

Speaker 2: The next question comes from Linus, Timosys scene from City. Please go ahead.

Your next question comes from the line of Tim off as seen from Citi. Please go ahead.

Speaker 6: Excuse me. And the apology that advanced in the voice issue here, but the in context with the pricing for Ag that you've talked about, can you kind of just give us a sense in terms of your expectations and what you're seeing on the...

Excuse me.

Apologies in advance in the <unk>.

This issue here, but.

In context with the pricing for AG, you've talked about can you kind of just give us a sense in terms of.

Your expectations.

What youre seeing on the cost side.

Speaker 10: in a hug and just maybe a little bit longer, you know, purview into 24 in terms of.

And just maybe a little bit longer.

Our view into 'twenty four in terms of again, just kind of the trend lines and what you can see through contract negotiations and the like as two into that relationship and again more on the cost side and then I guess the second question I'll just ask them that one Scott is just on the obviously you don't do pre sales for.

Speaker 10: Again, just kind of the trend lines in what you can see through, you know, contract negotiations and the like as to into that relationship and get more of the cost side.

Speaker 10: And then I guess the second question I'll just ask them at one Scott is just on the, you know, obviously you don't do pre-cells for every product, but what you have seen in terms of pre-cells and where you're taking orders.

Every product, but what you have seen in terms of pre sales and where you are taking orders into 'twenty four is.

Speaker 10: into 24, is that, can you just give us a sense in terms of how much that's informing you about the volume I'll look into 24, I.E. You know, just some of the kind of sense in terms of what you have seen in terms of that order uptake. Thank you.

And can you just give us a sense in terms of how much staff informing you about the volume outlook into 'twenty four I E.

Kind of a sense in terms of what you have seen in terms of that order uptake. Thank you.

Speaker 4: Yeah, as we've said throughout the year, we've seen a moderating cost, and if you look at our EBIT margins, as we're getting carry over pricing, but not significant pricing going forward, we're seeing that cost curve been down to a level. I mean, moderating inflation is still inflation, and we're seeing that, but we're also seeing really good work by our team, specifically on logistics lanes.

Yeah, you know as we've said throughout the year, we've seen a moderating cost and if you look at our EBIT margins as you know we're getting.

No carryover pricing, but not significant pricing going forward, we're seeing that cost curve bend down.

Two a level I mean moderating inflation is still inflation and we're seeing that but we're also seeing really good work by our teams specifically on logistics lanes.

And other costs are strategic sourcing actually we have our first review tomorrow, and we'll continue to to get through that and we still see the the double digit savings that we talked about in that those categories, we still see that coming to fruition, but that's a longer term benefit but it really is.

Speaker 4: Our strategic sourcing, actually, we have our first review tomorrow and we'll continue to get through that. And we still see the...

Speaker 4: the double digit savings that we talked about in that those categories, we still see that come into fruition. But that's a longer term benefit. But it really is the lean activities that we're driving through CBS , the focus on logistics and program, we're able to push back on cost. And I said earlier in the year that it was gonna be the year of cost not price like last year and the team's really delivering on that. And I think you're gonna see that cost benefit show up for us.

The the the lean activities that we're driving through CBS. The focus on logistics importantly, we're able to push back on cost and I. You know I said earlier in the year that it was going to be the year of cost not price like last year.

And the teams really delivering on that and I think youre going to see that cost benefits show up for us for the next several quarters to come you know, we're not giving guidance on 'twenty four but I did say in your prepared remarks that we have started to take orders.

Speaker 4: for the next several quarters to come. You know, we're not giving guidance on 24, but I did say in the prepared remarks that we have started to take orders.

Speaker 4: uh... in some markets for some products into twenty twenty four and you know it it seems very reasonable now it there is a bifurcation i mean the cash crop market in north america still seems to have have nice legs to it

In some markets for some products into 2024 and you know it.

It seems very reasonable now there is a bifurcation I mean, the the cash crop market in North America still seems to have have nice legs to it.

Speaker 4: south america's you know with it's weak and it's gonna be weak i think until farmers decide to sell on when i mean sell sell the crops that they've harvested uh... and were prepared for that but overall there's nothing uh... that significantly positive or significantly negative as we read out that we're seeing in the order

South Americas, you know, it's it's weak and it's gonna be weak I think until farmers decided to sell.

Sell sell the crops that they've harvested and we're prepared for that but overall theres nothing.

That's significantly positive or significantly negative as we read out, though what we're seeing in the order books.

Our next question comes from rely enough Tami Zakaria from Jpmorgan. Please go ahead.

Speaker 2: Alex question comes from the line of Tammy Zakaya from JP Morgan please go ahead

Speaker 11: Hi, good morning. Thank you so much. So given your goal to bring factory fed and aftermarket precision exhibitions in the house to over 90% it seems by 2026, which seems quite impressive. So from an R&D perspective, should we expect R&D spend to remain at 2023 level, even if there's a downturn for the next couple of years?

Hi, good morning. Thank you so much and so given your go to bring factory fit and after market services and acceleration in house.

To over 90% it seems that finally sensing switch it seems quite impressive.

So from from an R&D perspective should we expect R&D spend to remain.

2023 level, even if theres a downturn.

For the next couple of years.

Speaker 4: We have been at an elevated R&D level for several years now, and I think what you're seeing is the fruition of those investments.

We have been at an elevated R&D level for several years now and I think what Youre seeing is the fruition of those investments.

Yeah.

We are obviously looking we're not we're not going to stay at that level forever.

Speaker 4: We are obviously looking, we're not gonna stay at that level forever, and we're looking at every single project.

And we're looking at every single project.

Speaker 4: about where we can at. I think we'll probably be flatish in that area, but we've also got some product gaps that we're leaning into fill and we've got some upgrades that we're looking to make and we're not gonna slow those down because it's so important to our future. But I don't think it's gonna go. Over the last several years, you see it go higher from here and I think it won't go higher from here. It'll go lower from here, but moderately.

About where we can add I think we will probably be flattish in that that area, but we've also got some product gaps that we're leaning in to fill and we've got some upgrades that were looking to make and we're not going to slow those down because it's so important to our future, but I don't think.

It's going to go over the last several years you've seen it go higher from here.

I think it won't go higher from here it'll go lower from here, but moderately.

Speaker 11: Got it, that's very helpful. And one quick modeling question. It seems like corporate expenses picked up in the third quarter sequentially a bit despite revenues coming in a lot lower. Anything particular driving that?

Got it that's very helpful and one quick modeling question. It seems like corporate expenses ticked up in the third quarter sequentially a bit despite revenues.

Coming in a lot lower anything particular driving that.

Speaker 5: I mean, I think there are two things here. One sequentially has lightly lower than in the second quarter, and we expect sequentially than to be down in the third quarter.

I mean, I think there are two things here, one sequentially is slightly lower than than that in the second quarter, and we expect sequentially them to be down in the third quarter.

Uh huh.

Speaker 5: What, what the fourth quarter, sorry, what you probably noticed is that there's a big gap to the number of last year, but last year we had some non-recurrentized positive items that we didn't have, we didn't repeat these years. So that's the big gap that you may have noticed in comparison with last year. In terms of running costs,

What when the fourth quarter, sorry, when you'll probably notice is that there's a big gap to the number of last year, but last year. We had some nonrecurring diet positive items that that we didn't have we didn't repeat this year. So that's the big gap that you may have noticed in comparison with last year in terms of the <unk>.

Running costs.

Speaker 5: We are in the range between the 60 and 70 million per quarter. And of course, those will be also costs that will be subject to the review that we're looking at. Partially, we're looking at. Partially, we're looking at. We got it very.

We are in the range between $60 million to $70 million per quarter and of course, those will be also costs that would be subject.

Subject to the review that we're looking at that we're looking.

Looking at.

Partially me got it very helpful. Thanks again.

Thank you.

Before proceeding to the next question. Our last reminder, should like to ask a question. Please press star one.

Speaker 2: Before proceeding to the next question, a last reminder is you'd like to ask a question, please press star when.

Speaker 2: On next question comes from a line of Daniel Acosta from Goldman Sachs. Please go ahead.

Our next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.

Speaker 12: Hi, good afternoon. Thank you for taking my question. I have two things left. First, I wanted to ask you. You mentioned in the release, in the disclosures that you had a material issue with internal controls over financial reporting. It sounds like it is sorted, but I was wondering if you could give us some clarity of what it is and if it's really your part, part of past now. And then the second thing, just obviously, we've seen sort of throughout the quarter the announcement between Trimble and one of your competitors and you used to have some sort of relationship with Trimble. Can you tell us what sort of which impacts should we see if any or if you're now in terms of Raven product completely independent and all sorts of that would be great. Thank you.

Hi, good afternoon, and thank you for taking my question I have two things left.

First I wanted to ask you you mentioned.

In the release the disclosures that you had a material issue it internal controls over financial reporting it sounds like it is sort of it but I was wondering if you could give us some clarity on what it is and if it's really all part of pass now.

And then the second thing just obviously, we've seen sort of throughout the quarter the announcement between Trimble and in one of your.

Competitors and you used to have some sort of relationship on.

With Trimble can you tell us about sort of which impact should we see if any or if you are now in terms of raven product completely independent.

And in all sorts of that would be great. Thank you.

Yeah.

Speaker 5: So let me take the first one, the nila.

So let me take the first one did any of that.

Speaker 5: You may have noticed we had an auditor rotation at the beginning of this year, and auditor rotations are mandatory in under European framework.

May have noticed we had an auditor rotation at the beginning of this year and auditor rotation are mandatory in under European framework.

Speaker 5: And so we started working with the new auditor and in conjunction with them, we had a different way of looking at the, I would say the service access that we gave to some of our employees, mainly in ICT, to the system, to the system or record, in particular the different SAP instances that we have. We realized that what the system

And so we started working with a new auditor and in conjunction with them. We had a different way of looking at the I would say the service axis that we give to them.

Some of our employees mainly in ICT.

To the to.

Through the system. So the system of record in particular different instances that we have we realize it that well.

There's different way of looking at things the number and the scope of some of these axis is out though what are what is typical of an nowadays.

Speaker 5: the number and the scope of some of the revaxis.

Speaker 5: is out of what is typical nowadays, even considering the fact that we are a large multinational corporation. So what we're doing is we are acting very swiftly and looking at ways of, well, first of all,

Even considering the fact that we had a large multinational corporation. So what we're doing as we are acting swiftly and looking at ways of what first of all making sure that we have all the controls but also.

Speaker 5: make you sure that we have all the controls, but also of bringing, or normalizing this situation, and we're...

<unk>.

<unk>.

Normalizing this situation, let's say.

We are working.

Speaker 5: We're working on that and we should have a solution in a time.

We're working on that and we should have a solution and in a timely matter.

But you don't expect any impact all businesses are in absolutely.

Speaker 5: You don't expect any impact on the business or any? Absolutely, no, no, no, no. There's no impact. And it is stated on the documents and on the reps that you will see when we issue our quarterly report that these are no impact on the financial statements. Of course, the risk that we see is that having this extended access to the system.

Absolutely no no no no there's no impact in that.

As stated on the documents on their own.

Reps are.

That you would see.

When we when we show our quarterly report that does that impact the financial.

On the financial statements of course, the risk that we see is that having does extend that access to the system.

Speaker 5: A fraud could be perpetrated and could not be immediately seen, but again, it requires some, a lot of skills and there's not something that has happened or there's not something that has been identified.

Our fraud could be perpetrated and could not be immediately seen.

But again it requires quite a lot of skills and is not something that's happening or is that something that has been.

Identified.

Speaker 4: Yeah, and the second question, as it relates to the acquisition during the quarter about Trimble and Echo, you know, it doesn't really affect us at all in the short term or the long term. You know, we've got, we still, today, buy a lot of stuff from Trimble. They've been a great partner for a long time.

Yeah, and the second question as it relates to the the acquisition during the quarter about trouble. When I go you know it doesn't really affect us at all in the short term or the long term we've got.

We still today by a lot of stuff from Trimble, they've been a great supplier and partner for for a long time.

Speaker 4: you know they announced that they were gonna go direct in the aftermarket earlier so we've we've known since we acquired raven that we would have a lot of the ability to the stuff in house and as we showed on the chart you know we believe that is gonna continue but um... you know we

They announced that they were going to go direct in the aftermarket earlier. So we've we've known since we acquired Raven that we would have a lot of the ability to do this stuff in house and as we showed on the chart. You know we believe that is going to continue but.

We still serve our customers well with a lot of products from precision planting and we'll continue to do that Raven continues to be a supplier to agco and that that will likely continue. So really there's you know we we compete in the market, but we also sell to each other and we don't see that necessarily changing what is changing is just of the execute.

Speaker 4: We still serve our customers well with a lot of products from precision planting and we'll continue to do that. Raven continues to be a supplier to Agco and that will likely continue. So really, we compete in the market, but we also sell to each other and we don't see that necessarily changing. What is changing is just the execution of our long-term strategy to have the capabilities in-house to give our customers best in class solutions with our internal products. And that's what we're in technologies. That's what we're doing. And if we're????? unequilibral and animation ç love to get to your tasting i ? etherning t2 you may be fast it's weird t2 t2 any trigger

Our long term strategy to have the capabilities in house to give our customers a best in class solutions with our internal products and Thats what were in technologies, that's what we're doing.

Thank you.

Speaker 2: The next question comes from Relyna's Christian Owen from Openheimer. Please go ahead.

The next question comes from the line of Christian <unk> from Oppenheimer. Please go ahead.

Speaker 13: Hi, good morning. Thank you for taking the question. I wanted to come back to the conversation around pricing. And Scott, I think in the prepared remarks, we mentioned prices, about 3% in the quarter, flat for 4Q. If we were to abstract from that, what's happening in Brazil, Latin America writ large? How is the book pricing trending and how much of those incentives are really in that Latin American region?

Hi, Good morning. Thank you for taking the question and I wanted to come back to the conversation around pricing and Scott I think in the prepared remarks, you mentioned prices about 3% in the quarter flat for <unk>. If we were to abstract from that what's happening in Brazil and Latin.

America writ large how is how does the book pricing trending and how much of those incentives are really in that that Latin American region.

No I would say incentives are are across the board and not focus on the Latin American region frankly.

Speaker 5: Now I would say incentives are across the board and not focus on the Latin American region, frankly. And those, I mean, the large

And those I mean, the large a good part of those are financial incentives. So.

Speaker 5: Good part of those are financial incentives, so retail financing support, and also the cost of holding floor planning ventry when we deliver toward dealers. So, but that's mainly, that's I would say across the board, is our global effort to sustain retail sales in the portfolio.

Retail financing support and also the cost of holding floor plan inventory when we deliver toward data yourself.

But that's that's mainly that's I would say it across the board as our global that footstool.

Sustained retail sales.

In the fourth quarter.

Okay, well, thank you <unk> I'm getting there.

Speaker 13: So then my follow-up question relates to the Milan Chair Day listing and the announcement this morning for the billion dollar buyback, all of which will be executed or the majority of which you said will be executed by March 1st.

And so then my my follow up question relates to the Milan show de listing and then the announcement this morning for the billion dollar buyback and.

All of which will be executed or are the majority of which you said will be executed by March 1st just wondering if you can talk to the appetite for further buybacks beyond that I mean, you you discussed the 70% conversion rate free cash flow is still generating a lot of cash in and given the headwinds or excuse me tailwind to margin.

Speaker 13: Just running if you can talk to the appetite for further buybacks beyond that. I mean, you've discussed this 70% conversion rate and free cash flow. It's still generating a lot of cash and given the headwind or excuse me, tailwinds to margin next year, just had to think about the buyback opportunity once this transaction closes. Thank you so much.

Next year.

Just how to think about the buyback opportunity. Once this transaction closes. Thank you so much.

Speaker 4: I have to almost laugh when you just announce a billion dollar buyback and you're already asking for the next one.

Yeah, I have to almost laugh when you, we just announced $1 billion buyback and you're already asking for the next one.

Speaker 4: Sounds like a hedgehog question, but No, the reality is you know, we have a lot of places

It sounds like a hedge fund question, but.

Now the reality is you know we have a lot of places to deploy capital.

Speaker 4: There are times, and I think now is right, one of them we're trading below intrinsic value, and there's a large flowback expected with the delisting, that we wanna lean in, and we think it's the right time, and the board was very supportive of that.

There are times and I think now is right one of them and we're trading below intrinsic value and you know theres a large flowback expected with the delisting that we want to lean in and we think it's the right time and the board was very supportive of that.

Speaker 4: You know, as it goes out over time, I think it is just part of our capital allocation strategy.

Now as it goes out over time I think it is just part of our capital allocation strategy.

Speaker 4: Um, our, you know, we're committed to keeping our ratings intact. We're improving them. We're committed to providing all of the R&D funding that we can. We'll buy, you know, if we have acquisitions that can improve the customer experience or help us grow profitably faster. We'll do that. Um, and sometimes we'll lean in more, uh, what's your buybacks? And if you look over history, I would expect with a single listing in the New York Stock Exchange, we'll probably buy more than we have historically done. But I don't think you should.

Are you know we're committed to keeping our ratings intact and we're improving them, we're committed to providing all of the R&D funding that we can we'll buy you know if we have acquisitions that can improve the customer experience or help us grow profitably faster, we will do that and sometimes we'll lean in more with share buybacks. I mean, you can look over <unk>.

History, I would expect with a single listing in the New York Stock Exchange, we'll probably buy more than we have historically done, but I don't think you should.

Speaker 4: look at the billion dollars and think there's gonna be another billion dollars coming right after that i mean what we're gonna be it's just a it's just part of our cap of allocation strategy and right now it's uh... it's a rather important

Look at the $1 billion and think Theres going to be another billion dollars coming right. After that I mean, what we're gonna be it's just a it's just part of our capital allocation strategy and right now it's a it's a rather important one.

Thank you for the time.

Speaker 2: There are no further questions and this concludes the conference call. Thanks for joining in today. You may not disconnect your lines.

No further questions and this concludes our conference call. Thanks for joining US today you may now disconnect your lines.

Yeah.

Okay.