Q4 2023 CNH Industrial NV Earnings Call
[music].
Operator: www.kenhub.com www.kenhub.com Hello and welcome to CNH's fourth quarter conference call. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question.
The.
[music].
Mhm.
Hum.
Hum.
Hmm.
Mhm.
Speaker Change: Hello, and welcome to C N H fourth quarter Conference call. Please note. This call is being recorded for the duration of the call. Your lines will be on listen only however, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to raise just how are you.
Speaker Change: <unk>.
Operator: I will now hand you over to your host, Mr. Jason Omerza, Vice President of Investor Relations, to begin today's conference. Thank you. Please bear with us while we retrieve the speaker.
I'll now hand, you over to your host Mr. Jason Mills up there is precedence of Investor relations to begin today's conference. Thank you.
Jason Mills: Please bear with us while were retrieved.
Speaker Change: Take care.
Operator: Thank you. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question.
Jason Mills: Thank you.
Jason Mills: Okay.
Jason Mills: [music].
Jason Mills: Okay.
Jason Mills: It has been.
Jason Mills: Yes.
Jason Mills: Hum.
Jason Mills: <unk>.
Yes.
Jason Mills: Okay.
Jason Mills: Okay.
Jason Mills: Mhm.
Jason Mills: Okay.
Jason Mills: Okay.
Jason Mills: [music] later.
Jason Mills: As you've seen.
Jason Mills: The.
Jason Mills: Yeah.
Jason Mills: [music].
Jason Mills: Okay.
Jason Mills: Thank you.
Jason Mills: [music].
Operator: I will now hand you over to your host, Mr. Jason Omerza, Vice President of Investor Relations, to begin today's conference. Thank you. Thank you, Ben, and good morning, everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's fourth quarter and full year results for the period ending December 31st, 2023. This call is being broadcast live on our website and is copyrighted by CNH. Any other use, recording, or transmission of any portion of this broadcast without the express written consent of CNH is strictly prohibited.
Jason Mills: Hum.
Jason Mills: Yes.
Jason Mills: [music].
Jason Mills: And to do so.
Jason Mills: [music].
Speaker Change: Hello, and welcome to C and H fourth quarter Conference call. Please note that this call is being recorded and for the duration of the call. Your lines will be on listen only however, you will have the opportunity to ask question on the day of the call. This can be down by pressing star one on your telephone keypad too early just to your question.
Speaker Change: I will now hand, you over to your host Mr. Jason <unk>, Vice President of Investor Relations to begin today's conference. Thank you.
Jason Mills: Thank you Ben and good morning, everyone. We would like to welcome you to the webcast and conference call for <unk> Industrial's fourth quarter and full year results for the period ending December 31, 2023. This call is being broadcast live on our website and is copyrighted by <unk>.
Jason Omerza: Hosting today's call are CNH CEO Scott Wine and CFO Adone Inchiza. They will use the materials available for download from the CNH website. 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. 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. 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.
Jason Mills: Any other use recording or transmission of any portion of this broadcast without the express written consent of <unk> is strictly prohibited.
Speaker Change: Hosting today's call are <unk>, CEO, Scott wine and CFO of <unk>.
Speaker Change: They will use the material available for download from the <unk> website.
Speaker Change: 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 additional information.
Speaker Change: 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.
Speaker Change: 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.
Scott Wine: Thank you, Jason, and thanks, everyone, for joining our call. Our 2023 fourth quarter and full year results reflect this CNH team's resilience and dedication to driving customer-inspired innovation, lean operations, and sharp commercial execution. With purpose, pace, and positive changes progressing throughout the organization, the results are evident in our margin progression. Our agriculture and construction segments both achieved record EBIT margins for the year, as they balance continued price discipline with aggressive cost management.
Scott Wine: Thank you, Jason and thanks, everyone for joining our call.
Scott Wine: Our 2023 fourth quarter and full year results reflect the <unk> team's resilience and dedication to driving customer inspired innovation lean operations and sharp commercial execution with purpose pace and positive changes progressing throughout the organization. The results are evident in our margin progression.
Scott Wine: Our agriculture and construction segments, both achieved record EBIT margins for the year as they balance continued price discipline with aggressive cost management.
Scott Wine: We are improving through cycle margins to be more profitable regardless of industry strength, and our ag business demonstrated that in the fourth quarter. 2023 was our second full year as a pure play agriculture and construction company, and we again achieved record revenue and net income. I'm quite proud of the way the team addressed a challenging demand environment, notably in South America, where we are benefiting from our long-term focus on customer and dealer satisfaction. Our Brazilian dealers gave us early warnings about farmers postponing purchases, allowing tighter management of dealer inventories and demonstrating our commitment to their success, not just ours.
Scott Wine: We are improving through cycle margins to be more profitable regardless of industry strength and our AG business demonstrated that in the fourth quarter.
Scott Wine: 2023 was our second full year as a pure play agriculture, and construction company and we again achieved record revenue and net income.
Scott Wine: I am quite proud of the way the team addressed a challenging demand environment, notably in South America, where we are benefiting from our long term focus on customer and dealer satisfaction.
Scott Wine: Our Brazilian dealers gave us early warnings about farmers postponing purchases, allowing tighter management of dealer inventories and demonstrating our commitment to their success not just ours.
Scott Wine: Since the demerger, we have been fully able to fund our core businesses and allocate capital more efficiently, as evidenced by our increased R&D and CapEx investments. The benefits from our intensified focus on product development are already visible as we launch 72 new products in 2023, many of these fully integrated with in-house tech solutions garnering positive feedback from dealers and customers. This helped push our sales contribution from precision tech components over $1 billion in 2023, as planned. And that is just the beginning.
Scott Wine: Since the merger, we've been fully able to fund our core businesses and allocate capital more efficiently evidenced by our increased R&D and capex investments the.
Scott Wine: The benefits from our intensified focus on product development are already visible as we launched 72 new products in 2023.
Scott Wine: Many of these fully integrated with in House Tech solution, garnering positive feedback from dealers and customers.
Scott Wine: This helped push our sales contribution from precision tech components over $1 billion in 2023 as planned and that is just the beginning we have considerably more tech enabled products coming in the quarters and years ahead.
Scott Wine: We have considerably more tech-enabled products coming in the quarters and years ahead. In the fourth quarter, consolidated revenues were down 2%, and industrial net sales declined 5%. South American markets remain soft, and we underproduce low horsepower tractors in North America. Despite the drop in sales, we expanded our industrial EBIT margin by almost a full percentage point, with adjusted net income growing 15%. Adjusted EPS for the quarter was $0.42, up $0.06 from last year.
Scott Wine: Fourth quarter consolidated revenues were down 2% and industrial net sales declined 5% as South American markets remained soft and we underproduce low horsepower tractors in North America.
Scott Wine: Despite the drop in sales, we expanded industrial EBIT margin by almost a full percentage point with adjusted net income growing 15%.
Speaker Change: Adjusted EPS for the quarter was <unk> 42 up <unk> <unk> from last year.
Scott Wine: As Adoni will highlight, we are beginning to see the benefits of our enhanced focus on cost. Our full year earnings results were equally impressive. Industrial net sales were only up 3% over the prior year, but EBIT rose 12%. As price realization in the first half was supplemented by the accelerating impact of our cost actions, EBIT margin grew 110 basis points to 12.4%. Our CNH Business System, or CBS, is leveraging our deep and talented global team to streamline our operations and businesses. Adjusted EPS was $1.70, an increase of over $0.24 since 2022. Recall that $1.70 was our original 2024 target, so we hit that a year early. Derek Nielsen and his agriculture team continued to execute extremely well last quarter, skillfully managing costs while confronting declining demand and elevated dealer inventories. Margin expansion in such an environment is tough, and I'm proud of what this team has accomplished. Stefano Pavoloni and his construction team also did an excellent job. Construction margins were up 230 basis points in the quarter and 260 for the full year as they improved dealer performance, product innovation, and cost efficiency.
Speaker Change: Is it only will highlight we are beginning to see the benefits of our enhanced focus on costs.
Speaker Change: Our full year earnings results were equally impressive industrial net sales were only up 3% over the prior year, but EBIT rose 12%.
Speaker Change: As price realization in the first half was supplemented by the accelerating impact of our cost actions.
Speaker Change: EBIT margin grew 110 basis points to 12, 4%.
Speaker Change: Our <unk> business system, or CBS is leveraging our deep and talented global team to streamline our operations and businesses.
Speaker Change: Adjusted EPS was $1 70, an increase of over 24.
Speaker Change: Since 2020 to recall that $1 70 was our original 2024 target. So we hit that a year early.
Speaker Change: Derek Nielsen and its agriculture team continued to execute extremely well last quarter skillfully managing costs, while confronting declining demand and elevated dealer inventories.
Speaker Change: Margin expansion in such an environment is tough and I am proud of what this team has accomplished.
Speaker Change: Stefano Pamplona and his construction team also did an excellent job construction margins were up 230 basis points in the quarter and 260 for the full year as they improve dealer performance product innovation and cost efficiency.
Speaker Change: We decreased AG dealer inventory sequentially, but remained up more than 5% year over year.
Scott Wine: We decreased ag dealer inventory sequentially, but remained up more than 5% year over year. However, our needed increase in North American inventories of combines and high-horsepower tractors outpaced proactive reductions in South America and in low-horsepower tractor inventories in North America. We have some work to do on product-specific dealer inventory levels, particularly in Europe, so we will maintain our retail execution focus and appropriately manage shipments. I want to clearly state that retail sales for both segments were ahead of the industry in the quarter and the full year. Our Dealers 2023 retail performance was impressive, and we appreciate their efforts. SG&A expenses declined year-over-year in the fourth quarter.
Speaker Change: Our needed increase in North American inventories of combines and high horsepower tractors outpaced proactive reductions in South America and in low horsepower tractor inventories in North America.
Speaker Change: We have some work to do and product specific dealer inventory levels, particularly in Europe. So we will maintain our retail execution focus and appropriately manage shipments.
Speaker Change: I want to clearly state that retail sales for both segments were ahead of the industry in the quarter and the full year.
Speaker Change: Our dealers 2023 retail performance was impressive and we appreciate their efforts.
Speaker Change: SG&A expenses declined year over year in the fourth quarter. We expect this trend to continue for every quarter in 2024, driven by our restructuring program, which is well underway.
Scott Wine: We expect this trend to continue for every quarter in 2024, driven by a restructuring program that is well underway. We reached an important and exciting milestone in our strategic sourcing program as we began supplier selection for the first wave of components. As we look at our strategic priorities, I would like to start with customer-inspired innovation. We mentioned last quarter that CNH won the only gold medal at Agritechnica for the New Holland CR11, our next-generation flagship combine.
Speaker Change: We reached an important and exciting milestone in our strategic sourcing program as we began supplier selection for the first wave of components.
Speaker Change: As we look at our strategic priorities I would like to start with customer inspired innovation.
Speaker Change: We mentioned last quarter that <unk>, the only gold medal at agro technique for the New Holland CR 11, our next generation flagship combine I want to quickly highlight how it exemplifies the integration of World class technology with our great iron.
Scott Wine: I want to quickly highlight how it exemplifies the integration of world-class technology with our great iron. This machine offers a full suite of benefits requested by our customers, providing much greater productivity and yield for the farmer. Real-time machine learning, automated predictive adjustments, intelligent fuel management, and unique sensors to understand a crop's nutrient composition are just a few of the combine's extraordinary features.
Speaker Change: This machine offers a full suite of benefits requested by our customers, providing much greater productivity and yield for the farmer.
Speaker Change: Real time machine learning automated predictive adjustments intelligent fuel management and unique sensors to understand a crop nutrient composition are just a few of the combines extraordinary features.
Scott Wine: The CR-11, with its counterpart, the new Case IH-AF11, will cement our standing as the world's foremost large combine manufacturer and will especially help us improve our position in North America. These beasts will be in the field around the world this year for intensive testing and demonstrations, with order books opening later this year for 2025 deliveries. CNH remains committed to adding value and creating profitable growth for its customers and shareholders through sustainability. We continue to build on our legacy of sustainability performance, as evidenced by the recognitions we receive. For example, we placed in the top 5% of over 9,000 companies rated in S&P's Global Corporate Sustainability Assessment and took second place overall in the Dow Jones World Index in the Machinery and Electrical Component category.
Speaker Change: <unk> 11 with its counterpart, the new case, IH AF 11 will cement our standing as the world's foremost large combined manufacturer and will especially help us improve our position in North America.
Speaker Change: These base will be in the field around the world. This year for intensive testing and demonstrations with order books opening later this year for 2025 deliveries.
Speaker Change: <unk> remains committed to adding value and creating profitable growth for its customers and shareholders through sustainability.
Speaker Change: We continue to build on our legacy of sustainable ability performance as evidenced by the recognitions we received.
Speaker Change: For example, we placed in the top 5% of over 9000 companies rated in S&P's Global corporate sustainability assessment and took second place overall in the Dow Jones World Index, and the machinery electrical component category.
Scott Wine: Like our farmers around the world, CNH maintains its long-standing commitment to protecting the environment, and we are excited about our customer adoption of our first-to-market innovations that enhance customer productivity while improving fuel and emissions savings. Due to the continued supply disruptions in 2022, we purposely delayed much of our $550 million cost reduction program, but with solid improvements in 2023, we remain confident of reaching that cumulative savings target this year. As a reminder, we are targeting three main drivers, reducing logistics costs, lean manufacturing operations through CVS, and supply chain savings, including our strategic sourcing program. With a solid foundation to build upon, CBS has been enthusiastically embraced around the company as we engage our employees to create more efficient processes using Lean principles and Kaizen Events. Strategic sourcing is ramping up, and we will begin to contribute in 2024 with accelerating savings for many quarters to come. For our SDNA restructuring, a 10% to 15% reduction translates to about $160 million to $240 million in savings.
Speaker Change: Like our farmers around the world <unk> remain maintained its long standing commitment to protecting the environment and we are excited about our customer adoption of our first to market innovations that enhance customer productivity, while improving fuel and emissions savings.
Speaker Change: Due to the continued supply disruptions in 2022, we purposely delayed.
Speaker Change: Much of our $550 million cost reduction program.
Speaker Change: With solid improvements in 2023, we remained confident of reaching that cumulative savings target this year as.
Speaker Change: As a reminder, we are targeting three main drivers, reducing logistics costs lean manufacturing operations through Cvs and supply chain savings, including our strategic sourcing program.
Speaker Change: With a solid foundation to build upon CBS has been enthusiastic enthusiastically embraced around the company as we engage our employees to create more efficient processes using lean principles and kaizen events.
Speaker Change: Strategic sourcing is ramping up and we will begin to contribute in 2024 with accelerating savings for many quarters to come.
Speaker Change: For our SG&A restructuring, a 10% to 15% reduction translates to about 160 million to $240 million of savings we.
Adonay: We are well underway with this difficult work and expect to complete this effort in the first half of 2024. We are also zero-based budgeting our non-labor SG&A with an eye toward right-sizing some of our service agreements and expanding support operations in low-cost countries. Together, we expect these SG&A initiatives to save about $140 to $180 million in 2024, with the remainder carrying over into 2025. I will now turn the call over to Adonay to take us through the financial results. Thank you, Scott, and good morning, and good afternoon to everyone on the call. Four-quarter industrial net sales were down 5% year-over-year to $6 billion. The decline was mostly due to lower sales at agricultural equipment dealers, especially in South America.
Speaker Change: We are well underway with this difficult work and expect to complete this effort in the first half of 2024.
Speaker Change: We are also zero based budgeting, our non labor SG&A with an eye toward right sizing some of our service agreements and expanding support operations in low cost countries. Together, we expect these SG&A initiatives to save about $140 million to $180 million in 2024 with the remainder carrying over into 2025.
Speaker Change: I will now turn the call over to <unk> to take us through the financial results. Thank.
Speaker Change: Thank you Scott and good morning, good afternoon to everyone on the call.
Speaker Change: Fourth quarter net sales were down 5% year over year to $6 billion. The decline was mostly due to lower sales in constant equipment dealers, especially in South America.
Adonay: In Q4 of 2022, we also saw a strong growth in digital inventories in low-host power tractors in North America, but those reduced significantly in the fourth quarter of 2023, as we underproduced retail by almost 40% in this product category during the second half of the year. For the full year, net sales were $22.1 billion, up 3% from 2022, mainly driven by price realization in the first half of setting lower unit sales for the full year. Our profits increased year-over-year in every single quarter despite the slowing sales. Adjusted income was $2.3 billion for the year, with an adjusted diluted EPS of $1.70, up 24 cents versus 2022. The negative impact of the Argentine pace of devaluation and the resulting loss in value from our cash holdings was about 4 cents on both the adjusted and the unadjusted EPS. Q4 Industrial Free Cash Flow was $1.6 billion.
Speaker Change: In Q4 of 2022, we're also seeing a strong growth of data and inventory is in low horsepower tractors in North America those reduce it significantly in the fourth quarter of 2023, as we underproduce retail, but almost forced by almost 40% in this product category during the second half of the year.
Speaker Change: For the full year net sales were $22 1 billion up 3% from 2022, mainly driven by price realization in the first half offsetting the lower unit sales in the full year.
Speaker Change: Our profit increase in every single quarter, despite the slowing sales.
Speaker Change: Adjusted net income was $2 3 billion for the year with an adjusted diluted EPS of $1 70.
Speaker Change: 24 versus 2020.
Speaker Change: The negative impact from the Argentine peso devaluation on the resulting loss of value from our cash holdings was above <unk>, although the adjusted and the unadjusted UBS.
Speaker Change: Q4, industrial free cash flow was $1 $6 billion full year free cash flow was $1 2 billion at the top of the most recent guidance range of down versus the previous year due to our efforts to manage channel inventory.
Adonay: Q4 Free Cash Flow was $1.2 billion at the top of the most recent guidance range, but down versus the previous year due to a right to manage challenge in venture. Industrial Activities. End of the year, almost not that free.
Speaker Change: Industrial activities ended the year almost net debt free.
Speaker Change: In agriculture, the net sales decrease of 8% in the quarter was driven by lower industry demand, especially in South America for all product categories and for combined North America and EMEA.
Adonay: In agriculture, the net sales decrease of 8% in the quarter was driven by lower industry demand, especially in South America, for all product categories and for combines in North America and EMEA. Four-year net sales were up 1%, driven mainly by higher price utilization in North America, upset by the unfavorable volume and mix, mostly in South America. As we see cost reduction accelerating in our production system, we improve our gross margin in both the quarter and the full year, closing 2023 at 25.5%, up 170 basis points from 2022. Q4 EBIT, an EBIT margin, also benefited from $14 million of lower SG&A expenses.
Speaker Change: Full year net sales were up 1% driven mainly by higher price realization in North America, offset by the unfavorable volume and mix, mostly in South America.
Speaker Change: As we see cost reduction accelerating our production system, we improve our gross margin in both the quarter and the full year closing 2020, or 25, 5% up 170 70 basis points from 2022.
Speaker Change: Q4, EBIT and EBIT margin also benefited from $14 million from lower SG&A expenses.
Adonay: The full-year adjusted EBIT increase of 1.4 percentage points was driven by favorable price over cost and higher JV income, which you'll find in the FX and other categories, more than offsetting the adverse volume and mix in the second half of the year. Turning to construction, net sales for Q4 were at 9% year-over-year, mostly due to price realization and higher volumes in North America, partially offset by lower volumes in EMEA and South America. Four-year sales were up 10% to $3.9 billion, driven by the strength of North American demand and positive price serialization.
Speaker Change: Adjusted EBIT increased one four percentage points.
Speaker Change: It was driven by favorable price cost and higher JV income, which you'll find in the FX and other category.
Speaker Change: More than offsetting the adverse volume and mix in the second half of the year.
Speaker Change: Turning to construction net sales for Q4 were up 9% year over year, mostly due to price realization and higher volumes in North America, partially offset by lower volumes in EMEA and South America.
Speaker Change: Full year sales were up 10% to $3 9 billion driven by the strength of North American demand and positive price realization.
Speaker Change: Gross margins increased by two to three percentage points in 2023% to 15, 6% from favorable price over cost.
Adonay: Gross margins increased by 2.3 percentage points in 2023 to 15.6% from favorable price over cost. The full-year margin grew to an all-time high of 6.1%, up to 160 basis points, substantially driven by the price-over-product cost relationship. For financial services, net income in the fourth quarter was $113 million, a 50% increase compared to Q4 2022.
Speaker Change: Q4, adjusted EBIT also benefits from lower SG&A expenses, resulting in a five 8% EBIT margin.
Speaker Change: The full year margin.
Speaker Change: Close to an all time high of six 1% up to 160 basis points substantially driven by the price of our product cost relationship.
Speaker Change: Our financial services net income in the fourth quarter was $113 million or 50% EPS compared to Q4 2022.
Adonay: The sharp improvement was mostly driven by higher receivables per folio across regions, better margins, and lower risk costs, only partially offset by a higher effective tax rate for the sector. Retail Originations in the quarter were $3.4 billion, up $1.5 billion compared to the same period of 2022, as we are capturing a higher percentage of our end-customer equipment financing needs. The managed portfolio year-end was nearly $29 billion, up over $5 billion compared to the prior year.
Speaker Change: The sharp improvement.
Speaker Change: It was mostly driven by higher receivables portfolio across regions, better margins and lower rates call.
Speaker Change: Only partially offset by a higher effective tax rate for the segment.
Speaker Change: Retained originations in the quarter were $3 $4 billion.
Speaker Change: <unk> compared to the same period of 2022, as we are capturing a higher percentage of our end customer and equipment financing needs.
Speaker Change: The managed portfolio at year end was nearly $29 billion up over 5 billion compared to the prior year.
Adonay: We have been able to raise capital efficiently and affordably throughout the year to fund our credit operations. Financial services profitability ratios have also improved year-over-year, and delinquencies remain at a very low level, even slightly higher than in 2022. This reflects the solid nature of agricultural equipment financing.
Speaker Change: We have been able to raise capital efficiently and affordably to while the year to fund our credit operations.
Speaker Change: Yeah.
Speaker Change: Financial services profitability ratios also improved year over year and delinquencies remain at the very low level, even in slightly higher than in 2022.
Speaker Change: Reflects the solid nature of agriculture equipment financing.
Adonay: Moving to our capital allocation priorities, at 2022 Capital Market Day, we announced $4.4 billion combined R&D and capex spending over 2022-2024, almost doubling what we spent in ag and construction in the previous three years, as we were no longer required to fund the on-highway capital needs of the larger CNH industry. In the first two years of the plan, we spent $3 billion, reflecting increased activity levels and some inflation. We remain committed to investing in our business to fuel our profitable growth and will spend around $1.4 to $1.5 billion in 2024 on R&D and capital. We are confident that the products, technology, and services that we're bringing to the market by virtue of this spending will ensure a better financial performance for the company and, more importantly, higher productivity for our customers. Our solid cash generation and healthy balance sheet are helping us improve our investment-grade credit rating.
Speaker Change: Moving to our capital allocation priorities at a cap at 2022 capital market day, we announced a $4 $4 billion combined R&D and Capex spending over 22024, almost <unk>, what we spent in AG and construction in the previous three years.
Speaker Change: As we were no longer required to funding to fund the ongoing capital needs of the larger <unk> last year.
Speaker Change: In the first two year of the plan, we spent $3 billion, reflecting increased activity levels and some inflation.
Speaker Change: We remain committed to investing in our business to fuel our profitable growth and what's been around one four to $1 5 billion in 2024 between R&D and Capex.
Speaker Change: We are confident the products technology and services that we're bringing into the market by virtue of the spending will ensure a better financial performance for the company and more importantly, higher productivity for our customers.
Speaker Change: Our solid cash generation and healthy balance sheet and are helping us improve our investment grade credit rating and last November as S&P raised by one notch our rating to <unk> with stable outlook.
Adonay: And last November, S&P raised by one notch our rating to triple B plus with stable output. In 2023, we will return about $1.2 billion to shareholders through dividends and share repurchases. As you know, in November, we launched a $1 billion share buyback program in conjunction with our move to a single listing in New York, with a target completion date of March 1st. To date, we have purchased about $935 million worth of shares between Milan and New York. And so, we will likely complete the current program by the end of this month. The board has authorized a new 500 million share repurchase program that we will start at the end of this year.
Speaker Change: In 2023 will return about one 2 billion to shareholders through dividends and share repurchases. As you know in November we launched our $1 billion share buyback program in conjunction with our move to a single leasing in New York with a target completion by March one.
Speaker Change: To date, we have purchased about 300 $935 million worth of shares between Milan and New York.
Speaker Change: And so we will likely complete the current program by the end of this month.
Speaker Change: The board has authorized a new 500 medium program share repurchase program that we will start at the end of this year.
Adonay: We also expect that the dividend distribution, consistent with our dividend policies and reflective of the higher net income achieved in 2023, will be approved by our shareholder meeting. Finally, we will continue to seek opportunities to improve our product offerings and advance our tech stack for M&A, including through our CNH Ventures Arc. Before turning back to Scott with the Broader Industry and Company Outlook, I would like to provide you with some details regarding our 2024 financial establishment. Net price realization is expected to be between flat and 2 percent, depending on the product and the region. On average, for all products and regions, pricing will be around 1 percent. Again, we expect to spend between $1.4 and $1.5 billion on combined R&D and CapEx in 2024, with R&D expenses above flat year-over-year at around $1 billion, and CapEx between $400 and $500 million. Corporate expenses, or what we call unallocated and other industrial activities, are expected to be about flat year-over-year in absolute dollar terms. At the company level, the adjusted effective tax rate would be in the range of 25 to 27%, similar to 2023.
Speaker Change: We also expect that the dividend distributions consistent with our dividend policies and reflective of the higher net income achieving 2020 would be approved by our shareholder meeting.
Speaker Change: Finally, we continue to seek opportunities to improve our product offerings and advance our tech stack to M&A, including through our <unk> ventures arm.
Speaker Change: Before turning it back to Scott with the broader industry and company outlook I would like to provide you with some details regarding that.
Speaker Change: 2024 financial assumptions.
Speaker Change: Net price realization is expected to be between flat and 2% depending on the product in the region.
Speaker Change: On average for all products and regions pricing would be around 1%.
Scott Wine: Again, we expect to spend between one four and $1 $5 billion on combined R&D and Capex in 2024 with R&D expenses about flat year over year at around 1 billion and Capex between 400 and $500 million.
Scott Wine: Corporate expenses or what we call unallocated and other industrial activities are expected to be about flat year over year in absolute dollar terms.
Scott Wine: At the company level, the adjusted effective tax rate would be in the range of 25% to 27% similar to 2020.
Scott Wine: The diluted share count estimate is about is estimated about one and a quarter billion factoring in the impact of our current buyback program.
Scott Wine: The diluted share count is estimated at about $1.25 billion, factoring in the impact of our current buyback program. I will now turn it back to Scott. Thank you, Adonay. As we mentioned last quarter, we expect agriculture retail demand to be lower in 2024. However, soft commodity prices have declined, driving year-over-year U.S. net farm income down to, or even possibly below, the 20-year average.
Scott Wine: I will now turn it back to Scott.
Scott Wine: Thank you Donna.
Scott Wine: As we mentioned last quarter, we expect agriculture retail demand to be lower in 2024.
Scott Wine: While commodity prices have declined driving year over year U S. Net farm income down to or even possibly below the 20 year average.
Scott Wine: In aggregate, considering our key markets and product offerings, we expected industry retail demand to be down 10% to 15% in 2024.
Scott Wine: In aggregate, considering our key markets and product offerings, we expect industry retail demand to be down 10 to 15% in 2024. We forecast CNH's ag sales to be down between 8 and 12 percent. We do have pockets of elevated inventory in North America and Europe to address, which will impact first half sales volumes and pricing. Because of our early actions to manage dealer inventory in South America in 2023, we have relatively less work to do there. We are targeting ag-ebit margins between 14% and 15% as our cost reduction programs help offset lower volume and more of our factory-fit precision products come in-house for our customers. It is important to recognize that we are building this margin resiliency while continuing to fully fund our tech journey.
Scott Wine: We forecast <unk> AG sales to be down between eight and 12%.
Scott Wine: We do have pockets of elevated inventory in North America, and Europe to address which will impact first half sales volumes and pricing.
Scott Wine: Because of our early actions to manage dealer inventory in South America in 2023, we have relatively less work to do there.
Scott Wine: We are targeting AG EBIT margins between 14, and 15% as our cost reduction programs help offset lower volumes and more of our factory fit precision products come in house.
Scott Wine: For our customers.
Scott Wine: It is important to recognize that we are building this margin resiliency, while continuing to fully fund our tech journey.
Scott Wine: In construction, we expect high interest rates to soften both residential and commercial end markets in North America, and Europe, partially offset by U S infrastructure spending.
Scott Wine: In South America construction markets are projected to be flattish following a market decline there in 2023 and.
Scott Wine: In aggregate for our markets and products.
Scott Wine: We anticipate construction equipment industry retail demand to be down about 10% in 2024.
Scott Wine: In construction, we expect high interest rates to soften both residential and commercial end markets in North America and Europe, partially offset by U.S. infrastructure spending. In South America, construction markets are projected to be flattish, following a marked decline there in 2023, and aggregates for our markets and products. We anticipate construction equipment industry retail demand to be down about 10% in 2024. CNH construction sales are therefore expected to be down in the range of 7-11% year-over-year.
Scott Wine: CMA construction sales are therefore expected to be down in the range of 7% to 11% year over year 2023 sales included dealers stocking a typically large number of new construction products, which will not repeat to the same level in 2024.
Scott Wine: Our EBIT margin target for construction is between 5% and 6% again supported by our cost savings initiatives.
Scott Wine: Blending AG and construction brings our forecast for industrial net sales down between eight and 12% in 2024.
Scott Wine: We do not control industry demand, but we do control how we react to it.
Scott Wine: We are on a multiyear journey to improve through cycle margins and in 2023. We proved we can expand margins with slightly lower industry demand in 2024, we will demonstrate that we can sustain through cycle margin improvement even as the industry declines further.
Scott Wine: 2023 sales included dealers stocking an atypically large number of new construction products, which will not repeat to the same level in 2024. Our EBIT margin target for construction is between 5% and 6%, again, supported by our cost savings initiative. Blending Ag and Construction brings our forecast for industrial net sales down between 8 and 12% in 2024. We do not control industry demand, but we do control how we react to it. We're on a multi-year journey to improve through cycle margins, and in 2023, we proved we can expand margins with slightly lower industry demand. In 2024, we will demonstrate that we can sustain through cycle margin improvements even as the industry declines further. We introduced this model of improving profitability curves last quarter. As you can see, our aggressive cost actions pushed the 2024 curve above the 2023 profile. The shaded area indicates the relevant industry and margin ranges implied by the segment guidance.
Scott Wine: We introduced this model of improving profitability curves last quarter as you can see our aggressive cost actions.
Scott Wine: Pushed the 2024 curve above the 2023 profile the shaded area indicates the relevant industry and margin ranges implied by the segment guidance.
Scott Wine: With these levels of sales and EBIT, we expect industrial free cash flow to be between $1 2 billion and $1 4 billion.
Scott Wine: And EPS to be between $1 50, and $1 60 in 2024.
Scott Wine: In addition to our cost actions, we are laser focused on commercial execution working with our dealer partners to provide customers with innovative reliable and efficient solution.
Scott Wine: Our order collection in North America extends into Q3, but we have less visibility in other markets, particularly South America.
Scott Wine: Raphael <unk>, who leads that region for us as it is has an especially strong team and dealer network and we are confident in our ability to outperform no matter how that market develops.
Scott Wine: We have talked extensively about the importance of advancement of our cost programs early on we recognize the need for these measures and started working to implement them and improve our decremental margins.
Scott Wine: Our recent acquisitions have given us complete control of differentiating technological capabilities, which are already being integrated into our tech ecosystem.
Scott Wine: We are making progress building out our tech stack and are exploring options to accelerate this process and bring incremental benefits to our customers even faster.
Scott Wine: We look forward to highlighting more of our journey at our upcoming Investor day to be held May 21 at the New York Stock Exchange.
Scott Wine: What you can expect there is a refresh of our financial targets and a progress update on our company strategy not a new strategy. We are still executing the one we outlined in 2022.
Scott Wine: With these levels of sales and EBIT, we expect industrial free cash flow to be between $1.2 billion and $1.4 billion in 2024, and EPS to be between $1.50 and $1.60. In addition to our cost actions, we are laser-focused on commercial execution, working with our dealer partners to provide customers with innovative, reliable, and efficient solutions. Our order collection in North America extends into Q3, but we have less visibility in other markets, particularly South America. Rafael Mioto, who leads that region for us, has an especially strong team and dealer network, and we are confident in our ability to outperform no matter how that market develops. We have talked extensively about the importance of the advancement of our cost programs.
Scott Wine: Our results demonstrate that it is working well for us.
Scott Wine: I'll conclude by reiterating how much I preach appreciate the <unk> team for finishing 2023 and strong fashion, while positioning us to take as a company to another level in 2024.
Scott Wine: That concludes our prepared remarks, Ben will you open the line for questions. Please.
Scott Wine: Sure.
Ben: Ladies and gentlemen, as a reminder, if you'd like to ask a question or make a contribution on todays call. Please press star one on your telephone keypad now and to reach all your question. Please press star two.
Ben: First question comes from the line of.
Scott Wine: Deliberate.
Ben: <unk> from Baird. Please go ahead.
Deliberate: Yes. Good morning can you hear me okay.
Deliberate: Sure.
Deliberate: Excellent congrats on a strong year a strong finish here.
Speaker Change: I guess I guess Scott.
Speaker Change: My first question is.
Speaker Change: Related to your comments on dealer inventories. This is obviously one of the points of controversy I guess in the space.
Operator: Early on, we recognized the need for these measures and started working to implement them and improve our decremental margins. We are making progress building out our tech stack and are exploring options to accelerate this process and bring incremental benefits to our customers even faster. We look forward to highlighting more of our journey at our upcoming Investor Day to be held on May 21st at the New York Stock Exchange. What you can expect there is a refresh of our financial targets and a progress update on our company strategy, not a new strategy. We are still executing the plan we outlined in 2022, and our results demonstrate that it is working well for us. That concludes our prepared remarks. Ben, will you open the line for questions, please?
Scott Wine: Can you give us a little more perspective in terms of maybe.
Scott Wine: Quantify the headwind that Destocking would have for you in both segments and kind of how you were thinking about first half versus second half. Thank you.
Speaker Change: Yes, we don't.
Speaker Change: With the easier one.
Scott Wine: Stefano and his team on the construction side really don't have much that we have.
Scott Wine: We're pleasantly surprised with the demand in the fourth quarter, which helped manage inventory in that segment a little bit better.
Scott Wine: We've probably got room in South America, where we've got really lean construction inventory. So overall I think construction is in reasonably good shape and as I said in the prepared remarks.
Scott Wine: Pockets that we have in in the AG side of things, we're still working through low horsepower tractors, we're making progress we have a little bit of work to do there.
Scott Wine: Europe there is some.
Operator: Sure. Ladies and gentlemen, as a reminder, if you would like to ask a question or make a contribution during today's call, please press star 1 on your telephone keypad now, and to rephrase your question, please press star 2. The first question comes from the line of Mick Dobre, calling from BIRD. Please go ahead. Yes, good morning. Can you hear me OK?
Scott Wine: That market has slowed a little bit in some regions and so we've got a little more work to do in large AG there.
Scott Wine: But generally speaking there is a and again a few pockets in North America, where wed like I would say in aggregate.
Scott Wine: It's well well below $1 billion of work, we have to do overall on on dealer inventory.
Scott Wine: Good. Excellent, congrats on a strong year, a strong finish year. I guess, Scott, my first question is related to your comments on dealer inventories. This is obviously one of the points of controversy in the space. Can you give us a little more perspective in terms of maybe quantifying the headwind that destocking would have for you in both segments and kind of how you're thinking about first half versus second half? Yeah, you know, we don't. I'll start with the easier one.
Scott Wine: We've got clear plans, both with retail execution and production management to make sure that we get that addressed.
Scott Wine: This quickly as we can but it's relatively less work to do especially in Brazil, where I said that the team did a really nice job of helping us react quickly so.
Scott Wine: As that market turns that'll be and it's going to turn at some point will be.
Scott Wine: Well positioned to restock there.
Scott Wine: Understood.
Speaker Change: My follow up is on how youre thinking about above the AG cycle. Here you you commented on the fact that farm income is.
Scott Wine: You know, Stefano and his team on the construction side really don't have much. We were pleasantly surprised with the demand in the fourth quarter, which helped manage inventory in that segment a little bit better. You know, we probably have room in South America where we have a really lean construction inventory. So overall, I think construction is in reasonably good shape. And as I said in the prepared remarks, it's just pockets that we have on the ag side of things. You know, we're still working with low horsepower tractors.
Scott Wine: Is down back to maybe below 20 year average.
Scott Wine: Or do you think about the magnitude and duration of this.
Scott Wine: Downcycle.
Scott Wine: Is it different than what you've experienced in the past and if so why.
Speaker Change: Well I think the positives.
Scott Wine: <unk>.
Scott Wine: Diary repeated the press release that came out about North American farm income, but remember farmer balance sheets are still in reasonably good shape.
Scott Wine: We're making progress. We have a little bit of work to do there. Europe, there's some, you know, that market slowed a little bit in some regions, and so we've got a little more work to do in large agriculture there.
Scott Wine: That's helpful. The age of equipment is still is quite quite high which is helpful.
Scott Wine: The advancement of technology, which just dramatically improves productivity and yield and therefore dramatically benefits. The former those are all <unk> offsetting it. So the other thing is you are not starting this with tremendous amount of used inventory tremendous amount of overall, so we're starting from a better place soft.
Scott Wine: But generally speaking, there's a few pockets in North America where we'd like, I would say an aggregate, you know, it's well below a billion dollars of work we have to do overall on dealer inventory. And we've got clear plans, both with retail execution and production management, to make sure that we get that addressed as quickly as we can. But there was relatively less work to do, especially in Brazil, where I said that the team did a really nice job of helping us react quickly.
Scott Wine: <unk> prices are.
Scott Wine: Or are likely to be down for a couple of years and I think we are just expecting the industry. The flattish from here for a little while but I'm not expecting.
Scott Wine: None of our projections internally suggest this is going to be another significant step down like we saw maybe 15 years ago.
Scott Wine: So as that market turns, you know, that'll be, and it's got to turn at some point, we'll be well positioned to restock there. Then my follow-up question is on how you're thinking about the ag cycle here. You commented on the fact that farm income is down, maybe below a 20-year average. How do you think about the magnitude and the duration of this down cycle? Is it different than what you've experienced in the past? And if so, why?
Scott Wine: Setups is very different from that.
Speaker Change: Thanks for the color.
Speaker Change: Thanks, Greg.
Scott Wine: The next question comes from the line of Nicole <unk>, calling from Deutsche Bank. Please go ahead.
Nicole: Yes, thanks, good morning, guys.
Nicole: And maybe just starting with the quarterly cadence.
Nicole: You mentioned getting some more work on dealer inventories in the first half doesn't sound like there's like.
Nicole: A crazy amount of work to do there, but Sam I mean does that mean that if we kind of compare the way you see 2024 with a more normal seasonal build one half could be a little bit lower than we typically see his contribution to the full year. If you could just kind of talk through that.
Scott Wine: Well, I think the positives, and I repeated the press release that came out about North American farm income, but remember, farmer balance sheets are still in reasonably good shape. That's helpful. The age of equipment is still quite high, which is helpful.
Scott Wine: And the advancement of technology, which just dramatically improves productivity and yield and therefore dramatically benefits the farmer, those are all tailwinds offsetting it. So the other thing is, you know, you're not starting this with a tremendous amount of used inventory, and a tremendous amount of overall delay. So we're starting from a better place. You know, soft commodity prices are likely to be down for a couple of years, and I think we are just expecting the industry to be flattish from here for a little while. But I'm not expecting, none of our projections internally suggest this is going to be another significant step down, you know, like we saw, you know, maybe 15 years ago. The setup's just very different from that.
Sam: Yes, we definitely expect.
Sam: Two one.
Sam: Definitely compared to last year.
Sam: Q2, a lot will depend on how the demand will evolve and what level of dealer inventories will have and what kind of demand will be there and then definitely EQT in Q4 should be an easy comparable comparative with this year with plenty of time it takes.
Speaker Change: So okay got it yes, sorry.
Speaker Change: Alright got it.
Speaker Change: Yes, Q1 is low and probably will be is typically low and probably will be lower and then and then as the usual seasonality.
Speaker Change: Okay. Okay understood. That's helpful. Thank you and then just going back on pricing I know you guys gave the expectation for flat to up 2% first is that kind of similar in both AG and construction and then second what are you.
Scott Wine: Thanks for the call. Thank you. The next question comes from the line of Nicole DeBlase calling from Dutch Bank. Please go ahead. Yeah, thanks. Good morning, guys.
Adonay: Maybe just starting with the quarterly cadence, you kind of mentioned doing some more work on dealer inventories in the first half. Doesn't sound like there's a crazy amount of work to do there, but some. I mean, does that mean that if we kind of compare the way you see 2024 with a more normal seasonal build, one half could be a little bit lower than we typically see as contribution to the full year? Could you just kind of talk through that? Yeah, we definitely expect a tougher Q1, definitely compared to last year. Q2 a lot will depend on how the demand evolves and what level of dealer inventories we will have and what kind of demand there is. And then, definitely, Q3 and Q4 should be easy to compare with this year and 2023. So...
Speaker Change: With respect to and what do you expect to get with respect to dealer incentives and 2024 as demand is a bit weaker than 'twenty three thanks.
Speaker Change: Yes, I would say, it's similar for AG and construction.
Speaker Change: Of course construction is a much more competitive market.
Speaker Change: In terms of number of competitors in terms of market dynamics. So we have less.
Speaker Change: Visibility day to want.
Speaker Change: In terms of.
Speaker Change: <unk>.
Speaker Change: Retail incentive bullwinkle retail incentive discussion on it spending.
Speaker Change: With the dealers for sure.
Speaker Change: Support the financing will be relevant across the year.
Speaker Change: And.
Speaker Change: We have as we have announced that we started.
Speaker Change: Being more more generally that you want them on dealer incentives into Q4.
Adonay: Okay, I got it. Yeah. Sorry. Sorry.
Speaker Change: And we'll likely we will continue to be at least in the first half of the year.
Adonay: Yeah, Q1 is low and probably will be, it's typically low and probably will be lower, and then there is the usual seasonality. Okay, understood. That's helpful.
Speaker Change: Thanks, I'll pass it on.
Speaker Change: The next question comes from the line of Steven Fisher from UBS. Please go ahead.
Steven Fisher: Thanks, Good morning.
Adonay: And then just going back on pricing, I know you guys gave the expectation for flat to up 2%. First, is that kind of similar in both ag and construction? And then second, what are you seeing with respect to, and what do you expect to do with respect to dealer incentives in 2024 as demand is a bit weaker than 2023? Thanks.
Steven Fisher: I know Tony you just said Q1 was likely could be tougher I'm wondering if we could just maybe.
Steven Fisher: Put a little more framework around that I'm curious if you think.
Steven Fisher: <unk> in Latin America should be.
Steven Fisher: <unk> double digit down 20, plus percent year over year in the first quarter.
Steven Fisher: Then just kind of gets better over the course of the year and then I guess more fundamentally what happens do you think.
Adonay: Yeah, I would say it's similar for ag and construction. Of course, construction is a much more competitive market, in terms of the number of competitors and in terms of market dynamics, so we have less feasibility there if you want, uh... in terms of the Retail Incentive, what we call Retail Incentive Discretionary Spending with the dealers for sure. Support to funding will be relevant across the year. And we have, as we have announced, been more generous, if you want, on dinner incentives in Q4 and will likely continue to be, at least in the first half of the year. Thanks, I'll pass it on.
Steven Fisher: Over the course of the year in Brazil.
Steven Fisher: Is your forecasting assuming that farmer confidence improves the buying activity picks up or is it just sort of more easier comparisons of the year goes along.
Steven Fisher: Starting from South America from Brazil, I think.
Steven Fisher: Yes.
Steven Fisher: Which stopped making making.
Speaker Change: Uh huh.
Steven Fisher: Detailed forecasts about what is happening there because we see a disconnect between the fundamentals.
Adonay: The next question comes from the line of Steven Fisher calling from UBS. Please go ahead. Thanks. Good morning.
Steven Fisher: The behavior of the customer and Thats why we have adjusted our dealer inventor insignificantly the second half of last year.
Adonay: I know, Adonia, you just said that Q1 was likely to be tougher. I'm wondering if we could just maybe put a little more framework around that. I'm curious, you know, do you think, particularly in Latin America, I mean, it should be, you know, strong, double digit, you know, down 20 plus percent year over year in the first quarter and then just kind of gets better over the course of the year. And then, I guess just more fundamentally, what happens, do you think, over the course of the year in Brazil? Is your forecasting assuming that farmer confidence improves, such as as buying activity picks up? Or is it just sort of easier comparisons as the year goes along? Starting from South America and from Brazil, I think... which stopped making, making, very, very, I would say much of your conversation with them, and we are.
Steven Fisher: We are in constant dialogue with our dealer network we have.
Steven Fisher: Very very.
Steven Fisher: I would say mature conversation with them.
Steven Fisher: And we are.
Steven Fisher: We are observing day by day, what's happening on the market.
Steven Fisher: But we don't have a large a large forecast have been a lot of transportation for for growth there.
Steven Fisher: The.
Steven Fisher: Yes, I haven't sale will likely be down double digit in the first quarter.
Steven Fisher: Globally, and then and then we will see after that.
Steven Fisher: How the market numbers. It is also.
Steven Fisher: Important to note Stephen that our cost actions that we've been working on.
Steven Fisher: We will gain momentum throughout the year, So we'll get benefit in Q1, but materially more benefit as we go throughout the year, just because we're getting more maturity and better execution.
Adonay: We are observing day-by-day what's happening on the market, but we don't have a large forecast, I mean, a large expectation for growth there. The, yeah, I mean, sales will likely be down double digits in the first quarter globally, and then and then we will see after that how It's also important to note, Steven, that our cost actions that we've been working on will gain momentum throughout the year. So, you know, we'll get some benefit in Q1, but, you know, materially more benefit as we go throughout the year just because we're getting more maturity and better execution as that comes through. So that also affects a little bit of the calendarization. Okay, that's helpful.
Steven Fisher: As that comes through so that also affects a little bit of a calendar <unk>.
Steven Fisher: Okay. That's helpful and then Scott maybe a bigger picture question for you I mean this year you shouldnt be wrestling with a pandemic that supply chain correct alone UAW strike.
Scott Wine: Lifting and what's in there.
Scott Wine: Cost actions are for.
Steven Fisher: Formulated in a lot of actions.
Scott Wine: I'm not trying to jinx, you or anything but it seems like this could be the first year, where you can kind of choose what to focus on and that was going to ask you. What your focus is really going to be but you did in your prepared remarks, you talk about your strategic priority. So maybe the question is more around what's your confidence in execution.
Scott Wine: Then Scott, maybe a bigger picture question for you. I mean, this year, you shouldn't be wrestling with a pandemic, a supply chain crisis, a long UAW strike, or a delisting. Much of your cost actions are formulated in a lot of actions. I'm not trying to jinx you or anything, but it seems like this could be the first year where you can kind of choose what to focus
Scott Wine: This year.
Scott Wine: And what kind of benchmarks should really we'd be using at this time next year to kind of gauge how about all wet.
Scott Wine: Yes.
Scott Wine: I think what the last three years and then you kind of highlighted some of the crap, we dealt with but.
Speaker Change: What it's what it's done is given me the ability to see how strong this team is and how well they execute.
Scott Wine: And I was going to ask you what your focus is really going to be, but you did in your prepared remarks talk about your strategic priorities. So maybe the question is more around how confident are you in execution this year? And what kind of benchmarks should we really be using at this time next year to kind of gauge how that all went? You know, I think about the last three years, and then you kind of highlighted some of the crap we've dealt with, but, you know, what it's done is given me the ability to see how strong this team is and how well they execute.
Speaker Change: And as we put in some more of our lean work and CBS.
Speaker Change: The culture change.
Speaker Change: Really part of the reason our Decrementals are so much better is just the work that this team has done to get in better position.
Speaker Change: Immensely more positive on what we can do regardless of what happens externally you are forgetting that there is a U S election.
Speaker Change: Yeah.
Speaker Change: What kind of and who knows what that's going to be like.
Speaker Change: But we put a plan together that we feel comfortable we can execute.
Scott Wine: And, you know, as we put in, you know, some more of our lean work and CVS and, you know, the culture change, I mean, really, part of the reason our decrementals are so much better is just the work that this team has done to get in better positions. I'm immensely more positive about what we can do regardless of what happens externally. You know, you're forgetting that there is a U.S. election coming up that's going to be, you know, what kind of, who knows what that's going to be like.
Speaker Change: And I believe Youll just see the fundamentals.
Speaker Change: Which really show up in margins, just getting better and better as we continue to work through this so I'm immensely confident in how this team is prepared to get through.
Speaker Change: A down year.
Speaker Change: Topline sales and just prove that this isn't an anomaly, but really what we're capable of.
Speaker Change: Throughout the cycle.
Speaker Change: Terrific. Thank you.
Speaker Change: Next question comes from David Russell, calling from Evercore.
Scott Wine: But, you know, we put a plan together that we feel comfortable we can execute, and I believe you'll just see the fundamentals, which really show up in the margins, just getting better and better as we continue to work through this. So I'm immensely confident in how this team is prepared to get through, you know, a down year in top line sales and just prove that, you know, this isn't an anomaly but really what we're capable of throughout the cycle. Terrific. Thank you. Thank you very much.
David Raso: Please go ahead.
David Raso: Thank you very much I'm trying to get a sense of the cadence of the margins year over year.
David Raso: All years implied about 70 bps slower from a business segment level, including the corporate expense. So I am just trying to understand what the first half commentary, especially the first quarter on a year over year basis can you give us some sense of do we take a lot more than a 70 bps hit in the first half of the year.
David Raso: And then it balances out because I'm trying to get a bigger picture, where the margins may be exiting 'twenty four.
David Raso: At least what's in your guidance yet.
David Raso: <unk>.
Speaker Change: We don't have we're not giving detailed guidance by quarter and quite frankly, we are reviewing our we're doing our forecast re forecast of the year right now so.
Adonay: I'm trying to get a sense of the cadence of the margins year over year, the full years implied about 70 pips lower from a business segment level, including the corporate. So I'm just trying to understand what the first half commentary, especially the first quarter, on a year-over-year basis. Can you give us some sense of, do we take a lot more than a 70 BIP hit in the first half of the Because I'm trying to get a bigger picture of where the margins may be exiting in 2020. Yeah, well, Dave, we don't have, I mean, we're not giving you detailed guidance by quarter. And quite frankly, we are reviewing our forecast and re-forecast of the year right now. So I wouldn't even have it.
David Raso: It wouldn't even have it but if you think of what it's play until right.
David Raso: We say that sales will be lower in the first quarter and we say that we say that we have cost programs that are incrementally getting in throughout the year.
David Raso: But all of that is getting is getting it through all of that yourself.
David Raso: From that.
David Raso: Likely we'll have lower.
David Raso: Progression throughout the year, and we will have a tough Q1.
David Raso: Okay. So basically of that a combination of lower sales and the cost per lead is now getting in.
Adonay: But if you think of what it's playing into, right? We say that sales will be lower in the first quarter, and we say that we have cost programs that are incrementally getting rolled out throughout the year, right? The impact of that is getting in throughout the year, and from that, likely, we will have a progression throughout the year, and we will have a path to one. Okay, so basically, we had a combination of lower sales and the cost programs not getting in completely, if you want. What's in for 24 in total? I heard the SG&A number. What do you have in mind for the COGS reduction?
David Raso: Clearly in Q1.
David Raso: Okay. So the drag of 70 bps for the year, a little more than that in the first half and a little less than that in the second half is a fair generalization.
Speaker Change: And I apologize, maybe I missed it in the beginning.
Speaker Change: On the call.
Speaker Change: Total savings for the year baked in from the <unk>.
Speaker Change: Two programs right the $550 million total Cogs program in the 10% to 15% SG&A.
Speaker Change: Watson for 24 in total I heard the SG&A number what do you have in for the Cogs reduction number for the year.
Adonay: number number. Around 300. We have. Yes, roughly, yes, a little bit more than that. Okay, so basically, we're saying, of course, that will be compensated for, that will be offset by some labor cost inflation and other cost inflation, right? You won't see it in the bucket. Okay, so basically, the total programs combine for about $460 million in savings. So it's sort of like a down 10% revenue, down 40% decremental. But then we get the cost savings to get the decrementals back to about. Thank you. Okay, that was helpful.
Speaker Change: 300 <unk>.
Speaker Change: Yes, roughly yes, a little bit more on that.
David Raso: Okay. So basically were some parts that were being compensated that won't be offset by some labor cost inflation and other cost inflation right you won't see it in the bucket of product cost you will see all of that we will see you will see the net impact.
David Raso: Okay. So basically the total programs combined.
David Raso: $460 million of savings, so it's sort of like a downturn revenue down 40% Decrementals, but then we get the cost savings to get the decrementals back to about 18, 19% Okay helpful.
Adonay: Oh, real quick, sorry, the share count to start the year. I'm having a hard time getting down to the 1250 share count. Yeah, so, so, yeah, so, as we say, I don't have the starting point in front of me, but what we said is the 1,250,000 reflects the current share buyback program that we have, so basically the completion of the $1 billion that we announced back in November, which we plan to complete by basically the end of this month because, as of Friday last week, we had about $935 million worth of shares on the existing share buyback program. Okay, thank you very much.
David Raso: Sorry, the share count to start the year I'm, having a hard time getting down to the one to five O share count yes.
David Raso: So starting point, yes.
Speaker Change: So as we think.
Speaker Change: I don't have the same funding front of me, but what was what would say it is.
Speaker Change: 1 billion 250 reflects that.
Speaker Change: The current share buyback program that we have so basically the completion of the 1 billion that we announced back in November.
David Raso: We plan to complete by basically at the end of this month, because we as of Friday last week, we had both 935 million worth of shares.
David Raso: On the existing share buyback program.
Speaker Change: Okay. Thank you very much I appreciate it.
Adonay: I appreciate it. Thanks, David. Next question is coming from Angel Castillo, calling from Morgan Stanley. Please go ahead. Hi, this is Grace Alfrangio.
Speaker Change: Thanks, David.
NGL Castillo: Next question coming from the NGL Castillo, putting from Morgan Stanley. Please go ahead.
Speaker Change: Hi, This is Chris on for Andrew Thank you for the question.
Scott Wine: Thank you for the question. I think in the last quarter you mentioned you have the order books open for the first half of 2024, so could you give us some updates and more color on your order book trends and how these are filling up across the various ag and construction products? Thank you.
Chris: I think in the last quarter. You mentioned you have a word about the first half 'twenty four so could you give us some update and more color on what type of chance and houses are selling across the various app and construction products. Thank you.
Chris: Okay.
Scott Wine: Hmm. You know, we said in the prepared remarks that we've got to, you know, order through Q3 in North America, less so in other regions, but, you know, we're really less focused on orders. I mean, we've got the demand for our cash products extremely high, but we're less focused on how far out the order books are. I mean, and I looked at the chart yesterday. You know, it's filling up nicely. We're very comfortable with where it is.
Speaker Change: We said on the prepared remarks that we've got two orders through Q3, and then North America less so in other regions, but we're really less focused on order I mean, we've got the demand for our our cash crop products are extremely high.
Speaker Change: But we're less focused on how far out the order books.
Chris: Looked at the chart yesterday.
Chris: It's filling up nicely, we're very comfortable with where it is but it's even if the order is out there from a dealer, we're managing that dealer inventory level, ensuring that our shipments were as you heard from our prepared remarks, most of our comments are related to at the retail execution, we're really striving to ensure that we support.
Scott Wine: But it's, even if an order is out there from a dealer, we're managing that dealer inventory level, ensuring that our shipment's worth it. As you heard from our prepared remarks, most of our comments are related to retail execution. We're really striving to ensure that we support our dealers in driving retail to the end customers so they can get the benefits of these products, much more so than we are about, you know, collecting a bunch of orders that we're not sure that they're going to need. So the demand is high, and again, you know, I highlighted the CR11 and what that product is going to be. And, you know, it's interesting. I literally think it will be years before we meet demand for that product when it's launched. And we're seeing the same thing from our new Steiger four-wheel drive tractor.
Chris: Our dealers in driving retail to the end customers. So they can get the benefits of these products much more so than we are about <unk>.
Chris: <unk> a bunch of orders that were not sure that theyre going to need so the demand is high and again.
Chris: Highlighted the CRM <unk> and what that product is going to be in.
Chris: Interesting.
Chris: I literally think it will be years before we meet demand for that product when it's launched and we're seeing the same thing from our new stagger four wheel drive tractors used these things these high end.
Chris: Extremely productive products or just in high demand, but overall I think our order book is in good shape demand for most of our core cash crop products are in good shape and we're pleased with how that's setting up in an industry that is going to be down year over year.
Scott Wine: Just these things, these high-end, extremely productive products, are just in high demand. But, you know, overall, I think our order book is in good shape. Demand for, you know, most of our core cash crop products is in good shape, and we're pleased with how that's setting up in an industry that's going to be down year over year. The next question comes from the line of Seth Weather calling from Wells Fargo. Please go ahead.
Chris: Yeah.
Speaker Change: Okay. Thank you I'll pass it on.
Speaker Change: The next question comes from the line of Seth whether putting from Wells Fargo. Please go ahead.
Seth: Thanks, Good morning.
Seth: Hey, Scott.
Seth: I wanted to just follow up on your comment about Europe European AG market, where it sounds like Theres, a little bit of extra inventory. There I was wondering if you could just give us a little bit more color there whether its by country or.
Scott Wine: Thanks, good morning. Scott, I wanted to just follow up on your comment about Europe, the European agricultural market, where it sounds like there's a little bit of extra inventory there. I was wondering if you could just give us a little bit more color there, whether it's by country or by product type that you'd specifically call out, and whether that's, you know, crops versus dairy, livestock, anything like that. I'd say overall sentiment is really driving it in that, I mean, you look at the news, and, you know, I think farmers are expressing their dissatisfaction with some of the government And, you know, when they're driving and protesting, they're not planting and harvesting.
Seth: By product type.
Speaker Change: Specifically call out and whether thats crops versus dairy livestock anything like that thank you.
Speaker Change: I'd say, it's overall sentiment is really driving it.
Seth: And that I mean.
Seth: You look at the news.
Seth: I think farmers are expressing their dissatisfaction with some of the government actions and when they're when they're driving in protesting theyre not planting and harvesting so.
Seth: So it's just the overall sentiment is not great in Europe, and that's what we're seeing.
Seth: Again, we're seeing improvements in our penetration.
Seth: Of our precision offerings and I think the team's doing a really good job of executing that.
Seth: We're setting up new dealers in certain regions and we're just proud of the way that they're handling managing the brands there, but just the overall sentiment in Europe is down a little bit and that's reflected in how we're looking at the region.
Scott Wine: So... It's just that the overall sentiment is not great in Europe, and that's what we're seeing. Again, we're seeing improvements in our penetration of our precision offerings, and I think the team's doing a really good job of executing that. We're setting up new dealers in certain regions, and we're just proud of the way that they're handling and managing the brands there. But just the overall sentiment in Europe is down a little bit, and that's reflected in how we're looking at the region, and that's what' You know, as we're in an environment, interest rates are presumably coming down, but they're still a little bit high, so we feel like if we can help our dealers get that inventory down, so we're both in better shape. With that, Europe is not in a crisis situation; it's just an overall sentiment is not ideal right now. I got that very helpful.
Seth: And that's what's driving us to put a little more focus on dealer inventories. There. So we can get that to a more healthy level.
Seth: As we were in an environment where interest rates are.
Seth: Presumably coming down, but there is still a little bit high. So we feel like if we can help our dealers get that inventory down to where we're both in better shape.
Seth: But Europe is not it's not a it's not a crisis situation.
Seth: It's just an overall sentiment is not not ideal right now.
Speaker Change: Got it that's helpful. Thank you and then maybe just on the precision.
Seth: <unk> platform.
Seth: You called out north of a $1 billion in revenue in 2023.
Seth: Would you expect that to grow in 2024, and any sort of order of magnitude of growth that we're looking at this year.
Speaker Change: Well the magnitude is not going to comment on because as our overall volume comes down.
Scott Wine: And then maybe just on the precision platform. I think he called out north of a billion dollars in revenue in 2023. Would you expect that to grow in 2024? And any sort of order of magnitude of growth that we're looking at this year? Well, the magnitude is something I'm not going to comment on because as our overall volume comes down, it's the less precision offerings we're selling in those solutions. But, you know, we are, you know, switching from Tremble to in-house solutions, which is going to be a nice benefit both on the sales and margin side for the year. And, you know, overall, I think we'll be back over a billion dollars this year. Just not sure how much.
Speaker Change: That's less precision offerings, we're selling in those solutions, but we are switching from trimble to in house solutions, which is going to be a nice benefit both on the sales and margin side.
Speaker Change: For the year and overall I think we'll be back over $1 billion. This year, just not sure how much.
Speaker Change: Got it. Thank you guys I appreciate it.
Speaker Change: The next question comes from Michael Fandango coating from Bank of America. Please go ahead.
Speaker Change: Yeah, Hey, guys. Thanks for for <unk>.
Michael Feniger: Mike a question.
Michael Feniger: Scott I just I wanted to ask obviously, you guys talked about pricing this year getting some of those inventories out and you kind of talked about how there's likely not another big step down this market maybe flattish for a while so just trying to get a sense. Scott does that mean, we could see a return to normal on the pricing front as we turn to page 20%.
Scott Wine: Got it. Thank you, guys. Appreciate it. The next question comes from Michael Feniger calling from Bank of America. Please go ahead.
Speaker Change: Five and should we be thinking that price versus cost spread for you in 2025 really starts to widen as the price actions that your inventories more in line.
Scott Wine: Yeah, guys, thanks for taking my questions. Scott, I just wanted to ask, obviously, you guys talked about pricing this year, getting some of those inventories out, and you kind of talked about how there's likely not another big step down this market, maybe flattish for a while. So trying to get a sense, Scott, does that mean we could see a return to normal on the pricing front as we turn the page of 2025? And should we be thinking that the price versus cost spread for you in 2025 really starts to widen as, you know, the price actions get your inventories more in line and some of the cost savings that you have these two programs start to build? I'm just trying to get a sense of how we think about that as we get to 2025. Yeah, no, that's the way we're looking at it is to remember, and depending on the region. Because, you know, obviously, Brazil had, you know, much higher inflation, so they got hit with more prices early. But overall, you know, the prices are up. Many, many.
Speaker Change: And some of the cost savings that you have these two programs we start to build so I'm just trying to get a sense of how we think about that as we get into 2025.
Speaker Change: Yes, no that's.
Speaker Change: Yes.
Speaker Change: Well the way we're looking at it is remember and depending on the region, because obviously, Brazil had much higher inflation. So they got hit with more price early.
Speaker Change: But overall.
Speaker Change: We the prices are up.
Speaker Change: Many many.
Speaker Change: Many tens of percent I mean on overall, so prices have come up somewhat dramatically.
Speaker Change: But also our cost have gone up rather dramatically. So we're keeping that in line. What we started to see in the fourth quarter is us bend that cost curve down and.
Speaker Change: And the pricing maintained level.
Speaker Change: We've said, it's going to be moderate price next year, but we believe that we are in a back to a normal you get that 2% to 3% price.
Speaker Change: When products come out it's going to be a little bit less this year, just because we think.
Speaker Change: Managing through the dealer inventory, but we think that environment of.
Speaker Change: US getting regular 2% to 3% price is really coming back as we get especially as we get to the back half of the year is thats, what we will just continue to see.
Speaker Change: But matched with that is just this benefit of getting aggressively after call, which should keep that differentiate between price cost in a very positive way for us for quite some time.
Speaker Change: And that makes sense Scott.
Scott Wine: Many tens of percent, I mean, overall. So prices have come up somewhat dramatically, but also, our costs have gone up rather dramatically. So we're keeping that in line.
Speaker Change: Obviously, the Decrementals are.
Speaker Change: Or are more resilient than normal given these cost reduction efforts I'm curious Scott maybe this will be touched on at the Investor day like when we finally get to the other side of this does this mean, we should be seeing better incrementals as volumes at some point to recover just curious how we should kind of think about that as we kind of go through this.
Scott Wine: What we started to see in the fourth quarter is us bend that cost curve down, and the pricing, you know, maintains a level. We've said it's going to be a moderate price next year, but we believe that we are back to normal. You know, you get that 2 to 3 percent price when products come out.
Speaker Change: Downturn in the cycle and come out the other end.
Scott Wine: Well that is 100% what we are striving to do.
Speaker Change: And a lot of this cost work.
Scott Wine: It's going to be a little bit less this year just because we think, you know, managing through the dealer inventory. But, you know, we think that environment of, you know, us getting regular 2 to 3 percent price increases is really coming back as we get, especially as we get to the back half of the year. That's what we'll just continue to see. But matched with that is just this benefit of getting aggressively after cost, which should keep that differential between price and cost in a very positive way for us for quite some time. And that makes sense, Scott.
Scott Wine: I'm really proud of the team and the work that they've done but most of the benefit is years out not here and we get we spent a good bit of money on our tech investments, but the work that Mark <unk> and his team are doing to accelerate that penetration is just a.
Speaker Change: Gift that keeps giving in the future.
Speaker Change: Strategic sourcing is beneficial this year, but incrementally significantly more beneficial in the out years. So we certainly expect and.
Speaker Change: Quite honestly, we need to right. If you look at our the industry leaders, our margins are notably lower and we've got to close that gap.
Speaker Change: Great and Scott just last one obviously I think your industrial net debt was zero because our guidance for free cash of one two to one four I'm. Just curious you guys are trying to execute these two big cost reduction.
Scott Wine: And, you know, obviously, the decrements are more resilient than normal, given these cost reduction efforts. I'm curious, Scott, maybe this will be touched on at investor day, like, when we finally get to the other side of this, does this mean we should be seeing better incrementals as volumes at some point recover? Just curious how we should kind of think about that as we kind of go through this downturn in the cycle and come out on the other end. Well, that is 100% what we are striving to do. And a lot of this cost work...
Speaker Change: Programs, how are you thinking about the free cash flow, where your balance sheet is and.
Speaker Change: Obviously, where stocks trading now or are you starting to lean a little bit more towards potentially some M&A. As you guys are trying to accelerate some of those other initiatives on the growth side, just because you can touch on that thanks, everyone.
Speaker Change: I think I've done a clearly listed that out if you go back and read the transcript about how we're prioritizing that.
Speaker Change: We're we're putting a lot of focus on cash flow and want to make sure that we continue to drive that as a higher percent of net income.
Scott Wine: I mean, I'm really proud of the team and the work that they've done, but most of the benefit is years out, not here, and, you know, we get, you know, we spend a good bit of money on our tech investments, but, you know, the work that Mark Kirmish and his team are doing to accelerate that penetration is just a gift that keeps giving in the future. You know, strategic sourcing is beneficial this year, but incrementally, significantly more beneficial in the following years, so we certainly expect, and, you know, quite honestly, we need to, right? I mean, if you look at our competitors, the industry leaders, our margins are notably lower, and we've got to close that gap. We'll take the next question from Timothy Thein calling from Citi, please go ahead. Right, thank you. Maybe Scott, the first one just on the outlook for high-horsepower tractor industry sales in North America are down 10 to 15 percent. How are you?
Speaker Change: <unk>.
Speaker Change: We are leaning in much more heavily heavily than we have historically on the share buybacks.
Speaker Change: I think that was necessary as we went through the transition last year, but really encouraged by the board support.
Speaker Change: To put out another $5 billion, there, but it's really investing in the company to bring products and technologies to our customers.
Speaker Change: That is our first priority.
Speaker Change: But when the stock's trading below intrinsic value and we believe it is now we're not going to hesitate to continue to buy shares. So I think that seeing that the support from the board for this capital allocation process, which I believe is beneficial to our customers and to our shareholders is a positive.
Speaker Change: The next question from Timothy <unk>, calling from Citi. Please go ahead.
Timothy: Alright. Thank you maybe Scott the first one just on the outlook for high horsepower.
Timothy: Tractor industry sales in North America down 10% to 15%.
Scott Wine: What do you have in terms of your production plans? I know that the output from racing in Fargo has kind of been a little spotty there. So what were you thinking in terms of just, I guess, overall company dealer inventory and your production plans in that important product category? Yeah, well, you know, we're again really proud of what the team in Racine did to get that production back up and, you know, getting the quality right as we came out of the strike. But, you know, really, it's not just one category of high-horsepower tractors.
Timothy: Our new.
Timothy: What do you have in terms of your production plan I know that.
Timothy: The output from Racine and Fargo head and kind of.
Speaker Change: <unk> been a little spotty there. So what are you thinking in terms of.
Speaker Change: I guess overall.
Speaker Change: Company dealer inventory in your production plans.
Speaker Change: Sure.
Timothy: The category.
Speaker Change: Yes, we did and again really proud of what the team in Racine did to get that production back up.
Speaker Change: Getting the quality right as we came out of the strike but.
Speaker Change: Really it's not overall, one category of high horsepower tractors I think.
Scott Wine: I think the Magnums coming out of Racine. We're probably where we want to be on dealer inventory now. So it's about driving retail demand. And I think that's where our focus will be. On the, you know, the Stigers coming out of Fargo. That product, the technology, the unbelievable horsepower is really something that we'll be struggling with, I think, for all of 24 and probably into 2025 to meet global demand for that product.
Timothy: Magnum is coming out of <unk>.
Timothy: Probably where we want to be on dealer inventory now so it's about driving retail demand and I think that's where our focus will be.
Timothy: On the <unk>.
Timothy: Staggers coming out of Fargo that product the technology. The unbelievable horsepower is is really something that will be struggling I think for all of 'twenty, four and probably into 2025 to meet global demand for that product. So.
Scott Wine: So, you know, I think, you know, innovation sells, technology sells, and that's where we're seeing it. But I think overall, North American high-horsepower tractors are going to be down a little bit less than the industry, but certainly not robust. Okay, all right. And then this is a bit. Just kind of nit-picky, but on the... The bridge... Don't ask.
Timothy: Sure.
Timothy: It's really.
Timothy: Innovation cells technology sells and that's.
Timothy: Where we're seeing it but I think overall north American high horsepower tractors are going to be down a little bit less than the industry, but certainly not robust.
Speaker Change: Okay, Alright, and then this is it.
Speaker Change: A bit.
Timothy: Just to kind of nitpicky, but on the.
Timothy: And the brands that don't ask.
Adonay: All right, I'll use a different term, a profound question. For the ag bridge here in the fourth quarter, on call it, you know, an eight-ish percent volume decline, you had the $255 million headwind. So, you know, upward to 60%. Obviously, you know, mix is a component in that. What do you think, and again, not to the nearest decimal place, but what's an appropriate range as we think about just kind of volume leverage through 24, presumably it's not 60%, but any help on that, just in terms of what we should think about if we assume a mix, or maybe mixes continue to be a headwind, and just any help on that. Thanks, ahh, I would say much closer to 30% than 60% in terms of...
Speaker Change: Alright, I'll use a different era.
Timothy: Pro forma for me.
Timothy: For the for the AG.
Timothy: EBIT branch here in the fourth quarter on call. It 8% volume decline you had that $255 million headwind. So.
Timothy: 60%, obviously mix is a component of that what do you think and again now.
Timothy: So that to the nearest decimal place, but what's an appropriate range as we think about just kind of volume leverage through 'twenty four.
Timothy: Presumably stopped 60%, but any help on that.
Timothy: In terms of what that that kind of what we should think about it.
Timothy: Mix or maybe mix continues to be a headwind and just any help on that.
Timothy: Ah.
Timothy: I will see much closer to the 30% to 60% in <unk>.
Timothy: Himself.
Timothy: The volume impact.
Adonay: Thank you. The next question comes from the line of Daniela Costa, calling from Goldman Sachs. Please go ahead. Good afternoon or good morning.
Timothy: On the volume and mix impact.
Speaker Change: Understood Alright, thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.
Daniela Costa: Good afternoon or good morning, Thanks for taking my question, Yes, I have two questions as well one more sort of to understand a bit better like production setup at the moment in the U S. You mentioned the election recently and there is lots of question marks about what's happened to potential tariff from any inputs coming from outside the U S.
Scott Wine: Thanks for taking my question. Yes, I have two questions as well. One more sort of to understand a bit better, like your production setup at the moment in the US. You mentioned the election recently, and there are lots of question marks about what happened to potential tariffs and from many inputs coming from outside the US. How are you set up now?
Scott Wine: You're pretty much self-sufficient within the US, or do you import a lot of inputs and just understanding what the implications are baked in potentially for that in your margin? And then I'll ask the second one more on the bridge 424. Yeah, you know, as a very global company, we strive to keep production in the region; we just don't do that everywhere. Some, you know, low horsepower tractors, for example, predominantly come from
Speaker Change: How you setup now you're pretty much self sufficient within the U S or Julian alien.
Speaker Change: [noise] inputs and just understanding what the implications baked in potentially for that in your margin and then I'll ask the second one more on the on the bridge for 2004.
Speaker Change: Yes.
Speaker Change: <unk> is a very global company, we strive to keep production in region. We just don't do that everywhere. Some low horsepower tractors for example, predominantly come.
Speaker Change: From it from Asia.
Scott Wine: But we are, we do, we ship, you know, some of our tractors come from Europe and some come from India. But, generally speaking, most of our volume is in the region. Okay, so no big impact from that. My second question- And please, and I just, and I know, don't read too much into what's said in the run-up to a U.S. election. There's a lot of stuff that is thrown out that is not going to be followed through. And I think some of the tariff comments that have come out. Tariffs are ultimately a tax on U.S. consumers, so what sounds right politically in a campaign probably isn't something that they're going to do no matter what happens in the election cycle.
Speaker Change: But we are we do we ship some of our tractors come from Europe, and some come from India.
Speaker Change: But generally speaking most of our volume is in region.
Speaker Change: Okay.
Speaker Change: Impacts from that.
Speaker Change: Miami.
Speaker Change: Yes.
Speaker Change: I know.
Speaker Change: No.
Speaker Change: Don't read too much in what <unk> said in the run up to a U S. Election. There is a lot of stuff that is thrown out that is not going to be followed through and I think some of the tariff thing comments that have come out that.
Speaker Change: Tariffs are ultimately a tax on U S consumers, so what sounds right politically in a campaign, probably isn't something that theyre going to do.
Speaker Change: No matter what happens in the election cycle. So I just wouldn't put too much weight on that.
Scott Wine: So I just wouldn't put too much weight on that. Okay, thank you. Just on the guidance on the margins, the 14 to 15 and the 5 to 6 in 2024, I guess given what you've said at the beginning regarding dealer inventories and that $1 billion that you still need to get through, you're probably going to underproduce this year. So is there an impact on the margin from underproduction and, sort of, trying to get to what would have been the real margin if you weren't underproducing this year? There's absolutely absorption issues when you produce less.
Speaker Change: Okay. Thank you.
Speaker Change: Just on.
Speaker Change: On the guidance on the margins.
Speaker Change: <unk> in the five to six in 2020 for I guess, given what you said at the beginning regarding dealer inventories in that 1 billion that you still have to get through that youll, probably going on there produced this year.
Speaker Change: Is there is there an impact on our margin from underproduction.
Speaker Change: Trying to get to what would have been the real margin.
Speaker Change: You Werent under producing this year.
Speaker Change: There is absolutely.
Speaker Change: Absorption issues when you produce less now.
Scott Wine: Again, none of this decline surprised us. We were early on identifying that we needed to take cost out, and that included in our plants. So we adjusted production. We've gotten that down.
Speaker Change: Again, we were not none of this decline surprised us we were early on identifying that we needed to take cost out and that includes in our plants. So we adjusted production, we've gotten that down and that's part of the reason our decrementals are.
Scott Wine: And that's part of the reason our decrements are as good as they are because we've taken a lot of that cost out. So I don't know that it's fair to say that we would be... I mean, obviously, we'd have better margins if volume was flat, but I think we did a lot of the work to offset that already. Thank you very much. The next question comes from the line of Kristen Owen calling from Oppenheimer. Please go ahead. Hi, good morning.
Speaker Change: As good as they are is because we've taken a lot of that cost out. So I don't know that its fair to say that we would be I mean, if obviously, we have better margins if volume was flat but.
Speaker Change: <unk>.
Speaker Change: I think we did a lot of the work to offset that already.
Speaker Change: Got it thank you very much.
Speaker Change: The next question comes from the line of Kristen Owen Corning from Oppenheimer. Please go ahead.
Speaker Change: Hi, good morning. Thank you so much for taking the question.
Scott Wine: Thank you so much for taking the question. My question is really, you know, a function of what Tim asked about your ability to continue to outperform the market. You mentioned, Scott, in your prepared remarks that that was something that happened in 2023. You talked a little bit about getting ahead on production, just how you continue to view your outlook relative to the industry in 2024. You touched on that.
Speaker Change: My question was really.
Speaker Change: On slide 10 asked.
Speaker Change: Your ability to continue to outperform the market you mentioned Scott in your prepared remarks that that was something that happened in 2023, you've talked a little bit about getting ahead on the <unk>.
Speaker Change: The production just how you continue to give you your outlook relative to industry in 2024, you've touched on and I'll just ask you to expand and while Im here I'll ask you. My next question, which is about the the streamlined senior leadership team announcement I understand that that wasn't really so much of a cost effort Mara focus line. So if you could expand on.
Scott Wine: I'll just ask you to expand. And while I'm here, I'll ask you my next question, which is about the streamlined senior leadership team announcement. Understand that that wasn't really so much of a cost effort, more of a focused one. So if you could expand on that decision as well, thank you.
Scott Wine: Well, you know, my core belief is that this game is about product, brand, and distribution. And if you look at the portfolio and how Derek and Stefano are running their respective businesses, you know, we are seeing the benefits of improvements in each of those areas. I think, you know, we tend to focus mostly on products. We talked about the 73 new products introduced across the company last year.
Speaker Change: That decision as well thank you so much.
Speaker Change: My core belief is this game is about.
Speaker Change: Product brand and distribution and if you look at the portfolio and how Derek and Stefano are running their respective businesses.
Speaker Change: We're seeing the benefits of improvements in each of those areas I think we tend to focus mostly on products.
Speaker Change: Talking about the 73, new products introduced across the company last year.
Scott Wine: And with the significant increase in R&D investments, not only on the iron side but also on the tech side, you know, the continued improvement and integration of advanced technologies in our products ultimately benefits our customers, and I think that's real. But that's the product side. You know, on the brand side, remember, the Case IH and New Holland and Case Construction brands are just really, really strong, and we're trying to leverage those as best we can. I think the teams in the regions do a really, really good job with that.
Speaker Change: With the significant increase in R&D investments not only on the iron side, but also on tech.
Speaker Change: The continued improvement and integration of advanced technologies and our products.
Speaker Change: Ultimately benefits our customers and I think that's real.
Speaker Change: But thats the product side.
Speaker Change: On the brand side remember the case, IH and new Holland Encase construction brands are just really really strong.
Speaker Change: And we're trying to leverage those as best we can I think the teams in the regions do a really really good job with that.
Scott Wine: And then distribution, you know; we're trying to be good partners with managing dealer inventory, but we're also raising the expectations for dealer execution. You know, we've got enhanced control rooms going in so they can better manage. You know, we think overall that combination gives us the ability. We demonstrated we could do it in 23, and we're just going to get better and better in those three categories over time, which gives us the ability to continue to outperform. And again, it's hard work.
Speaker Change: And then distribution.
Speaker Change: Trying to be good partners with managing dealer inventory, but we're also raising the expectations for dealer execution.
Speaker Change: We've got enhanced control rooms going in so they can better manage we think overall that combination.
Speaker Change: Gives us the ability we demonstrated we can do it in 'twenty three and we're just going to get better and better in those three categories over time, which gives us the ability to continue to outperform and I think it's hard work, it's a very competitive industry, but I like how we're positioned to compete now the follow on to that is what we did with the organization.
Scott Wine: It's a very competitive industry, but I like how we're positioned to compete. Now, the follow-on to that is, you know, what we did with the organization. You know, we're going through a difficult and fairly aggressive restructuring overall, and as we did that, we just thought it would be important to align how we were structured on the senior team. And, you know, one of the moves that were the regions that were dual reporting to both Derek and I are now solely reporting into ag. And you know, that's really just about execution, just allowing them to be narrowly, very, very focused on driving execution in a difficult ag market. And I think we're seeing the benefits from that. So just a couple of things I would, I just believe, you know, being a smaller team making faster, better decisions is going to be a benefit for us going forward. I really appreciate the time.
Speaker Change: We're going through.
Speaker Change: A difficult and fairly aggressive restructuring overall and as we did that we just thought it would be.
Speaker Change: Important to align.
Speaker Change: How we restructured at the senior team and one of the one of the moves that was the regions that were dual reporting to both Eric and I are now solely reporting.
Speaker Change: The AG and that's really just about execution, just allowing them to be narrowly very very focused on driving execution in a difficult.
Speaker Change: AG market and I think we're seeing the benefits from that so just a couple of I would I just believe being a smaller team, making faster better decisions is going to be the benefit for us going forward.
Speaker Change: I really appreciate the time thank you.
Scott Wine: The next question comes from the line of Tami Zakaria calling from GP Morgan. Please go ahead. Okay, and you said you expected zero to two percent pricing depending on production and geography. So that means you don't expect any negative pricing in any of the regions. The reason I focus on that is because we've heard some of the other OEMs talk about pricing turning negative mid to high single digits in the fourth quarter and may continue for another quarter or two in South America. So just wondering how you're thinking about your pricing expectations versus some of these comments from your competitors, especially in South America. Yeah, I, I, Tammy, I. I don't want to tell you to go back and read the prepared remarks, but I will just remind you that Rafael Mioto and the team in South America raised warning signs for us about what was happening very early last year. And I still think it was a poor decision by the farmers not to sell their harvest.
Caveat Coning: The next question comes from the line of his that caveat Coning from Jpmorgan. Please go ahead.
Caveat Coning: Hi, good morning. Thank you so much for taking my question I have one question, but two parts.
Caveat Coning: So the pricing outlook of 1% I just wanted to clarify is that net of dealer discounts are not including dealer discounts. So thats part one and then part two yesterday that said that.
Caveat Coning: Okay, and so you said you expect <unk> to 2% pricing, depending on production and geography.
Caveat Coning: So that means you don't expect any negative pricing in any of the region. The reason I focus on that we've heard some of the other Oems talk about pricing turning.
Caveat Coning: Negative mid to high single digit in the fourth quarter and May continue for another quarter or two in South America.
Caveat Coning: Wondering how you're thinking about your pricing expectation versus some of these comments from your competitors, especially for South America.
Speaker Change: Yes.
Speaker Change: Jamie.
Jamie: I don't want to tell you to go back and read the prepared remarks, but I will just remind you that Raphael <unk> and the team in South America very early on last year raise the warning signs for us about what was happening in it and I still think it was.
Jamie: With a poor decision by the farmers not to sell.
Speaker Change: Their their harvest, but we got on top of dealer inventories faster and therefore, we have less to deal with therefore, we have less pricing pressure now as our competitors.
Scott Wine: But we got on top of dealer inventories faster, and therefore we have less to deal with, and therefore we have less pricing pressure. Now, as for our competitors, For that, you know, we're really focused on managing share when our competitors have more inventory than we do. So, you know, we'll, we'll, we've got, I mean, again, South America is interesting for us.
Speaker Change: That we're really focused on.
Speaker Change: Managing share when our competitors have more inventory than we do so well we've got.
Speaker Change: South America is interesting for us, it's our highest net promoter scores with our customers our highest dealer satisfaction scores are best proliferation of technology. So we feel really good about the team we have there and the ability to offset some of the dynamics, but I think the.
Scott Wine: It's our highest net promoter scores with our customers, our highest dealer satisfaction scores, and our best proliferation of technology. So we feel really good about the team we have there and the ability to offset some of the dynamics. But I think just the net-net is our dealer inventory is in a better position, and that's helping us have less impact on price. Got it. So no negative pricing in South America is the bottom line. I don't understand the term negative pricing, so... Like pricing down, less than zero, so you price down the product. I'm joking.
Speaker Change: The net net is our dealer inventory is in a better position and thats, helping us have less impact on price.
Speaker Change: Got it no negative pricing in South America is the bottom line.
Speaker Change: I don't understand the term negative pricing so.
Speaker Change: [laughter] like pricing down.
Speaker Change: Hi.
Speaker Change: Sure.
Speaker Change: I'm I'm joking now we certainly.
Scott Wine: No, we certainly... We're very, very focused on delivering value for our customers, and we expect to be maintaining prices in that environment. Got it. Thank you. And the last question comes from Larry DeMaria at William Blair. Please go ahead.
Speaker Change: <unk>.
Speaker Change: We're very very focused on delivering value for our customers and we expect to be maintaining price in that environment.
Speaker Change: Got it thank you.
Speaker Change: And the last question comes from Larry <unk>.
Speaker Change: Mario.
Scott Wine: I don't know. There seems to be a trend lately. So Tami asked a question, and you answered it, obviously, specifically to South America.
Speaker Change: William Blair. Please go ahead.
Larry: Hi last Larry Thanks.
Larry: I don't know seems to be a trend lately.
Larry: So let me ask the question you answered obviously.
Scott Wine: And I guess when we think about, and we talk to clients, the biggest bear case is obviously somebody that's been on the cycle, which can differ. And then there's pricing going negative for the group after a number of years being very, very strong. But now we're going to a period where the market is softer, and pricing has been parabolically high. And used pricing is weakening, which affects the ability to trade down one, down two levels. So I think he answered it, but just – in other words, I was going to ask for your commitment to no new taxes or no price cuts. But really, your belief and ability for the market to handle that over the next year or two with used equipment prices going negative.
William Blair: As it relates to South America.
Larry: And I guess.
Larry: We think about with clients the biggest bear cases, obviously somebody that view on the cycle, which can differ and then is pricing going negative for any group that for number of years being very very strong rate, but now we're going through a period, where the market softer pricing has been parabolic up and used pricing is weakening which impacts the ability to trade down one down to lever.
Speaker Change: So I think I think you answered it.
Speaker Change: But just.
Speaker Change: In other words I was going to ask for your commitment on no new taxes or no no no pricing, but youre really youre belief and the ability for the market to handle that over the next year or two with used equipment pricing.
Scott Wine: I was a bit joking with Tami, but I mean, literally, the term negative pricing doesn't we just don't talk about it. And I think the way to think about it is our costs. We're driving costs down, but lower inflation is still inflation. I mean, what drove our pricing so high was a dramatic increase in input costs. And those input costs have not gone negative and aren't giving us a bunch of room back that we can discount. If that does happen and we see massive disinflation, I will absolutely share that with our customers. But that is not what we're seeing.
Speaker Change: Going negative.
Speaker Change: Okay.
Speaker Change: I was a bit joking with Tammy, but I mean literally the term negative pricing doesn't we just don't talk about it and I think the way to think about it is our.
Speaker Change: Our cost.
Speaker Change: Driving costs down, but inflation lower inflation is still inflation.
Speaker Change: What drove our pricing so high was a dramatic increase in input cost in those input costs have not gone negative and aren't giving us a bunch of room back that we can discount that have if that does happen and we see massive disinflation I will absolutely sure that with our customers, but that is not what we're seeing.
Scott Wine: And again, I don't think it's... It's not. Okay, fair enough.
Speaker Change: And.
Speaker Change: Again, I don't think it is.
Speaker Change: In.
Speaker Change: In antibodies interest to to go take that route and we're certainly not.
Scott Wine: Thanks and good luck this year. All right. Thanks, Larry. This now concludes the call. Thank you for participating. You may now disconnect. Also, please stay connected on the line. Thank you.
Speaker Change: Okay fair enough, thanks, and good luck this year.
Speaker Change: Alright, Thanks, Larry.
Speaker Change: This now concludes the call. Thank you for participating you might know disconnect.
Speaker Change: Also please stay connected on the line. Thank you.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.