Q1 2025 CNH Industrial N.V. Earnings Call

Good morning, and welcome to the Cna's 2000 identified first quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.

Operator: Good morning and welcome to the CNH 2025 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.

Thank you I will now turn the call over to Jason <unk>, Vice President of Investor Relations. Please go ahead.

Jason Omerza: I will now turn the call over to Jason Omerza, Vice President of Investor Relations. Please go ahead. Thank you, John, and good morning, everyone.

Speaker Change: Thank you John and good morning, everyone. We would like to welcome you to the webcast and conference call for C. N H Industrial's first quarter results for the period ending March 31, 2025. This call is being broadcast live and is copyrighted by C. N H any recording transmission or other use of any portion of this broadcast without the express.

Jason Omerza: We would like to welcome you to the webcast and conference call for CNH Industrial's first quarter results for the period ending March 31st, 2025. This call is being broadcast live and is copyrighted by CNH.

Operator: Any recording, transmission, or other use of any portion of this broadcast without the express written consent of CNH is strictly prohibited.

Speaker Change: Written consent, a C and H is strictly prohibited.

Jason Omerza: Hosting today's call are CNH CEO, Gerrit Marx, and CFO, Oddone Anchiza. They will reference the material available for download from our website. Please note that any forward-looking statements that we 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.

Garrett Marks: Hosting todays call are C N H C E O Garrett marks and CFO, Don N cheese them, they will referenced the material available for download from our website.

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

Garrett Marks: 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.

Jason Omerza: Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations, the most directly comparable U.S. GAAP financial measures, is included in the presentation material.

Garrett Marks: Our 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 Garrett.

Gerrit Marx: I will now turn the call over to Gerrit. Thank you, Jason, and good morning to everyone joining our call originating here from Oak Brook, Illinois. Before we begin, I want to address the recent announcement that Oddone will be stepping down from his role as Chief Financial Officer, effective May 6, after more than five years as our CFO, safely navigating our path during COVID and the subsequent global recovery of our exciting industry, all the way to this very phase of our cyclical market. On behalf of the board and the entire company, I want to extend my sincere thanks to Oddone for his outstanding leadership and unwavering dedication over his impressive 28-year career with CNH and related companies.

Garrett Marks: Thank you, Jason and good morning to everyone joining our call originating here from Oak Brook, Illinois.

Garrett Marks: Before we begin I want to address the recent announcement that they'll donuts would it be stepping down from his role as Chief Financial Officer effective may six after more than five years as I was CFO safely navigating our paths during COVID-19 and the subsequent global recovery of our exciting industry all the way to this very phase of our six.

Garrett Marks: Co markets.

Garrett Marks: On behalf of the board and the entire company I want to extend my sincere thanks to a doughnut for his outstanding leadership and unwavering dedication over his impressive 20 idea Korea with C. N H and related companies. He has been a key force in leading and growing our financial services business first and then in shaping our financial strategy.

Gerrit Marx: He has been a key force in leading and growing our financial services business first, and then in shaping our financial strategy, and I wish him all the best for his future endeavor. We're also grateful that Oddone is working closely with us to ensure a seamless transition with his successor, Jim Nicholas, who joins us from Martin Marietta, a company that is a global leader in its space and shares some of our analyst coverage connected today. We are thrilled to welcome Jim to the team as CNH's incoming Chief Financial Officer. Jim brings a strong background of over 30 years of experience in corporate finance, M&A, tax, investment banking, and business strategy.

Garrett Marks: And I wish him all the best for his future endeavors.

Garrett Marks: We're also grateful that'll Don is working closely with us to ensure a seamless transition with his successor, Jim Nicholas who joins us from Martin Marietta, a company that is a global leader in its space and she has some of our analyst coverage to connected today.

Garrett Marks: We are thrilled to welcome Jim to the team S. C N H incoming chief financial Officer.

Garrett Marks: Jim brings a strong background of over 30 years of experience in corporate finance M&A tax investment banking and business strategy, you will all get a chance to meet Jim in person and on stage when he presented at our Investor Day in New York next week alongside me and the other members of our global leadership team.

Gerrit Marx: You will all get a chance to meet Jim in person and on stage when he presents at our Investor Day in New York next week alongside me and the other members of our global leadership team.

Garrett Marks: With that let's look at the first quarter results, where we kept production very low to reduce inventories while defending our girl of defending or growing market shifts. So in line with expectations of financial results came in at a low point.

Gerrit Marx: With that, let's look at the first quarter results, where we kept production very low to reduce inventories while defending our growing market shares. So in line with expectations, our financial results came in at a low point. We are focused on what we can control while the industry demand remains soft and we do our homework on multiple commercial and operational fronts. Our ag dealers continue to make meaningful progress in reducing their inventory, with another $100 million reduction in the quarter, or about a billion dollars lower since Q1 2024. Typically. We and our dealers in the Northern Hemisphere build up inventories in the first quarter in preparation for the spring selling season.

Garrett Marks: We are focused on what we can control while the industry demand remains soft and we do our homework on multiple commercial and operational fronts.

Garrett Marks: Oh AG dealer couldn't dealers continued to make meaningful progress in reducing their inventory with another 100 million dollar reduction in the quarter or about $1 billion loss since Q1, 'twenty 'twenty four.

Garrett Marks: Typically.

We and our dealers in the northern hemisphere buildup of inventories in the first quarter in preparation for the spring selling season.

Gerrit Marx: So while this decrease may seem modest when compared to the larger reduction we saw in Q4, this is actually great progress and right in line with where we expect retail deliveries to be in the coming months, defending our strong market shares in key segments. While some of the dealer inventory reductions, particularly the more aged and special purpose units, were supported by additional incentives in the quarter, we remain disciplined in balancing price and costs, particularly for our latest machines. Price-cost was favorable, even with ag pricing slightly lower year-over-year in the quarter as targeted, and we expect to have better pricing comparisons in the second half, which depends on how the various factors governing our end markets will play out.

Garrett Marks: So while this decrease may seem modest when compared to the larger reduction we saw in Q4. This is actually great progress and right in line with where we expect retail deliveries to be in the coming months defending our strong market shares in key segments.

Well, if some of the dealer inventory reductions, particularly the more aged and special purpose units were supported by additional incentives in the quarter, we remain disciplined in balancing price and costs, particularly for our latest machines.

Garrett Marks: <unk> costs was favorable even with act pricing slightly lower year over year in the quarter as targeted and we expect to have better pricing comparisons in the second half which depends on how the various factors governing our end markets will play out construction price cost was nearly even.

Gerrit Marx: Construction price-cost was nearly even.

Gerrit Marx: We launched a great new automated spraying solution for farmers. Case IH SensApply and New Holland IntelliSense using Vision Technology from Augmenta, the startup we acquired in 2023. This Sense & Act technology offers great flexibility with a range of spraying application options. And it is a very cost-effective solution for farmers, as it requires no annual subscriptions or per acre fees, which drives efficiency and profitability using our world-class iron and precision technology.

Garrett Marks: We launched a great new automated spraying solution for farmers case, IH sends apply and new Holland and tele sense using vision technology from augment this startup we acquired in 2023.

Garrett Marks: This sends an act technology offers great flexibility with a range of spring application options and it is a very cost effective solution for farmers as it requires no annual subscriptions or pay acre fees, which drives efficiency and profitability using our world class iron and precision technology.

Gerrit Marx: Besides the addition of Jim as our new CFO, we also announced some other leadership changes. Louise Abreu as our Chief Information Officer, Francesco Tutino as our Chief Human Resources Officer, and Cameron Batten as our Chief Communications Officer. Welcome to the CNH team. Luis was promoted from our internal bench, while Francesco has returned to CNH just as I did almost a year ago. Cameron joined us after growing roles in high-tech and automotive players and is supporting our internal and external messaging, as you will experience next week during our Investor Day. We remain relentlessly focused on driving operational excellence across the company, advancing cutting-edge technologies and deepening the execution of our cost-saving initiatives.

Speaker Change: Besides the addition of Jim as our new CFO, We also announced some other leadership changes Louisa Burdett, who is our chief information Officer, Francesca Tutino, as our chief Human Resources Officer and camera in Baton as our Chief Communications Officer.

Garrett Marks: Welcome to the C N H team Lewis.

Garrett Marks: Luis was promoted from our internal bench, while Francesco has returned to C and H just decided almost a year ago.

Garrett Marks: Cameron joined us after growing roles in high Tech and automotive players and is supporting our internal and external messaging as you will experience next week during our Investor day.

Garrett Marks: We remain relentlessly focused on driving operational excellence across the company advancing cutting edge technologies and deepening the execution of our cost saving initiatives we.

Gerrit Marx: We are looking forward to going into more detail during our Investor Day next week. We will review our mid-cycle 2030 profitability targets with you, well past the certainly relevant short-term impacts from global uncertainties around tariffs and, of course, the cyclicality of our business. CNH is long-term oriented and focused on doing the right thing, regardless of what we might face in the near term. We will always find the best choice that balances all stakeholder interests. The Q1 results reflect the expected and guided market headwinds and our decision to keep production low. I am confident we are taking the right steps to navigate this period and position the business for the next cycle upturn and our long-term success.

Garrett Marks: We are looking forward to going into more detail during our Investor Day next week.

Garrett Marks: We will review our mid cycle 2030 profitability targets with you well past the certainly relevant short term impacts from global uncertainties around tariffs and of course, the cyclicality of our business.

Garrett Marks: C N H is long term oriented and focused on what doing on doing the right thing regardless of what we might face in the near term, we will always find the best choice that balances all stakeholder interests.

Garrett Marks: The Q1 results reflect the expected and guided market headwinds and our decision to keep production low I'm confident we are taking the right steps to navigate this period and positioned the business for the next cycle upturn in our long term success.

Gerrit Marx: Consolidated revenues for the first quarter were down 21% at $3.8 billion. Industrial adjusted EBIT was $101 million, down 73% compared to last year, and EPS for the quarter was $0.10. While some commodity prices have improved year over year, farm incomes remain depressed and relevant boundary conditions are quite uncertain, which lead to softness in equipment demand. The adjustments to our manufacturing cadence, while painful, are necessary to position us to weather the equipment demand downturn in a healthy way that balances our various priorities, and they also provide an opportunity to improve and change our processes to come out stronger on the other side while our operations run at a slow pace.

Garrett Marks: Holiday did revenues for the first quarter were down 21% at the $3 $8 billion industrial adjusted EBIT was $101 million down 73% compared to last year and EPS for the quarter was 10 cents.

Garrett Marks: While some commodity prices have improved year over year farm incomes remain depressed and relevant boundary conditions are quite uncertain, which leads to softness softness in equipment demand.

Garrett Marks: The adjustments to our manufacturing cadence, while painful are necessary to position us to weather the equipment demand downturn in a healthy way that balances our various priorities and they also provide an opportunity to improve and change our processes to come out stronger on the other side, while our operations run edits.

Garrett Marks: Slow pace.

Gerrit Marx: As expected, retail demand was slow in the quarter. Our production hours were down 26% when compared to Q1 2024, with agriculture down 27% versus 2024, and construction down 19%. For context, Q1 2025 production hours were down 41% versus Q1 2023, with ag down 43% and construction down 33%. Large ag was down 36% versus 2024 and 50% versus 2023. Small AG was down 12% versus 2024 and 29% versus 2023. We are working very closely with our dealer network and supporting them with marketing actions and a reciprocal exchange of information to achieve lower healthy inventory levels while preparing for a great fresh model year 2026 lineup to come very soon.

Garrett Marks: As expected retail demand was slow in the quarter, our production hours were down 26% when compared to Q1 2024, with agriculture down 27% versus 2024, and construction down 19% for context Q1 2020.

Garrett Marks: <unk> production hours were down 41% versus Q1, 'twenty two 'twenty three.

Garrett Marks: With AG down, 43% and construction down 33% large AG was down 36% versus 2024, and 50% versus 2023, small AG was down 12% versus 2024 and 29% versus 2023.

Garrett Marks: We are working very closely with our dealer network and supporting them with marketing actions and to reciprocate.

Garrett Marks: Change of information to achieve lower healthy inventory levels, while preparing for a great fresh model year 'twenty 'twenty six lineup to come very soon.

Gerrit Marx: By staying close to the dealer network and focusing on market shares, we are well-positioned to reach our year-end inventory target. We are proud of the performance of our financial services segment that yielded sound results while facing the market slowdown and higher risk provisioning needs. This is an important strategic part of our business that provides our farmers and builders with access to competitive financing even when the macro environment becomes more uncertain and less stable. We are seeing once again the value of operating a captive financial services business in volatile times.

Garrett Marks: By staying close to the dealer network and focusing on market share as we are well positioned to reach our year end inventory targets.

Garrett Marks: We are proud of the performance of our financial services segment that you that sound results, while facing the market slowdown and higher risk provisioning needs there.

Garrett Marks: This is an important strategic part of our business that provides all farmers and build us with access to competitive financing, even when the macro environment becomes more uncertain and less stay but we are seeing once again the value of operating a captive financial services business in volatile times.

Gerrit Marx: Later on, we will speak in greater detail about the current tariff discussions and actions. But let me say that we are obviously monitoring the situation very closely given the speed with which things are changing, and we have the team and resources in place to respond and act swiftly. As prior moments of profound change and challenge in our industry have shown, there are some thoughtful actions that can be taken immediately, while other more structural changes will require more certainty and visibility. We act on both sides. Effective today and in alignment with our dealers, we implemented a modest price adjustment in North America for new orders while sharing the tariff cost impact with our supply base.

Garrett Marks: Later on we would speak in greater detail about the current tariff discussions and actions, but let me say that we are obviously monitoring the situation very closely given the speed with which things are changing and we have the team and resources in place to respond and act swiftly.

Garrett Marks: As prior moments of profound change and challenge in our industry have shown there are some thoughtful actions that can be taken immediately while almost structured changes will require more certainty and visibility we act on both sides effective today and in alignment with our dealers we implemented a modest.

Garrett Marks: Rice adjustments in North America for new orders, while sharing the tariff cost impact with our supply base.

Gerrit Marx: We have been and always will be committed to the North American home of our global brands, and we see multiple ways to address the possible change of global trade, not only of commodities, but also of agriculture and construction equipment. Historically, the ag equipment end market has been more resilient than other industries in times of GDP contraction, but the uncertainty is not helping an already depressed market. Facing those challenges head-on, I'm very proud of our team for continuing to execute in an effective, thoughtful, and calm way, keeping the long-term picture and profound underlying drivers that define our business ecosystem in mind.

Garrett Marks: We have been and always will be committed to the north American home of our global brands and we see multiple ways to address the possible change of global trade not only of commodities, but also of agriculture and construction equipment.

Garrett Marks: Historically, the attic equipment end market has been more resilient than other industries in times of GDP contraction, but the uncertainty is not helping and already a depressed market facing those challenges head on and I'm very proud of our team for continuing to execute an effective thoughtful and Conway.

Speaker Change: Keeping the long term picture and profound underlying drivers that define our business ecosystem in mind with that I will now turn the call over to adorn it to take us through the details of our financial results. Thank you Garrett and good morning, everyone.

Oddone Rocchetta: With that, I will now turn the call over to Odone to take us through the details of our financial results. Thank you, Gerrit, and good morning, everyone.

Speaker Change: Before I dive into prepared remarks, let me take a moment to express my gratitude to the colleagues and partners who have made the past 12 years and the CAH global executive team so meaningful.

Oddone Rocchetta: Before I dive into prepared remarks, let me take a moment to express my gratitude to the colleagues and partners who have made the past 12 years on the CNH Global Executive Team so meaningful. There's never a perfect time, but Gerrit and I concur that this was the right moment for me to hand over my role as CNH has transformed into a focused, U.S. listed industrial company serving the demands of our farmers and builders. It has been an honor to grow alongside such a special organization, and I'm proud of what we have accomplished together. Special thanks also to this very audience of analysts and investors.

Speaker Change: There's never a perfect time, let's get it and I concur that this was the right moment for me to hand over my role of C. N. H S transform into focus U S leased that industrial companies, serving the demands of our farmers and builders.

Speaker Change: It has been an honor to grow alongside such a special organization and I'm proud of what we have accomplished the data.

Speaker Change: Special Thanks also to these very audience with analysts and investors it's been a privilege working with you all.

Oddone Rocchetta: It has been a privilege working with you all. Last but not least, I'm very happy that with GEEM, CNH has found an experienced, capable, and trusted person to bring things forward.

Speaker Change: That's been the least I'm very happy that with Jim C. N. H S found an experienced capable and trusted person to bring things forward.

Speaker Change: Now to the financials fourth quarter first quarter industrial net sales were down 23% year over year to just below $3.2 billion.

Oddone Rocchetta: Now to the financials, fourth quarter industrial net sales were down 23% year-over-year to just below $3.2 billion. This decline was mainly due to lower shipment volumes, given the weak demand environment, and a reduced production in both industrial segments. A drop in the income decreased by two-thirds, also affected by a higher tax rate and lower financial service results. with adjusted diluted earnings per share down from 30 to 10 cents. Q1 pre-cash flow for industrial activities was a $567 million outflow in line with the working capital seasonality for the first quarter. The cash absorption is significantly better compared to Q1 of 2024, mainly due to a more contained growth of finished goods and component inventory.

Speaker Change: This decline was mainly due to lower shipment volumes, given the weak demand environment and our reduced production in both industrial segments.

Speaker Change: Adjusted net income decreased by two thirds also affected by a higher tax rate and lower financial services results.

Speaker Change: With adjusted diluted earnings per share down from 30 to 10 cents.

Speaker Change: Free cash flow for industrial activities was $567 million outflow in line with the working capital seasonality for the first quarter.

Speaker Change: The cash absorption significantly better compared to Q1 of 2024.

Speaker Change: I need you to a more contained growth of finished goods and component inventories.

Speaker Change: Okay.

Speaker Change: In agriculture net sales decreased.

Oddone Rocchetta: In agriculture, net sales decreased 23% in the quarter with lower shipment across all regions driven by lower industry demand and net worth of stocking in 2025 compared to stocking in 2024. Q1 gross margin was 20%, down 380 basis points year-over-year, driven mainly by the lower production volumes and unfavorable mix, partially upset by operational cost reduction. Volume mix were clearly the largest driver for our performance. As Gerrit mentioned, pricing was slightly negative in the quarter as we increased our incentives for our dealers to retail, age, and use inventory. This was planned and pull year pricing is forecast to be positive even before the moderate price adjustments that are effective as of today.

Speaker Change: 23% in the quarter with lower shipment across all regions, driven by lower industry demand and that when the stocking in 2025 compared to stocking in 2024.

Speaker Change: Q1, gross margin was 20% down 380 basis points year over year, driven mainly by the lower production volumes and unfavorable mix, partially offset by operational cost reductions.

Speaker Change: Well you know what makes we're clearly the largest driver for our performance.

Speaker Change: As Gary mentioned pricing was slightly negative in the quarter as we increase our incentives for our dealers retail H and used inventory.

Speaker Change: This was planned and will your pricing is forecast to be positive even before the moderate price adjustments that are effective as of today.

Speaker Change: Production costs were down more than pricing keeping a positive price cost relationship, even though quality cost still haven't have a negative impact on a year over year comparison, which we expect to reverse in the coming quarters.

Oddone Rocchetta: Production costs were down more than pricing, keeping a positive price-cost relationship, even though quality costs still have a negative impact in the year-over-year comparison, which we expect to reverse in the coming quarter. R&D and engineering expenses for the quarter were lower than in Q1 2024. reflecting the continuation of our efforts to contain cost in this environment. We continue to see softness in the Turkish market, which is shown in lower JV results in the other categories. Adjusted EBIT margin for agriculture was 5.4%, which we expect to be the lowest profitability for any quarter this year.

Speaker Change: R&D and SG&A expenses for the quarter were lower than in Q1 2024.

Speaker Change: Reflecting the continuation of our efforts to contain cost in this environment.

Speaker Change: Continued to see softness softness in the Turkish market, which is shown in lower JV results in the other category.

Speaker Change: Yeah.

Speaker Change: Adjusted EBIT margin for Agriculture was five 4%, which we expect to be the lowest profitability for any quarter each year.

Speaker Change: Moving to construction net sales for the first quarter with $591 million down 22% year over year, driven by lower shipment volumes, mostly North America.

Oddone Rocchetta: Moving to construction, net sales for the first quarter were $591 million, down 22% year-over-year, driven by lower shipment volumes, mostly in North America. Gross margin for the first quarter was 14.9%, down 250 basis points compared to the first quarter of 2024, mostly driven by the lower volume. SG&A and R&D expenses were both favorably over a year, and first quarter adjusted EBIT margin was 2.4%.

Speaker Change: Gross margin for the first quarter was 14, 9% down 250 basis points compared to the first quarter of 2020 for.

Speaker Change: Mostly driven by the lower volumes.

Speaker Change: SG&A and R&D expenses were both favorable year over year and first quarter adjusted EBIT margin was two 4%.

Oddone Rocchetta: On financial service, net income for the first quarter was $90 million. The year-over-year decrease was mainly driven by higher expected risk costs. Higher taxes due to prior year one-off adjustments in Argentina, partially offset by favorable volumes across all regions except EMEA. Retail origination in the first quarter were $2.4 billion, slightly down but flat on a constant currency basis, reflecting higher penetration rates in a lower equipment sales scenario. The manager portfolio ended the quarter at $28 billion. It is worth noting that within the total portfolio balance, the wholesale portfolio, which represents the new receivables, is down $1.5 billion of custom currency.

Speaker Change: On financial service net income for the first quarter was $90 million a year over year. The keys was mainly driven by higher expected risk cost higher.

Speaker Change: Higher taxes due to prior year, one off adjustments in Argentina, partially offset by favorable volumes across all regions, except EMEA.

Speaker Change: Yeah.

Speaker Change: Retained originations in the first quarter were $2 4 billion slightly down, but flat on a constant currency basis, reflecting higher penetration rates.

Speaker Change: Lower equipment sales scenario.

Speaker Change: The managed portfolio ended the quarter at $28 billion.

Speaker Change: It is worth noting that within the total portfolio balance the wholesale portfolio, which represents a into receivables is down one 5 billion at constant currencies.

Oddone Rocchetta: since March 2024. The dealers have reduced their inventory, adapting to the changed market conditions. Delinquencies are higher, with continued pressure in South America, particularly in Brazil, and growing delinquencies in North America. This is in line with what we expect while in a downturn, and we are focusing our efforts on collection. Financial Services has its own predictable cycle in our industry.

Speaker Change: Since March 'twenty to 'twenty four.

Speaker Change: At the dealers of reduced their inventory.

Speaker Change: <unk> to the changed market conditions.

Speaker Change: Delinquencies are higher we continued pressure in South America, particularly in Brazil and grow in delinquencies is not dramatic.

Speaker Change: This is in line with what we expect well in a downturn and we are focusing our efforts on collections.

Speaker Change: And actually our services as its own predictable cycle in our industry.

Speaker Change: Okay.

Oddone Rocchetta: Moving to our capital allocation priorities, which remains unchanged and jumping directly to the shareholder returns. After the dividend proposal is approved at our Annual General Meeting of Shareholders on May 12, we expect to pay an annual dividend of $0.25 per share, or over $300 million. We also expect the shareholders to re-approve and extend our standing share buyback authorization.

Speaker Change: Moving to our capital allocation priorities, which remains unchanged at and jumping directly to the shareholder returns. After the dividend proposal is approved at our annual general meeting of shareholders. On May 12, we expect to pay an annual dividend of <unk> 25 per share or over $300 million.

Speaker Change: We also expect the shareholders to Reapprove and extend our standing share buyback authorization.

Speaker Change: Okay.

Speaker Change: Before I turn it back to Gary I want to outline how we source the machines that we sell in the U S to frame our exposure to the announce of import tariffs.

Oddone Rocchetta: Before I turn it back to Gerrit, I want to align how we source the machines that we sell in the U.S. to frame our exposure to the announced import tariff. The bar across the top of the slide shows the 2024 breakdown in dollar terms of where machines sold in the U.S. came from. About two-thirds were manufactured in the U.S. plants, and about one-third of the machines, by value, were imported from other countries. You can see the breakdown of those imports by origin on the right side of the slide. The CNH supply chain footprint is designed to balance cost, center of product excellence, local content, and proximity to our key markets.

Speaker Change: The bar across the top of the slide shows the 'twenty 'twenty four breakdown in dollar terms or water machines sold in U S came from.

Speaker Change: About two thirds or manufacturing plants and about one third of the machines by value were imported from other countries.

Speaker Change: You can see the breakdown of those imports by rate by origin on the right side of the slide.

Speaker Change: The CNA so Blake supply chain footprint is designed to balance cost center of excellence local content and proximity to our key markets.

Oddone Rocchetta: As you can see in the pie chart, last year our U.S. plants sourced 70% of their components from U.S. suppliers, with about an additional 10% coming from Mexico and Canada. We have been working with our suppliers to ensure that we have USMCA documentation for those parts. That leaves the remaining 20% of components sourced mainly from Europe and China. Also keep in mind that U.S. plants export to other regions, mainly to APAC and EMEA. We're proud of the significant production and engineering capabilities in the U.S. And CNH is committed to continuing to further enhance those capabilities in a thoughtful balance as a global engineering, production and sales company.

Speaker Change: As you can see the Pie chart last year, our U S plants source of 70% of their components from U S suppliers with about an additional 10% coming from Mexico and Canada.

Speaker Change: We have been working with our suppliers to ensure that we have in U S. MCA documentation for those parts.

Speaker Change: That leaves the remaining 20% of components sourced mainly from Europe and China.

Speaker Change: Also keep in mind that U S plants export to other regions mainly to outback in EMEA.

Yeah.

Speaker Change: We are proud of the significant production engineering capabilities in the U S and <unk> is committed to continuing further enhance those capabilities.

Speaker Change: Full balance as a global engineering production and sales company with that I will turn it back to Gary.

Gerrit Marx: With that, I will turn it back to Gerrit. Thank you, Odonna, for that important context around the tariff exposure. To say that the past month's evolving trade environment has been highly dynamic would be an understatement. But I have experienced that in CNH. We have the right teams and tools in place to turn challenges into opportunities, to gain ground and claim our very own turf. We are actively engaged in robust scenario planning around the tariffs. We're recognizing that long term decision making is difficult when the policies shift so rapidly. But we are viewing the tariff impact through several lenses and understanding impacts on our business, our suppliers, our network partners, our farmers and our industry overall.

Gary: Thank you Donna for that important context around the tariff exposure.

Speaker Change: To say that the past months evolving trade environment has been highly dynamic would be an understatement.

Speaker Change: But I have experienced that in C. N H, we have the right teams and tools in place to turn challenges into opportunities to gain ground and claim our very own turf.

Speaker Change: We are actively engaged in robust scenario planning around the tariffs, while recognizing that long term decision, making is difficult when the policy shift so rapidly.

Speaker Change: But we are viewing that tariff impact through several lenses and understanding impacts on our business our suppliers our network partners, our farmers and our industry overall.

Gerrit Marx: A growing global population will have an even greater demand for not only commodities directly, but also indirectly through a shift towards more animal protein consumption. The mechanization and automation of our machines is imperative. And as the global number two player with a pronounced strength in harvesting, we are looking forward to those rising opportunities, particularly when the cycle turns again, as it always does. When we look at the impact to CNH, there are a few points to keep in mind. We import planters from our factory in Saskatoon, Canada, and they are fully USMCA compliant. We're also working on getting all the paperwork in place for the very small number of tractors that come from our joint venture in Mexico.

Speaker Change: A growing global population will have an even greater demand for not only commodities directly but also indirectly through a shift towards more animal protein consumption.

Speaker Change: The mechanization and automation of all machines is imperative and as the global number two player with a pronounced strength and harvesting. We're looking forward to those arising opportunities, particularly when the cycle turns again as it always does well.

Speaker Change: When we look the impact to C. N H there are a few points to keep in mind, we imports planters from our factory in Saskatoon, Canada, and they are fully U S MCA compliance.

Speaker Change: We're also working on getting all the paperwork in place for the very small number of tractors that come from our joint venture in Mexico.

Gerrit Marx: Also, 95% of steel directly purchased by our U.S. plants come from American mills. We are currently producing at very low levels in the U.S. given the industry demand, so the immediate tariff impact isn't the same as if we were at the peak of the industry. We've said before that we will need to look at price adjustments to mitigate tariff impacts that can't otherwise be offset through sourcing or other mechanisms. We want to balance that with being mindful of our farmers and builders and the modest price adjustment on model year 2024 products sold in North America expected to help offset the net tariff impact after supplier action.

Speaker Change: Also 95% of steel directly pruitt purchased by our U S plants come from American Mills, we're currently producing at very low levels in the U S. Given the industry demand. So the immediate tariff impact isn't the same as if we were at the peak of the industry.

Speaker Change: We have said before that we will need to look at price adjustments to mitigate tariff impacts that can't otherwise be offsets through sourcing or other mechanisms, we want to balance that with being mindful of our farmers and builders and the modest price adjustment on model year 'twenty 'twenty four.

Speaker Change: <unk> sold in North America expected to have offset the net tariff impact after supplier actions.

Speaker Change: Existing pre sold retail orders will not be affected that would bridge us to our model year 'twenty 'twenty six pricing later this year with which we expect as we regularly do to fully offset any net cost impact as we move into next year.

Gerrit Marx: Existing pre-sold retail orders will not be affected. That will bridge us to our model year 2026 pricing later this year, with which we expect, as we regularly do, to fully offset any net cost impact as we move into next year. Next, looking at the impact on our farmers. When tariffs 1.0 were implemented in 2018, we did see some shift in demand for food and feed commodities, which depressed their prices. That could happen again. Now, U.S. farmers do expect that if they are negatively impacted by the tariffs, there will be federal support payments to act as a buffer, and that has kept farmer sentiment relatively stable in the past.

Speaker Change: Next looking at the impact on all farmers when tariffs were one point all were implemented in 2018.

Speaker Change: We did see some shift in demand for food and feed commodities, which depressed their prices.

Speaker Change: That could happen again.

Speaker Change: No U S farmers do expect that if they are negatively impacted by the tariffs there would be federal support payments to act as a buffer and that has kept farmer sentiment relatively stable in the past however.

Gerrit Marx: However, we do think that the continued macroeconomic uncertainty may drive a wait-and-see, conservative approach to capital expenditure. Hence, we might only see more clearly after the summer where and when demand is coming back. At an industry level, the North American ag machinery market was already forecasted to reach cyclical trough levels in 2025, which implies that demand levels should not get much lower. However, lower farm income or restricted access to financing could drive demand lower or drag out the cycle recovery. We will re-evaluate a narrower range of potential outcomes later this year. On the other hand, we may see a shift in commodity demand away from the U.S.

Speaker Change: However, we do think that the continued macroeconomic uncertainty may drive a wait and see conservative approach to capital expenditure, hence we might only see more clearly after the summer where and when demand is coming back.

Speaker Change: At an industry level, the North American AG machinery market was already forecasted to reach cyclical trough levels in 2025, which implies that the demand levels should not get much lower.

Speaker Change: However, lower farm income or restricted access to financing could drive demand lower drag out the cycle recovery.

Speaker Change: We will re evaluate a narrow range of potential outcomes later this year.

Speaker Change: On the other hand, we may see a shift in commodity demand away from the U S and towards other regions such as Brazil, like we saw with tariffs one point, though.

Gerrit Marx: and towards other regions such as Brazil, like we saw with tariffs 1.0. We are uniquely positioned to benefit from that kind of shift because CNH is the most geographically balanced of the major ag OEMs. Beyond this global rebalancing of commodity trade and farm equipment supply, please allow me to stress that we are confident that the U.S. administration will define a support package that is not just short-term, but also provides mid- to long-term certainty for farmers in the heartlands of the United States of America. With those considerations in mind, we wanted to walk you through two of the many possible scenarios that we may face as we frame how we are evolving our playbooks to manage through the market uncertainty.

Speaker Change: We are uniquely positioned to benefit from that kind of shifts because C. N. H is the most geographically balanced of the major AG Oems.

Speaker Change: Beyond this global rebalancing of commodity trade in farm equipment supply. Please allow me to stress that we are confident that the U S administration will define a support package that is not just short term, but also provides mid to long term certainty for farmers in the heartland of the United States of America.

Speaker Change: With those considerations in mind, we wanted to walk you through two of the many possible scenarios that we may face as we frame how we are evolving our playbooks to manage through the market uncertainty.

Gerrit Marx: The full year 2025 guidance we issued last quarter obviously did not assume the significant global tariff implications that were announced on April 2nd and the multiple reactions to that. On the far right of the slides, we outline the major assumptions of our upper-end scenario. In that scenario, we assume that the current level of tariffs, 25% on steel, 145% on China, 25% on Mexico and Canada for non-USMCA-compliant products, and 10% on other countries, will continue for the remainder of the year. We assume no further demand erosion on already very projected levels. The middle column outlines the lower-end scenario, which assumes that once the 90-day pause is over, the full level of tariffs announced on April 2nd will kick in, which might be too pessimistic in light of reports of progressing bilateral discussions between the U.S.

Speaker Change: The full year 2025 guidance, we issued last quarter, obviously did not assume the significant global tariff implications that were announced on April 2nd and the multiple reactions to them.

Speaker Change: On the far right of the slides, we outlined the major assumptions of our upper end scenario in that scenario, we assume that the current level of tariffs, 25% on steel, 145% on China, 25% on Mexico, and Canada for non U S MCA compliant products.

Speaker Change: And 10% on other countries will continue for the remainder of the year, we assume no further demand erosion on already very low projected levels.

Speaker Change: The middle column outlines the lower end scenario, which assumes that once the 90 day pauses over the full level of tariffs announced on April 2nd would kick in which might be too pessimistic in light of reports of progressing bilateral discussions between the U S and other governments on the subject.

Gerrit Marx: and other governments on the subject. We have also assumed that North America industry demand could fall another five percentage points to the lowest historic levels since the early 2000s. So, as we move forward with our revised forecast for the year, keep these assumptions in mind for the upper end and the lower end. They widen the range of outcomes, but hopefully we have given you enough context to understand what is behind these ranges. We are not going into detail today on the portfolio of possible actions we are preparing to align CNH in a new reality. We will talk about those once the boundary conditions have stabilized and structural decisions are sensible to be taken.

Speaker Change: We have already we have also assumed that North America industry demand could fall another five percentage points to the lowest historic levels since the early two thousands.

Speaker Change: So.

Speaker Change: As we move forward with our revised forecast for the year keep these assumptions in mind for the upper end and the low end they widened the range of outcomes, but hopefully we have given you enough context to understand what is behind these ranges.

Speaker Change: We are not going into detail today on the portfolio of pulse about actions, we are preparing to align C and H and the new reality.

Speaker Change: We will talk about those once the boundary conditions have stabilized and structural decisions are sensible to be taken.

Speaker Change: Now, let's review our latest outlook for <unk> in 2025 overall, we had expected the global industry demand to be down 5% to 10% from 'twenty to 'twenty four with the additional risk in North America that I outlined before that could look like 10%, 15% down.

Gerrit Marx: Now let's review our latest outlook for Ag in 2025. Overall, we had expected the global industry demand to be down 5% to 10% from 2024. With the additional risk in North America that I outlined before, that could look like 10% to 15% down. We have widened the range of our sales forecast to account for additional pricing on one side, but also for potential industry demand drop on the other side. We've also widened our ag-ebit margin forecast to between 7 and 9 percent, recognizing a partial absorption of the tariff impact to do right by our farmers and the potential that we may need to lower production even further while staying on our path of inventory reductions and pricing discipline.

Speaker Change: We have widened the range of our sales forecast to account for additional pricing on one side, but also for potential industry demand drop on the other side.

Speaker Change: We have also widened our AG EBIT margin forecast to between seven and 9% recognizing a partial absorption of the tariff impact to do right by our farmers and the potential that we may need to lower production, even further while staying on our path of inventory reductions and pricing discipline.

Speaker Change: Okay.

Gerrit Marx: In construction, the new impacts that we have reflected are very similar to ag. It is important to point out, however, that construction as an industry is more tied to GDP growth than agriculture. We have widened the sales forecast range to down 4 to 15% and the EBIT margin range to 2 to 4% for 2025. We've had active discussions with potential strategic partners for our construction business. However, we have paused any decision on pathways until the current levels of uncertainty have settled and we get the full visibility on what lies ahead. Case Construction's lineup at the recent Bauma Fair in Munich was very well received, with new compact and large machines all equipped with digital functionalities and connected services.

Speaker Change: In construction the new impacts that we have reflected a very similar to act. It is important to point out however that construction as an industry is more tied to GDP growth in agriculture.

Speaker Change: We have widened the sales forecast range to down for 215% and the EBIT margin range to 2% to 4% for 2025.

Speaker Change: We've had active discussions with potential strategic partners for our construction business. However, we have passed any decision on pathways onto the current levels of uncertainty have settled and we get the full visibility on what lies ahead case constructions lineup at the recent BOMA fare in Munich was.

Speaker Change: Very well received with a new compact and large Ms seat machines, all equipped with digital functionalities in connected services, we feel very good about case constructions path ahead, as we evolve its partnerships in this environment.

Gerrit Marx: We feel very good about Case Construction's path ahead as we evolve its partnerships in this environment. Putting the two industrial segments together, we forecast 2025 net sales to be 11 to 19% lower than 2024 with an industrial adjusted EBIT margin between 4.5 and 6.5%. We have taken the lower end of the free cash flow range a bit down, but we maintained the upper end on better working capital assumptions. So free cash flow is now forecasted to be between $100 to $500 million in 2025, a definite positive recovery from 2024 when we took the swing in working capital on the back of deep production cuts by design.

Speaker Change: Putting the two industrial industrial segments together, we forecast 2025, net sales to be 11% to 19% lower than 2024 with an industrial adjusted EBIT margin between four and a half and six 5%.

We have taken the lower end of the free cash flow range, a bit down, but we maintained the upper end on better working capital assumptions. So free cash flow is now forecasted to be between $100 million to $500 million in 2025, a definite positive recovery from 2024, when we took the swing in working cap.

Speaker Change: On the back of deep production cuts by design.

Gerrit Marx: With the dispersion of potential tariff outcomes, we have widened the EPS forecast to between $0.50 and $0.70. Looking at our priorities for the remainder of the year, we are navigating the regional demand trends to ensure that we are responsive to ongoing shifts in the market, especially as we are dealing with the rapidly changing trade environment. Q2 production slots for both agriculture and construction are already full with orders, and Q3 is more than 50% booked with most products, with some products already completely sold out. We at CNH are staying focused on mission-critical initiatives and not getting distracted by all the trade noise.

Speaker Change: With the dispersion of potential tariff outcomes, we have widened the EPS forecast to between 50 and 70 cents.

Speaker Change: Looking at our priorities for the remainder of the year, we are navigating the regional demand trends to ensure that we are responsive to ongoing shifts in the market, especially as we are dealing with the rapidly changing trade environment.

Speaker Change: Q2 production slots for both agriculture, and construction already filled with orders in Q3 as more than 50% booked with most products with some products already completely sorted out.

Speaker Change: We at C. N H are staying focused on mission critical initiatives and not getting distracted by all the trade noise.

Gerrit Marx: Nothing about what is happening changes our long-term trajectory. Rather, it is a near-term obstacle that we will navigate. Our production levels will remain intentionally lower at least through the first half of the year as planned. After this period of observing and adjusting, we will move into aligning our production for the second half in tandem with the realities of the trade impact. We made total quality a part of our mindset, driving quality in everything that we do. We will continue to invest in our products and we continue to work on our manufacturing and sourcing efficiency.

Speaker Change: Nothing about what is happening changes our long term trajectory rather it is a near term obstacle that we will navigate.

Speaker Change: Our production levels remain intentionally law at least through the first half of the year as planned.

Speaker Change: After this period of observing and adjusting we will move into aligning our production for the second half in ton them with the realities of the trade impacts.

Speaker Change: We made total quality are part of our mindset driving quality in everything that we do we will continue to invest in our products and we continue to work on our manufacturing and sourcing efficiencies.

Gerrit Marx: You will see next week what we have in store as we evolve the mid-cycle profitability of our company.

Speaker Change: You would see next week, what we have in store as we evolve the mid cycle profitability of our company.

Gerrit Marx: At the Investor Day on May 8th, our team will provide more insight into our product roadmap, precision technology, our go-to-market strategy, and quality. We are really excited about it, and I hope that you are all planning to tune in.

Speaker Change: At the Investor day on May eight our team will provide more insight into our product roadmap precision technology, our go to market strategy and quality.

Speaker Change: We're really excited about it and I hope that you are all planning to tune in.

Gerrit Marx: In conclusion, it's a difficult market today, but it's also something quite exciting. Change and transition always bear the greatest fruit for those who lean in, carefully weigh the options, and then decisively pursue mapped pathways. We are monitoring the demand indicators closely and the overall macro environment. With our balanced global exposure, CNH is well positioned to navigate the current market and additional policy shifts. We remain committed to providing our farmers and builders with excellent quality products and services, while continuing to improve and innovate our technology.

Speaker Change: In conclusion, it's a difficult market today, but it's also something quite exciting change and transition always bear the greatest fruit for those who lean in carefully weigh the options and then decisively pursue map pathways.

Speaker Change: We are monitoring the demand indicators closely and the overall macro environment.

Speaker Change: With our balanced global exposure C. N H is well positioned to navigate the current market and additional policy shifts we remain committed to providing our farmers and builders with accident quality products and services, while continuing to improve and innovate our technology.

Operator: That concludes our prepared remarks and we are ready for the Q&A. Thank you.

Speaker Change: That concludes our prepared remarks, and we are ready for the Q&A.

Speaker Change: Yeah.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session of the call as a reminder to everyone. If you have dialed in and then it looked like the ask a question that has depressed our followed by the number one on your telephone keypad assay question and if he would like to withdraw your question simply breast Darwin again to allow time for as many questions as possible. Please limit.

Operator: Ladies and gentlemen, we will now begin the question and answer session of the call. As a reminder to everyone, if you have dialed in and would like to ask a question, that is to press star followed by the number 1 on your telephone keypad to ask a question. And if you would like to withdraw your question, simply press star 1 again. To allow time for as many questions as possible, please limit yourself to one question, then return to the queue for any follow-ups. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking the question.

Speaker Change: Self to one question and then return to the queue for any follow ups.

Speaker Change: I called upon to ask your question or listening via a loudspeaker ordinary device. Please speak up your headset and ensure that their phone is not on mute been asking the question. Thank you.

Operator: Thank you.

Angel Castillo: The first question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead. Thanks and good morning, everyone.

Speaker Change: The first question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Angel Castillo: Thanks, and good morning, everyone. Don I just wanted to wish you all the best.

Angel Castillo: Adana, I just wanted to wish you all the best. And Jim, also looking forward to working with you here at CNH, as we did at MLM.

Speaker Change: And Jim also looking forward to working with you here at C. N H a as we did at Atlanta.

Angel Castillo: But with that, just a quick question, wanted to dig in a little bit more on the tariffs. Apologies if I missed this, Gerrit, but just can you help us quantify exactly how much is kind of implied in terms of from an EPS perspective in terms of the headwind in kind of the low end and the high end? Another way of kind of saying like, how much would be your EPS if you had an included any incremental tariffs? We'll do it here.

Speaker Change: But with that I, just just a quick question wanted to dig in a little bit more on the tariffs.

Speaker Change: Ladies if if I missed this but just can you help us quantify exactly how much is kind of implied in terms of from an EPS.

Speaker Change: Perspective in terms of a headwind and kind of the low end and the high end.

Speaker Change: Other way of kind of saying like how much would be your EPS. If you hadn't included any incremental.

Speaker Change: <unk>.

Angela: Although now Angela I will say that.

Gerrit Marx: Angela, I will say that... Most of, I mean, all of the change in our guidance is due to the, to the status scenarios, right? And we put there two scenarios because of, because of the high level of uncertainty that we have here. So if you take the move of the, of the midpoint, that is where we think that that's the number that you need to take. And then depending on how things evolve, we will move on that rate. Profoundly nothing has changed except for the tariffs and we have thoughtfully widened our guidance range to 200 basis points in order to account for the scenarios that we see ahead.

Angela: Most of all of the change in our guidance is due to the to the status scenarios right and we put that two scenarios because of because of the high level of uncertainty that way Javier. So if you take the move or the midpoint that is where we think.

But that's the number that you need to take and then depending on how things evolve we'll move on that range.

Angela: Yeah.

Angela: Profoundly nothing has changed except for the tariffs and we have thoughtfully widened our guidance range to 200 basis points in order to account for the scenarios that we see ahead and will need to see what this is going to clear up over the over the course of the summer.

Gerrit Marx: And we'll need to see what this is going to clear up over the course of the summer. But I think as Sedona said, it was the move of the midpoint that we see as a possible impact from a certain tariff scenario.

Speaker Change: But I think it's so Donna said, it's also the move of the midpoint that we see as a possible impact from from a certain tariff scenario.

Speaker Change: Your next question comes from the line of Pentane with Raymond James. Please go ahead.

Tim Thein: Your next question comes from the line of Tim Thein with Raymond James. Please go ahead. Hi, thank you. Good morning.

Speaker Change: Hi.

Speaker Change: Thank you good morning, maybe just for my one question if we could.

Oddone Rocchetta: Maybe just for my one question, if we could drill down a bit into the production costs within the ag business, the favorable, I think it was $39 million. Just thinking how you're thinking about the spend on related to, within that, the spend related to quality. I believe the expectation coming into the year. Thank you. Yeah, you're right. I mean, quality is still negative in the quarter, as we say, do not prepare in March. So we have reduction in production costs, which includes a charge, an additional charge or additional delta for last year for quality. We expect to revert that in the coming quarters because last year, particularly in the second part of the year, we spent additional dollars on quality, which we expect not to repeat this year because we have improved the quality of the products coming out of the plants and we have preventively cured some of the issues that we had.

Speaker Change: Drill down a bit into the production costs within the AG business.

Speaker Change: The favorable I think it was.

Speaker Change: $39 million is thinking about how youre thinking about the spend on related to within that the spend related to quality.

Speaker Change: I believe the expectation coming into the year.

Speaker Change: Was for.

Speaker Change: That warranty spending theres still be a year over year headwind through the first half.

Speaker Change: I guess, just how we're thinking about this cost outlook, taking the tariff discussion I'll, albeit an important one.

Speaker Change: Out of the equation, just how we're thinking about that.

Speaker Change: Kind of component between quality spend and then just separately.

Speaker Change: Your your outlook from our manufacturing costs. Thank you.

Speaker Change: Yes, Youre right I mean, while it is still negative in the quarter as we said in our prepared remarks, so we have.

Speaker Change: A reduction in production costs, which includes a charge an additional charter additional delta last year for quality, we expect to revert that in the coming quarters, because last year, particularly in the second part of the year way spend additional dollars on on quality, which we expect not to it.

Speaker Change: This year, because we have improved the quality of the products coming out of the of the plants and we have preventively cured some of the issues that we had.

Speaker Change: Yeah, and I think on a seasonality we accelerated our accruals on quality in the second half of last year. So on a euro basis year over year basis in the first quarter. We are still on the quality side up yet I can already tell you that we are seeing a much better quality.

Oddone Rocchetta: Yeah, and I think on a seasonality, we accelerated our accruals on quality in the second half of last year. So, on a year-over-year basis in the first quarter, we're still on the quality side up. Yet, I can already tell you that we are seeing a much better quality leaving our factories today, and there is much more to go after with our global quality teams now being laser-focused on making sure that what leaves our factories meets or exceeds customer expectations. So, we are on a very good path here, and as these quality accruals are trailing, we are still in Q1, we're still up year-over-year on that side, but despite that, cost of production is lower.

Speaker Change: Leaving our factories today and there is much more to go after with our global quality teams now being laser focused on making sure that what leaves all factories and meets or exceeds customer expectations. So we are on a very good path here and.

Speaker Change: And as these quality accruals a trailing.

Speaker Change: We are still in Q1 were still up year over year on that side, but despite that cost of production is lower so we see good potential here in the second half of the year unless we enter into 2026.

Oddone Rocchetta: So, we see a good potential here in the second half of the year and as we enter into 2026.

Speaker Change: Okay.

Christopher: Your next question comes from the line of Christopher <unk> with Oppenheimer. Please go ahead.

Kristen Owen: Your next question comes from the line of Kristin Owen with Oppenheimer. Please go ahead. Hi, good morning. Thank you for taking the question. And in regards to Oddone, I thank you for all the help over the years.

Speaker Change: Hi, Good morning, Thank you for taking the question.

Thank you John and thank you for all the help over the years and wanted to ask if you could elaborate on some of the.

Kristen Owen: I wanted to ask if you could elaborate, Gerrit, on some of the prepared remarks that you made about the price adjustments and sharing some of the costs with your suppliers. If you could just elaborate on that and perhaps address longer term.

Speaker Change: The prepared remarks that you made about price adjustment.

Speaker Change: And sharing some of the constant your suppliers. If you could just elaborate on that and perhaps address longer term.

Gerrit Marx: I wanted to ask you about the efforts you've undertaken on the procurement program over the last couple of years and how the tariff landscape might impact that ongoing effort. Thank you. Thank you for the question. So look, the price adjustments we have implemented actually effective today, May 1st, are moderate and low single digit, balancing what we already see to come our way with the run out of model year 2025 that is in production for the second and the third quarter. So this is a moderate adjustment and then we'll see what it means to make machines in the fourth quarter and that is predominantly then model year 2026.

Speaker Change: I wanted to ask you about the efforts we've undertaken on the procurement program over the last couple of years and how the tariff landscape might impact that.

Speaker Change: Yes.

Speaker Change: Thank you for the question so look the price adjustments we have.

Speaker Change: Implemented actually effective today, if I may 1st.

Speaker Change: Our moderate and low single digit balancing.

Speaker Change: Balancing what we already see to come away with the run out of model year 2025 that is in production for the second in the third quarter. So this is a moderate.

Speaker Change: And then we will see what it means to make machines in the fourth quarter and that is predominantly than model year 2026.

Gerrit Marx: That will be shipped in Q4 and sold in Q4, and then starting from the beginning of 2026 onward. So that is a regular price adjustment on the back of, let's say, cost movements. And, you know, this is well aligned with our network, and we don't consider that to be a major issue. On the sharing with suppliers, I mean, obviously, we are, you know, working very actively with our supply base. on the impacts from this tariff exposure, from the exposure that is certain at this point, the 10% for everyone, and obviously also the exposure on China and certain materials like steel.

Speaker Change: That will be shipped in Q4 and sold in Q4, and then starting from the beginning of 2026 onwards, so that is a.

Speaker Change: Our regular price adjustment on the back of let's say cost cost movements and.

Speaker Change: This is well aligned with our network and we don't consider that to be a.

Speaker Change: A major issue.

Speaker Change: I'm on the sharing with suppliers I mean, obviously.

Speaker Change: We are working very actively with our supply base.

Speaker Change: On the impacts from this tariff exposure from the exposure that is certain at this point the 10% for everyone and obviously also the exposure on China and certain.

Speaker Change: Materials like steel.

Speaker Change: But that is from our point of view pretty pretty logical to approach suppliers and that is also common in the industry to approach suppliers. So have a sharing of those cost increases as we are going through this phase of uncertainty which will.

Gerrit Marx: But that is, from our point of view, pretty logical to approach suppliers, and that is also common in the industry to approach suppliers to have a sharing of those cost increases as we are going through this phase of uncertainty, which will trigger a, obviously, resourcing and probably also most likely relocation of certain production facilities of suppliers into countries with more favorable tariff exposure, including, obviously, the United States. So these types of discussions are ongoing. Such relocations will take time, and I think sharing such costs with our supply base keeps both of us pretty alerted to get it done quickly.

Speaker Change: Trigger a obviously resourcing and probably also most likely relocation of certain production.

Speaker Change: The facilities of suppliers into countries with.

Speaker Change: More favorable tariff exposure, including obviously, the United States. So these types of discussions are ongoing such relocations would take time and I think sharing such cost with our supply base keeps both both of us pretty alerted to get it done quickly. So that is our mindset that we deployed at this point and.

Gerrit Marx: So that is our mindset that we deploy at this point.

Gerrit Marx: And you mentioned the strategic sourcing program, which comes together quite nicely, and you see the early results of those, wave one and wave two, coming through in our production costs, as I replied to in the previous question. And we are continuing that, and we obviously have a very close look at, you know, those sources and origins of components that we consider to resource to get to a better cost position. And, you know, certain countries where the exposure is more elevated and higher, obviously, those countries and those sources are probably less favorable to be considered in our strategic sourcing program.

Speaker Change: You mentioned, the strategic sourcing program, which comes together quite quite nicely and you'll see these they're the early results of those wave one and wave two coming through in our production cost is I reply to the first previous.

Speaker Change: <unk>, we are continuing that and we obviously have a very close look at you know those sources and origins of components that we consider to resource.

Speaker Change: To get to a better cost position.

Speaker Change: Certain countries, where the exposures.

Speaker Change: More elevated and higher obviously those countries and those sources are probably less favorable to be considered in our strategic sourcing program. So it has an immediate impact on the teams are super well prepared to you know.

Gerrit Marx: So it has an immediate impact, and the teams are super well prepared to, you know, take the right choice in between the various options that we have. Because for every component that we resource or we have in the resourcing program, we have somewhere between four to six alternative suppliers from various different countries. So I think this tariff situation is going to impact decisions, but it's not going to slow us down by any way and doesn't, you know, deviate our attention away from getting the best outcome at a better cost position for CNH.

Speaker Change: The right choice in between the various options that we have because for every component that we resource we have and the Resourcing program, we have somewhere between four to six alternative suppliers from various different countries. So.

Speaker Change: I think this tariff situation is going to impact decisions, but it's not going to slow us down and buy anyway, and it doesn't it doesn't deviate our attention too.

Speaker Change: From from getting the best outcome at a better cost position for <unk>.

Speaker Change: Your next question comes from the line of if that means a cargo with Jpmorgan. Please go ahead.

Tami Zakaria: Your next question comes from the line of Tami Zakaria with J.P. Morgan. Please go ahead.

Speaker Change: Hey, good morning, and farewell to donate it was an honor to work with you.

Tami Zakaria: Hey, good morning and farewell to Oddone. It was an honor to work with you. So, question on the ag margin. I think I heard you say 1Q was going to be the low point. If you could provide some color on how to think about the cadence of ag segment margin as the year progresses, 2Q through 4Q. Yeah, I mean, the first quarter is typically a low quarter and this year we took, I mean by design, we took production down significantly. We didn't produce that level of inventory and sales to our dealers that we typically do in the first quarter because we are assessing where demand is and we, as we discussed throughout last year, also we are assessing what is already available on the field.

Speaker Change: Question on the AD.

Speaker Change: Margin I think I heard you say <unk> is going to be a low point.

Speaker Change: If you could provide some color on how to think about the cadence of our segment margin as the year progresses to Q4 Q.

Speaker Change: Yeah, I mean, the first quarter is typically a low quarter and this year. We took I mean by design, we took production down significantly with data and produce that level of inventory and sales to our dealers that would typically do in the first quarter because we are assessing what demand is.

Speaker Change: And we as we discuss our two our last year or so we are assessing what is already available in the field.

Oddone Rocchetta: The second quarter will still be relatively low and then our expectation is to have a second half much more, much better going back to the double digit profitability.

Speaker Change: The second quarter will still be relatively low and then.

Speaker Change: Our expectation.

Speaker Change: I still have a second half.

Speaker Change: Much more a much better.

Speaker Change: Going back to the double digit profitability.

Speaker Change: Yes.

Next question comes from the line of Carl Mingus with Citigroup. Please go ahead.

Kyle Menges: This question comes from the line of Kyle Menges with Citigroup. Please go ahead. Thank you.

Speaker Change: Thank you just following up on that question, how should we be thinking about earnings in the second quarter or should we still be pretty confident and a seasonable seasonal step up in earnings from first quarter to the second quarter.

Kyle Menges: Just following up on that question, how should we be thinking about earnings in the second quarter? Should we still be pretty confident in a seasonal step up in earnings from the first quarter to the second quarter despite tariff impacts? And then how should we be thinking about possible outcomes for EPS in the second half?

Speaker Change: <unk> tariff impacts and then how should we be thinking about possible outcomes for EPS in the second half and then just also more of a clarifying question on the price adjustments and when those might actually show up in the P&L just given production slots are full for the second quarter and 50% or so for the third quarter.

Oddone Rocchetta: And then just also more of a clarifying question on the price adjustments and when those might actually show up in the P&L, just given production slots are full for the second quarter and 50 percent or so for the third quarter, does that basically price adjustments don't show up at all in the second quarter, then a little in the third, and then more so in the fourth quarter? It would be helpful to hear how to think about that. Thank you. Maybe let me start from the price adjustment, they will, they will likely show up when the product with higher cost will come in.

Speaker Change: Does that basically price adjustments don't show up at all in the second quarter than a little in the third and then more so in the fourth quarter.

Tahira: Tahira how are you thinking about that thank you.

Tahira: Maybe let me start from the price adjustment they will they will likely show up when they proud of with higher cost.

Tahira: Will it come in in those price adjustments are specific for North America.

Oddone Rocchetta: And those price adjustments are specific for North America. Right. And they start today. So they will come, they will flow through the P&L at the same time where higher costs will flow to the P&L.

Tahira: Alright, and they start.

Tahira: Today.

Tahira: So that will come that will flow through the P&L at the same time were higher costs will flow through the P&L that we will have.

Oddone Rocchetta: Then we will have Gerrit talk about other price adjustments that we will have in the normal cycle at the end of the year for the model year 2026. Then, of course, in the P&L, you don't only have the list price, but you also have the discounted incentives that we give, and we say that we have a higher level of incentives on the first, we had a higher level of incentive on the first quarter, and we are, and those are moderating in the coming quarter.

Tahira: Guy talk about auto price adjustments that we would have in the normal cycle at the end of the year for the moderate commodity at 2026.

Then of course on the P&L you don't only have the list price, but you also have the discounts and incentives that we gave when we say that we have a higher level of incentives on the first.

Tahira: We had a high level of incentive in the first quarter.

Tahira: And we are and those are moderating.

Tahira: In the coming quarter.

Tahira: And let me build on the actually allow me to make the link to our.

Gerrit Marx: Let me build on the, actually allow me to make the link to the imperative to reduce inventories further over the course of the year. I mean, our machines have appreciated the price quite a bit, and we keep increasing that net price in light of the current situation we are going through, but also the improved functionalities and the additional technology that we are engineering and loading into those machines. Given that these machines, on average, are getting more and more pricey, obviously, we need to be as an industry, and so are we, be very, very cautious when it comes to dealer inventories, because these numbers carry interest, and having our dealers at a low level of inventories is not only in itself, let's say, healthy at times like these, during times like these, but with increasing machine prices, I mean, lower inventories on the dealer side are needed to lower the financial exposure for them on the interest side.

Tahira: The imperative to reduce inventories.

Tahira: Further over the course of the year.

Tahira: All machines have appreciated in price quite a bit and we keep increasing that net price in light of the current situation. We are going through but also the improved functionality and the additional technology that we are engineering and loading into into those machines given that these machines on average are getting more and more price.

Tahira: Obviously, we need to be as an industry and so are we be very very cautious when it comes to dealer inventories because these numbers carry interest and having our dealers at a low level of inventories is not only in itself.

Tahira: Let's say healthy at times like these during times like these but with increasing machine prices I mean, lower inventories on the dealer side are needed to lower the financial exposure for them on the interest side. So I think this is why we are.

Gerrit Marx: So, I think this is why we are convinced that the choice we made driving inventories down while making thoughtful interventions on the price side vis-a-vis the global scenario is the right choice, is the right trade-off, and we will keep adjusting that over the course of the year as we see clearer how this tariff exposure and global trade will unfold. So, this is connected, pricing of machines and inventory.

Tahira: Convinced that the choice, we made driving inventories down while making thoughtful interventions on the price side vis vis the global scenario is the right choices the right trade off and we will keep adjusting that over the course of the year as we see clearer how this whole.

Tahira: Tariff exposure and global trade will unfold. So this is connected tariffs and tariffs and pricing of machines and inventory.

Speaker Change: Your next question comes from the line of Daniela Costa with Goldman Sachs. Please go ahead.

Daniela Costa: Your next question comes from the line of Daniela Costa with Goldman Sachs. Please go ahead. Hi, good afternoon. Thank you for taking my questions. I actually wanted to ask on three if possible at all, but they're quick. You commented extensively, very helpful data on the tariff and the impact on yourself. Wondering if you see your peers more or less similarly positioned or it's sort of a disadvantage of or an advantage in certain pockets. That's number one. I'll ask them one at a time.

Daniela Costa: Hi, good afternoon, and thank you for taking my questions I actually wanted to ask one on <unk> if possible at all but there. They are quick you commented extensively the very helpful data on the tariffs and the impact on yourself I'm wondering if you see your peers more or less similarly positioned or.

Speaker Change: This is sort of are you in that it is advantage off or an advantage in certain pockets that that's number one I'll ask them one at a time.

Daniela Costa: Hi, Danielle.

Gerrit Marx: Hi, Daniela. Well, look, we obviously have no insights into their real exposure of supply chains, so we don't know. So we can only look at where machines are made and from where they are shipped, because that is public knowledge. So I think from a U.S. point of view, I think we are pretty – we are more or less exposed, similar to the larger competitor in the United States when it comes to these tariffs, while I think obviously being attached to the European production predominantly, that is not exactly helpful at this point in time. However, on the other side, the European market, as we see it, is going to enter a lower decline phase in 2025, and when we look at the early outs of 2026, than the United States.

Speaker Change: Well look we obviously have no insights into their into their real exposure of supply chain. So we don't know so we can only look at where machines are made and from where there are shipped because that is public public knowledge. So I think from from a U S point of view I think we are a pretty.

Daniela Costa: You know.

Daniela Costa: More or less exposed similar to.

Daniela Costa: The larger competitor in the United States when it comes to these tariffs.

Daniela Costa: Tariffs, while I think obviously being attached to the European production predominantly that is not exactly helpful. At least at this point in time, however on the other side the European market as we see it is going to enter.

Daniela Costa: A lower decline phase in 'twenty, five and to know when we look at the early outs of 26% than the United States, So being more exposed to a European market.

Gerrit Marx: So being more exposed to a European market might provide lower volatility in the very near term, given the decline in the United States in large cash crop, as we alluded to last time, which we see in the 30% minus range for large machines working in cash crop. We need to see – and by the way, the harvesting segment in itself is slightly higher impacted than the tractor segment in itself.

Speaker Change: <unk> provides lower volatility in the very near term given the decline in the United States and large cash crop.

Speaker Change: As we alluded to last time, which we see in the 30% minus a range for a large machines are working in cash club, we need to see and by the way the harvesting segment in itself is even slightly higher impacted.

Speaker Change: Then the tractor segment in itself. So they are it's a different exposures. If you split tractors versus combines and then you look at our regions Europe versus the U S. But I consider this exposure to be pretty short term.

Gerrit Marx: So there are, let's say, different exposures if you split tractors versus combines, and then you look at regions, Europe versus U.S., but I consider this exposure to be pretty short term, and it will wash out certainly over the next 12 to 18 months, but that is what I see at this point. We feel with our heavy machines, the big machines, the four-wheel drives, the sprayers, the magnums, the combines all made in the United States for the United States, we feel very well positioned to keep track and be very close to our dealers and customers and farmers, providing them world-class equipment at competitive prices.

Speaker Change: And the diluted washouts certainly over the next 12 to 18 months, but that is that is what I what I see at this point, we feel with our heavy machines. The big machines. The four wheel drives the sprayers for Magnums combines all made in the United States for the United States, We feel very well positioned to keep track and be very close to our <unk>.

Speaker Change: Listen customers and farmers, providing them world class equipment at competitive pricing.

Operator: Before we take the next question, a friendly reminder to return to the queue to ask additional questions.

Speaker Change: The next question a friendly reminder to return to the queue to ask additional questions. Our next question comes from the line of Mig <unk> with Baird. Please go ahead.

Meg Dobre: Our next question comes from the line of Meg Dobre with Bayard. Please go ahead. Thank you. Good morning and appreciate the helpful detail on tariffs. I guess the question that I'm looking to get at is your comment on dealer inventories, the $100 million D stock was encouraging. Where do you see dealer inventories currently, maybe globally, you can comment on that. And I'm curious as well on construction, not just on ag, at what point in time do you think you're going to be right-sized given where current levels of demand are? Thank you. Thanks for the question.

Speaker Change: Thank you and good morning, and I appreciate it.

Speaker Change: Helpful detail on tariffs.

Speaker Change: I guess the question Dan.

I'm looking to get at is your comment on dealer inventories.

Speaker Change: The stock was encouraging.

Speaker Change: Where do you see dealer inventories currently.

Speaker Change: Globally, you can you can comment on that I'm curious as well on the construction not just on.

Speaker Change: At what point in time, do you think you're going to be right size, given where current level.

Speaker Change: Of demand thank you.

Speaker Change: Thanks for the question look we the way we look at it is always a forward a month says this is the indicators of months of forward sales and one impact a pretty big impact is also a projection of expected sales in the market that impacts that kpis.

Gerrit Marx: Look, the way we look at it is always forward month sales. This is the indicator, so month of forward sales. And one big impact is also our projection of expected sales in the market that impacts that KPI.

Gerrit Marx: As per the prior call, we made an announcement that we are aiming at about a $1 billion inventory reduction. We clocked $100 million now in the first quarter, as I mentioned, which is a great accomplishment by our network and team, given that usually from a seasonality point of view, the Q1 is up in inventory. So having a net minus 100 is, as you said, promising and quite encouraging. We'll continue to be on that path, and we will continue to keep production levels low in the second quarter, carefully observing how demand will evolve. We have not yet opened, obviously, our order books for the model year 26, which we will do over summer.

Speaker Change: Per the prior call. We you know we made an announcement that we are aiming at about a 1 billion inventory reduction, we clocked $100 million in the first quarter as I mentioned, which is a great accomplishment by our network and team given that usually from a seasonality point of view that Q1 is up in inventory so having a net minus 100.

Speaker Change: As you said promising and quite encouraging we'll continue to do to be on that path and we will continue to keep production levels low in the second quarter carefully observing how demand will evolve we have not yet opened obviously, our order books for the model year, 'twenty, six which we will do.

Speaker Change: Over summer and.

Gerrit Marx: And then we will start filling Q4 production with the new model year. And I think in this overall mix of pace on retail... And a careful, very careful view on production speed and capacity. We believe that we will definitely continue on this path in the second quarter and in the second half. Somewhere in the second half, we shall see our production pace in the line equal retail pace on a global level, yet this might look quite different by region.

Speaker Change: Then we would start filling Q4 production with the new model year and I think in this overall mix of pace on retail.

Speaker Change: And a careful very careful view on production speed and capacity. We believe that we will definitely continue on this path in the second quarter end.

Speaker Change: The second half somewhere in the second half, we shall see a production pace in the line equal equal retail pace.

Speaker Change: On a global level, yet this might look quite different by region and so as we mentioned.

Gerrit Marx: So as we mentioned before as well, I mean, in the third year of a downturn, as we speak right now, there is the Agri Show hosted in Brazil. Our team is there, super engaged, showing the latest of our product innovations. And we are engaging with farmers in Brazil as we speak right now, even closer during the Agri Show. And what we hear is a positive sentiment about what might come, but this has not yet reached a level where it would trigger CapEx expenditures. So procurement of Ag machines in Brazil have remained on a low level in the first quarter.

Speaker Change: Before as well I mean, Brazil is now in the third year of a downturn as we speak right. Now there is the Agri show hosted in Brazil. Our team is there are super engaged showing the latest of our product innovations and we are engaging with farmers in Brazil, as we speak right now even closer.

Speaker Change: During the Agri show and what we hear is.

Speaker Change: Positive sentiment about what might come but this has not yet has not yet reached the level, where it would trigger capex expenditures. So procurement of AG machines in Brazil have remained on a low level in the first quarter.

Gerrit Marx: Confidence levels are improving. And now it all comes down to what is going to be announced as, let's say, final in the global trade over the course of the summer and before the end of the year in order to bring back the confidence to the Brazilian farmers. And that should restart considerate equipment purchases in that region. And I think that is a market to come back.

Speaker Change: Confident confidence levels are improving and now it all comes down to what is going to be announced this let's say final in the global trade over the course of the summer and before the end of the year in order to bring back the confidence to the Brazilian farmers and that should restart.

Speaker Change: So you don't consider it equipment purchases.

Speaker Change: In that region and I think that is that as the market to come back in Europe, we need to see.

Gerrit Marx: Europe, we need to see. In Europe, there are these ongoing discussions around let's say a peace in Ukraine, and that would obviously also impact the commodity production in the country. Once there is certainty, I think the production levels will keep coming up. And this is a supply of commodities. We'll also need to see what will the summer bring in terms of you know, deals, bilateral trade deals, and how will also other nations like China ink their deals with Brazil even further? You know that soybeans imports to China are predominantly coming already from Brazil, to a very large extent.

Speaker Change: In Europe. There are these ongoing discussions around the let's say a piece in Ukraine and that would obviously also impacts of commodity production in the country.

Speaker Change: Once there is certainty I think the production levels will keep coming up and here. This is a supply of commodities will also need to see.

Speaker Change: What will the summer bring in terms of.

Speaker Change: You know deals bilateral trade deals and how we're also other nations like China, Inc. Their deals with with Brazil. Even further do you know that's soybeans imports to China are predominantly coming already from Brazil to a very large extent.

Gerrit Marx: And I think if there was a further shift away from soybean imports from the US into China, I think the only source for getting those in quantity is Brazil. However, their production level is already quite high. So, we might see there some interesting dynamics on that end in global trade. And that will also drive our production decisions in the third and the fourth quarter by region. So, but on a global level, I think we expect production pace to equal retail pace somewhere in the second quarter, second half, so somewhere in the second half, with the second quarter still being on a similar trend like the first quarter by design.

Speaker Change: And I think if there was a further shift away from soybean imports from the U S into China I think this is the only source for getting those in quantity as Brazil. However, their production level is already quite high so we might see there are some interesting dynamics.

Speaker Change: And in global trade and that will also drive our production decisions in the third in the fourth quarter by region, so but on a global level.

Speaker Change: I think we expect a production pace to equal retail pace somewhere in the second quarter, sorry, second half somewhere in the second half with the second quarter still being on a similar trend like the first quarter by design as I mentioned in the prepared remarks, we keep.

Gerrit Marx: As I mentioned in the prepared remarks, we keep production levels at this level, which is quite painful, but it is needed.

Speaker Change: <unk> levels at this level, which is quite painful but it is needed.

Speaker Change: Yeah.

Speaker Change: The next question comes from the line of Jamie Cook with <unk> Securities. Please go ahead.

Jamie Cook: The next question comes from the line of Jamie Cook with Korea Securities. Please go ahead. Hi, good morning. I guess my question, the dealer inventory color was helpful. Can you just speak to what you're seeing sort of by region, you know, on the pricing or the competitive landscape, whether that's gotten better? And then I guess just following on that, your commentary on tariffs, I'm wondering if that is, could potentially help at all with dealer inventories, i.e. they want to buy the equipment on the lot because they're worried about tariffs, and to what degree that could help support used pricing.

Speaker Change: Hi, Good morning, I guess my question that dealer inventory color was helpful. Can you just speak to what you're seeing sort of by region.

Speaker Change: On the pricing or the competitive landscape, whether that's gotten better and then I guess just following on that on your commentary on tariffs I'm wondering if that is.

Speaker Change: Could potentially help at all with a dealer inventories I they want to buy the equipment on the lot because they're worried about tariffs and to what degree that could help support east pricing. Thank you.

Jamie Cook: Thank you.

Gerrit Marx: Well, I'll start from the second question. That is an effect you are describing that is called in several industries pre-buy effect. So when there's something coming that would pick up demand for certain products and commodities, I mean, on low levels, again, on low levels, we do see a good interest in our machines and a good retail pace, again, on low levels, also in the United States. And here we, I would not speak about a, I wouldn't call it a pre-buy effect. I wouldn't call it a big wave. But I think there's a continued interest in the machines.

Speaker Change: Well I'll start from the second question.

Speaker Change: That is that is that in effect, you are describing that as and called in <unk>.

Speaker Change: Several industries pre buy effect, so whether there's when there's something coming that would.

Speaker Change: Pick up demand for certain products and commodities.

Speaker Change: On low levels again on low levels, we do see a.

Speaker Change: Good interest in our machines and a good good retail.

Speaker Change: Pace again on low levels are also in the United States in the United States.

And here, we would not speak about a why wouldn't I wouldn't call. It a pre buy effect I wouldn't call. It a big wave, but I think there is a continued interest in the machines and now that you know moderate price increases are coming into the model year 'twenty six.

Gerrit Marx: And now that, you know, moderate price increases are coming and the model year 26 is entering production in the fourth quarter, I think there might be a certain helpful demand coming towards used machines and machines in the but that isn't a major, it's not a major thing at this point. So we are not seeing it yet unfolding to a great extent. In terms of pricing and competition across the different regions, whether something has changed, well, look, we keep seeing good demand in regions like Australia, New Zealand, also in Europe. We see on a low level, we see good pace, good interest, and that gives us confidence in the strength of our sector vis-à-vis GDP, and that people need to eat.

Speaker Change: Is entering production.

Speaker Change: In the fourth quarter, I think there might be a certain.

Speaker Change: Helpful.

Speaker Change: <unk> coming towards used machines and machines, a lot, but that isn't isn't a major it is not it's not a major thing at this point, so we're not seeing it yet unfolding.

Speaker Change: To a great extent.

Speaker Change: In terms of.

Speaker Change: Pricing and.

Speaker Change: Competition across the different regions and whether that's something has changed.

Speaker Change: Look we are we keep seeing good good demand in regions like Australia, and New Zealand also in Europe, we see a on a low level that we saw.

Speaker Change: See good pace good interest in.

Speaker Change: That gives us confidence in confidence in the strength of our sector vis vis GDP and that people.

Speaker Change: People need to eat population is growing and our farmers need to produce even more efficiently.

Gerrit Marx: The population is growing, and our farmers need to produce even more efficiently the food for the world and the growing population. And with all of that, including a shift, as I mentioned, from a direct consumption, if you will, of commodity or carbon hydrate-based products towards protein-based and more animal protein-based nutrition, we see overall an even slight acceleration of commodity Consumption given that it takes quite a bit of, you know, soybean and, you know, corn in order to grow, you know, animal protein. So there's an underlying shift and push in the direction of our industry in the long term.

Speaker Change: The food for the world and the growing population and with all of that including a shift as I mentioned from from a direct consumption. If you will of commodity or.

Speaker Change: Carbon hydride based.

Speaker Change: Products towards protein based and more animal protein based nutrition, we see overall and even slight slight acceleration of commodity.

Speaker Change: Our consumption given that it takes quite a bit of.

Speaker Change: Soybean and.

Speaker Change: Corn in order to grow.

Speaker Change: Protein. So there is an underlying shift and push.

Speaker Change: In the direction of our industry and the long term, but at this very moment I think.

Gerrit Marx: But at this very moment, I think we, you know, feel very competitive, competitively positioned in all regions vis-a-vis our other market participants. Yet, we have slight differences here and there, depending on how we source and where we make machines. But again, we all start now in Q2 to adjust pricing, and with that, we will see how markets will react and also how the market in terms of volume will evolve over the next, yeah, two, three quarters.

Speaker Change: We can all see.

Speaker Change: <unk> very competitive.

Speaker Change: Relatively position in all regions vis vis our other market participants have yet we have slight differences here and there depending on how we source and where we make machines, but again I mean, we all start now in Q2 to adjust pricing and with that we will see how markets will react and also how the market in terms of volume will evolve over the.

Speaker Change: Yeah, two or three quarters.

Speaker Change: The next question comes from the line of David Raso with Evercore ISI. Please go ahead.

David Raso: The next question comes from the line of David Raso with Evercore ISI. Please go ahead. Hi, thank you. Actually, a little more just a clarification. When you're saying pricing is hitting today, is that on new orders or any shipments from today on? When the price increase that has become effective today is on new customer and new obviously dealer orders. The customer orders that were placed prior to the announcement of the tariffs and prior to the effectiveness of the related increases in cost, those orders are protected and we are not changing prices where customers have given us their definite order before the change happened in April.

Hi, Thank you actually a little more just a clarification. When you are saying pricing is hitting today is that on new orders or any shipments from today onward.

Speaker Change: When the price.

Kris: Kris that has become effective today is on new customer and new obviously dealer orders.

Speaker Change: The customer orders that were placed prior to the announcement.

Speaker Change: Of the tariffs and prior to the effectiveness of the related increases in cost those orders are protected and we are not changing prices where customers have given us their definite order before this.

Speaker Change: Before the change happened in in April.

Oddone Rocchetta: So we are having the impact, the effectiveness of this price increase is in Q2 and is in Q3 on dealer orders and on new customer orders coming in.

So we are having the impact of the effectiveness of this price increase is in Q2 and in Q3 on.

Speaker Change: On dealer orders and on the new customer orders coming in.

Speaker Change: Okay.

Speaker Change: Our last question for today comes from the lightest Abbvie Eurostar, it's that UBS. Please go ahead.

Avi Yaroslavits: Our last question for today comes from the line of Avi Yaroslavits at UBS. Please go ahead. Hi, good morning. Thanks, guys. Of the finished products that you're importing from overseas, how are you handling the price adjustments there? Are you just taking the baseline tariff or whatever the effective tariff rate is for that country and applying that as a surcharge or on the sticker price?

Hi, good morning, Thanks, guys.

Speaker Change: Of the finished products that you are importing from overseas how are you.

Speaker Change: Handling and the price investments there.

Speaker Change: And we're taking the baseline tariff or whatever the effective tariff rate is for that commentary.

Speaker Change: Applying that on as a surcharge on the sticker price and also within that bucket of products are there any products that you think it just doesn't make economic sense.

Gerrit Marx: Also, within that bucket of products, are there any products that you think it just doesn't make economic sense due to competitive factors to continue offering with the tariffs that we have in place today? All machines, all equipment that we import to the U.S. still makes very much sense to be imported and to be made. The 10% flat on everybody does not change that. You know, the attractiveness of the product, and the machines that we are. You know, mid-range tractors, for example, or you know light tractors that are coming from Europe. Those machines, we are not, you know, applying flat the percentage and then, you know, call it price.

Speaker Change: Competitive factors to continue offering with the tariffs that we have in place today.

Speaker Change: Hmm.

Speaker Change: All machines, all all equipment that we import to the U S are still makes it very much sense to be imported and to be made.

Speaker Change: The 10% flat on an every everybody does not change that.

Speaker Change: That said the attractiveness of the product.

Speaker Change: And.

Speaker Change: The machines that were midrange tractors for example, or light light tractors that are coming from Europe.

Speaker Change: Those machines were not applying flat the percentage and then you know call it price.

Gerrit Marx: What we're doing, we thoughtfully go, obviously, through the bill of material, how these tariffs do apply to the various different aspects of the machine. We then thoughtfully go through the, you know, list of suppliers and the sources of supply, seek for a reasonable sharing of those tariffs. And then the remainder is rolled up into a price increase on the machine, on the retail price and the wholesale price, and then eventually on the retail price here in the U.S. So that is how it's done.

While we are doing we thoughtfully go obviously through the bill of material. How these tariffs do apply to the various different aspects of the machine.

Speaker Change: We then thoughtfully go through the <unk>.

Speaker Change: The suppliers and the sources of.

Speaker Change: Supply.

Speaker Change: Seek for a reasonable sharing of those tariffs and then the remainder is rolled up into a price.

Speaker Change: Price increase on the on the machine.

Speaker Change: The retail price of the wholesale price and then eventually on the retail price here in the U S. So that is how it's how it's done.

Speaker Change:

Gerrit Marx: But we also have a very, you know, thorough look at the inventory levels of those machines in the country. We, when you look at our, when we talk about our inventory or dealer inventory levels being Still, $900 million towards the end of the year, $900 million too high, versus the expectations that we had at that moment in time, and those are confirmed for now. We have on the imported machines from Europe rather higher inventory levels than on the locally made machines. because the supply chain from Europe is obviously longer than from the U.S., so we have higher inventory levels on average when you look at mid-range or smaller tractors across the board.

Speaker Change: But we also have a very thorough look at the inventory levels of those machines in the country.

Speaker Change: We when you look at our when we talk about all our inventory or dealer inventory levels being.

Speaker Change: Still a $900 million towards the end of the Uniontown million dollars too high.

Speaker Change: The expectations that we had at that moment in time and those are confirmed for now.

Speaker Change: We have on the imported machines from Europe, rather higher inventory levels than on the locally made machines because the supply chain.

Speaker Change: From Europe is obviously longer than from the U S. So we have higher inventory levels on average when you look at mid range or smaller tractors across the board and that means we are very carefully observing how this tariff situation will evolve and we are pacing well imports from Europe to the U S.

Gerrit Marx: And that means we are very carefully observing, you know, how this tariff situation will evolve, and we are pacing well imports from Europe to the U.S., you know, accelerating the inventory reduction on the one side, but also avoiding stocking up on units at higher prices to earn early. So, it really goes machine by machine, and we look at inventory levels, where they are, and how retail pace and retail interest for these machines materializes, and that would drive, let's say, the orders from our North American team towards the European team when it comes to mid-range and small-range tractors.

Speaker Change: Accelerating the inventory reduction on the one side, but also avoiding stocking up on units at higher prices too early so it's it's a it's really goes machine by machine and we look at inventory levels are where they are and and how retail pays.

Speaker Change: And retail interest for these machines materializes and that would drive let's say the orders from our North American team towards the European team when it comes to a midrange and small range tractors and so it's a bit more it's a bit more sophisticated.

Gerrit Marx: And so, it's a bit more sophisticated than a line in an Excel sheet, but it's certainly carried out very thoughtfully by our teams in Europe and in the U.S., always with an eye on inventory levels.

Speaker Change: Then the line and in an excel sheet, but it's.

Speaker Change: Certainly.

Speaker Change: It's carried out very thoughtfully by our teams in Europe and in the U S always with an eye on inventory levels.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen that concludes today's question and answer session and today's conference call. Thank.

Operator: Ladies and gentlemen, that concludes today's question and answer session and today's conference call. We thank you for your participation today. You may now disconnect.

Speaker Change: Thank you for your participation today you may now disconnect.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].