Q2 2026 CNH Industrial NV Earnings Call

August 3, 2026

Operator: Welcome to the CNH 2026 Q2 results conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now turn the call over to Jason Omerza, Vice President of Investor Relations.

Speaker #1: To withdraw your question, press star 1 again. I will now turn the call over to Jason Omerza, Vice President of Investor Relations.

Jason Omerza: Thank you, Paige. Good morning, everyone. We would like to welcome you to CNH's Q2 earnings call for the period ending 30 June 2026. This live webcast is copyrighted by CNH, and any recording, transmission, or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO Gerrit Marx and CFO Jim Nickolas. 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.

Speaker #2: Thank you, Paige, and good morning, everyone. We would like to welcome you to CNH's Q2 earnings call for the period ending June 30, 2026.

Speaker #2: This live webcast is copyrighted by CNH, and any recording, transmission, or other use of any portion of it without the written consent of CNH is strictly prohibited.

Speaker #2: Hosting today's call are CNH CEO Gerrit Marx and CFO Jim Nickolas. They will reference the material available for download from our website. Please note that any forward-looking statements we make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor Statement included in the presentation material.

Speaker #2: 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.

Speaker #2: Securities and Exchange Commission. 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.

Jason Omerza: Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable US GAAP financial measures, is included in the presentation material. I will now turn the call over to Gerrit.

Speaker #2: I will now turn the call over to Gerrit.

Gerrit Marx: Thank you, Jason, welcome to everyone joining the call. Q2 results were generally in line with our expectations as we continued managing through a difficult point in the agriculture equipment cycle. Operationally, we are making good use of this period to drive improvements in quality, sourcing, and manufacturing efficiency. These actions are supporting performance today while strengthening our foundation for the future. We also continue advancing our precision technology capabilities with increasing adoption of connected and AI-enabled solutions across our installed base and dealer network. While overall market conditions remain challenging, particularly given pressured farmer profitability, we are seeing encouraging developments in several, but not yet all, equipment cycle indicators.

Speaker #3: Thank you, Jason. And welcome to everyone joining the call. Q2 results were generally in line with our expectations, as we continued managing through a difficult point in the agricultural equipment cycle.

Speaker #3: Operationally, we are making good use of this period to drive improvements in quality, sourcing, and manufacturing efficiency. These actions are supporting performance today, while strengthening our foundation for the future.

Speaker #3: We also continue advancing our precision technology capabilities, with increasing adoption of connected and AI-enabled solutions across our installed base and dealer network. While overall market conditions remain challenging, particularly given pressure on pharma profitability, we are seeing encouraging developments in several, but not yet all, equipment cycle indicators.

Gerrit Marx: As we think about the eventual recovery in our end markets, we find it helpful to focus on a handful of indicators that have historically provided a good signal for both the timing and strength of the next up cycle. First, channel inventories of new machines need to normalize in line with near-term 3 to 5 forward months of sales demand, depending on the machine type, and support a steady production environment. Second, used equipment inventories need to return to healthy levels, creating the financial and physical capacity for dealers to manage new equipment flow-through. Third, the spread between new and used equipment values needs to normalize, allowing farmers to trade equipment economically, supporting replacement demand. Fourth, commodity prices need to move sustainably above production costs and provide farmers with confidence that current profitability levels are durable enough to carry new equipment investments.

Speaker #3: As we think about the eventual recovery in our end markets, we find it helpful to focus on a handful of indicators that have historically provided a good signal for both the timing and strength of the next upcycle.

Speaker #3: First, channel inventories of new machines need to normalize in line with near-term, 3 to 5 forward months of sales demand, depending on the machine type, and support a steady production environment.

Speaker #3: Second, used equipment inventories need to return to healthy levels, creating the financial and physical capacity for dealers to manage new equipment flow-through. Third, the spread between new and used equipment values needs to normalize, allowing farmers to trade equipment economically, supporting replacement demand.

Speaker #3: Fourth, commodity prices need to move sustainably above production cost and provide farmers with confidence that current profitability levels are durable enough to carry new equipment investments.

Gerrit Marx: Fifth, farmers generally need a profitable season behind them and confidence in another profitable season ahead before replacement demand broadens. In addition, something that helps but is not necessarily a demand driver is government assistance programs and interest rates. Farm bills that subsidize crop insurance or borrowing rates, for example. This is all helpful, but it does not set the market recovery in motion. The industry is making good progress on the first three indicators across our major regions, although there is still work to do through year-end. Dealer new and used inventories continue to normalize. Equipment fleets continue to age, and the price gap between new and used equipment has begun to converge following several years of divergence. What remains largely absent are the fourth and fifth indicators. Commodity prices remain at or below break-even levels for many growers, while fuel, fertilizer, and transportation costs remain elevated.

Speaker #3: And fifth, farmers generally need a profitable season behind them and confidence in another profitable season ahead before replacement demand broadens. In addition, something that helps, but is not necessarily a demand driver, is government assistance programs and interest rates.

Speaker #3: Farm bills that subsidize crop insurance or borrowing rates, for example, are all helpful, but they do not set the market recovery in motion.

Speaker #3: The industry is making good progress on the first three indicators across our major regions, although there is still work to do through year-end. Dealer new and used inventories continue to normalize.

Speaker #3: Equipment fleets continue to age, and the price gap between new and used equipment has begun to converge following several years of divergence. What remains largely absent are the fourth and fifth indicators.

Speaker #3: Commodity prices remain at or below break-even levels for many growers, while fuel, fertilizer, and transportation costs remain elevated. As a result, overall farm profitability remains under pressure, and farmers remain cautious with larger capital investment decisions beyond immediate replacement demand.

Gerrit Marx: As a result, overall farm profitability remains under pressure, and farmers remain cautious with larger capital investment decisions beyond immediate replacement demands. When we put all these factors together, our baseline expectation is for an L-shaped recovery, with 2027 retail demand remaining broadly flat, with replacement demand continuing to carry much of the market. As inventories normalize, we expect to increase production to better align with retail demand. Beyond replacement demand, however, it will take stronger farm profitability and greater farmer confidence to support a more pronounced industry recovery. While we don't yet see evidence of a sustained recovery, conditions are becoming more constructive, and several of the foundational elements required for the next phase of the cycle are falling into place. Turning to the results, our Q2 performance reflects seasonal sequential volume improvements after a low Q1 and continued disciplined execution across the business.

Speaker #3: When we put all these factors together, our baseline expectation is for an L-shaped recovery, with 2027 retail demand remaining broadly flat and replacement demand continuing to carry much of the market.

Speaker #3: As inventories normalize, we expect to increase production to better align with retail demand. Beyond replacement demand, however, it will take stronger farm profitability and greater farmer confidence to support a more pronounced industry recovery.

Speaker #3: While we don't yet see evidence of a sustained recovery, conditions are becoming more constructive, and several of the foundational elements required for the next phase of the cycle are falling into place.

Speaker #3: Turning to the results, our Q2 performance reflects seasonal sequential volume improvements after a low Q1 and continued disciplined execution across the business. Consolidated revenues were $4.8 billion, up 2% year over year, including about a 2% positive currency impact.

Gerrit Marx: Consolidated revenues were $4.8 billion, up 2% year over year, including about 2% positive currency impacts. Our Ag segment sales were up 1%, with North America up 10%, EMEA up 1%, South America down 27%. With farm incomes depressed and macroeconomic uncertainty, we saw continued softness in equipment demand. Industrial Adjusted EBIT was $167 million, reflecting lower industry demand as well as the continued impact of tariffs. These factors were only partially offset by positive pricing and cost-saving actions. For the quarter, adjusted net income was $161 million, with Adjusted EPS at $0.13. Free cash flow from industrial activities was $150 million, a year-over-year decline due to lower EBIT and higher working capital investments. We remain fully committed to our long-term strategy and delivering sustainable value through the cycle.

Speaker #3: Our Ag segment sales were up 1%, with North America up 10%, EMEA up 1%, but South America down 27%. With farm incomes depressed and macroeconomic uncertainty, we saw continued softness in equipment demand.

Speaker #3: Industrial adjusted EBIT was $167 million, reflecting lower industry demand as well as the continued impact of tariffs. These factors were only partially offset by positive pricing and cost-saving actions.

Speaker #3: For Q2, adjusted net income was $161 million, with adjusted EPS at $0.13. Free cash flow from industrial activities was $150 million, a year-over-year decline due to lower EBIT and higher working capital investments.

Speaker #3: We remain fully committed to our long-term strategy and delivering sustainable value through the cycle. Our company strategy is centered around five key strategic pillars: expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence, and quality as a mindset.

Gerrit Marx: Our company strategy is centered around five key strategic pillars: expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence, and quality as a mindset. Even in a challenging market environment, we continue investing in the capabilities that will differentiate CNH over the long term and position us strongly for the next cycle. Today, I would like to focus on the progress we are making in our dealer consolidation efforts and our strategic sourcing program. In February, we told you about some flagship transactions around the world where we are expanding and consolidating our dealer network. Today, I'm going to review a few more success stories with you. Splintered Oak in East Texas is an example of a dealer expanding its territory.

Speaker #3: Even in a challenging market environment, we continue investing in the capabilities that will differentiate CNH over the long term and position us strongly for the next cycle.

Speaker #3: Today, I would like to focus on the progress we are making in our dealer consolidation efforts and our strategic sourcing program. In February, we told you about some flagship transactions around the world where we are expanding and consolidating our dealer network.

Speaker #3: Today, I'm going to review a few more success stories with you. Splintered Oak in East Texas is an example of a dealer expanding its territory.

Gerrit Marx: We also have dealer owners expanding to both brands, such as Gruett's Inc. in Wisconsin, ATV Sachsen in Germany, and Coquari in Brazil, all expanding into dual brands through acquisitions of Case IH locations. Expanding our dealers' reach not only helps their ability to service farmers in their markets, it also helps focus our strong and iconic brands more individually and in their collective lineup to compete more effectively in the marketplace. We're getting ready to officially launch the next wave of our strategic sourcing program next month with our supplier convention in Amsterdam. I thought I would take the opportunity to remind you what this program is and what it is delivering. The program is a disciplined process where we identify potential suppliers alongside our existing vendors and conduct rigorous evaluations to achieve the best supply chain for CNH.

Speaker #3: We also have dealer owners expanding to both brands, such as Gritz in Wisconsin, ATV Saxon in Germany, and Cochrey in Brazil, all expanding into dual brands through acquisitions of Case IH locations.

Speaker #3: Expanding our dealers' reach not only helps their ability to service farmers in their markets, it also helps focus our strong and iconic brands both individually and as a collective lineup to compete more effectively in the marketplace.

Speaker #3: We're getting ready to officially launch the next wave of our strategic sourcing program next month, with our supplier convention in Amsterdam. So, I thought I would take the opportunity to remind you what this program is and what it is delivering.

Speaker #3: The program is a disciplined process where we identify potential suppliers alongside our existing vendors and conduct rigorous evaluations to achieve the best supply chain for CNH.

Gerrit Marx: The goal is not just material cost reductions, although that is certainly one of the outcomes. We are also looking for a supply base that can grow with us, deliver outstanding quality service production and aftermarket demand, and work with us on finding the best total value for our farmers and builders. We are well on our way to meeting our target of adding 100 to 150 basis point margin improvement from this sourcing effect alone by 2030. I look forward to meeting with our next wave of prospective suppliers in September and continue this important transformation. With that, I will now turn the call over to Jim to take us through the details of our financial guidance.

Speaker #3: The goal is not just material cost reductions, although that is certainly one of the outcomes. We are also looking for a supply base that can grow with us, deliver outstanding quality, serve production and aftermarket demands, and work with us on finding the best total value for our farmers and builders.

Speaker #3: The program has been a great success so far, and we are well on our way to meeting our target of adding 100 to 150 basis points of margin improvement from this sourcing effect alone by 2030.

Speaker #3: I look forward to meeting with our next wave of prospective suppliers in September and continuing this important transformation. With that, I will now turn the call over to Jim to take us through the details of our financial guidance.

Jim Nickolas: Thank you, Gerrit. Agriculture Q2 net sales were about $3.3 billion, up 1% year-over-year, including 2% positive currency translation. North America saw higher year-over-year volume and pricing, while South America was down on both fronts. Sales in EMEA were about flat. Gross margin was 19.7% from 21.8% a year ago. While sales were about flat overall, we saw unfavorable product mix in North America, with large tractors down more than small tractors, and in South America, with combines down more than tractors. Agriculture Adjusted EBIT margin was 5.2% from 8.1% in Q2 2025, reflecting the unfavorable product mix and a pair of headwinds, with positive pricing only partially offsetting these pressures. The good news is that price cost was again positive for the quarter, and we expect that to be true for the full year as well.

Speaker #2: Thank you, Gerrit. Agriculture Q2 net sales were about $3.3 billion, up 1% year over year, including a 2% positive currency translation. North America saw higher year-over-year volume and pricing, while South America was down on both fronts.

Speaker #2: Sales in EMEA were about flat. Gross margin was 19.7%, down from 21.8% a year ago. While sales were about flat overall, we saw unfavorable product mix in North America, with large tractors down more than small tractors, and in South America, with combines down more than tractors.

Speaker #2: Agriculture adjusted EBIT margin was 5.2%, down from 8.1% in Q2 2025. This reflects the unfavorable product mix and tariff headwinds, with positive pricing only partially offsetting these pressures.

Speaker #2: The good news is that price/cost was again positive for the quarter, and we expect that to be true for the full year as well.

Jim Nickolas: Dealer inventories were slightly down sequentially, but we would say almost flat. By region, inventories were down in North and South America but were partially offset by increases in EMEA, where retail demand was softer than expected. We are working toward reducing dealer inventory by another $400 to 500 million by year-end, and our timing was always weighted more towards Q4. Construction net sales in the quarter were up 12% year-over-year to $866 million, driven by higher sales in North America. Performance in North America was strong, driven by volume growth, which included some of the machine shipments that were delayed in Q1 as a result of the supplier quality issue that we discussed last quarter. EMEA saw modest volume growth supported by favorable currency, while South America saw the most challenging conditions during the quarter.

Speaker #2: Dealer inventories were slightly down sequentially, but we would say almost flat. In region, inventories were down in North and South America, but were partially offset by increases in EMEA.

Speaker #2: Where retail demand was softer than expected, we are working toward reducing dealer inventory by another $400 to $500 million by year-end, and our timing was always weighted more toward the fourth quarter.

Speaker #2: Construction net sales in the quarter were up 12% year over year to $866 million, driven by higher sales in North America. Performance in North America was strong, driven by volume growth, which included some of the machine shipments that were delayed in the quality issue that we discussed last quarter.

Speaker #2: EMEA saw modest volume growth, supported by favorable currency, while South America saw the most challenging conditions during the quarter. Q2 gross margin was 11.9%, down from 15.7% a year ago, with the decline mainly driven by the impact of the tariffs.

Jim Nickolas: Q2 gross margin was 11.9% from 15.7% a year ago, where the decline was mainly driven by the impact of the tariffs. Construction Adjusted EBIT margin was 1.7%, down from 4.5% in Q2 2025, reflecting significantly higher tariffs, which more than offset the strong volume performance. In financial services, segment net income in the quarter was $71 million, down versus 2025, mainly due to margin compression in all regions, higher risk costs in Brazil, partially offset by a lower effective tax rate. Retail originations in Q2 were $2.5 billion, and the managed portfolio ended the quarter at $28 billion. Delinquency rates saw their usual seasonal uptick in Q2 to 4.4% but were higher year-over-year, primarily driven by the persistent economic difficulties in South America.

Speaker #2: Construction adjusted EBIT margin was 1.7%, down from 4.5% in Q2 2025, reflecting significantly higher tariffs, which more than offset the strong volume performance. In Financial Services, segment net income in the quarter was $71 million, down versus 2025, mainly due to margin compression in all regions and higher risk costs in Brazil, partially offset by a lower effective tax rate.

Speaker #2: Retail originations in the second quarter were $2.5 billion, and the managed portfolio ended the quarter at $28 billion. The liquidity rates saw their usual seasonal uptick in Q2 to 4.4%, but were higher year-over-year, primarily driven by the persistent economic difficulties in South America.

Jim Nickolas: Just as a note, our Q2 corporate expenses were partially offset by roughly $20 million of one-time income items, primarily a VAT-like tax credit in Brazil. That provided about $0.01 of non-recurring EPS benefit this quarter. Our capital allocation priorities remain the same, reinvesting in our business while maintaining a healthy balance sheet and then returning cash to shareholders. During Q2 2026, we paid our annual dividend totaling $126 million and repurchased $36 million worth of CNH stock at an average price of about $10.31 per share. Before we dive into our guidance, let's take a look at the expected tariff impact on our margins, as we had a change recently in the way Section 232 will be applied to some of our products. Under this updated rule, tariffs on certain categories of equipment have been reduced to 15% from 25%.

Speaker #2: Just as a note, our Q2 corporate expenses were partially offset by roughly $20 million of one-time income items, primarily a VAT-like tax credit in Brazil.

Speaker #2: So that provided about $0.01 of non-recurring EPS benefit this quarter. Our capital allocation priorities remain the same: reinvesting in our business while maintaining a healthy balance sheet, and then returning cash to shareholders.

Speaker #2: During the second quarter of 2026, we paid our annual dividend totaling 126 million dollars and repurchased 36 million dollars worth of CNH stock, at an average price of about 10 dollars and 31 cents per share.

Speaker #2: Before we dive into our guidance, let's take a look at the expected tariff impact on our margins, as we had a change recently in the way Section 232 will be applied to some of our products.

Speaker #2: Under this updated rule, tariffs on certain categories of equipment have been reduced to 15% from 25%. In our agriculture business, that brings down the expected 2026 tariff cost impact to about 170 basis points.

Jim Nickolas: In our agriculture business, that brings down the expected 2026 tariff cost impact to about 170 basis points. For construction, we now forecast about a 470 basis point impact. As we have previously outlined, construction is more heavily impacted than agriculture, given its higher exposure to imported finished equipment and higher percentage of sales in North America. It is important to remind everyone that we have not passed all the tariff impacts on to our customers. Even with this temporary relief of Section 232 rates, it is still a net drag on our margins, and we will not see all the benefit of this reduction drop to the bottom line either, as there have been other recent cost impacts, notably higher transportation costs due to the shipping lane disruptions. Certainly, this reduction in tariff rates is a welcome benefit.

Speaker #2: For construction, we now forecast about a 470-basis-point impact. As we've previously outlined, construction is more heavily impacted than agriculture, given its higher exposure to imported finished equipment and higher percentage of sales in North America.

Speaker #2: It's important to remind everyone that we have not passed all the tariff impacts on to our customers. Even with this temporary relief of Section 232 rates, it is still a net drag on our margins.

Speaker #2: And we won't see all the benefit of this reduction drop to the bottom line either, as there have been other recent cost impacts—notably higher transportation costs due to the shipping lane disruptions.

Speaker #2: But certainly, this reduction in tariff rates is a welcome benefit. We are reviewing the recent Section 301 tariffs for forced labor that went into effect 10 days ago.

Jim Nickolas: We are reviewing the recent Section 301 tariffs for forced labor that went into effect 10 days ago. At this point, we think the impact to CNH will be minimal, but there are still ongoing Section 301 investigations on excess capacity. We have not included any factors for that or any potential impacts from the non-renewal of the USMCA in this forecast. We will provide an update if there are material changes. At these levels, we expect Q3 2026 tariffs to be about flat year over year, whereas Q4 tariffs should actually be a little lower year over year. On a run rate basis, the tariffs will be a little lower in 2027 as we get the full year benefit of reduced Section 232 rates. With that, let me address IEEPA-related tariff recoveries, which are also not included in the numbers shown on this page.

Speaker #2: At this point, we think the impact of CNH will be minimal. But there are still ongoing Section 301 investigations on excess capacity. We have not included any factors for that, or any potential impacts from the non-renewal of the USMCA, in this forecast.

Speaker #2: We will provide an update if there are material changes. At these levels, we expect Q3 2026 tariffs to be about flat year over year, whereas Q4 tariffs should actually be a little lower year over year.

Speaker #2: On a run-rate basis, the tariffs will be a little lower in 2027 as we get the full-year benefit of the reduced Section 232 rates.

Speaker #2: With that, let me address IEPA-related tariff recoveries, which are also not included in the numbers shown on this page. In the second quarter, we received $5 million of refunds as part of the Phase I claims process.

Jim Nickolas: In the Q2, we received $5 million of refunds as part of the phase I claims process. Now that phase II is open, we are in the process of filing approximately $135 million in claims. We are accounting for the refunds as gain contingencies and will therefore recognize them when they are received. As the timing of the refund receipt is uncertain, they are not included in the guidance that we will review in a moment. In addition to the $135 million in phase II claims, we estimate to have about $15 million in claims to be filed in phase III whenever that becomes available to us. When these refunds are received, we do intend to redeploy a meaningful portion by reinvesting them in discrete projects benefiting the business.

Speaker #2: Now that Phase II is open, we are in the process of filing approximately $135 million in claims. We are accounting for the refunds as gain contingencies and will therefore recognize them when they are received.

Speaker #2: As the timing of the refund receipt is uncertain, they are not included in the guidance that we will review in a moment. In addition to the $135 million in Phase II claims, we estimate having about $15 million in claims to be filed in Phase III, whenever that becomes available to us.

Speaker #2: When these refunds are received, we do intend to redeploy a meaningful portion by reinvesting them in discrete projects benefiting the business. This could include accelerating investments in precision technology, upgrades to our manufacturing facilities, or providing limited-term incentives to accelerate inventory destocking, among other areas.

Jim Nickolas: This could include accelerating investments in precision technology, upgrades to our manufacturing facilities, or providing limited-term incentives to accelerate inventory destocking, among other areas. Let us now look together at our agriculture industry outlook for 2026. We have made tweaks to some of the numbers, mainly based on how we have seen the H1 develop. Overall, it is net lower, with reductions in small tractors in North America and in combines in EMEA and South America. That still puts us at about 80% of mid-cycle when balancing all the products together. With our order slots now nearly full for the year, we are moving our net sales guidance to the high end of our previous range. We now forecast sales to be about flat year over year.

Speaker #2: Let's now look together at our Agriculture industry outlook for 2026. We have made tweaks to some of the numbers, mainly based on how we have seen the first half develop.

Speaker #2: Overall, it is net lower. With reductions in small tractors in North America, and in combines in EMEA and South America, that still puts us at about 80% of mid-cycle when balancing all the products together.

Speaker #2: With our order slots now nearly full for the year, we are moving our net sales guidance to the high end of our previous range.

Speaker #2: We now forecast sales to be about flat year over year. That includes our unchanged assumptions for favorable currency translation of 2% and positive pricing of 1.5% to 2%.

Jim Nickolas: That includes our unchanged assumptions for favorable currency translation of 2% and positive pricing of 1.5% to 2%, offset by lower unit shipments as a result of the industry demand. Agriculture production hours will be down slightly year-over-year. The updated Section 232 tariff rates are providing some cost relief, but this has been largely offset by increased rate and transportation costs, as well as continued market challenges in South America. Despite this, we are confident in our ongoing cost reduction programs and manufacturing performance. As a result, we are narrowing our EBIT margin guidance to the high end of the previous range, now at 5% to 5.5%. In Construction, we have also fine-tuned our industry forecast across the regions based on H1 trends and market conditions, and overall, we are more positive in overall outlook, especially for heavy equipment.

Speaker #2: Offset by lower unit shipments as a result of industry demand. Agriculture production hours will be down slightly year over year. The updated Section 232 tariff rates are providing some cost relief, but this has been largely offset by increased freight and transportation costs, as well as continued market challenges in South America.

Speaker #2: Despite this, we are confident in our ongoing cost reduction programs and manufacturing performance. As a result, we are narrowing our EBIT margin guidance to the high end of the previous range, now at 5.0% to 5.5%.

Speaker #2: In Construction, we have also fine-tuned our industry forecast across the regions based on first-half trends and market conditions. Overall, we are more positive in our outlook, especially for heavy equipment.

Jim Nickolas: With the healthy Construction markets and our own success in the field, we are raising our net sales guidance up to 5% to 10% year-over-year, including about 2% of favorable currency translation and 1% of pricing. EBIT margin is now forecast to be between 1.8% and 2.3% as the improvement in sales levels and tariff rates positively impact our profitability. Production hours in the Construction segment will be up to support the year-over-year increase in sales. Putting the two segments together, we now forecast 2026 industrial net sales to be flat to up 2% year-over-year, with industrial Adjusted EBIT margin between 3.2% and 3.8%. Industrial free cash flow is now forecasted to be between $200 and $400 million on slightly improved sales and lower working capital assumptions. Adjusted EPS is now narrowed to between $0.41 and $0.46.

Speaker #2: With healthy construction markets and our own success in the field, we are raising our net sales guidance up to 5 to 10% year over year, including about 2% of favorable currency translation and 1 to 1.5% of pricing.

Speaker #2: EBIT margin is now forecast to be between 1.8% and 2.3%, as the improvement in sales levels and tariff rates positively impact our profitability. Production hours in the Construction segment will be up to support the year-over-year increase in sales.

Speaker #2: Putting the two segments together, we now forecast 2026 industrial net sales to be flat to up 2% year over year, with industrial adjusted EBIT margin between 3.2% and 3.8%.

Speaker #2: Industrial free cash flow is now forecasted to be between $200 million and $400 million, on slightly improved sales and lower working capital assumptions. Adjusted EPS is now narrowed to between $0.41 and $0.46.

Jim Nickolas: As a reminder, the guidance does not include IEEPA tariff refunds beyond the $5 million received in Q2, but it also doesn't include any costs for the discrete or one-off projects that we intend to cover with those refunds. To help you with your modeling, I'll provide some additional considerations for Q3. In Agriculture, we expect Q3 net sales and EBIT margins to be about flat on a year-over-year basis as we keep an eye on how market conditions evolve in South America. In Construction, we expect continued strength in North America, driving global sales up in the low to mid-teens year-over-year, similar to what you saw in Q2. EBIT margin will improve year-over-year to a low to mid-single-digit range. Like for Agriculture, South America is a watch point for Construction.

Speaker #2: As a reminder, the guidance does not include IEPA tariff refunds beyond the $5 million received in Q2, but it also doesn't include any cost for the discrete or one-off projects that we intend to cover with those refunds.

Speaker #2: To help you with your modeling, I'll provide some additional considerations for the third quarter. In Agriculture, we expect Q3 net sales and EBIT margin to be about flat on a year-over-year basis, as we keep an eye on how market conditions evolve in South America.

Speaker #2: In Construction, we expect continued strength in North America, driving global sales up in the low to mid-teens year over year, similar to what you saw in Q2.

Speaker #2: EBIT margin will improve year over year to a low- to mid-single-digit range. Like for Agriculture, South America is the watch point for Construction.

Jim Nickolas: Financial services net income in Q3 is expected to improve year-over-year off a low base. Recall that we recorded a lot of risk reserves in Q3 of 2023, and so we are lapping that easier comparison now in 2026. We will be watching market dynamics as the quarter progresses. With that, I'll turn it back to Gerrit.

Speaker #2: Financial Services net income in Q3 is expected to improve year over year off a low base. Recall that we recorded a lot of risk reserves in Q3 of 2023, and so we are lapping that easier comparison now in 2026.

Speaker #2: But we will be watching market dynamics as the quarter progresses. With that, I'll turn it back to Gerrit.

Gerrit Marx: Thank you, Jim. Let me finish up with some thoughts about the rest of the year. We are closely watching model year 2027 order intake as one of the clearest indicators of where the agriculture cycle is headed. So far, order intake would indicate a flattish 2027 industry retail demand, but we are still early in the process. We do not have enough information yet to assess whether the constructive signs we are seeing in dealer inventories, fleet age, and used equipment pricing will translate into higher equipment demand, even at modest levels. We are also tracking the macroeconomic factors that continue to shape the agriculture industry cycle, particularly farmer profitability, commodity prices, interest rates, and input costs. Farm economics remain pressured in several regions, our outlook will continue to reflect both the encouraging cycle indicators and the realities of customers' current cash flow environment.

Speaker #1: Thank you, Jim. And let me finish up with some thoughts about the rest of the year. We're closely watching model year 2027 order intake, as one of the clearest indicators of where the agriculture cycle is headed.

Speaker #1: So far, order intake would indicate a flattish 2027 industry retail demand, but we are still early in the process. We do not have enough information yet to assess whether the constructive signs we are seeing in dealer inventories, fleet age, and used equipment pricing will translate into higher equipment demand, even at modest levels.

Speaker #1: We're also tracking the macroeconomic factors that continue to shape the agriculture industry cycle, particularly farmer profitability, commodity prices, interest rates, and input costs. Farm economics remain pressured in several regions, so our outlook will continue to reflect both the encouraging cycle indicators and the realities of customers' current cash flow environment.

Gerrit Marx: We will maintain continued production discipline as we work towards leaner channel inventories by year-end. This remains an important part of protecting pricing, supporting our dealers, and ensuring that production levels will be aligned with underlying retail demand as we move into 2027. Producing in line with retail demand in 2027 means we have an automatic tailwind next year since we are currently underproducing to the 2026 demand by about 4%. We expect our margin improvement efforts to be supported by the work underway in quality, sourcing, and operational efficiency. These initiatives are helping offset some of the current cost and tariff pressures while strengthening the foundation for better performance as markets improve. We will continue to make sustained investments in both our iron and our technology capabilities.

Speaker #1: We will maintain continued production discipline as we work towards leaner general inventories by year-end. This remains an important part of protecting pricing, supporting our dealers, and ensuring that production levels will be aligned with underlying retail demand as we move into 2027.

Speaker #1: Producing in line with retail demand in 2027 means we have an automatic tailwind next year, since we are currently underproducing to the 2026 demand by about 4%.

Speaker #1: We expect our margin improvement efforts to be supported by the work underway in quality, sourcing, and operational efficiency. These initiatives are helping offset some of the current cost and tariff pressures, while strengthening the foundation for better performance as markets improve.

Speaker #1: We will continue to make sustained investments in both our iron and our technology capabilities. Our goal is to bring those together in ways that improve productivity for customers, increase adoption of connected and AI-enabled solutions, and further differentiate CNH over the long term.

Gerrit Marx: Our goal is to bring those together in ways that improve productivity for customers, increase adoption and connected and AI-enabled solutions, and further differentiate CNH over the long term. We will continue supporting multi-brand dealership consolidation across all geographies where it improves customer coverage, dealer strength, and long-term network effectiveness. We believe the right dealer configuration in each market is essential to delivering better service, stronger aftermarket support, and a consistent customer experience. One final comment. We already shared with you that we have restarted our conversations with several potential partners in the construction space, exploring different collaboration models. The goal of the discussions is to find a solution that profoundly upgrades two things. First, our Construction Segment's economies of scale, geographic reach, and competitiveness across all product lines, but most notably our heavy excavators.

Speaker #1: We will continue supporting multi-brand dealership consolidation across all geographies where it improves customer coverage, dealer strength, and long-term network effectiveness. We believe the right dealer configuration in each market is essential to delivering better service, stronger aftermarket support, and a consistent customer experience.

Speaker #1: And one final comment. We have already shared with you that we have restarted our conversations with several potential partners in the construction space, exploring different collaboration models.

Speaker #1: The goal of the discussions is to find a solution that profoundly upgrades two things: first, our construction segment’s economies of scale, geographic reach, and competitiveness across all product lines, but most notably our heavy excavators.

Gerrit Marx: Second, the breadth, depth, and technologies of construction machines supplied to our agriculture network. We are being diligent and thorough in these discussions and considerations, we will let you know when there is something new to report. This concludes our prepared remarks, we can now start the Q&A session.

Speaker #1: And second, the breadth, depth, and technologies of construction machines supplied through our agriculture network. We are being diligent and thorough in these discussions and considerations, and we will let you know when there is something new to report.

Speaker #1: This concludes our prepared remarks, and we can now start the Q&A session.

Gerrit Marx: Thank you. We will now begin the question-and-answer session of the call. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. To allow time for as many participants as possible, please limit yourself to one question and then return to the queue for any follow-ups. Your first question comes from the line of Chad Dillard with Bernstein. Your line is open. Please go ahead.

Operator: Thank you. We will now begin the question-and-answer session of the call. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. To allow time for as many participants as possible, please limit yourself to one question and then return to the queue for any follow-ups. Your first question comes from the line of Chad Dillard with Bernstein. Your line is open. Please go ahead.

Speaker #3: Thank you.

Speaker #4: Thank you.

Speaker #3: We will now begin the question and answer session of the call. If you would like to ask a question, please press star one to raise your hand.

Speaker #3: To withdraw your question, press star one again. To allow time for as many participants as possible, please limit yourself to one question, and then return to the queue for any follow-ups.

Speaker #3: Your first question comes from the line of Chad Dillard with Bernstein. Your line is open. Please go ahead.

Chad Dillard: Hey, good morning, guys. I just wanted to dig into the implied guide for the ag business from Q3 to Q4. Seems like there's a pretty healthy step up. I was hoping you could give me some color on some of the moving pieces to get there. Just kind of thinking through the exit rate, how to think about the transition into 2027 with those margins.

Speaker #4: Hey, good morning, guys. So I just want to dig into the implied guide for the Ag business from Q3 to Q4. It seems like there's a pretty healthy step up.

Speaker #4: So I was hoping you could give me some color on some of the moving pieces to get there. And then, just kind of thinking through the exit rate, how to think about the transition into '27 with those margins.

Jim Nickolas: Yeah. Hey, good question, Chad. It's Jim. A couple of things. For Q3 to Q4, we've got the higher volumes. That's a chunk of it. Q2, we've lapped. This is the last quarter, hopefully, where we have a tough comp. Q3 and Q4, favorable comparison from a tariff perspective versus last year. Sequentially, Q4 should have lower tariffs than Q3 of this year, thanks to the lower Section 232 rates. Pricing should be a little bit of a lift as well. The operational improvements that Gerrit mentioned, we expect to continue as well. I'd say volumes and lower tariffs are the primary, followed by pricing and operational improvements coming in next.

Speaker #2: Yeah. Hey, good question, Jim. So, a couple of things. From Q3 to Q4, we’ve got higher volumes at a chunk of it. Lower tariffs are finally—this Q2, we’ve lapped.

Speaker #2: This is the first time—this is the last quarter, hopefully—where we have a tough comp. So Q3 and Q4 will have a favorable comparison from a tariff perspective versus last year.

Speaker #2: And sequentially, Q4 should have lower tariffs than Q3 of this year, thanks to the lower Section 232 rates. Pricing should see a little bit of a lift as well.

Speaker #2: And then the operational improvements that Garrett mentioned, we expect to continue as well. So, I'd say volumes and lower tariffs are the primary drivers, followed by pricing and operational improvements coming in next.

Jim Nickolas: Your next question comes from the line of Steven Fisher with UBS. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Steven Fisher with UBS. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Steven Fisher with UBS. Your line is open. Please go ahead.

Steven Fisher: Great. Thanks. Good morning. It's nice to see the positive ag revision to guidance. Wonder if you'd help us reconcile that with more cuts to the ag industry retail sales versus those raises. Was it sort of an underproduction dynamic? I know, I think, Gerrit, you mentioned $400 to 500 million of underproduction this year. I think that was $500 million last quarter, so maybe that was part of it. Just trying to reconcile those two different directions of things. Thanks.

Speaker #5: Oh, great. Thanks. Good morning. It's nice to see the positive ag revision to guidance. Just wondering if you could help us reconcile that with more cuts to the ag industry retail sales.

Speaker #5: Versus those raises, was it sort of an underproduction dynamic? I know—I think, Gerrit, you mentioned $400 to $500 million of underproduction this quarter, so maybe that was part of it.

Speaker #5: But just trying to reconcile those two different directions of things. Thanks.

Jim Nickolas: Yeah. It's Jim. The underproduction will come largely in Q4 this year. The $400 to 500 will largely come in Q4. That's, again, comparison versus a very significant dealer destocking that we had last year. It's not too dissimilar from what we saw last year. I think there's no real change there. The guide we gave last quarter for the full year, we had mentioned some risks to South America, Latin America. We sort of knew those were out there on the horizon, and our guidance reflected that to some degree. Those risks have come to fruition. South America has weakened further. We did incorporate some of that in our previous guide. To some degree, we anticipated that worsening, and it was already built in the guide we gave last time.

Speaker #2: Yeah. Jim, the underproduction will come largely in Q4 this year. The 400 to 500 will largely come in Q4. But that's, again, a comparison versus a very significant dealer de-stocking that we had last year.

Speaker #2: So, it's not too dissimilar from what we saw last year, so I think there's no real change there. But in the guidance we gave last quarter for the full year, we had mentioned some risks to South America, Latin America.

Speaker #2: So we sort of knew those were out there on the horizon, and our guidance reflected that to some degree. So, those risks have come to fruition.

Speaker #2: South America has weakened further. We did incorporate some of that in our previous guide, so to some degree, we anticipated that worsening and it was already built into the guide we gave last time.

Jim Nickolas: The increase we're seeing this year, for the remainder of this year, is a couple of factors. One, we have outperformed modestly what we guided towards in Q1 and Q2, we're just sort of passing that on. We're baking it and building it on to the full year view. We did that one time Now a recurring benefit in corporate expenses from the VAT-like taxes in Brazil. Of course, we do see favorable pricing and more operational improvements, lower tariffs in Q4 also benefiting ag. That's versus the prior guide.

Speaker #2: So, the increase we're seeing this year for the remainder of this year is due to a couple of factors. One, we have outperformed modestly what we guided towards in Q1 and Q2.

Speaker #2: So we're just sort of passing that on. We're baking it in and building it into the full-year view. And then we had that one-time, non-recurring benefit in corporate expenses from the VAT-like taxes in Brazil.

Speaker #2: And then, of course, we do see favorable pricing and more operational improvements, and then the lower tariffs in Q4, also benefiting Ag. That's versus the prior guide.

Jim Nickolas: Your next question comes from the line of Jamie Cook with Truist Securities. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Jamie Cook with Truist Securities. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Jamie Cook with Truist Securities. Your line is open. Please go ahead.

Jamie Cook: Hi. Good morning. I guess it sounds like next year you feel like the ag landscape at this point is going to be flat. Construction's probably up a little. Under that scenario, can you just talk about your ability to at least keep earnings flat? It sounds like we'll get some tailwinds from operational initiatives, maybe tariffs is a modest negative. Sounds like pricing should be okay, any commentary you can frame how you think the setup is for 2027 earnings. Thank you.

Speaker #6: Hi. Good morning. I guess, if you—it sounds like next year, you feel like the ag landscape at this point is going to be flat.

Speaker #6: Construction's probably up a little. But under that scenario, can you just talk about your ability to at least keep earnings flat? I mean, it sounds like we'll get some tailwinds from operational initiatives—maybe tariffs is a modest negative.

Speaker #6: Sounds like pricing should be okay. But can you provide any commentary or frame how you think the setup is for 2027 earnings? Thank you.

Jim Nickolas: Yeah. Holding it in your assumption where industry's flat, a couple of things. We should have production levels that are higher because we're selling at closer to retail level. We won't be underproducing as much. One. Two, we've been pretty successful with pricing excessive costs, even despite some of the tariffs. I think that dynamic will continue, that should help with earnings perspective next year. Of course, the operational improvements will continue as well.

Speaker #2: Yeah. Yeah. Holding it in your assumption where industry is flat, a couple of things. We should have production levels that are higher because we're selling closer to retail level.

Speaker #2: We won't be underproducing as much. One, two, we've been pretty successful with price in excess of cost, even despite some of the tariffs. I think that dynamic will continue.

Speaker #2: So that should help. From an earnings perspective, next year—and, of course, the operational improvements will continue as well.

Gerrit Marx: Yeah. On the operations side, Jamie, we're making very good progress on the very different ends. As I alluded to before, on the procurement side, we keep building. We have a four waves procurement program, of which the first two waves now are now in full swing. Wave one is already delivering. Wave two will start to deliver next year, then we're kicking off wave three now and wave four to come. This all builds, and we feel pretty good about that trajectory. On the quality side, we have delivered on what we targeted last year, even a notch above, and we are tracking quite well this year as well to further improve on that end. We have a lot going on on the operations side. Obviously, also in our factories where we invest and see also improvements on the operational efficiency and productivity side.

Speaker #5: Yeah. On the operations side, Jamie, we're making very good progress on the very different ends. I mean, as I alluded to before, on the procurement side, we keep building.

Speaker #5: We have a full-wave procurement program, of which the first two waves are now in full swing. Wave one is already delivering, and wave two will start to deliver next year.

Speaker #5: And then we're kicking off wave three now, and wave four is to come. So this all builds, and we feel pretty good about that trajectory.

Speaker #5: On the quality side, we have delivered on what we targeted last year—even a notch above. And we are tracking quite well this year as well, to further improve on that end.

Speaker #5: So we have a lot going on on the operations side. Obviously, also factories where we invest and see improvements on the operational efficiency and productivity side.

Gerrit Marx: Overall, the underlying cost base performs. We plan to have increased production levels in line with retail next year, which should be then the year which is retail flat-ish as we currently see it in an L-shaped recovery. With that plus pricing, we feel confident about printing a proposal for next year that should be no less than what we do this year.

Speaker #5: So overall, the underlying cost base performs. We plan to have increased production levels in line with retail next year, which should be the year in which retail is flat-ish, as we currently see it, in an L-shaped recovery.

Speaker #5: And with that, plus pricing, we feel confident about printing a proposal for next year that should be no less than what we do this year.

Gerrit Marx: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open. Please go ahead.

Angel Castillo: Hi. Good morning. Thanks for taking my question and sorry to belabor the point here. I guess just wanted to continue to dive deeper into kind of the second half implications. You've given a lot of good color on it, and if I'm doing the math correctly, I think the implied Adjusted EBIT margin for Q4 in ag is double digits. If I heard you correctly, I think there's still quite a bit of underproduction in that Q4. Can you just, I guess as we think about a flattish 2027 and that exit rate, should we take that to mean that you think double-digit EBIT margins or Adjusted EBIT margins is kind of the right way to think about 2027 all else equal?

Speaker #7: Hi, good morning. Thanks for taking my question, and sorry to belabor the point here. I just wanted to continue to dive deeper into the second half implications.

Speaker #7: So, given a lot of good color on it, and if I'm doing the math correctly, I think the implied adjusted EBIT margin for the fourth quarter in Ag is double digits.

Speaker #7: So, and if I heard you correctly, I think there's still quite a bit of underproduction in that fourth quarter. So can you just—I guess as we think about a flattish 2027 and that exit rate, should we take that to mean that you think double-digit EBIT margins or adjusted EBIT margins is kind of the right way to think about 2027 OLS equal, given, again, lack of underproduction, operating efficiencies, and other factors that should bolster the performance there?

Angel Castillo: Given, again, lack of underproduction, operating efficiencies and other factors that should bolster performance there or is there anything else that we're kind of missing here?

Speaker #7: Or is there anything else that we're kind of missing here?

Jim Nickolas: Yeah. No, it's Jim. Good morning, Angel. I'd say we aren't implying double-digit EBIT margin in Q4, so that your starting point is probably a little too high, to be honest with you. What that implies for next year, I think to what we said earlier, we would expect. Of course, Q4 is our best quarter. You can't sort of use that as a launching pad for the entire year. I would say it certainly points to our momentum and improvement trajectory that we've been on since our Investor Day, May of last year. The things we said we're going to do, we're doing. Frankly, we're quite happy with the success we've seen with those operational improvements. Unfortunately, they've been diverted.

Speaker #2: Yeah, no. Jim, good morning. Angel, I'd say we aren't implying double-digit EBIT margin in Q4, so your starting point's probably a little too high.

Speaker #2: To be honest with you, and with what that implies for next year, I think to what we said earlier, we would expect a kind of cross—Q4 is our best quarter.

Speaker #2: And so you can't sort of use that as the launching pad for the entire year. But I would say it certainly points to our momentum and the improvement trajectory that we've been on since our Investor Day in May of last year.

Speaker #2: The things we said we're going to do, we're doing. Frankly, we're quite happy with the success we've seen with those operational improvements. Unfortunately, they've been diverted—instead of going to shareholders, they've accrued to the benefit of the U.S. government in the form of higher tariffs.

Jim Nickolas: Instead of going to shareholders, they're accruing to the benefit of the US government in the form of higher tariffs. It hasn't dropped to the bottom line like we'd hoped. The things we said we were going to do, we're doing, and we're seeing it. Next year, assuming tariffs don't change again, that's sort of in the baseline. Our price cost performance should accrue to the benefit of shareholders going forward.

Speaker #2: And so, it hasn't dropped to the bottom line like we'd hoped. But the things we said we were going to do, we're doing—and we're seeing it.

Speaker #2: Next year, assuming tariffs don't change again, that's sort of in the baseline. And our price-cost performance should accrue to the benefit of shareholders going forward.

Jim Nickolas: Your next question comes from the line of David Raso with Evercore ISI. Your line is open. Please go ahead.

Operator: Your next question comes from the line of David Raso with Evercore ISI. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of David Rosso with Evercore ISI. Your line is open. Please go ahead.

David Raso: Thank you for the time. Can you help us a bit with where the 4% underproduction's coming, maybe help geographically and product type? Just on the Q4 ag margin, just so we're clear, you have sales implied down $44 million year over year, EBIT up $84 million? We're just trying to understand how much does the tariff help year over year to have EBIT up $84 million. Thank you.

Speaker #7: Thank you for the time. Can you help us a bit with where the 4% underproduction is coming from? Maybe help geographically and by product type. And just on the fourth quarter ag margin, just so we're clear, you have sales implied down $44 million year over year, but EBIT up $84 million.

Speaker #7: And we're just trying to understand, how much is the tariff help year over year to have EBIT up $84 million? Thank you.

Jim Nickolas: Yeah. I think the underproduction, it's mostly in North America and South America for this year, particularly Q2 through Q4. As far as Q4, a sizable portion of the uplift is coming from lower tariff rates and some of it is some higher pricing as well.

Speaker #2: Yeah, I think the underproduction is mostly in North America and South America for this year, particularly Q2 through Q4. And then, as far as Q4, a sizable portion of the uplift is coming from lower tariff rates.

Speaker #2: And, to some degree, some higher pricing as well.

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

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

Speaker #3: Your next question comes from the line of Tammy Zakaria with JP Morgan. Your line is open. Please go ahead.

Tami Zakaria: Hey, good morning. Thank you so much. Question on the corporate expense line because I think it saw a step down in Q2 because of the tax refund. How should we think about that line for the remaining two quarters?

Speaker #8: Hey, good morning. Thank you so much. I have a question on the corporate expense line, because I think it has stepped down in Q2 because of the tax refund.

Speaker #8: How should we think about the line for the remaining two quarters?

Jim Nickolas: Yeah, I think typically we ask people to model $55 to $60 million per quarter. Of course, that can be quite volatile given whatever might be going on with some unique activities. I think for now, you might want to assume that going forward. Of course, in Q4, typically we'll adjust for variable comp up or down as needed. That can be a bit of swing factor. Right now, that's not assumed in the guide.

Speaker #2: Yeah, I think typically we ask people to model $55 to $60 million per quarter. Of course, that can be quite volatile, given whatever might be going on with some unique activities.

Speaker #2: So, I think for now you might want to assume that going forward, of course. And then, in Q4, typically we will adjust for variable comp up or down as needed.

Speaker #2: That can be a bit of a swing factor. Right now, that's not assumed in the guide.

Jim Nickolas: Your next question comes from the line of Kyle Menges with Citigroup. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Kyle Menges with Citigroup. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Kyle Mendez with Citigroup. Your line is open. Please go ahead.

Kyle Menges: Great. Thank you. Appreciate some of the commentary on 2027. You've provided some good color. Was hoping just to the extent you can provide somewhat of a margin bridge for 2027, thinking about annualizing lower tariff impacts and then some of the cost savings initiatives around procurement and quality. Sounds like base case volume would be up a little bit and you get some price. How do we think about that margin bridge then, based on some of those factors going from 2026 to 2027 in Ag?

Speaker #9: Great, thank you. I appreciate some of the commentary on 2027, and was hoping—you've provided some good color—I was hoping, just to the extent you can, if you could provide somewhat of a margin bridge for 2027, thinking about annualizing lower tariff impacts.

Speaker #9: And then, some of the cost savings initiatives around procurement and quality. And then it sounds like base case volume would be up a little bit, and you get some price. Just how do we think about that margin bridge then, based on some of those factors, going from 2026 to 2027 in Ag?

Jim Nickolas: Yeah. Hey, Kyle, Jim, good morning. As much as I would love to provide that to you, I can't do that just yet. We're not quite ready to talk about 2027 in detail. Stay tuned on that. More to come. I will point out we did provide a view of 2027 impact from the tariffs in the slide deck. We did give you some information there, but I can't give you the more detailed bridge walk just yet.

Speaker #2: Yeah. Hey, Kyle. Jim, good morning. As much as I would love to provide that to you, I can't do that just yet. We're not quite ready to talk about 2027 in detail.

Speaker #2: So stay tuned on that—more to come. But I will point out, we did provide a view of 2027 impact from the tariffs in the slide deck.

Speaker #2: So we did give you some information there, but I can't give you the more detailed bridge walk just yet.

Jim Nickolas: Your next question comes from the line of Michael Shlisky with D.A. Davidson & Co. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Michael Shlisky with D.A. Davidson & Co. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Michael Schlisky with DA Davidson & Co. Your line is open. Please go ahead.

Michael Shlisky: Good morning. Thank you. I know you had some tailwinds on price and currency in the quarter for Ag. Can you share with us whether CNH gained any market share in Ag anywhere globally?

Speaker #9: Good morning, and thank you. I know you had some tailwinds on price and currency in the quarter for Ag. Can you share with us whether CNH gained any market share in Ag anywhere globally?

Gerrit Marx: Yeah. Hi, Michael, Gerrit here. We did indeed have some gains in market share. It is going across the board actually from tractors to combines, and it differs a bit by region. As you know, in most of regions, market is measured by retail and in some geographies by wholesale, and it is sometimes also related to us or other market participants turning their farmers from an equipment point of view. At times, launching programs and launching sales initiatives in those territories can have here and there some impacts on market shares on a quarterly basis. On a full year basis, we do look at a market share recovery across the board, all equipments in EMEA, in Europe. We do look at some targeted gains as well in North America and South America as per plan.

Speaker #2: Yeah. Hi, Michael. Garrett here.

Speaker #10: We did, indeed, have some gains in market share. It is going across the board, actually, from practice to combines, and it differs a bit by region.

Speaker #10: And as you know, in most of the regions, the market is measured by retail. And in some geographies, by wholesale. It is sometimes also related to us or other market participants turning their farmers from an equipment point of view.

Speaker #10: So, at times, launching programs and launching sales initiatives in those territories can have, here and there, some impacts on market shares on a quarterly basis.

Speaker #10: On a full-year basis, we do look at a market share recovery across the board, all equipment in EMEA—in Europe. And we do look at some targeted gains as well in North America and South America, as per plan.

Gerrit Marx: What we're doing right now with the dealer network consolidation, building a stronger dealer base, multi-brand, and now more focused on actually the competition instead of us and our two brands, is really starting to show, and that is something that will continue over the next years as we have laid it out during our Investor Day in 2025.

Speaker #10: So, what we're doing right now with the dealer network consolidation—building a stronger dealer base, multi-brand, and now more focused on actually the competition instead of us and our two brands—is really starting to show.

Speaker #10: And that is something that will continue over the next years, as we have laid it out during our Investor Day in 2025.

Gerrit Marx: Your next question comes from the line of Edward Magi with BNP. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Edward Magi with BNP. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Edward Maggi with BNP. Your line is open. Please go ahead.

Edward Magi: Hey, morning, guys. Thanks for taking the question. Industrial free cash flow is negative in H1, and you ended up raising full year guidance. I was wondering if you could help us understand the bridge components to get there.

Speaker #11: Hey, morning, guys. Thanks for taking the question. Industrial free cash flow was negative in the first half, and you ended up raising the full-year guidance.

Speaker #11: So, I was wondering if you could help us understand the bridge components to get there.

Jim Nickolas: Yeah. I'd say Q2 was lower than Q2 last year, largely due to trade payables. We had increased production quite a bit Q2 of last year compared to Q1, so that drove the increase in payables. We didn't see that increase in production this year, the trade payables didn't grow. That's basically the chunk of Q2 that accounts for most of the decline versus last year. We do see that timing reversing in the second half of this year. Of course, our improved profitability is a big piece of the other area of increasing the cash flow.

Speaker #2: Yeah, I'd say Q2 was lower than Q2 last year, largely due to trade payables. We had increased production quite a bit in Q2 of last year compared to Q1.

Speaker #2: So, that drove the increase in payables. We didn't see that increase in production this year, and so the trade payables didn't grow. That's basically the chunk of Q2 that accounts for most of the decline versus last year.

Speaker #2: But we do see that timing reversing in the second half of this year, and A and B, of course, are improved profitability, which is a big piece of the other area of increasing the cash flow.

Jim Nickolas: Your next question comes from the line of Ted Jackson with Northland. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Ted Jackson with Northland. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Ted Jackson with Northland. Your line is open. Please go ahead.

Ted Jackson: Thanks very much. My first question is, was I hearing correctly that you saw that European market was a little softer in the quarter than you expected? If that's true, could you provide a little color and kind of what you see going on in Europe and maybe the ramifications for that for the remainder of the year? I have a follow-up on construction.

Speaker #10: Thank you very much. My first question is: was I hearing correctly that you saw the European market was a little softer in the quarter than you expected?

Speaker #10: And if that's true, could you provide a little color on what you see going on in Europe, and maybe the ramifications of that for the remainder of the year?

Speaker #10: And then I have a follow-up on Construction.

Jim Nickolas: Yeah, we did see a turn to a little bit more negative sentiment in EMEA, it was a surprise. We weren't expecting it. We had viewed EMEA as a bright spot. Again, while we had hoped inventory, we had dealer destocking everywhere, we expected it in EMEA, it actually increased in EMEA. That was the one area we were a little bit caught by. I think really it's due to a couple of factors. One, the weather there is extremely hot. There's drought conditions. It's hurting crops, hurting sentiment, coupled with the higher input costs we're seeing from the war in Ukraine with fertilizer, fuel, et cetera. All those things have combined, I think, to really put a bit of a pall, cast some gloom over farmer sentiment in EMEA.

Speaker #2: Yeah, we did see a turn to a little bit more negative sentiment in EMEA, and it was a surprise. We weren't expecting it. We had viewed EMEA as a bright spot.

Speaker #2: And again, while we had hoped inventory would decrease—we had dealer destocking everywhere, and we expected it in EMEA—it actually increased in EMEA. So, that was the one area we were a little bit caught by.

Speaker #2: And I think really it's due to a couple of factors. One, the weather there is extremely hot. There are drought conditions, hurting crops and sentiment.

Speaker #2: Coupled with the higher input costs we're seeing from the war in Iran—with fertilizer, fuel, etc.—all those things have combined, I think, to really put a bit of a pause, cast some gloom over farmer sentiment in EMEA.

Gerrit Marx: Was it across the region in general, or was it located at any particular country or region?

Ted Jackson: Was it across the region in general, or was it located at any particular country or region?

Speaker #10: And was it across the region in general, or was it located in any particular country?

Jim Nickolas: I think most of Europe. I think UK was a bright spot for us. Maybe Italy as well.

Speaker #2: I think most of Europe—I think the UK was a bright spot for us, maybe Italy as well. But by and large, I think France and Germany have seen quite some drought.

Gerrit Marx: I think France and Germany have seen quite some drought. That was, I think, in those regions. We are pretty well spread across, so we need to see how the weather turns out. We have an El Niño impacting South America, not only South America, also North America and other parts of the world. We have the monsoon season that is coming in lighter than we expected, as shown in prior years. I'd say rainfall is differently allocated this year, and we will see challenged regions with too much water, too much rain and too little. We have a few regions that are more or less on target. Europe overall, it's really different when you look between the different countries. France, as I mentioned, in particular, was impacted by a drought.

Speaker #2: And that was, I think, in those regions. But we are pretty well spread across, so we'll need to see how the weather turns out.

Speaker #2: I mean, we have El Niño impacting South America—not only South America, but also North America and other parts of the world. We have the monsoon season.

Speaker #2: That is coming in lighter than we expected, as shown in prior years. So, I'd say rainfall is differently allocated this year, and we will see challenged regions with too much water—too much rain—and too little.

Speaker #2: And then we have a few regions that are more or less on target. But Europe overall—it's really different when you look between the different countries.

Speaker #2: France, as I mentioned in particular, was impacted by a drought. But we, in our risk mapping, did see that coming. And we did, obviously, also manage our production volumes accordingly in order to keep on the good path of depleting dealer inventories as well as company inventories.

Gerrit Marx: In our risk mapping, we did see that coming, and we did obviously also manage our production volumes accordingly in order to keep on the good path of depleting dealer inventories as well as company inventories. Overall, this didn't come as a surprise. We just consciously managed it through setting us up for a good and healthy entry to 2027.

Speaker #2: So, overall, this didn't come as a surprise. We just consciously managed it through, setting ourselves up for a good and healthy entry into 2027.

Gerrit Marx: Your next question comes from the line of Tim Thein with Raymond James. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Tim Thein with Raymond James. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Tim Fine with Raymond James. Your line is open. Please go ahead.

Tim Thein: Thank you. Good morning. I just wanted to come back. Jim, you made a couple comments about, as you are thinking about the Q4, how pricing has come in, the outlook for pricing, a little better than you had been assuming. Just thinking about that in the context of what will be a fairly sizable dealer destocking. Maybe just can you help square that? Which obviously can sometimes weigh against that. Maybe just is there a specific region or segment that you have become a bit more incrementally positive about?

Speaker #12: Thank you. Good morning. I just wanted to come back, Jim. You made a couple of comments about, as you're thinking about the fourth quarter, how pricing has come in and the outlook for pricing.

Speaker #12: A little better than you had been assuming. And I'm just thinking about that in the context of what will be a fairly sizable dealer destocking.

Speaker #12: So maybe just can you help square that? Was it a which obviously can sometimes weigh against that. So maybe just is there a specific region or, I don't know, segment that you've become a little bit more incrementally?

Jim Nickolas: Well, I think it is really sequential Q3 to Q4. We got model year 2027 pricing starting to kick in. It was a comment around sequential pricing Q4 versus Q3. That is what I was referring to.

Speaker #2: Well, I think it's really just, it's really a sequential Q3 to Q4. We get model year '27 pricing starting to kick in.

Speaker #2: And so, it was a comment around sequential pricing—Q4 versus Q3. That's what I was referring to.

Tim Thein: Oh, okay. Thanks.

Speaker #12: Oh, okay. Thanks.

Tim Thein: Your next question comes from the line of Daniela Costa with Goldman Sachs. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Daniela Costa with Goldman Sachs. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Daniela Costa with Goldman Sachs. Your line is open. Please go ahead.

Daniela Costa: Hi. Good morning. Thank you for taking my question. I just wanted to ask regarding competition. When we look at China exports of tractors, we've seen a steady pickup in their own exports. Do you see them in any of your main markets becoming a bit more aggressive, and how do you plan to tackle that?

Speaker #13: Hi, good morning. Thank you for taking my question. I just wanted to ask regarding competition. When we look at China exports of tractors, we've seen a steady pickup in their own exports.

Speaker #13: Do you see them, in any of your main markets, becoming a bit more aggressive? And how do you plan to tackle that?

Gerrit Marx: Yeah. Hi, Daniela. Gerrit here. Yes, we do see them here and there across Africa. You find Chinese tractors, also Indian tractors from India exported. You see them as well in South America, more in the very small horsepower range, actually. Across Southeast Asia, obviously. This is pretty obvious. Yes, we do see them. When you look at the competitors from India, they are more on the tractor-only play, like very small tractors thriving on the high volume of the Indian market as we do. Yeah. India for us is a great success story where we have been gaining market share. We have been the fastest-growing brand in India last year. We have been, so far, year to date, the fastest-growing brand in India as well in 2026. Winning in India means that you can compete very effectively with whatever is exported from India by others.

Speaker #2: Yeah. Hi, Daniela, Gerrit here. Yes, we do see them here and there. Across Africa, you find Chinese tractors, also Indian tractors from India exported.

Speaker #2: You see them as well in South America, more on the very small horsepower range, actually, and across Southeast Asia, obviously. This is pretty obvious.

Speaker #2: So yes, we do see them. When you look at the competitors from India, they are more on the tractor-only play, like very small tractors.

Speaker #2: Thriving on the high volume of the Indian market, as we do—yeah. So, India for us is a great success story, where we have been gaining market share.

Speaker #2: We have been the fastest growing brand in India last year. We have been, so far year to date, the fastest growing brand in India as well in 2026.

Speaker #2: So winning in India means that you can compete very effectively with whatever is exported from India by others, and so that works well.

Gerrit Marx: That works well, the same holds true for China. Not a surprise. We have seen them in some specific tenders and some specific situations, but not yet at a significant scale.

Speaker #2: And the same holds true for China, so it's not a surprise. We have seen them in some specific tenders and some specific situations.

Speaker #2: But not yet at a significant scale.

Gerrit Marx: Your next question comes from the line of Kristen Owen with Oppenheimer & Co. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Kristen Owen with Oppenheimer & Co. Your line is open. Please go ahead.

Speaker #3: Your next question comes from the line of Kristen Owen with Oppenheimer & Co. Your line is open. Please go ahead.

Kristen Owen: Hi. Good morning. Two quick questions for me. First on Brazil combines, just any incremental color that you're seeing on the ground and any impact that we should anticipate for the Finco in H2 now that you've taken some accruals. The second question, just appreciate the incremental color on the dealer consolidation story. Is there any way that you could give us a sense of how much of a drag those dealer actions have taken so far this year, just so that we can think about the overall impact that that's having on the margin trajectory currently? Thank you.

Speaker #13: Hi, good morning. Two quick questions from me. First, on Brazil combines—any incremental color that you're seeing on the ground, and any impact that we should anticipate for the FINCO in the second half, now that you've taken some accruals?

Speaker #13: And then the second question: just appreciate the incremental color on the dealer consolidation story. Is there any way that you could give us a sense of how much of a drag those dealer actions have taken so far this year, just so that we can think about the overall impact that's having on the margin trajectory currently?

Gerrit Marx: Well, Kristen, on the dealer consolidation, it hasn't been a drag at all, actually. When we work through our opportunities and jointly with, obviously, the dealers who take charge of these, it's not a drag at all. We are getting more effective in the regions quite quickly when we have these a better aligned go-to-market stories. For that reason, we don't see any drag there. When you ask about Brazil combines, we are looking at the Brazilian combine market. We are looking at it quite closely and very regularly, as there have been in the past, in 2022 and 2023, there were some peak sales in the region that have basically led to a fairly young combined population in Brazil, and that has been aging now over the last 3 years of market decline considerably, and we are going to approach, I think, average historic fleet ages of combines.

Speaker #13: Thank you.

Speaker #2: Well, Kristen, on the dealer consolidation, that hasn't been a drag at all, actually. When we work through our opportunities and, jointly with, obviously, the dealers who take charge of these, it's not a drag at all.

Speaker #2: I mean, we are getting more effectively more effective in the regions quite quickly when we have these better aligned go-to-market stories. And for that reason, there's we don't see any we don't see any drag there.

Speaker #2: When you ask about Brazil combines—I mean, we're looking at the Brazilian combine market. We are looking at it quite closely and very regularly.

Speaker #2: As there have been in the past, in 2022 and 2023, there were some peak sales in the region that have basically led to a fairly young combined population in Brazil.

Speaker #2: And that has been aging now over the last three years of market decline—considerably. And we are going to approach, I think, average historic fleet ages of combines. We're going to approach that probably over the course of next year, when then largely the replacement demand is going to carry the industry.

Gerrit Marx: We're going to approach that probably by over the course of next year when then largely the replacement demand is going to carry the industry. We need to see what happens with the elections. We need to see when finally the farm bill that was announced in Brazil starts to pay, and when that also helps us restructure some of the debt exposures in the region. Overall, I think combines are on a pretty low point in 2026 these days. We'll see when we hit the average historic ages next year of the population, we should see that get back on a growth trajectory beyond 2027. On the Finco, Jim?

Speaker #2: We'll need to see what happens with the elections. We need to see what happens when, finally, the farm bill that was announced in Brazil starts to pay.

Speaker #2: And when that also helps us restructure some of the debt exposures in the region. But overall, I think combines are on a pretty low point in 2026, these days.

Speaker #2: And we'll see, when we hit the average historic ages next year of the population, we should see that get back on a growth trajectory beyond 2027.

Speaker #2: On the FINCO, Jim? Yep. On the FINCO, look, we think we've got adequate reserves, so nothing in our forecast implies a dramatic change there.

Jim Nickolas: Yep, on the Finco. Look, we think we've got adequate reserves. Nothing in our forecast implies a dramatic change there. That said, it is a concern of ours. We're keeping an eye on it. It's a risk area that we've called out before. It has not gone away. It's something that bears watching, certainly. We'll be keeping an eye on this every quarter and updating you folks accordingly, but it's still a risk area for us, certainly.

Speaker #2: That said, it is a concern of ours. We're keeping an eye on it. It's a risk area that we've called out before. It has not gone away.

Speaker #2: So it's something that bears watching, certainly. We'll be keeping an eye on this every quarter and updating you folks accordingly. But it's still a risk area for us, certainly.

Jim Nickolas: We have a follow-up question from Ted Jackson with Northland. Your line is open. Please go ahead.

Operator: We have a follow-up question from Ted Jackson with Northland. Your line is open. Please go ahead.

Speaker #3: We have a follow-up question from Ted Jackson with Northland. Your line is open. Please go ahead.

Ted Jackson: Thanks very much. My follow-up question is really on construction. We spent so much time talking about ag that it kind of gets the short end of the stick. I guess I wanted to sort of maybe have you guys walk through with regards to how you see the outlook for 2027 given the backdrop. I mean, like a peer of yours, Volvo, they generally took up their view of construction for the remainder of the year. You saw some of the larger rental houses take up their CapEx spend and it seems to me that the market for construction is constructive and just maybe a little color on how you see that playing out as we roll through 2026 and into 2027. Thanks.

Speaker #12: Thanks very much. Yeah, my follow-up question was really on construction. We spent so much time talking about ag that it kind of gets the short end of the stick.

Speaker #12: And I guess I wanted to sort of maybe have you guys a walkthrough with regards to how you see the outlook for 2027 given the backdrop.

Speaker #12: I mean, like a peer of yours—Volvo—they generally took up their view of construction for the remainder of the year. You saw some of the larger rental houses take up their capex spend, and it seems to me that the market for construction is constructive.

Speaker #12: And there's maybe a little color on how you see that playing out as you roll through '26 and into '27. Thanks.

Speaker #2: Yeah. Yeah. Hey. So we agree with your view of the construction market. It is benefiting from heavy-side, heavy infrastructure build-out, data centers, etc., and power generation.

Jim Nickolas: We agree with your view of the construction market. It is benefiting from heavy infrastructure build-out, data centers, et cetera, power generation. We're seeing that as well, and I think it's got legs. There's that. The industry's helping. Also we're doing our own self-help. We've closed Burlington. We're doing other operational improvements in our CE business. We're taking our own actions to sort of improve our own operations. I think I expect things to get better next year. Tariffs also aren't the headwind we don't think 2027 that they were in 2026. I mean, they're not going away, but they're not growing. Again, once that stabilizes for us we can focus on delivering higher results through new products, better pricing and lower costs. I agree with your overall assessment that we see that happening in 2027.

Speaker #2: So we're seeing that as well, and I think it's got legs. So there's that. The industry is helping, and also, we're doing our own self-help.

Speaker #2: So we've closed Burlington. We're doing other operational improvements in our CE business. And so we're taking our own actions to sort of improve our own operations.

Speaker #2: So, I think I expect things to get better next year. Tariffs also aren't the headwind. We don't think '27 that they were in '26.

Speaker #2: I mean, they're not going away, but they're not growing. And again, once that stabilizes for us, we can focus on delivering higher results through new products, better pricing, and lower costs.

Speaker #2: So I agree with your overall assessment. We see that happening in '27.

Jim Nickolas: That concludes the question and answer session. I will now turn the call back to Gerrit Marx.

Operator: That concludes the question and answer session. I will now turn the call back to Gerrit Marx.

Speaker #3: That concludes the question-and-answer session. I will now turn the call back to Gerrit Marx.

Gerrit Marx: Thank you. I would like to thank you all for joining the call today. Despite the industry conditions, this is an exciting time to be at CNH with our transformational efforts in the dealer network, our technology investments, new product launches and operational improvements. We look forward to seeing some of you at the Farm Progress Show in a few weeks, I wish you all a happy and healthy summer. Thank you very much.

Speaker #2: Thank you. I would like to thank you all for joining the call today. Despite the industry conditions, this is an exciting time to be at CNH, with our transformational efforts in the dealer network, our technology investments, new product launches, and operational improvements.

Speaker #2: We look forward to seeing some of you at the Farm Progress Show in a few weeks, and I wish you all a happy and healthy summer.

Speaker #2: Thank you very much.

Gerrit Marx: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Speaker #3: This concludes today's call. Thank you for attending. You may now disconnect.

Jim Nickolas: You see the price?

Gerrit Marx: No.

Jim Nickolas: Up-

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