Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CNH Industrial NV (CNH, Financial) has implemented decisive actions on structural costs, production cadence, and strategic sourcing to address the down cycle in the agriculture industry.
- The company continues to unveil innovative products and technology, showcasing world-class R&D and technology capabilities.
- CNH Industrial NV (CNH) has a strong focus on cost optimization and retail efficacy to counter lower production and shipment volumes.
- The company has successfully reduced SG&A costs by over USD100 million compared to the first half of 2023.
- CNH Industrial NV (CNH) has a clear roadmap for precision agriculture, with ongoing upgrades and a future launch of a new operating system.
Negative Points
- Consolidated revenues were down 16% and industrial net sales were down 19%, reflecting low industry retail demand and dealer destocking.
- Adjusted EPS was $0.38 compared to $0.52 last year, indicating a significant decline in profitability.
- Higher warranty costs, particularly from products manufactured at the resume plant during the recent strike, negatively impacted financial results by over USD40 million in Q2 and about USD70 million for the first half of 2024.
- The company has lowered its 2024 ag net sales forecast to a decrease between 15% and 20% versus 2023, reflecting further weakening of farmer demand.
- Production hours in the second half of 2024 are projected to be down around 25% for agriculture and 20% for construction compared to the second half of 2023, indicating continued production cuts.
Q & A Highlights
Q: Can you talk about what's implied in your guidance in terms of pricing for the full year and how you're balancing price versus market share going forward?
A: We confirm very low single-digit price potential increase in agriculture, whereas we are less confident on pricing in construction, prepared to accept it to be negative due to competitive pressures. (Oddone Incisa, CFO)
Q: On the production cuts, you mentioned they would be more concentrated in North America and Europe. Does that imply South America is where you want to be now?
A: We have 25% ag production cuts and 20% in construction for the second half of the year. Production cuts in LatAm are around those numbers, and we aim to reduce dealer inventory globally by about $1 billion by year-end. (Gerrit Marx, CEO)
Q: What prompted the creation of the new role of Chief of Quality?
A: The Head of Quality was there before, but now it reports directly to me. This move strengthens the position globally to ensure we create products that delight our customers and maintain top quality levels. (Gerrit Marx, CEO)
Q: Regarding construction equipment and its relation with the group, what has changed and how sizable are these synergies with the group?
A: Ag and construction already have separate manufacturing footprints, R&D resources, dealer networks, and sales organizations. The synergies are mainly in procurement and back-office functions. (Gerrit Marx, CEO)
Q: Can you provide more details on the competitive environment in large ag and small ag?
A: Competitive intensity in high-horsepower tractors remains strong but unchanged. In the small ag segment, we see more competition from Asian players, particularly in compact segments. (Gerrit Marx, CEO)
Q: Can you talk about the level of incentives in the market and where you see the greatest pressure?
A: We see increased incentives, particularly in South America due to market oversupply. In other regions, financial support and incentives are at normal levels. (Oddone Incisa, CFO)
Q: How do you view the precision ag offerings that CNH currently provides, and have farmers been cautious about adopting new tech this year?
A: Our precision ag offerings, thanks to Raven and other acquisitions, are strong. We have a clear roadmap for upgrades and new launches, including a new operating system in the near future. (Gerrit Marx, CEO)
Q: What are your thoughts on capital deployment priorities given the strong balance sheet?
A: We will continue to return cash to shareholders through share buybacks and dividends, maintaining consistent policies. (Gerrit Marx, CEO)
Q: What feedback have you received from dealers and customers in your first 30 days, and how is it informing your strategic priorities?
A: Quality remains a top priority, and we aim to strengthen our dealer network. We have created a Chief Commercial Officer position to enhance dealer effectiveness and market competition. (Gerrit Marx, CEO)
Q: Can you help conceptualize this year's production volume in ag and construction relative to mid-cycle levels?
A: We expect the industry to be below mid-cycle levels, producing less than the industry to adjust inventory levels. Construction is more difficult to define due to varying market presence. (Oddone Incisa, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
