CNH Industrial N.V. (CNH) Earnings

Management highlights

### Agricultural Market Cycle Update - Management is navigating a down agricultural equipment cycle, with pressured farmer profitability dampening large capital expenditure. Foundational indicators for a recovery are improving: dealer new and used equipment inventories are normalizing, and the price gap between new and used equipment is converging. - Key demand drivers for a sustained recovery (sustained commodity prices above production cost, and improved farmer profitability and confidence) remain largely absent. Management expects an L-shaped recovery, with 2027 retail demand remaining broadly flat, supported primarily by replacement demand. ### Strategic Pillars and Operational Progress - CNH maintains 5 core long-term strategic pillars: expanding product leadership, advancing iron and tech integration, driving commercial excellence, operational excellence, and embedding quality as a core mindset. The company continues investing in differentiation through the down cycle. - **Dealer Network Consolidation**: Multiple recent dealer consolidation and expansion transactions have been completed globally, including multi-brand territory expansions. Consolidation improves customer service, strengthens dealer capacity, and allows more effective competitive positioning of CNH's two core brands. - **Strategic Sourcing Program**: The next wave of the program will launch at the September 2026 supplier convention in Amsterdam. The rigorous supplier evaluation program targets total supply chain value (not just cost reduction), including improved quality, scalable capacity, and better end-customer value. Management is on track to hit its target of 100-150 bps of margin improvement from this program alone by 2030. - **Quality and Operational Efficiency**: The company is on track to exceed annual quality improvement targets, and is investing in manufacturing upgrades to boost productivity and efficiency, offsetting current cost and tariff pressures. - **Construction Segment Collaboration**: Management has restarted exploratory discussions with potential partners in the construction space, aiming to improve the segment's economies of scale, geographic reach, and heavy excavator competitiveness, while expanding product breadth for CNH's agriculture dealer network.

Guidance

- **Agriculture 2026 Guidance**: While industry retail volume was revised lower (for small tractors in North America and combines in EMEA/South America), net sales guidance is shifted to the high end of the prior range, with full year sales expected to be flat year-over-year (including 2% favorable currency translation and 1.5-2% positive pricing, offset by lower unit shipments). Adjusted EBIT margin guidance is narrowed to 5% to 5.5% (high end of the prior range), as reduced Section 232 tariff costs offset higher freight and South America market weakness. - **Construction 2026 Guidance**: Net sales guidance is raised to 5% to 10% year-over-year growth (including 2% favorable currency translation), driven by healthy heavy equipment market demand. Adjusted EBIT margin guidance is set at 1.8% to 2.3%, supported by higher sales volumes and reduced tariff rates. - **Consolidated 2026 Guidance**: Industrial net sales are expected to be flat to up 2% year-over-year, with adjusted EBIT margin between 3.2% and 3.8%. Industrial free cash flow guidance is $200 million to $400 million, and adjusted EPS guidance is narrowed to $0.41 to $0.46. Guidance excludes unrecognized IEEPA tariff refunds beyond the $5 million received in Q2, and excludes costs for one-off projects to be funded by future refunds. - **Q3 2026 Interim Guidance**: Agriculture net sales and adjusted EBIT margin are expected to be flat year-over-year; Construction sales are expected to grow low-to-mid teens year-over-year, with EBIT margin improving to a low-to-mid single-digit range; Financial Services net income is expected to improve year-over-year due to an easy comparison to 2025 Q3 reserve builds. - **2027 Outlook**: Early model year 2027 order intake indicates flattish retail demand for agricultural equipment, with Construction expected to see moderate growth. Production will align with retail demand, ending the 2026 4% underproduction dynamic to support inventory normalization.

Segment performance

1. Agriculture Segment: Q2 2026 net sales of $3.3 billion, up 1% year-over-year (including 2% positive currency translation). North America sales were up 10%, EMEA sales were flat, and South America sales were down 27%. Revenue contribution to consolidated industrial sales was ~79.3%. Gross margin was 19.7% (down from 21.8% YoY) and adjusted EBIT margin was 5.2% (down from 8.1% YoY), pressured by unfavorable product mix and tariffs, partially offset by positive pricing. 2. Construction Segment: Q2 2026 net sales of $866 million, up 12% year-over-year, driven by higher North American volume (including delayed Q1 shipments from a prior supplier quality issue). Revenue contribution to consolidated industrial sales was ~20.7%. Gross margin was 11.9% (down from 15.7% YoY) and adjusted EBIT margin was 1.7% (down from 4.5% YoY), with tariffs more than offsetting strong volume growth. 3. Financial Services Segment: Q2 2026 net income of $71 million, down YoY due to region-wide margin compression and higher risk costs in Brazil, partially offset by a lower effective tax rate. Retail originations were $2.5 billion, managed portfolio ended at $28 billion, and delinquency rates rose to a seasonal 4.4% (higher YoY, driven by South America's economic difficulties). Consolidated industrial results: Total Q2 2026 consolidated revenue was $4.8 billion, up 2% YoY. Adjusted EBIT was $167 million, adjusted net income was $161 million, adjusted EPS was $0.13, and free cash flow from industrial activities was $150 million (down YoY due to lower EBIT and higher working capital investments).

Risks & headwinds

- Persistently low farm profitability, driven by commodity prices at or below breakeven levels and elevated input costs (fuel, fertilizer, transportation), continues to suppress large farmer capital expenditure for new equipment. - Economic weakness in South America creates ongoing risk for agricultural and construction equipment demand, and has driven higher delinquency rates and risk costs in the Financial Services segment, with Brazilian farm debt exposure remaining a key monitored risk. - Unusually extreme weather (drought in Western Europe, uneven monsoon and El Niño impacts across the Americas) has hurt farmer sentiment and reduced near-term demand in impacted regions. - Ongoing trade policy uncertainty: Section 301 investigations into excess manufacturing capacity and potential nonrenewal of USMCA have unknown future impacts that are not included in current guidance. While the impact of recent forced labor-related Section 301 tariffs is expected to be minimal, any further policy changes could create additional margin pressure. - Tariffs remain a material net drag on margins even after the Section 232 rate reduction, as not all cost increases have been passed to customers, and higher transportation costs have offset much of the tariff relief.

Analyst Q&A

• Q: How do you reconcile the upward revision to full-year Agriculture sales guidance alongside downward revisions to industry retail volume projections? /

  A: The downward retail volume adjustments for South America were largely anticipated and already incorporated into prior guidance. Modest outperformance of guidance in H1 2026, the one-time VAT tax benefit in Brazil, favorable pricing, operational improvements, and lower expected Q4 tariffs all drove the upward adjustment to full-year guidance. The 4% 2026 underproduction, aligned with dealer destocking targets, is mostly concentrated in Q4, consistent with prior plans.

• Q: What does your current flat 2027 demand outlook imply for earnings next year? Can CNH maintain at least flat earnings year-over-year? /

  A: Higher production volumes aligned with retail demand (ending 2026's underproduction) will be a tailwind. Positive price-cost performance is expected to continue, and ongoing operational improvements from the multi-wave strategic sourcing program, quality initiatives, and manufacturing efficiency upgrades will further support margins. Management is confident 2027 earnings will be at least equal to 2026 levels.

• Q: Have you gained any agricultural equipment market share globally this year? /

  A: CNH has seen broad market share gains across tractors and combines in multiple regions this quarter. The company targets full-year market share recovery across all equipment lines in EMEA, with targeted gains planned in North America and South America. Recent dealer network consolidation has strengthened CNH's competitive positioning, and these improvements are expected to continue over the coming years, aligned with the 2025 Investor Day strategy.

• Q: Are Chinese tractor exports becoming more competitive in your core markets, and how is CNH responding? /

  A: Chinese and Indian small-horsepower tractors are visible in emerging markets (Africa, Southeast Asia, small segments in South America), but have not yet reached material scale in CNH's core markets. CNH's success in the Indian market (it is the fastest growing tractor brand in India in 2025 and 2026 year-to-date) demonstrates its ability to compete effectively against export-oriented low-cost manufacturers on their home turf, which translates to competitive strength in global small tractor segments.

• Q: What is your outlook for the Construction segment in 2027? /

  A: Management shares the view that the global construction market is constructive, supported by sustained demand from infrastructure build-out, data center development, and power generation projects, with this trend expected to continue into 2027. Internal operational improvements (including the recently closed Burlington facility restructuring) and stable tariff headwinds (not growing after 2026's reductions) will support margin improvement, so CNH expects better results for the segment in 2027.