CNH Industrial NV Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Navigated challenging market conditions by reducing channel inventories, capturing operational efficiencies, and focusing on quality upgrades.
• Cut Ag production hours by 34% in Q4 2024 to help reduce channel inventories. Exited 2024 with ~$600 million of run rate savings, building on $185 million in 2023.
• Construction segment showed resilient gross margins despite lower sales. Financial Services had solid results with sound fundamentals and careful risk management.
• Focus on quality improvements and preparing for industry upturn by optimizing inventory and production.

Segment Performance

• Agriculture: Q4 2024 net sales decreased 31% to $4.1 billion, with full-year net sales down 23% to $17.1 billion. Production hours in Q4 2024 were down 34% year-over-year. Q4 gross margin was 20.6%, and the full-year gross margin was 22.9%. Adjusted EBIT margin in Q4 was 7.2% and 10.5% for the full year.
• Construction: Q4 2024 net sales were $718 million, down 33% year-over-year, with full-year net sales down 22%. Q4 gross margin was 14.8%, flat compared to Q4 2023, and the full-year gross margin was up 70 basis points. Adjusted EBIT margin in Q4 was 2.5% and 5.5% for the full year.
• Financial Services: Net income in Q4 2024 was $92 million, down from Q4 2023, while full-year net income was $379 million, an $8 million increase compared to 2023. The managed portfolio ended the year at $27.8 billion.

Guidance

• Ag net sales are forecasted to be 13%-18% lower than 2024, with an EBIT margin between 8.5% and 9.5%.
• Construction net sales are expected to be 5%-10% lower than 2024, with an EBIT margin between 4%-5%.
• Industrial net sales are forecasted 12%-17% lower than 2024, with an adjusted EBIT margin between 6%-7%.
• Free cash flow is expected to be positive between $200 million and $500 million in 2025.
• EPS is forecasted between $0.65 and $0.75.

Risks

• Labor costs.
• Geopolitical uncertainty.
• Trade tariffs impacting production and pricing, with plans to price through tariffs to customers.

Q: Tami Zakaria asks about pricing expectations for 2025, first half vs back half.

A: Gerrit Marx says full year pricing flat to slightly positive, first half flat to slightly down, second half price positive to low mid-single-digit percent.

Q: Mig Dobre asks about impact of trade tariffs on production.

A: Gerrit Marx says tariffs on components manageable, will price through to customers; considering reshoring for machines but needs certainty on boundary conditions.

Q: Angel Castillo asks about thresholds for relocating production due to tariffs and China retaliatory tariffs.

A: Gerrit Marx says thresholds move with scenarios, some no-regret moves, others require in-depth analysis.

Q: David Raso asks about core decremental margins and production vs retail by region.

A: Oddone Incisa talks about baked-in decremental margins, Gerrit Marx discusses production hours and regional expectations.

Q: Tim Thein asks about cash generation and free cash flow.

A: Oddone Incisa says mid-cycle cash conversion rate around 70%, lower activity levels in 2025 impact cash conversion.

Q: Jamie Cook asks about margin cadence in Ag and share opportunities.

A: Oddone Incisa says inverse margin trend, Gerrit Marx talks about product quality and market share opportunities.

Q: Kyle Menges asks about targeted incentive programs.

A: Gerrit Marx discusses targeted programs for aged inventory, tailored by region.

Q: Joel Jackson asks about dealer inventory by region and South America's turn.

A: Gerrit Marx talks about dealer inventory by region, South America expected to turn first due to market conditions.

Q: Mike Shlisky asks about financial services income.

A: Oddone Incisa says income in line with 2024, considering currency movements.

Q: Daniela Costa asks about free cash use for dividends and buyback.

A: Oddone Incisa says dividend in 25%-35% of net income, use remaining share buyback.

Q: Kristen Owen asks about procurement program and R&D.

A: Gerrit Marx says procurement program starting to kick in, R&D spending guided down but efficient.

Q: Ted Jackson asks about used inventories.

A: Gerrit Marx says focusing on clearing used inventories to create space for new machines.

Q: Avi Jaroslawicz asks about North American Ag demand.

A: Gerrit Marx says North American retail demand expected to bottom out in 2025, slight increase in 2026.