CNH Industrial N.V. Q3 FY2025 earnings call

• Strategic pillars: Centered around 5 key pillars: expanding product leadership, advancing iron and tech integration, driving commercial and operational excellence, and quality as a mindset.
• Product launches: To unveil several new products at the Agritechnica Fair in Hannover, including upgrades across the tractor and hay and forage lineup.
• Quality improvements: Embedded quality into all aspects, with initiatives like strategic sourcing, factory pilot programs, and reduced quality costs by over $60 million year-to-date.
• Financial results: Industrial net sales were $3.7 billion, down 7% year-over-year; agriculture adjusted EBIT margin was 4.6%; construction adjusted EBIT margin was 1.9%.

Global Ag segment: Q3 net sales were just under $3 billion, down 10% year-over-year. North America was down 29%, while EMEA was up 16%. Industrial adjusted EBIT: $104 million, down 69% compared to last year, mainly due to lower industry demand, tariffs, and geographic mix. Construction: Q3 net sales were $739 million, up 8% year-over-year. Gross margin was 14.5%, down from 16.6% in Q3 2024. Financial Services: Q3 net income was $47 million, a $31 million year-over-year decrease driven by higher risk costs in Brazil.

• Agriculture: Global industry retail demand expected to be down ~10% from 2024. Narrowed net sales guidance, full-year pricing positive ~1%, no currency translation impact. Revised margin guidance due to tariffs and geographic mix.
• Construction: Overall industry retail volumes expected to be down ~5% from 2024. Narrowed net sales outlook and lowered margin expectations.
• Overall: Guiding total industry net sales to down 10%-12% year-over-year with margins 3.4%-3.9%, free cash flow $200 million to $500 million, and EPS $0.44-$0.50.

• Trade uncertainty: Tariffs impact costs and pricing, with net tariff impacts estimated for agriculture and construction in 2025.
• Market demand fluctuation: Uncertainty in agricultural and construction market demand.
• Brazil risk costs: Persistent delinquencies in Brazil led to increased credit reserves.

Q: Articulate on decremental margin on volume mix, SG&A drag, and product cost unpacking?

A: Decremental in ag driven by North America decline. SG&A grew due to variable compensation. Product costs $33 million favorable excluding $44 million tariff costs, with quality, purchasing, and other improvements.

Q: Thoughts on 2026 fiscal year factors like annualized tariff gross headwind and production?

A: Tariff headwind not fully offset by pricing. Production to equal retail pace, expected mid-single-digit percentage increase in production hours across regions as inventory targets achieved.

Q: Tariff costs breakdown and potential Supreme Court relief?

A: ~20% of tariff costs from Section 232, not counting on Supreme Court relief.

Q: Pricing comments on '26 machines and customer feedback?

A: Construction more aggressive on price increases; ag list price up 3%-4% translating well.

Q: Q4 seasonality and tailwinds?

A: Better than usual seasonality due to margin improvement in quality costs and manufacturing, and EMEA and construction driving sales growth.

Q: Production vs retail in '26 and North America large vs small ag?

A: Production to match retail, production hours in '26 over '25 to be a few percentage points higher in large ag than small ag in North America.

Q: Q4 guidance tailwinds and sales mix?

A: Pricing positive driver, higher sales in areas with lagging margins affecting margin delivery.

Q: Global industry retail next year and order books?

A: Global industry retail flat to slightly down, order books in line with expectations, North American large ag and EMEA with comparable order coverage.