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CNH Industrial N.V.(CNH) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenues for Q1 2025 were down 21% at $3.8 billion, with industrial adjusted EBIT at $101 million, down 73% year-over-year, and EPS for the quarter at $0.10 [12][19] - Free cash flow for industrial activities was an outflow of $567 million, which is significantly better compared to Q1 2024 due to more contained growth of finished goods and component inventories [19] - Gross margin for agriculture was 20%, down 380 basis points year-over-year, primarily due to lower production volumes and unfavorable mix, partially offset by operational cost reductions [19] Business Line Data and Key Metrics Changes - In agriculture, net sales decreased 23% in Q1 2025, driven by lower shipments across all regions due to weak industry demand and network destocking [19] - Construction net sales for Q1 were $591 million, down 22% year-over-year, with a gross margin of 14.9%, down 250 basis points compared to Q1 2024 [21] - Financial Services segment reported net income of $90 million, with a year-over-year decrease mainly due to higher expected risk costs and taxes [22] Market Data and Key Metrics Changes - Retail demand was slow in Q1, with production hours down 26% compared to Q1 2024, agriculture down 27%, and construction down 19% [13] - The Turkish market showed continued softness, impacting joint venture results in the Other category [21] - Delinquencies increased, particularly in South America and growing in North America, aligning with expectations during a downturn [22] Company Strategy and Development Direction - The company is focused on operational excellence, advancing technologies, and executing cost-saving initiatives while preparing for a new model year lineup [11][14] - The company aims to balance production levels with market demand, keeping production low to manage inventory effectively [12][14] - Strategic discussions are ongoing regarding potential partnerships in the construction business, but decisions are paused until market uncertainty settles [41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the soft industry demand and the need for a cautious approach to production and inventory management [12][16] - The company expects the second half of the year to show improved profitability, returning to double-digit margins [67] - Management is actively monitoring tariff discussions and their potential impacts on operations and pricing strategies [15][28] Other Important Information - The company announced leadership changes, including the appointment of Jim Nicholas as the new CFO [6][10] - The company is committed to maintaining a strong presence in North America while adapting to global trade changes [31][35] - The company is preparing for an Investor Day to provide more insights into its product roadmap and strategic initiatives [44] Q&A Session Summary Question: Can you quantify the EPS impact from tariffs? - Management indicated that all changes in guidance are due to tariff scenarios, with a midpoint estimate reflecting potential impacts [50][51] Question: What is the outlook for production costs related to quality? - Management expects quality-related costs to improve in the coming quarters as product quality has been enhanced [55][56] Question: Can you elaborate on price adjustments and procurement efforts? - Price adjustments are moderate and aligned with cost movements, and the company is actively working with suppliers to share tariff-related costs [61][63] Question: How should we think about ag segment margins as the year progresses? - The first quarter is typically low, with expectations for improved margins in the second half of the year [66][67] Question: What is the current state of dealer inventories? - The company aims for a significant inventory reduction, having achieved a $100 million reduction in Q1, and will continue to monitor production levels closely [81][82]