2025-08-01 14:00Financial Data and Key Metrics Changes - Consolidated revenues for Q2 2025 were down 14% year-over-year at $4.7 billion, with adjusted EBIT down 55% to $224 million and EPS at 17% [12][13] - Adjusted net income decreased by about half, with adjusted diluted earnings per share down from $0.35 to $0.17 [16][17] - Second quarter gross margin was 21.8%, down from 24.4% in Q2 2024, affected by lower production volumes and unfavorable geographic mix [18] Business Line Data and Key Metrics Changes - Agriculture segment sales were down 17% to $3.2 billion, with North America down 36%, representing over 90% of the total decline in ag sales [12][17] - Construction segment net sales were $773 million, down 13% year-over-year, with gross margin at 15.7%, down from 16.5% in Q2 2024 [21] - Financial Services reported net income of $87 million, with a year-over-year decrease mainly driven by higher risk costs in Brazil [22] Market Data and Key Metrics Changes - Industrial production hours were down 12% year-over-year, with agriculture down 12% and construction down 15% [7] - North American industry retail demand was down 37% for high horsepower tractors and down 23% for combines [13] - The global industry forecast for agriculture is expected to be down around 10% from 2024, with 2025 representing a trough level of global market demand [31] Company Strategy and Development Direction - The company is focused on reducing channel inventories while defending market share, with a target to align production with retail demand by the end of 2025 [5][8] - Five key strategic pillars were outlined: expanding product leadership, advancing Iron and Tech integration, driving commercial excellence, operational excellence, and quality as a mindset [13] - A new collaboration with Starlink was announced to provide connectivity for farmers, enhancing productivity [10][14] Management's Comments on Operating Environment and Future Outlook - Management noted that market conditions remained soft, with ongoing complexity and uncertainty in the macroeconomic environment [5][6] - The company expects to produce in line with retail demand in the second half of 2025 and into 2026, while maintaining a disciplined approach to capital allocation [12][35] - Management expressed confidence in achieving targeted dealer inventory levels and emphasized the importance of operational excellence and cost-saving initiatives [8][38] Other Important Information - The company reaffirmed its capital allocation priorities, including reinvesting in the business while maintaining a healthy balance sheet [22][23] - The foreign exchange impact on net sales is now forecasted to be minus 1%, an improvement from the previous assumption of minus 3% [24] - Tariff impacts are expected to grow through the second half of the year, with a significant negative effect on EBIT anticipated [105] Q&A Session Summary Question: Inventory levels in Agriculture - Management confirmed a reduction of $200 million in excess inventory, with ongoing efforts to align inventory levels with retail demand [40][41] Question: 2026 order trends - Management indicated that 2025 is expected to be a trough year, with uncertainty around tariffs impacting future demand [46][48] Question: Pricing strategies - Management stated that pricing will be positive for the full year, driven by higher value functionality and cost discipline [58][60] Question: North American market challenges - Management acknowledged the price differential between new and used equipment and emphasized efforts to align inventory levels [96][100] Question: Tariff impacts timing - Management expects most tariff impacts to be felt in Q4 2025, with ongoing efforts to mitigate these costs [104][106]