CNH Industrial NV Aktie

Good morning, and welcome to the CNH 2026 Second Quarter Results Conference Call.

[Operator Instructions]

I will now turn the call over to Jason Omerza, Vice President of Investor Relations.

Thank you, Paige, and good morning, everyone. We would like to welcome you to CNH's second quarter earnings call for the period ending June 30, 2026. This live webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website.

Please note that any forward-looking statements that we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material. I will now turn the call over to Gerrit.

Thank you, Jason, and welcome to everyone joining the call. Second quarter results were generally in line with our expectations as we continued managing through a difficult point in the agricultural equipment cycle. Operationally, we are making good use of this period to drive improvements in quality, sourcing and manufacturing efficiency. These actions are supporting performance today while strengthening our foundation for the future. We also continue advancing our precision technology capabilities with increasing adoption of connected and AI-enabled solutions across our installed base and dealer network.

While overall market conditions remain challenging, particularly given pressured pharma profitability, we are seeing encouraging developments in several, but not yet all equipment cycle indicators. As we think about the eventual recovery in our end markets, we find it helpful to focus on a handful of indicators that have historically provided a good signal for both the timing and strength of the next up cycle.

First, channel inventories of new machines need to normalize in line with near term 3 to 5 forward months of sales demand depending on the machine type and support a steady production environment.

Second, used equipment inventories need to return to healthy levels, creating the financial and physical capacity for dealers to manage new equipment flow through.

Third, the spread between new and used equipment values needs to normalize, allowing farmers to trade equipment economically, supporting replacement demand.

Fourth, commodity prices need to move sustainably above production costs and provide farmers with confidence that current profitability levels are durable enough to carry new equipment investments.

And fifth, farmers generally need a profitable season behind them and confidence in another profitable season ahead before replacement demand broadens. In addition, something that helps, but is not necessarily a demand driver, is government assistance programs and interest rates. Farm bills that subsidized crop insurance or borrowing rates, for example, this is all helpful, but it does not set the market recovery in motion.

The industry is making good progress on the first 3 indicators across our major regions, although there is still work to do through year-end. Dealer new and used inventories continue to normalize. Equipment leads continue to age and the price gap between new and used equipment has begun to converge following several years of divergence. What remains largely absent are the fourth and fifth indicators. Commodity prices remain at or below breakeven levels for many growth while fuel, fertilizer and transportation costs remain elevated.

As a result, overall farm profitability remains under pressure, and farmers remain cautious with larger capital investment decisions beyond immediate replacement demand. When we put all these factors together, our baseline expectation is for an L-shaped recovery with 2027 retail demand remaining broadly flat, with replacement demand continuing to carry much of the market. As inventories normalize, we expect to increase production to better align with retail demand. Beyond replacement demand, however, it will take stronger farm profitability and greater pharma confident to support a more pronounced industry recovery. While we don't yet see evidence of a sustained recovery, conditions are becoming more constructive and several of the foundational elements required for the next phase of the cycle are falling into place.

Turning to the results. Our second quarter performance reflects seasonal sequential volume improvements after a low Q1 and continued disciplined execution across the business. Consolidated revenues were $4.8 billion, up 2% year-over-year, including about 2% positive currency impacts. Our Ag segment sales were up 1%, with North America up 10%, EMEA up 1%, but South America, down 27%. With farm incomes depressed and macroeconomic uncertainty, we saw continued softness in equipment demand. Industrial adjusted EBIT was $167 million, reflecting lower industry demand as well as the continued impact of tariffs. These factors were only partially offset by positive pricing and cost-saving actions.

For the quarter, adjusted net income was $161 million, with adjusted EPS at $0.13. Free cash flow from Industrial Activities was $150 million, a year-over-year decline due to lower EBIT and higher working capital investments. We remain fully committed to our long-term strategy and delivering sustainable value through the cycle. Our company strategy is centered around 5 key strategic pillars: Expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence and quality as a mindset. Even in a challenging market environment, we continue investing in the capabilities that will differentiate CNH over the long term and position us strongly for the next cycle.

Today, I would like to focus on the progress we are making in our dealer consolidation efforts and our strategic sourcing program. In February, we told you about some flagship transactions around the world where we are expanding and consolidating our dealer network. Today, I'm going to review a few more success stories with you.

Splintered Oak in East Texas is an example of a dealer expanding its territory. We also have dealer owners expanding to both brands such as Gruett's in Wisconsin, ATV Sachsen in Germany and Cocari in Brazil, all expanding into dual brands through acquisitions of Case IH locations.

Expanding our dealers' reach not only helps their ability to service farmers in their markets, it also helps focus our strong and iconic brands more individually and in their collective lineup to compete more effectively in the marketplace. We're getting ready to officially launch the next wave of our strategic sourcing program next month with our supplier convention in Amsterdam. So I thought I would take the opportunity to remind you what this program is and what it is delivering.

The program is a disciplined process where we identify potential supplies alongside our existing vendors and conduct rigorous evaluations to achieve the best supply chain for CNH. The goal is not just material cost reductions, although that is certainly one of the outcomes. We are also looking for a supply base that can grow with us, deliver outstanding quality, service production and aftermarket demand and work with us on finding the best total value for our farmers and builders.

The program has been a great success so far, and we are well on our way to meeting our target of adding 100 to 150 basis point margin improvement from this sourcing effect alone by 2030. I look forward to meeting with our next wave of prospective supplies in September and continue this important transformation.

With that, I will now turn the call over to Jim to take us through the details of our financial guidance.

Thank you, Gerrit. Agriculture Q2 net sales were about $3.3 billion, up 1% year-over-year, including 2% positive currency translation. North America saw higher year-over-year volume and pricing, while South America was down on both fronts. Sales in EMEA were about flat. Gross margin was 19.7% and 21.8% a year ago. While sales were about flat overall, we saw unfavorable product mix in North America with large tractors down more than small tractors and in South America, with combines down more than tractors. Agriculture adjusted EBIT margin was 5.2% from 8.1% in Q2 2025, reflecting the unfavorable product mix and the tariff headwinds, with positive pricing only partially offsetting these pressures.

The good news is that price cost was again positive for the quarter. And we expect that to be true for the full year as well. Dealer inventories were slightly down sequentially, but we would say almost flat. Region inventories were down in North and South America, but were partially offset by increases in EMEA, where retail demand was softer than expected. We are working towards reducing dealer inventory by another $400 million to $500 million by year-end, and our timing was always weighted more toward the fourth quarter. Construction net sales in the quarter were up 12% year-over-year to $866 million, driven by higher sales in North America.

Performance in North America was strong, driven by volume growth which included some of the machine shipments that were delayed in Q1 as a result of the supplier quality issue that we discussed last quarter. EMEA saw modest volume growth, supported by favorable currency while South America saw the most challenging conditions during the quarter. Q2 gross margin was 11.9% from 15.7% a year ago, where the decline was mainly driven by the impact of the tariffs. Construction adjusted EBIT margin was 1.7%, down from 4.5% in Q2 2025, reflecting significantly higher tariffs, which more than offset the strong volume performance. In Financial Services, segment net income in the quarter was $71 million, down versus 2025, mainly due to margin compression in all regions, higher risk costs in Brazil partially offset by a lower effective tax rate. Retail originations in the second quarter were $2.5 billion, and the managed portfolio ended the quarter at $28 billion. Delinquency rates saw the seasonal uptick in Q2 to 4.4%, but were higher year-over-year, primarily driven by the persistent economic difficulties in South America.

Just as a note, our Q2 corporate expenses were partially offset by roughly $20 million of onetime income items, primarily a VAT-like tax credit in Brazil. So that provided about $0.01 of nonrecurring EPS benefit this quarter. Our capital allocation priorities remain the same: reinvesting in our business while maintaining a healthy balance sheet and then returning cash to shareholders. During the second quarter of 2026, we paid our annual dividend totaling $126 million and repurchased $36 million worth of C&A stock at an average price of about $10.31 per share.

Before we dive into our guidance, let's take a look at the expected tariff impact on our margins as we have a change recently in the way Section 232 will be applied to some of our products. Under this updated rule, tariffs on certain categories of equipment have been reduced to 15% from 25%. In our agriculture business, that brings down the expected 2026 tariff cost impact to about 170 basis points. For construction, we now forecast about a 470 basis point impact. As we've previously outlined, construction is more heavily impacted in agriculture, given its higher exposure to imported finished equipment and higher percentage of sales in North America.

It's important to remind everyone that we have not passed all the tariff impacts on to our customers. Even with this temporary relief of Section 232 rates, it is still a net drag on our margins. And we won't see all the benefit of this reduction drop to the bottom line either as there have been other recent cost impacts, notably, higher transportation costs due to the shipping lane disruptions. But certainly, this reduction in tariff rates is a welcome benefit.

We are reviewing the recent Section 301 tariffs for forced labor that went into effect 10 days ago. At this point, we think the impact of CNH will be minimal, but there are still ongoing Section 301 investigations on excess capacity. We have not included any factors for that or any potential impact from the nonrenewal of the U.S. MCA in this forecast. We will provide an update if there are material changes. At these levels, we expect Q3 2026 tariffs to be about flat year-over-year, whereas Q4 tariffs should actually be a little lower year-over-year. On

a run rate basis, the tariffs will be a little lower in 2027 as we get the full year benefit of the reduced Section 232 rates. With that, let me address IEEPA-related tariff recoveries which are also not included in the numbers shown on this page. In the second quarter, we received $5 million of refunds as part of the Phase 1 claims process.

Now that Phase 2 is open, we are in the process of filing approximately $135 million in claims. We are accounting for the refunds as gain contingencies and will, therefore, recognize them when they are received. As the timing of the refund receipt is uncertain, they are not included in the guidance that we will review in a moment. In addition to the $135 million in Phase II claims, we estimate to have about $15 million in claims to be filed in Phase III whenever that becomes available to us.

When these refunds are received, we do intend to redeploy a meaningful portion by reinvesting them in discrete projects benefiting the business. This could include accelerating investments in precision technology upgrades to our manufacturing facilities or providing limited term incentives to accelerate inventory destocking among other areas.

Let's now look together at our agriculture industry outlook for 2026. And we have made tweaks to some of the numbers, mainly based on how we have seen the first half developed. Overall, it is net lower with reductions in small tractors in North America and in combines in EMEA and South America. That still puts us at about 80% of bid cycle when balancing all the products together. With our order slots now nearly full for the year, removing our net sales guidance to the high end of our previous range. We now forecast sales to be about flat year-over-year. That includes our unchanged assumptions for favorable currency translation of 2% and positive pricing of 1.5% to 2%, offset by lower unit shipments as a result of the industry demand.

Agricultural production hours will be down slightly year-over-year. The updated Section 232 tariff rates are providing some cost relief but this has been largely offset by increased freight and transportation costs as well as continued market challenges in South America. Despite this, we are confident in our ongoing cost reduction programs and manufacturing performance. As a result, we are narrowing our EBIT margin guidance to the high end of the previous range, now at 5% to 5.5%. In construction, we have also fine-tuned our industry forecast across the regions based on first half trends and market conditions. And overall, we are more positive in overall outlook, especially for heavy equipment. With the healthy construction markets and our own success in the field, we are raising our net sales guidance up to 5% to 10% year-over-year, including about 2% of favorable currency translation and [ 1% to 1% ] of pricing.

EBIT margin is now forecast to be between 1.8% and 2.3% as the improvement in sales levels and tariff rates positively impact our profitability. Production hours in the construction segment will be up to support the year-over-year increase in sales. Putting the 2 segments together, we now forecast 2026 industrial net sales to be flat to up 2% year-over-year with industrial adjusted EBIT margin between 3.2% and 3.8%. Industrial free cash flow is now forecasted to be between $200 million and $400 million on slightly improved sales and lower working capital assumptions. Adjusted EPS is now narrowed to between $0.41 and $0.46. As a reminder, the guidance does not include IEEPA tariff refunds beyond the $5 million received in Q2, but it also doesn't include any cost for the discrete or one-off projects that we intend to cover with those refunds.

To help with your modeling, I'll provide some additional considerations for the third quarter. In agriculture, we expect Q3 net sales and EBIT margin to be about flat on a year-over-year basis as we keep an eye on how market conditions evolve in South America. In construction, we expect continued strength in North America, driving global sales up in the low to mid-teens year-over-year, similar to what you saw in Q2.

EBIT margin will improve year-over-year to a low to mid-single-digit range. Like for agriculture, South America is a watch point for construction. Financial Services net income in Q3 is expected to improve year-over-year off a low base. Recall that we recorded a lot of risk reserves in Q3 of 2023, and so we were lapping that [indiscernible] comparison now in 2026. But we will be watching market dynamics as the quarter progresses.

With that, I'll turn it back to Gerrit.

Thank you, Jim. And let me finish up with some thoughts about the rest of the year. We're closely watching model year 2027 order intake as one of the clearest indicators of where the agriculture cycle is headed. So far, order intake would indicate a flattish 2027 industry retail demand, but we are still early in the process. We do not have enough information yet to assess whether the constructive signs we are seeing in dealer inventories, fleet age and used equipment pricing will translate into higher equipment demand even at modest levels. We're also tracking the macroeconomic factors that continue to shape the agriculture industry cycle, particularly pharma profitability, commodity prices, interest rates and input costs. Farm economics remain pressured in several regions, so our outlook will continue to reflect both the encouraging cycle indicators and the realities of customers' current cash flow environment. We will remain -- we will maintain continued production discipline as we work towards leaner general inventories by year-end.

This remains an important part of protecting pricing, supporting our dealers and ensuring that production levels will be aligned with underlying retail demand as we move into 2027, producing in line with retail demand in 2027 means we have an automatic tailwind next year since we are currently underproducing to the 2026 demand by about 4%. We expect our margin improvement efforts to be supported by the work underway in quality, sourcing and operational efficiency. These initiatives are helping offset some of the current cost and tariff pressures while strengthening the foundation for better performance as markets improve.

We will continue to make sustained investments in both our iron and our technology capabilities. Our goal is to bring those together in ways that improve productivity for customers increased adoption and connected and AI enabled solutions and further differentiate CNH over the long term. We will continue supporting multi-brand dealership consolidation across all geographies where it improves customer coverage, dealer strength and long-term network effectiveness.

We believe the right dealer configuration in each market is essential to delivering better service, stronger aftermarket support and a consistent customer experience. And one final comment, we already shared with you that we have restarted our conversations with several potential partners in the construction space, exploring different collaboration models. The goal of the discussions is to find a solution that profoundly upgrades 2 things: First, our construction segments, economies of scale, geographic reach and competitiveness across all product lines, but most notably our heavy excavators; and second, the breadth, depth and technologies of construction machines supplied through our agriculture network.

We are being diligent and thorough in these discussions and considerations, and we will let you know when there is something new to report. This concludes our prepared remarks, and we can now start the Q&A session.

[Operator Instructions]

Your first question comes from the line of Chad Dillard with Bernstein.

So I just want to dig into the implied guide for the ag business from 3Q to 4Q. It seems like there's a pretty healthy step up. So I was hoping you could give me some color on some of the moving pieces to get there? And then just kind of thinking through the exit rate, how to think about the transition into '27 with those margins?

Yes. Good question, Chad. It's Jim. So a couple of things. For Q3 to Q4, we've got the higher volumes at a chunk of it. Lower tariffs are finally -- Q2, we've lapped. This is the first time this is last quarter, hopefully, where we have a tough comp. So Q3 and Q4 favorable comparison from a tariff perspective versus last year. And sequentially, Q4 should have lower tariffs than Q3 of this year, thanks to the lower Section 232 rates. Pricing should be a bit of a lift as well and the operational improvements that Gerrit mentioned, we expect to continue as well. So I'd say volumes and lower tariffs are primary, followed by pricing and operational improvements coming in next.

Your next question comes from the line of Steven Fisher with UBS.

It's nice to see the positive ag revision to guidance. Just wonder if you could help us reconcile that with kind of more cuts to the ag industry retail sales versus those raises. Was it sort of an underproduction dynamic? I know I think, Gerrit, you mentioned $400 million to $500 million of underproduction this year. I think that was $500 million last quarter. So maybe that was part of it, but just trying to reconcile those 2 different directions of things.

Yes. It's Jim. The underproduction will come largely this year, the $400 million to $500 million will largely come in Q4. But that's, again, comparison versus a very significant dealer destocking that we had last year. So it's not too [indiscernible] from what we saw last year. So I think there's no real change there. But the guide we gave last quarter for the full year. We had mentioned some risks to South America, Latin America. So we sort of knew those were out there on the horizon and our guidance reflected that to some degree. So those risks have come to fruition. South America has weakened further. We did incorporate some of that in our previous guide. So to some degree, we anticipated that worsening, and it was already built into the guide we gave last time. So the increase we're seeing this year for this -- for the remainder of this year is a couple of factors.

One, we have outperformed modestly what we guided towards in Q1 and Q2. So we're just sort of passing that on. We're baking it and building it into the full year view. And then we had that -- we did that onetime nonrecurring benefit in corporate expenses from the VAT-like taxes in Brazil. And then, of course, we do see favorable pricing in more operational improvements and then lower tariffs in Q4, also benefiting ag. That's versus the prior guide.

Your next question comes from the line of Jamie Cook with Truist Securities.

I guess if you -- it sounds like next year, you feel like the ag landscape at this point is going to be flat. Construction is probably up a little. But under that scenario, can you just talk about your ability to at least keep earnings flat. I mean it sounds like we'll get some tailwinds from operational initiatives, maybe tariffs is a modest negative. It sounds like pricing should be okay. But any commentary you can frame how you think the setup is for 2027 earnings.

Yes. Holding -- in your assumption, where the industry is flat. -- a couple of things. We should have production levels that are higher because we're selling at a good retail level, we won't be underproducing as much, one. Two, we've been pretty successful with price in excess of cost even despite some of the tariffs, I think that dynamic will continue. So that should help from an earnings perspective next year. And of course, the operational improvements will continue as well.

Yes. On the operations side, Jamie, we're making very good progress on different ends. I mean, as I alluded to for -- on the procurement side, we keep building, we have a 4 waves procurement program of which the first 2 waves are now in full swing. Wave 1 is already delivering, wave 2 will start to deliver next year and then we're kicking off wave 3 now and wave 4 to come. So this all builds and we feel pretty good about that trajectory.

On the quality side, we have delivered on what we targeted last year, even a notch above, and we are tracking quite well this year as well to further improve on that end. So we have a lot going on, on the operations side, obviously, also in our factories where we invest and see also improvements on the operational efficiency and productivity side.

So overall, the underlying cost base performs. We will have -- we plan to have increased production levels in line with retail next year, which should be then the year, which is retail flattish as we currently see it in an L-shaped recovery. And with that plus pricing, we feel confident about printing a proposal for next year that should be no less than what we do this year.

Your next question comes from the line of Angel Castillo with Morgan Stanley.

And sorry to belabor the point here. I guess I just wanted to continue to dive deeper into kind of the second half implication. So given a lot of good color on it. And if I'm doing the math correctly, I think the implied adjusted EBIT margin for the fourth quarter in ag is double digits -- and if I heard you correctly, I think there's still quite a bit of underproduction in the fourth quarter. So can you just -- I guess, as we think about a flattish '27 in that exit rate, should we take that to mean that you think double-digit EBIT margins or adjusted EBIT margins is kind of the right way to think about 2027 all else equal given, again, lack of underproduction operating efficiencies and other factors that should bolster performance there? Or is there anything else that we're kind of missing here?

Yes. No, it's Jim. I'd say we aren't implying a double-digit EBIT margin in Q4. So that your starting point is probably a little too high, to be honest with you. The -- and what that implies for next year, I think to what we said earlier, we would expect -- Q4 is our best quarter. And so you can't sort of use that as a launching pad for the entire year. But I would say it certainly points to our momentum and improvement trajectory that we've been on since our Investor Day in May of last year, the things we said we're going to do, we're doing, frankly, we're quite happy with the success we've seen with those operational improvements. Unfortunately, they've been diverted in terms of going to shareholders that accrues to the benefit of the U.S. government in the form of higher tariffs.

And so it hasn't dropped to the bottom line like we'd hoped. But the things we said we were going to do, we're doing, and we're seeing it next year, assuming tariffs don't change again, that's sort of in the baseline and our price/cost performance should accrue to the benefit of shareholders going forward.

Your next question comes from the line of David Raso with Evercore ISI.

Can you help us a bit with where the 4% under production is coming maybe help geographically and product type? And just on the fourth quarter ag margin, just so we're clear, you have sales implied down $44 million year-over-year, but EBIT up $84 million. And we're just trying to understand how much is the tariff help year-over-year to have EBITDA of $84 million.

Yes. I think the underproduction, it's mostly in North America and South America for this year, particularly Q2 through Q4. And then as far as Q4, a sizable portion of the uplift is coming from lower tariff rates.

Your next question comes from the line of Tami Zakaria with JPMorgan.

Question on the corporate expense line because I think it saw a step down in 2Q because of the tax refund. How should we think about that line for the remaining 2 quarters?

Yes. I think typically, we ask people to model $55 million to $60 million per quarter. Of course, that can be quite volatile given whatever might be going on with some unique activities. So I think for now, you might want to assume that going forward. Of course, in Q4, typically, we will adjust for variable comp up or down as needed. That can be a bit of swing factor right now, that's not assumed in the guide.

Your next question comes from the line of Kyle Menges with Citigroup.

I appreciate some of the commentary on 2027 and was hoping you've provided some good color. I was hoping just to the extent you can provide somewhat of a margin bridge for 2027 thinking about annualizing lower tariff impacts and then some of the cost savings initiatives around procurement and quality. And then it sounds like base case volume would be up a little bit, and you get some price just -- how do we think about that margin bridge then based on some of those factors going from '26 to '27 in ag?

Kyle, it's Jim. As much as I would love to provide that to you. I can't do that just yet. We're not quite ready to talk about 2027 in detail. So stay tuned on that more to come. But I will point out, we did provide a view of 2027 impact from the tariffs in the slide deck. So we did give you some information there, but I can't give you more detail [indiscernible] walked us yet.

Your next question comes from the line of Michael Shlisky with D.A. Davidson & Co.

I know you had some tailwinds on price and currency in the quarter for ag. Do you -- could you share with us where the CNH can need market share in ag anywhere globally?

Yes. Michael, Gerrit here. We did indeed have some gains in market share. It is going across the board actually from tractors to combined and it differs a bit by region. And as you know, in most of the regions, market is measured by retail and in some geographies by wholesale. And it is sometimes also related to us or other market participants turning their farmers from an equipment point of view. So at times, launching programs and launching sales initiatives in those territories, can have here and there some impacts on market shares on a quarterly basis.

On a full year basis, we do look at a market share recovery across the board, all equipment in EMEA and Europe. And we do look at some targeted gains as well in North America and South America as per plan. So what we're doing right now with the dealer network consolidation, building a stronger dealer base, multi-brand and now more focused on actually the competition instead of us and our 2 brands is really starting to show and that is something that will continue over the next years as we have laid it out during our Investor Day in 2025.

Your next question comes from the line of Edward Magi with BNP.

Industrial free cash flow is negative in the first half and you ended up raising the full year guidance. So I was wondering if you could help us understand the bridge components to get there.

Yes. I'd say Q2 was lower than Q2 last year, largely due to trade payables. We had increased production quite a bit Q2 last year compared to Q1. So that drove the increase in payables. We didn't see that increased production this year. And so the trade payable didn't grow. That's basically the chunk of Q2 that accounts for most of the decline versus last year. But we do see that timing reversing in the second half of the year. A and B, of course, our improved profitability is a big piece of the other area of increasing the cash flow.

Your next question comes from the line of Ted Jackson with Northland.

My first question is, was I hearing correctly that you saw that European market was a little softer in the quarter than you expected? And if that's true, could you provide a little color on kind of what you see going on in Europe and maybe the ramifications for that for the remainder of the year? And then I have a follow-up on construction.

Yes. We did see a soft -- a turn to a little bit more negative sentiment in EMEA. And it was a surprise. We weren't expecting it. We had viewed EMEA as a bright spot. And again, while we had hoped inventory, we had dealer destocking everywhere, and we expected it in EMEA, it actually increased the demand. So that was the one area we were a little bit caught by. And I think really, it's due to a couple of factors. One, the weather there is extremely hot. There's drought conditions. It's hurting crops, hurting sentiment, coupled with the higher input costs we're seeing from the war in Iran with the fertilizer, fuel, et cetera. All those things have combined, I think, to really put a bit of a [indiscernible] as some gloom over [indiscernible] sentiment in EMEA.

And was it across like the region in general? Or was it like located in any particular?

I think most of Europe, I think U.K. was a bright spot for us, maybe Italy as well. But by and large, it's...

I think France and Germany have seen quite some draw and that was I think in those regions, but we are pretty well spread across. So it's -- we need to see how the weather turns out. I mean we have a new impacting South [indiscernible] South America, also North America and other parts of the world. We have the monsoon season that is coming in lighter than we expected as shown in prior years. So I'd say, rainfall is differently allocated this year, and we will see challenged regions with too much water, too much rain and too little. And then we have a few regions that are more or less on target. But Europe overall, it's really different when you look between the different countries. France, as I mentioned, in particular, was impacted by a drought. But we -- at the -- in our risk mapping, we did see that coming, and we did obviously also manage our production volumes accordingly in order to keep on the good path of depleting dealer inventories as well as company inventors. So overall, this didn't come as a surprise. We just consciously managed it through setting us up for a good and healthy entry to 2027.

Your next question comes from the line of Tim Thein with Raymond James.

I just wanted to come back, Jim, you made a couple of comments about as you're thinking about the fourth quarter, how pricing has come in, the outlook for pricing, a little better than you had been assuming and just thinking about that in the context of what you will be fairly sizable dealer destocking. So maybe just can you help square that? Was it a -- which obviously can sometimes weigh against that. So maybe just is there a specific region or segment that you've become a bit more incrementally.

Well, I think it's -- it's really a sequential Q3 to Q4. We got model year '27 price pricing starting to kick in. And so it was a comment around sequential price in Q4 versus Q3. That's what I was referring to.

Your next question comes from the line of Daniela Costa with Goldman Sachs.

I just wanted to ask regarding competition. When we look at sort of China exports of tractors, we've seen sort of a steady pickup in their own exports. Do you see them in any of your sort of main markets becoming a bit more aggressive? And how do you plan to tackle that?

Yes. Daniel. Yes, we do see them here and there across Africa, you find Chinese tractors, also Indian tractors from India exported. You see them as well in South America, more on the very small horsepower range actually and across Southeast Asia, obviously, this is pretty obvious. So yes, we do see them -- when you look at the competitors from India, they are more on the tractor only play, like very small tractors driving on the high volume of the Indian market as we do. So India for us is a great story where we have been gaining market share. We have been the fastest-growing brand in India last year. We have been so far year-to-date, the fastest-growing brand in India as well in 2026. So winning in India means that you can compete very effectively with whatever is exported from India by others. And so that works well when -- and the same holds true for China. So not a surprise, and we have seen them in some specific tenders and some specific situations, but not yet at a significant scale.

Your next question comes from the line of Kristen Owen with Oppenheimer & Co.

Two quick questions for me. First, on Brazil combines. Just any incremental color that you're seeing on the ground? And any impact that we should anticipate for the FinCo in the second half now that you've taken some accruals. And then the second question, just -- I appreciate the incremental color on the dealer consolidation story. Can you -- is there any way that you could give us a sense of how much of a drag those dealer actions have taken so far this year just so that we can think about the overall impact that that's having on the margin trajectory currently.

Kristen, on the dealer consolidation, that hasn't been a drag at all, actually. When we work through our opportunities and jointly with obviously the dealers who take charge of these it's not a drag at all. I mean we are getting more effectively -- more effective in the regions quite quickly when we have these better aligned go-to-market stories. And for that reason, there's -- we don't see any drag there. When you -- you asked about Brazil combined, I mean, we are looking at the Brazilian combined markets. We are looking at it quite closely and very regularly, as there have been in the past in 2022 and 2023, there were some peak sales in the region that have basically led to fairly young combined population in Brazil, and that has been aging now over the last 3 years of market decline considerably, and we are going to approach, I think, average historic fleet ages of combines, we're going to approach that probably by -- over the course of next year when then largely the replacement demand is going to carry the industry. We'll need to see what happens with the elections. We need to see what -- when finally the farm bill that was announced in Brazil starts to pay. And then that also helps us to restructure some of the the debt exposures in the region. But overall, I think combines are on a pretty low point in these -- in the 2026 these days.

And we'll see when we hit the average historic ages next year of the population, we should see that get back on a growth trajectory beyond 2027. On the Finco, Jim?

Yes. On the FinCo, look, it's -- we think we've got adequate reserves. So no -- nothing in our forecast implies a dramatic change there. That said, it is a concern of ours. We're keeping an eye on it is a risk area that we've called out before, it has not gone away. So it's something that bears watching certainly. So we'll be keeping that in every quarter and updating you folks accordingly, but it's still a risk area for us, certainly.

We have a follow-up question from Ted Jackson with Northland.

Yes, my follow-up question is really on construction. You spent so much time talking about ag that it kind of gets the short end of the stick. And I guess I wanted to sort of maybe have you guys walk through with regards to how you see the outlook for 2027 given the backdrop. I mean like perioral they generally took up their view of construction for the remainder of the year. You saw some of the larger rental houses take up their CapEx spend, and it seems to me that the market for construction is constructive. And just maybe a little color on how you see that playing out as you go through '26 and into '27.

Yes. So we agree with your view of the construction market. It is benefiting from heavy side, heavy infrastructure build-out data centers, et cetera, power generation. So we're seeing that as well. And I think it's got legs. So there's that. The industry is helping. And also, we're doing our own self-help. So we've closed Burlington. We're doing other operational improvements in the RCE business. And so we're taking our own actions to sort of improve our own operations. So I think I expect things to get better next year. Tariffs also aren't there a headwind, we don't think '27 that they were in '26. I mean they're not going away, but they're not growing. And again, once that stabilizes for us, we can focus on on delivering higher results through new products, better pricing and lower costs. So I agree with your overall test, but we see that happening in '27.

That concludes the question-and-answer session. I will now turn the call back to Gerrit Marx.

Thank you. I would like to thank you all for joining the call today. Despite the industry conditions, this is an exciting time to be at CNH with our transformational efforts in the dealer network, our technology investments, new product launches and operational improvements. We look forward to seeing some of you at the Farm Progress Show in a few weeks, and I wish you all a happy and healthy summer. Thank you very much.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to the CNH 2026 First Quarter Results Conference Call. [Operator Instructions]

I will now hand the call over to Jason Omerza, Vice President of Investor Relations. Please go ahead.

Thank you, Warren, and good morning, everyone. We would like to welcome you to CNH's first quarter earnings call for the period ending March 31, 2026. This slide webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website.

Please note that any forward-looking statements that we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material.

I will now turn the call over to Gerrit.

Thank you, Jason, and welcome to everyone joining the meeting. We are calling from Sioux Falls, South Dakota, where we just hosted our Board meeting. Sioux Falls is one of our CNH tech hubs, which we acquired through Raven. In Sioux Falls, we have about 300 colleagues who jointly with other sites, not only code and validate our on and offboard software, but also design the architecture of the next evolution of our digital machine hardware. I'm very proud of the advancements that we will be launching over the next couple of years.

First quarter results were as expected and guided. Given that Q1 seasonally our lowest quarter, we are at historically low industry demand in North America, and farmers in Brazil have ongoing financial challenges. During the quarter, additional complications emerged, including changing tariff rules and an escalated conflict in the Middle East. I'm very proud of the way the CNH team responded to all the challenges we faced, those we knew about going in and those that emerged during the quarter.

We are now passing through what we expect to be the lowest period of the current ag industry cycle, supported by some replacement demand. As we have said before, we also expect Q1 2026 to be the lowest quarter of the year, during which we diligently continued the disciplined management of all levers in our control. Despite the challenging quarter, we have many things to proudly share here. We kept production levels low in order to manage and contain channel inventory. Ag dealer inventory levels remained unchanged since the beginning of the year by design. Normally, dealers build inventory in Q1 in preparation for Q2, but the flat levels are in line with our overall plan to have the dealers reduce their inventories by about $500 million this year.

We have been quite disciplined to produce and ship only presold orders or fast-moving stock orders. The net of price and product cost was positive in agriculture as we focus on our operational efficiencies and quality improvements. And we do expect that some of price and product cost to be positive in agriculture for the full year as well. We are making solid progress on our efforts to take cost out and improve our overall product quality, countering the negative impact from tariffs and global supply chain disruptions.

We also continue with a raving support our dealer and service network optimization with several new consolidations completed and our tech assist tool rolled out at about 70% of our dealer locations. As a reminder, our AI tech assist delivers near instant diagnostic support while our visual parts search enables rapid and accurate parts identification. These capabilities enhance decision quality and deepen the value we deliver to customers and dealers, and there is much more to come, powered by the rapidly evolving power of artificial intelligence from generative to agentic capabilities.

We, along with other industry participants have had productive discussions with members of the U.S. administration on how we can support farmers and builders during these times. We are optimistic about how some developments such as the recently announced increase in renewable fuel standards will help farmers through increased crop prices and demand. There's a new equilibrium of supply and demand of agriculture commodities emerging in all major regions, as upcoming elections, trade deals, including and excluding the U.S. and rerouting of food and nonfood supply chains are settled over the next couple of years. So while market conditions are very dynamic, we are focused on solutions today and in the future that support our farmers and builders and that will deliver returns to our shareholders.

Turning to the results, which reflect the expected and guided market headwinds and our decision to keep production very low. Consolidated revenues were $3.8 billion, flat year-over-year, including about 4% positive currency impacts. Our Ag segment sales were up 1% with EMEA up 20%. North America down 3%, and South America, down 28%. With farm incomes depressed and macroeconomic uncertainty, we saw continued softness in equipment demand.

Industrial adjusted EBIT was a loss of $45 million, driven primarily by tariffs and high SG&A and R&D expenses, only partially offset by positive pricing and cost savings actions. For the quarter, adjusted net income was $21 million, with adjusted EPS at $0.01.

Free cash flow from Industrial Activities was a $569 million outflow in line with Q1 2025 and consistent with the working capital seasonality of the first quarter, where we usually build up some company inventory in preparation for Q2 sales. We remain more committed than ever to strengthen the company and prioritizing long-term value creation. Our company strategy is centered around 5 key strategic pillars: expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence and quality as a mindset. These pillars remain front and center to ensure we stay aligned with our long-term strategic objectives and our team remains focused and united in our shared purpose to serve and advance those who feed and build the world we all live in.

From all the great steps forward we took in the last quarter, I would like to focus today on our operational excellence and specifically our manufacturing plant efficiencies. We use a wide range of tools and latest technologies to unlock cost efficiencies at our manufacturing plants. Last year, we conducted about 1,400 projects, which led to $45 million in savings as we reported to you already last quarter. Individually, these projects may seem modest, but the results are profound when we add them all up. In addition, many of the projects include quality improvements to the product shipped out from our factories.

An example of one of those projects was a fiber laser installed last year at our Fargo, North Dakota plant where we make our 4-wheel drive tractors. This machine is used to cut sheet steel and replace an old plasma punch machine. The new process is 52% faster than before, while also reducing other consumables such as oil and lubricants, minimizing secondary operations and my favorite, improving quality. More efficient operations paired with better quality are a win for both CNH and our customers.

With that, I will now turn the call over to Jim to take us through the details of our financials and guidance.

Thank you, Gerrit. Agriculture Q1 net sales were about $2.6 billion up 1% year-over-year, including 4% positive currency translation. Sales volumes were lower in North and South America and favorable pricing came mainly from North America. Sales volumes and pricing were up in EMEA, mostly in Europe for both tractors and combines, fueled by moderately favorable industry demand and some market share gain.

Gross margin was 19.1% from 20% a year ago. Agriculture adjusted EBIT margin was 1% from 5.4% in Q1 2025. The positive pricing and the cost saving contribution only partially offset negative original mix and tariff impacts. The higher year-over-year R&D and SG&A expenses were consistent with our indications with both affected by lower variable compensation in 2025 and labor inflation in 2026.

Construction net sales in the quarter were lower 3% year-over-year to $574 million, as higher sales in EMEA were more than offset by lower sales in North and South America. We were initially expecting sales to be a bit higher in North America but we held back sales while working out a supplier quality issue to protect the customer. That issue is now resolved and those sales will be made up in Q2.

Q1 gross margin was 11.8% from 14.9% a year ago, largely due to tariff impacts. Construction SG&A was unfavorable due to trade show marketing costs, lower variable compensation in 2025 and labor inflation in 2026. Q1 adjusted EBIT margin was negative 4.9%.

In Financial Services, segment net income in the quarter was $74 million, down versus 2025, mainly due to higher risk costs in Brazil. Retail originations in the first quarter were $2.2 billion, and the managed portfolio ended the quarter at $28 billion. Sequential delinquency rates increased slightly to 3.5%, primarily driven by persistent economic difficulties in South America.

Our capital allocation priorities remain the same, reinvesting in our business while maintaining a healthy balance sheet and then returning cash to shareholders. During the first 3 months of 2026, we repurchased $26 billion worth of CNH stock at average price of about $10.70 per share.

Before we dive into our guidance, let's take a look at the expected tariff impact on our margins, as we had a meaningful change recently in the way they will be applied to our products. First, we need to acknowledge that we did enjoy a brief period of release with naive tariffs were replaced by Section 122 tariffs at 10%, that lasted for about 1.5 months. Just something to keep in mind when we eventually think about run rates in 2027.

At the beginning of April, there was a change in the way Section 232 tariffs on steel and aluminum are applied. At a very simple level, it means we went from paying 50% on the value of only the metal to now paying anywhere from 0% to 50% on the total value of the component or machine, depending on what it is. For whole machine imports, we are now paying 25% on the total value of the unit, which overall is higher than what we paid before. However, for some component imports, the tariffs can actually be lower.

In our Agriculture business, the impact of this change is net neutral for calendar year 2026. So we still forecast the tariff cost impact to be about 210 to 220 basis points of impact on ag margins or no change from our view last quarter. For construction, we're not expecting to get as much of that component benefit as in ag. And so now we expect about a 600 basis point impact on our construction margins compared to our original expectations of roughly 500 points. It's important to note that Section 301 investigations are ongoing for products coming from China, the EU, India and Mexico. We have not included any factors for that in this forecast, but we will provide an update if there are material changes.

Let's first look together at our agriculture industry outlook for 2026. We have slightly improved our outlook for small tractors and combines in North America. In EMEA, we have lowered the tractor outlook, but we are more optimistic for combines. And in South America, we have lowered the outlook for combines. Market risk in South America is elevated due to tighter credit and delays in government-backed financing in Brazil. As a result, we are watching the situation there closely.

In total, we still see the industry at about 80% of mid-cycle. When we balance all those changes, along with our unchanged assumptions for favorable currency translation of 2% and positive pricing of 1.5% to 2%, we are comfortable reaffirming our net sales guidance of flat, down 5%. As mentioned earlier, our tariff assumptions for agriculture are net unchanged. While we are seeing increased freight and transportation costs, we are optimistic that our ongoing cost reduction programs and updated geographic mix will be able to offset those impacts. As a result, we are reaffirming our EBIT margin guidance of 4.5% to 5.5%.

In construction, we have fine-tuned our industry forecasts across the regions based on Q1 trends and market conditions. And overall, we are slightly lower than our previous expectations. However, we still forecast our own net sales to be about flat year-over-year, including about 1% of favorable currency translation and 2% of pricing. EBIT margin is forecasted to be between 1% and 2% as we focus on cost reductions to offset the increased impact of the tariffs discussed earlier.

Putting all those elements together, then we reaffirm our forecast for 2026 industrial net sales to be flat to down 4% year-over-year and industrial EBIT margin to be between 2.5% and 3.5%. Industrial free cash flow is still forecasted to be between $150 million and $350 million. Adjusted EPS is reaffirmed at between $0.35 and $0.45, assuming an average share count of about $1.25 billion.

To help you with remodeling, I'll provide some additional considerations for our second quarter. Our order books are full for the second quarter, and we're expecting agriculture net sales to be about flat on a year-over-year basis. We're keeping a close eye on conditions in South America as conditions for farmers there remain very difficult. Construction net sales will be higher in the mid-teens, and that includes some of those sales originally expected in Q1. The construction increase is most pronounced in North America.

Transportation costs and the tariff payments are another watch point. The team has done a great job working through these rapid changes and will continue to be vigilant. I'll note, too, that grain prices ticked up a little along with oil prices, they remain below what many consider breakeven levels for farmers, which continue to be -- which continue to challenge their economics. Although both agriculture and construction Q2 EBIT margins are forecasted to follow into the full year guidance ranges.

Taken together with the lower Q1, this implies that we expect margins in the second half of the year to be sequentially better than the first half, as is typical. Furthermore, we also expect that both the ag and construction margins will be better on a year-over-year basis in the second half of the year. Financial Services net income in Q2 will be lower year-over-year by $20 million to $25 million.

With that, I will turn it back to Gerrit.

Thank you, Jim. Let me finish up with some thoughts about the rest of the year. Against the backdrop of heightened global uncertainty, we remain focused on our purpose to serve and advance the world's farmers and builders. That means closely monitoring developments while continuing to deliver for our dealers and end customers through disciplined production planning and a clear path to lean channel inventories by year-end.

We continue working on our iron and our tech developments and product launches and delivering on our long-term margin improvement efforts. We continue to work with our dealer partners on finding the right network configuration in each of the markets that we serve. In another step to support our dealers and farmers, we have recently entered into a strategic relationship with [ Abilene ] Machine through a minority equity stake. The relationship will allow CNH to offer our dealer network a comprehensive aftermarket parts portfolio with upcoming access to the Abilene Machine portfolio of all makes parts. This further enables our aim to provide our dealers and customers good, better and the best options to service their equipment fleets regardless of age or brand affinity.

In North America and Europe, the average age of ag equipment in the field has been trending older. This should build up a modest demand for new machines in the coming quarters. Significant equipment demand increases usually only happen when there is a good increase in commodity prices that support farm incomes. As Jim mentioned, farmers in South America are a little more cautious and will probably continue to be so at least through the end of the year, and so we will be as well.

Selling a machine is one thing, collecting its monthly installments is another, and we have been thoughtfully managing that jointly with our network partners during this difficult period. As we expect to evolve from the industry trough, we look forward to capitalizing on all the improvements that we have made during -- serving and advancing those who feed and build the world, always breaking new ground.

This concludes our prepared remarks, and we can now start the Q&A session.

[Operator Instructions] We will take our first question from the line of Tim Thein with Raymond James.

I just had -- my question on ag. The -- as we look at the production slots for the coming quarters, can you maybe give some context there in terms of, a, I'm curious if you've seen -- has there been any significant changes in terms of the actual build rates implied within -- maybe by region or if there's been any changes there? And then just any comments in terms of kind of regional order commentary. I mean you stressed the softness and the concern around South America. Maybe a little bit more context of what you're seeing within that order board maybe in your largest region in North America?

Thank you, Tim. So as Jim alluded to, we are fully booked in Q2, and we have a pretty healthy coverage already for Q3, while being very disciplined in actually loading orders to production because, as I said, we focus on real dealer, let's say, customer orders and orders from dealers referring to machines that have a very high probability to liquidate in due course as we continue to manage our general inventory.

Usually, when we see the market picking up again, which we do not yet see at this point. We would obviously load production more with what we call company orders, where we hold inventory on our side to quickly react to a changing market environment. So when we talk about already a Q2 fully booked into Q3 in a good shape, this happens on the basis of a very disciplined order loading to the factories. As per the regional differences, we're pretty happy with the way how things go in Europe. The team makes great progress in building the foundation for gaining share as we do. And we are accelerating our dealer multi-brand consolidation across the region. And you will hear us talk about that almost, I think, probably every quarter from now on. But definitely, for the full year 2026, and obviously, this dealer network consolidation is going to drive as well order momentum in the region as we not only break new ground, but they actually gain ground.

Similarly, for the United States, where the market is going backwards as we projected and guided to, we see on the low levels, very good momentum with our dealers when it comes to interacting with our customers. So that is also in a good place. And the region where we have extra efforts and extra attention is, as you also picked up is Latin America, particularly Brazil, although Argentina is not that different in its current dynamics where the farmers are still in a wait-and-see situation in light of upcoming elections in Brazil. And still, the consequences of trade deals still need to show in actual trades of commodities and pricing of those commodities. So I think in Latin America, we apply extra discipline to the taking of orders, making sure that we preserve margins despite a significant price pressure in the market given that all the industry participants had expected a better evolution of market demand, which isn't the case. And so extra discipline is required for LatAm in the order take and that is also seen in our Q3 order take. But overall, we are in a good shape going through Q2 as we look at Q3.

If I could add to that, in the Latin America, Brazil, in particular, given the tight conditions, we, along others have tightened underwriting standards, and I think that's also acting industry demand. So it's not a CNH concern. It's an industry-wide country-wide concern.

Yes. And maybe last commentary on Asia Pacific, although small, but growing quite a bit. Our teams in India have hit new record highs in terms of production market share, and we really, really built momentum there with our newly launched compact factor lineup, and the to be launched, new utility-light small tractor lineup, not only for India, but for the export, which will mean a step change in small and compact machines that we will ship around the world from India, while we see stable and good progress in China and a rather flattish development in Australia and New Zealand, where the market is basically running on replacement demand only at this point in time.

Our next question comes from the line of Angel Castillo with Morgan Stanley.

This is Esther on for Angel Castillo. Just on tariffs and the broader trade backdrop, can you just give us a little bit more color on how you're sizing the impact you're seeing today versus the original tariff impact guide? And how much of that do you think is being offset by pricing versus operational actions? So just like more color on like kind of how you see that dynamic through the year?

Sure. Yes. Esther. It's Jim. The -- as we indicated, the ag business, really no net change versus prior guidance. So you think about full year 210 to 220 basis points of a drag versus if there weren't tariffs. So call it, full year cost of $120 million on the ag business. Now that's -- and that's in line with where we were last quarter. There were some puts and takes. [indiscernible] lower gave us some relief, offset by higher impact, higher cost from Section 232 changes. And so that's really a broad for the ag business.

On the construction business, it's a bit of a headwind moving from 500 basis points of a headwind to 600 basis points of headwind, again, as opposed to no tariffs. So that's really where it ends up. So we took our lumps, I would say, when they were first launched at Liberation Day. And then since then, the changes thus far have been relatively minor for us overall. The one area that we haven't quantified and are waiting to see where it lands are the Section 301 tariffs, which are sort of related to investigations. The U.S. government is conducting with various counterparties in the trade, EU, India, Brazil, et cetera. So that one is unknown at this point, but I think that covers the landscape of tariffs.

Our next question comes from the line of Kristen Owen with Oppenheimer & Co.

I wanted to talk through how you're thinking about back half scenarios, just given the consents of now we're looking at higher fertilizer prices, higher transportation cost, some of these acute challenges that you've called out in Brazil versus maybe a little bit stronger forward commodity curve, how that's influencing the range of scenarios that we could see in the back half of the year?

Yes. Kristen, the -- again, the range of probable outcomes is pretty wide still in keeping with the last year or so of macroeconomic uncertainty. The fertilizer impact higher cost. So that's less of a concern for 2026 for most of the world. I mean it's a concern, but it's not -- it shouldn't impact us too much this year, second half aside from Brazil, Brazil is where it's going to have more of an impact given their multiple harvests and planting seasons. So there's a little bit of risk, I think, in Brazil from the higher fertilizer costs on top of the credit conditions we mentioned earlier.

Transportation costs are growing in most places. We are viewing this as something we can offset today. It's sort of the higher cost due to the Iran conflict persist throughout the year, which we're not forecasting, but if they were to persist throughout the year, the gross net increase in cost could be up around $70 million, that $70 million is gross. It assumes no countermeasures from us in terms of transportation surcharges or lower discounting, we would take action at some point if this elevated cost environment persists on the revenue side. We don't think that's needed just yet, but we're monitoring it very, very closely.

So at the back half, we think we've got things balanced out given our levers. But right now, the unknown is the higher elevated transportation cost, that's the primary factor, logistics from shipping and trucking from the higher diesel and fuel costs. So that's the one we're watching closely. And if it persists for a longer period of time, we'll need to make some counter measures to happen on the revenue side.

Our next question comes from the line of Jamie Cook with Truist Securities.

I guess just 2 questions. I guess, encouraging to see we kept guidance the same and everything seems on track. Obviously, lots of positives and negatives out there. But Gerrit, if you could just comment on, one, understanding it's early on about how you're thinking about the setup for 2027, I guess, for ag in particular, where you would be most constructive or more worried, I guess, Brazil would probably be that area. And then from just a company-specific perspective, with a lot of the company-specific initiatives, streamlining of cost structure, supply chain, all those quality, all those things assuming a flat market in 2027, how do we think about earnings for CNH or potential positives that CNH could realize even in a flat market?

Jamie, well, look, we're getting ready for whatever comes our way in 2027. We do see -- as I mentioned, momentum in Europe. We expect the U.S., the North American market to see the trough this year. And in South America, despite the very low levels where we are traveling and we are still probably in Brazil itself looking for the grounding in this trough. We will enter 2027 with a far greater level of certainty around certain factors. Elections in Brazil and South America will be behind us. We'll have the midterms behind us. We will have clarity around all the tariff items that Jim mentioned, most notably the 301. We will see how the administration positions themselves in various different trade deals around the world. And we will see, and that is what I understood from my interactions in Washington is we will see a greater level of detail in the particular bilateral trade deals that are still ongoing and with a particular focus on commodity trade and commodity flows out from the U.S. This will give us a good footing there.

I mean in the end, the aging machine park, every acre around the world has been planted and harvested this year, and the same is going to happen next year. And this puts the hours on all machines and everybody's machines that it takes in order to do the job. So despite markets going slow, the machines are aging at fairly the same pace. And as we enter into 2027 and looking at the average age of the machine parts, we do expect some support from replacement demand across the world, obviously, and then also with a greater level of certainty around those bilateral trade deals and maybe with some support of commodity price momentum for 2027.

However, we do not back a market bounce in our own actions. What we do is we remain very disciplined on cost. We are making good progress, great progress actually in taking cost out of our supply chain and procurement area. We have even slightly overdelivered our own internal expectations as it came to quality costs last year, and we will continue to do so over the course of this year. We are looking at structural costs. We do have identified pockets of AI deployment, which in first and foremost, will help us to drive productivity in our own operations, such as software coding. I mean we are here in Sioux Falls, and this is one of the sites where we do code our software. And I've seen great examples now of actually a pretty impressive acceleration from the AI advancements over the last 6 months, what can be done in this area.

And all of these elements will help us to go faster with tech while reducing our cost base in relative terms and against the backdrop of global and heightened global certainty with those points that are causing right now the uncertainty among our farmers, particularly. So this is something that we stay focused on. And I feel pretty good about the progress we are making against all the commitments we put out there. And then we'll see when the market comes back. This is overall still see and wait where we don't wait, actually, we act. So it's a see and act phase for us, improving things. And 2027 will be probably a better year than 2026.

If I could just add one, we're also underproducing versus retail in 2026. So assuming we -- by about 4%. So assuming we produce at retail levels next year, that should be a natural tailwind revenues or profits.

Our next question comes from the line of Kyle Menges with Citigroup.

I was hoping if you could talk about just any changes you're seeing in industry competition, specifically pricing across any of the major regions as well as just how you think your inventory position is versus the industry? And then just a quick tariff question. You mentioned could be a 0% to 50% tariff would just be helpful to hear examples of cases where it would be 0 versus 50% now?

Thanks, Kyle. I will defer the tariff point to Jim. We do see a continued positive price cost development for us, which I don't know what the others are doing, but we do see that building on top of advancing technologies and product launches as well that we have throughout 2026 and the beginning of 2027. We have launched our new short rebase or standard rebased tractor in Europe, also on top of the range, long wheelbase tractor hitting first time ever segment CNH has never played in, which is a sector of 350 to 450 horsepower in the European style designed tractor that is sold around the world.

And with these launches, and actually, we are sold out on those with the production slot we have allocated. We also sold out on our next-gen combines this year. We see great momentum in our product, great demand. And with that demand and obviously, further launches of our also offboard systems, connecting the onboard. We have a good base to advance our farmers and with that also have a good net price realization over the next couple of quarters as we also go into 2027.

So for the full year, we expect a positive price cost here. On the inventory side, I alluded to a $500 million further reduction of our global channel inventory. This is -- dealer inventory. This is something we will very closely monitor because if there are swings in markets that we see coming maybe more positive on the other way, more negative developments, we will adjust those in inventory targets and destocking activities accordingly.

For now, we feel pretty good where we are. We get very good feedback from our dealers. We have cleared aged inventories. We have cleared stock that was hard to sell. And now we are approaching the levels that we want to see with our dealers also to lighten up the financial burden on floor planning, and their overall exposure to that. So that is on a good track. We delivered what we said we will. And I'm quite curious to see what happens in the next quarters, carefully reading commodity prices, carefully reading the demand in every region of the world.

And I think, overall, in a good shape on our track in 2026, which is the trough year most notably, probably in like 20 or 30 years of ag. We have never been that low in terms of unit sales in our industry and we are holding up not only, but we are actually building further strength as we go into the future years. So that feels overall quite good. Jim, on tariffs.

Yes. Kyle, it kind of depends on the HTS codes, the harmonized tariff schedules. There's a bunch of those. And I don't have the details to discuss this in particular, but we can take that probably offline at some point. .

Our next question comes from the line of David Raso with Evercore ISI.

Two questions. One, can you give us an update on where you stand strategically with the construction business? And second, the production below retail of 4%. Can you give us a little color, be it geographic or large versus small tractors, combines just that combination that gets you to the down -- or sorry, below 4% retail globally?

David, I'll take the first, and Jim takes the second question. As I mentioned during the last quarterly earnings call and the full year 2025 financials, we have restarted our discussions with several partners for our construction business. These discussions advance a pace. We don't rush anything. There are very good conversations that we have that will build a stronger CE lineup for the construction business, and that will also further enhance the construction machines that we expect to get shipped under the New Holland construction brand back to our ag dealers.

So progress is made as we speak. We don't rush things. We take the time it takes, and we will update you when we have made a conclusion not saying when that will be the case. But in -- I think over the course of the remainder of 2026 or first half of 2027, we should be clear on the path forward for our construction business, which is a very, very relevant piece as a product for our dealers, but not necessarily has to be in our ownership in order to deliver product and service to those through build and farm the world. So that is what I can tell you. So time wise, we are pretty much a pace of what we said last time over the course of '26 and '27, we'll come back with the progress on that one. But I'm pretty confident that we are moving towards a solution here.

Yes. And [indiscernible] question, the underproduction is a rough, but more underproduction happening in combines, less underproduction in tractors, although both are underproduced in 2026. And by geography, I would say balanced, but probably a little bit more under production occurring in Brazil this year for the -- there we talked earlier about the challenges there.

Our next question comes from the line of Joel Jackson with BMO Capital Markets.

It's Evan on for Joel Jackson. I just wanted to circle back on the credit dynamic. You pointed out for Q2, Q3 considerations of higher risk reserves, just wonder to see if you can give any extra color on that. Is that all Brazil? Are you seeing delinquencies currently higher bad debt?

Yes. It's slightly up in more mature markets, but nothing notable. The real increases are Brazil, primarily and secondarily, Argentina, but to a lesser degree. And in Brazil, May is a big payment month. And so every year in May, we see an uptick in delinquencies, that's typical seasonality. I would expect to see it again this year. And it remains elevated. It's something that bears watching. We're actively managing it. It is not getting worse, but it's not getting better at the same time, so it bears customer-by-customer discussions trying to make sure that they stay current.

So I would expect an uptick in delinquencies in Q2 of this year, like we always see. And I'd say, again, it's mostly focused in Latin America is the issue.

Our next question comes from the line of Tami Zakaria with JPMorgan.

Question regarding South America, I see you tweaked lower your expectation for combines. But stepping back, should we view this year's decline in South America more like a temporary blip that reverses next year? Or are you seeing indications that this could be a weak market for a couple of more years before demand starts moving up again?

Look Tami, the -- I mean Brazil, if you look back the last 40 years, Brazil, had always a very quick ramp to a peak year, and then it dropped quite sharply and it stayed there for a few years and then before it came back. I think the overall cycle dynamics in Brazil are very familiar to us. And the shape of the curve is this year no different than any other cycle before.

What is a little different this time is that a few things come together, and like tariffs and the global trade and the new position of China when it comes to purchase global commodities and North and South American frictions. And I think that causes a little deeper and a little longer trough in this cycle than in prior cycles. And I think that is what we experienced right now in '26, which could drag into '27 as well. However, looking at the acreage in South America and knowing that we have 2.5 harvests in South America on many acres down there given the climate conditions that points at our machines aging 2.5x faster when it comes to ours on the machine than in other geographies that have only 1 harvest more or less 2.5x the ours.

They planned and they plan differently. So maybe it's rather 2x the aging speed. But that will point at a replacement plan across large ag equipment that becomes quite relevant as we enter into '27 and '28. So I think replacement will provide a floor. And while we go a little deep now and a little longer and in prior troughs, we would expect now that 2027 gives us some footing and with the new elected President in Brazil, whoever that will be certainty will in any case, add to more confidence when it comes to farming and purchase of machines. What that means the numbers we will need to see. But I think the floor will be reached over the course of this year as per our expectations.

Our next question comes from the line of Daniela Costa with Goldman Sachs.

I just wanted to follow up on Construction Equipment. You talked about the net pricing expectations for ag. And if you could elaborate sort of similar comments for construction equipment, do you think that can turn net positive at some point in the year? And then also on Construction Equipment, 2Q, given the volumes you guide for mid-teens, should we expected already to start breaking even in 2Q? .

Daniela, it's Jim. So for the full year, we are not forecasting positive net pricing on the construction business because of the tariffs. Price loss balance to be net negative. Positive pricing, but then the product costs because of tariffs will grow at a higher rate. So net the product price and product cost net negative for the year. There'll be positive EBIT for the year, for the full year is still profitable, but the price cost is a negative equation for us this year.

As it relates to Q2, construction business, yes, we do believe it will be above breakeven in Q2. Again, they're going to -- they were penalized from the quality hole, the quality stock at the Wichita plant in Q1, and then that will be made up those sales will be realized in Q2. So a bit of a negative in Q1, bit of a positive in Q2, full year but of a wash.

Our next question comes from the line of Ted Jackson with Northland.

My question would be just kind of on sort of U.S. legislation and regulation. And I was just curious if you could give some kind of update and thoughts that you all have with regards to the farm bill, which is locked up inside of Congress and then also the efforts to push to EPA -- by the EPA to push for ethanol E15 full year. I mean if the farm bill gets locked up and those come out and we go through another year with it being funded down the road, does that change anything for you? And on the EPA side, on the EBIT team side, maybe just kind of some thoughts in terms of what you think it is in terms of the likelihood of that.

Ted, look, the farm bill is -- has been long awaited and is still locked up and it is going to be helpful regardless. It is not going to suddenly boost in itself, it is not going to boost major equipment demands because our farmers, they need to see an operating profit on their bottom line, excluding subsidies and other money that is handed to them. Only if it's structurally positive, which is driven by commodity prices and input costs, only if that turns positive for them, this is the key enabler for equipment purchases because that means that the business is returning back to a healthy and sustainable operation allowing them to upgrade their fleets and advance new tech.

So farm bill is very, very helpful, and it's very needed. It is not going to be that one thing that is driving equipment demand from 1 day to another. When it comes to the regulation and legislations, I mean making E15 fuel, I mean, today, it was a temporary E10 -- and then -- sorry, temporary E15 now making it permanent. That has quite some positive impact on corn. I mean, we did some math here back of the envelope. And if everybody, which is not possible. But if everybody was shifting towards a consumption in the United States from E10 to E15, that amount of corn needed to produce that fuel. If I just focus on corn, there are obviously other ways to produce that ethanol content. But that amount of corn is more or less equivalent probably to about the same acreage that is planted today with soybeans, earmarked for China.

So I mean, there is a kind of a wash, however, not to be neglected that the marginality of soybeans for farmer is a significant higher than the marginality of corn. So while E15 will drive for corn, and we will see also other sources benefiting from that, and it will help stock levels to deplete a bit. It is overall a less profitable commodity than soybeans. So I think there is is good momentum. It's helpful. It adds. It is not a big ticket item that will turn things around, but it helps to build confidence.

When it comes to EPA and emission standards, I mean, staying very, very focused on sustainability and low emissions, which we have already across the board with our machines. I think what EPA is targeting at is make it simpler and make it less disruptive if things happen in the field or reality strikes that suddenly, I don't know, you're running out of the additives and then the engine DD rates. So these things shouldn't happen, so it makes things simpler for our farmers in the field. I think that is also very beneficial the operation makes it simpler.

It does not take significant cost out of the machines though. If you imagine you were to roll back an emission standard for the United States, where we are running on, let's say, Tier 5, if you were to skip that or roll back. I mean the rest of the world will still move into higher level emission standards. And if I think if -- in North America, let's say, United States, if the emission standard would start to deviate from the rest of the world, I think that creates more complexity for us because we then need to build machines for a market with a specific, let's say, less sophisticated emission standard. And while the rest of the world is still on a higher level emission standard that might mean we can maybe reduce a few components from the machine because it's a less refined emission standard, but it does not lower the overall cost for us in producing because the rest of the world will not follow.

So I think EPA's advancements are helpful to simplify and to make farmers life more focused on what they actually should do rather than be worried about their engines to be rail -- derate. But I think overall, as a cost reduction action, this has limitations when it comes to the machines themselves. Overall, all of it is helpful what it will take, needless to say and you all know that is better commodity prices and managed input costs so that a healthy operating margin emerges with the farmers, and they see the profitability or the overall farm health, which is not only the soil health, but also the economic health of the farm being sustainably advanced in the future, and it's very much driven by a few factors that are not yet clear, i.e., global trade commodity prices, and we'll see how the harvest will go this year.

Our final question comes from the line of Judah Arnovitz with UBS.

Actually, 2 quick questions on price cost. In Ag, do you expect positive price cost each quarter for the rest of the year? And then just on the transportation costs, you mentioned if the conflict persists, what's your confidence in your ability to pass these costs on to customers in both ag and construction and then relative to the $70 million growth impact that you mentioned. What is that number year-to-date?

Yes. Okay. So price cost for ag per quarter, yes, that just remained positive. So it's good news. On the construction side, we talked about that's not going to happen for the year given the tariff burden. And then I think your second question was the ability to pass on higher costs, logistics, et cetera. I think there will be a bit of a lag effect. And -- but you think that's certainly the ag business certainly has shown its ability to get pricing over time. I think that will continue. So I'd say, a high degree of confidence getting that pricing back. It may not be in the same quarter. Again, there may be a bit of a lag, but a high degree of confidence in getting that back.

On the construction business, less confident. It's a much more competitive fragmented market and not all players are impacted equally with these costs. So that's called medium level of confidence on the construction side. Year-to-date, I would say relatively small impact from elevated costs from the Iran conflict, et cetera, relatively small up till now. That's more in the windshield, not the review mirror. Again, we don't think it will be -- it will come to that. That number I gave you $70 million is only if it persists sort of through the end of the year, and we don't think this is going to last at the end of the year.

That concludes today's conference call. You may now disconnect.

Good morning, and welcome to the CNH 2025 Fourth Quarter Results Conference Call. [Operator Instructions]

I will now turn the call over to Jason Omerza, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Krista, and good morning, everyone. We would like to welcome you to CNH's fourth quarter earnings presentation for the period ending December 31, 2025. This live webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited.

Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website.

Please note that any forward-looking statements that we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material.

I will now turn the call over to Gerrit.

Thank you, Jason and welcome to everyone joining the call. We are calling today from our plant in Wichita, Kansas, where we build loaders for our construction business. There were bright spots for us to celebrate at the year -- as the year ended, even though there are continuing challenges in the markets that we serve.

We had a successful Tech Day presentation at the Agritechnica Show in November. If you haven't seen it yet, we encourage you to watch the replay and learn about the advancements we have made and we'll continue to make in the pursuit of serving farmers on their soil. At Agritechnica, we showed how CNH tech powers digital solutions for our world-class iron from factory fit to retrofit aftermarket solutions, we have the technology to help farmers be more productive with their equipment.

We also introduced a new lineup of midrange tractors for the global market, but which specifically addresses a particular need in Europe for large mid-range high-horsepower tractors. This new tailored offering of tractors helps us compete better and facilitate pull-through sales of combined sprayers and planters.

We also showcased our leadership in combine harvesters with our award-winning CR and AF Series machines. We have ramped up our efforts to strengthen and consolidate our dealer network with several flagship transactions already completed. This is a critical piece of our long-term strategy, and we are very pleased with the initial reaction from our dealer partners.

We are proud of the progress we have made with our quality and operational excellence initiatives that we outlined at our Investor Day last year. We took out $230 million of cost from the Agriculture segment in 2025, which puts us on pace to achieve the $550 million cumulative savings target by 2030. Those savings plus incremental actions that we will take will help us eventually offset the entire tariff cost impact incurred.

We also continue to make progress on our near-term goals. Agriculture dealer inventories were down another $200 million in the quarter for a full year reduction of about $800 million. That is a little shy of the target that we had initially set at the beginning of 2025. but it is because we shipped out a bit more company inventory to the dealers than we had originally expected in Q4 on the back of the European market showing some green shoots.

But commodity prices remain low. And as the single largest contributor to farm income, it is hard for farmers to operate their farms let alone purchase equipment. The trade environment remains in flux, which makes it difficult for CNH farmers and builders to have a sense of certainty when making capital investments. So we do our best and focus on the things that we have in our own control. So while market conditions were very dynamic, and are forecasted to remain so in 2026, the CNH team is focused on solutions today and in the future that delight our farmers and builders and that will deliver returns for our shareholders.

With that, let's turn to the results. On a year-over-year basis, our Q4 results are very encouraging. We are, however, comparing to a very low Q4 of 2024 when we had severely cut our production levels. We will talk about our 2026 guidance in a moment, but I want to caution against using this Q4 improvement as a run rate into Q1.

Fourth quarter consolidated revenues were $5.2 billion or up 6% from Q4 of 2024. Our Ag segment sales were up 5%, with EMEA up 33% and North America down 10%. Construction sales were up 19% on an easy comparison with 2024. Industrial adjusted EBIT was $234 million, up 21% year-over-year, mainly as a result of positive pricing, higher production, cost-saving actions and lower corporate expenses, which together offset the tariffs and geographic mix headwind. Adjusted net income was $246 million with adjusted EPS for the quarter at $0.19.

Looking at the full year, we faced another challenging period for the ag industry. 2025 consolidated revenues were down 9% year-over-year, while industrial sales decreased double digits. 2025 Industrial adjusted EBIT margin was 4.3%, primarily driven by the higher tariff costs and unfavorable geographic mix, partly offset by pricing and cost litigation actions. We remain confident that our North and South American markets will deliver growth in revenue and profit pools in the coming years as trade flows stabilize and farmers migrate to larger machines with connectivity solutions.

We grew market share in large tractors and combine harvesters in North America during 2025. And as we move into 2026, EMEA is on a great path to further recover from its low margin levels through our transformation, cost efficiency programs and market share gains in midrange tractor segment.

Sustainability has always been one of our main priorities because it is vital to our farmers. As we discussed at the Tech Day, land is the most valuable asset for former and soil health is of prime importance. That is why we have always stressed sustainability in our operations and in our machines. For us, sustainability is not only about protecting the environment, it is also about ensuring the long-term profitability of our farmers, which is central to our conviction of what true sustainability means.

We are proud to have been ranked among -- ranked #1 in our industry on S&P's Global 2025 Corporate Sustainability Assessment and to have received an A for climate and an A- for water and CDP's 2025 scores. These results recognize our leadership in environmental actions and disclosure across our products, operations and supply chain.

With that, I will turn the call over to Jim to take us through the details of our financials.

Thank you, Gerrit. Fourth quarter industrial net sales were up 8% year-over-year to nearly $4.5 billion, mainly driven by favorable price realization and positive foreign exchange impacts.

Adjusted net income increased to $246 million with adjusted diluted earnings per share at $0.19, up from $0.15 in Q4 2024. Even though we had lower production levels in Q4 2025, they were higher than the very low levels in the same period of 2024. So the year-over-year increase in sales and income is mostly related to a relatively easy comparison. Industrial free cash flow in the quarter was $817 million, essentially in line with Q4 of the previous year as the lower year-over-year change in net working capital was offset by better EBIT and cash taxes.

Agriculture Q4 net sales were about $3.6 billion, up 5% year-over-year, driven by favorable pricing and positive currency translation. On a regional basis, the year-over-year sales decrease in North and South America was more than offset by the EMEA increase, which was mostly in Central and Eastern Europe, along with the Middle East. Positive pricing was the most pronounced in EMEA and North America. Adjusted gross margin was 20%, down slightly from 20.6% in Q4 2024, affected by the tariff costs and unfavorable geographic mix, partially offset by purchasing efficiencies, lower warranty expenses and a 15% increase in production hours.

Agriculture adjusted EBIT margin was 6.5%, down from 7.2% in Q4 2024, as positive pricing and lower R&D partially offset negative product and regional mix and higher SG&A related to variable compensation. On a full year basis, gross tariff costs had a 110 basis point impact on EBIT margin and unfavorable geographic and product mix had a 90 basis point impact.

Construction net sales in the quarter were up 19% year-over-year to $853 million, driven by better sales in North and South America. Q4 gross margin was 11.5%, down 340 basis points year-over-year as tariffs weighed on the quarter's profitability. Favorable purchasing and manufacturing efficiencies were more than offset by $35 million of tariff costs. Those are all netted together in the product cost category of the EBIT bridge. As was the case in agriculture, construction SG&A was unfavorable due to variable compensation and labor inflation. Q4 adjusted EBIT margin was 0.6%. On a full year basis, gross tariff costs had a 225 basis point impact on EBIT margin.

In Financial Services segment net income in the quarter was $109 million. The 18% year-over-year increase came from interest margin improvements across all regions, only partially offset by higher risk costs in Brazil and lower volumes in North America and EMEA.

Retail originations in the third quarter were $2.8 billion, and the managed portfolio ended the quarter at $28.6 billion. Credit collection rates have been relatively steady in most regions despite the market downturn. Delinquency rates in Brazil have stabilized, albeit at elevated levels.

Our capital allocation priorities remain the same: reinvesting in our business while maintaining a healthy balance sheet and then returning cash to shareholders. During Q4, we repurchased $45 million worth of CNH stock at an average price of $10.02 per share. For the full year, we returned $432 million through $333 million in dividends and $100 million in share repurchases.

I'll come back in a moment to discuss our 2026 guidance. But first, let's take a look at the progress on our long-term targets. Gerrit?

Thank you, Jim. Our company strategy is centered around 5 key strategic pillars: expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence and quality as a mindset. These pillars keep our team focused and united in our shared purpose to feed and build the world we live. Today, I would like to give you an update on our progress on each of these areas.

Innovation is a constant at CNH, and we have a robust pipeline of new product launches. We are using rising technologies such as Gen AI to increase the velocity of our product introductions. At our Investor Day, we outlined plans for more than 15 new tractor launches, 10 in harvesting, 19 in crop production and over 30 precision technology releases between now and the end of 2027.

You can see on the slide the progress we have made -- already made in 2025, and we had about as many minor product launches as the major ones during the year. And the pipeline is full for 2026 and 2027, underscoring our commitment to continuous improvement and purposeful innovation.

Expanding on this a little bit, I want to highlight just a few of the innovations that we introduced at Agritechnica. Some things in development and some are already commercially available. In addition to our green on brown and variable rate application technology, which are already available, we highlighted some of the progress that we have made on green on green spraying in conjunction with our partner, ONE SMART SPRAY. This solution is targeted to launch in 2027 and will improve farmers' profitability and sustainability. We also spent some time explaining how active and passive implement control can help correct the field conditions that would otherwise comprise tilling or planting.

FieldOps has introduced new features such as AI-enabled field boundary management and we are constantly adding new features to this tool. More to come in 2026, such as additional machinery support and further remote display abilities. We partnered up to introduce the FLEETPRO line of aftermarket kits for the EMEA region at a very competitive price point in a commoditizing market. These guidance and steering kits provide a value offering for legacy products of all makes while our state-of-the-art Raven technology will equip our recent and new machines in full connectivity with our FieldOps system. These and other innovations will help us achieve our goal to nearly double the amount of precision tech components within our ag sales to 10% by 2030. We are on track to achieve that with the eventual rebound of the North American market, which tends to favor a richer mix of precision tech components.

One of the key pillars of our long-term strategy is driving commercial excellence by working with and strengthening our distribution network. This is a long journey, and benefits are more back-end loaded in our plan. As disclosed in our last annual report, in 2024, we had about 2,500 ag dealer owners, operating about 6,000 points of sale. Our goal is to reduce the number of first level owners by about 1/3, while maintaining very competitive point of scale and service coverage -- by point of sale and service coverage.

Feedback from our forward leaning and ambitious dealer partners, both large and small, has been enthusiastic. Our progress on this front will create some noise in the channel as it should but the expanded reach of the dealers can be leveraged for better investments in facilities and service technicians. We are also giving dealers access to new and better tools like the AI tech assist. That tool is getting rave reviews with over 1,500 users worldwide who have used it already over 0.5 million times.

Our 2030 target is to have around 60% of our ag sales coming from dealers who sell both brands in their network, up from 30% in 2024. 2025 was already 35%. You can see examples of some notable transactions we have already done on this front. The message here is not Case IH is taking over New Holland or the other way around, the message is giving dealers access to all the great products that we have regardless of their branding. We finally focus our collective and unrivaled attention on competing with companies with green color products. That was not always the case in the past.

Our in-flight operational initiatives have runway to continue underlying margin expansion. Our strategic sourcing initiative uses data-driven insights and supply partnerships to improve cost efficiency while maintaining quality and reliability and it delivered $34 million worth of savings in agriculture in 2025 alone.

Our lean manufacturing projects boost productivity, reduce downtime and streamline workflows. We realized $45 million in savings at our plants in 2025 as a result of these efforts. Quality is one of our most important focus areas. Enhancing product reliability and refining manufacturing processes helped us realize over $150 million in quality cost savings in 2025.

Now admittedly, that excludes the warranty true-ups that we did in 2024. But beyond the cost improvements, we see our dealer and customer satisfaction survey results reflecting the improvements that we are making in this area. Our Net Promoter Score went up 8 percentage points in '25 versus '24 which has ongoing benefits to our reputational value. Quality pays back in 3 ways: lower costs, better ability to price and growing market share in a self-reinforcing virtuous circle.

All told, our cost savings initiatives already add up to $230 million in 2025, making us well on the way to our $550 million savings target. Again, the pace of the savings will moderate in 2026 because of the warranty one-timers, but you'll see the cumulative savings grow over the next few years.

Let's now put this in context of our margin goal. Our commitment is to raise agricultural EBIT margin to 16% to 17% by 2030 on an industry mid-cycle basis. That commitment was made prior to the expansion of Section 232 tariffs but our intent is to offset those costs and still reach the EBIT margin target at mid-cycle volumes.

Netting the savings that we just discussed against investments that we are making as planned in R&D and in the network development, we improved the margin profile of our ag business by 85 basis points. In 2026, we will further improve the margin profile between 50 to 75 basis points, which is admittedly hard to see in the consolidated figures as we are impacted by a temporary adverse regional and product mix in sales and margins, as Jim will explain in a moment. We are laser focused on improving the underlying profitability, and we did sound -- make sound progress in year 1 on our path to 2030.

With that, Jim will now discuss our 2026 guidance.

Thanks, Gerrit. Let's first look together at our agriculture industry outlook for 2026. Commodity prices remain low, below many farmers breakeven point, and they want more confidence in their end markets before making equipment purchases over and above the replacement demand. North America lagged the other regions into the downturn. And so now it is the region expected to decrease the most in terms of large equipment industry retail demand.

Conditions in South America remain weak, but we forecast a more flattish demand in EMEA with tractors slightly up year-over-year and combined slightly down. In aggregate, we forecast global industry retail demand to be at around 80% of mid-cycle or down around 5% from 2025 levels. 2026 should represent the trough of the cycle. As Gerrit mentioned, we do expect that the North America revenue and profit pool will grow significantly over the next 5 to 10 years as demand grows for even larger machines and fully connected production systems.

CNH is well positioned to capture a larger share of those tools on all the advancements that we've made in harvesters, tractors and tech. We will still be underproducing to the retail demand in order to reach our dealer inventory targets with overall production levels flattish with year-over-year. In addition to industry demand stability in Europe, we are gaining strength in that market on the back of recent product launches, our focus on quality and the network consolidation.

Consequently, we are forecasting ag net sales to be flat to down 5% when compared to 2025, and that includes favorable currency translation of 2% and positive pricing of 1.5% to 2%. We continue to take advantage of the slow months of production to improve our industrial processes.

Gerrit mentioned that our cost initiatives will improve ag margins by 50 to 75 basis points in 2026. However, the tariff headwind is expected to grow from 110 basis points in 2025 to about 210 to 220 in 2026, as we continue to work to fully offset tariff impacts through sourcing, production moves and additional pricing. The mix shift between North America and EMEA has disrupted our usual decremental margins, and that had a drag on our 2025 EBIT margins by about 90 basis points. We estimate mix -- reaching mix to have an additional drag of up to 50 basis points in 2026. With the North American market inevitably recovers, we'll see our incremental margins revert back to the normal levels in the low 30s. With all that, we expect ag EBIT margin to be between 4.5% to 5.5%.

In construction, we forecast flattish demand in both light and heavy equipment with the exception of South America, where we expect further demand pressures on heavy equipment. We expect strength in certain nonresidential construction markets to be offset by persistent weakness in residential construction. Construction production levels and net sales will be about flat year-over-year, including about 1% of favorable currency translation and 2% of pricing.

EBIT margin is forecasted to be between 1% and 2%, mainly due to taking a full year of tariffs, which are now estimated to have a gross impact of around 500 basis points of margin. Putting together all those elements, we forecast 2026 industrial rent sales to be flat to down 4% year-over-year and industrial adjusted EBIT margin between 2.5% and 3.5%. We plan R&D expenses to be about flat year-over-year, while CapEx will be between $600 million and $650 million. Industrial free cash flow is forecasted to be between $150 million and $350 million.

Our effective tax rate is expected to be in the usual long-term range of between 24% to 26%. Adjusted EPS is forecasted to be between $0.35 and $0.45 in assuming an average share count of about 1.29 billion shares.

To help with your modeling and to prevent any surprises, I'll provide some additional considerations for our first quarter. In the quarter, we will continue to produce at low levels in order to achieve our internal dealer destocking target. As a reminder, Q1 is historically the weakest quarter of the year in terms of sales and margins. On average, the sequential percentage drop in sales from Q4 to Q1 is in the low to mid-20s. For construction, the 2026 drop should be similar to past years.

But in ag, you should expect sales to be down sequentially in the low 30s, as some of our Q4 2025 sales were effectively a pull ahead of what we had originally expected to sell in Q1 2026. We are continuing to advance our cost reduction initiatives. And while these actions will not fully offset Q1 headwinds, they are gaining traction and will deliver increasing benefits as the year progresses. The low production levels, the unfavorable geographic mix and the full impact of the tariffs will likely result in a breakeven Q1, plus or minus, for both the Agriculture segment EBIT and company-wide earnings per share.

Construction EBIT will likely be negative in Q1 due to tariff headwinds. The Agriculture segment's Q2 will be much better sequentially, albeit likely a bit lower versus Q2 2025. When we get into the second half, we are forecasting overall profits and margins to be higher on a year-over-year basis despite the tariffs, exiting 2026 with a clearly positive trajectory. Free cash flow in the quarter will be an outflow as is typical due to the company inventory buildup at the beginning of the year as we prepare for the spring selling season. We expect this quarterly outflow to be larger than in Q1 2025, mainly driven by the lower EBIT generation.

With that, I'll turn it back to Gerrit for some closing remarks.

Thank you, Jim. While we may have hoped for greater stability in the trade environment by this point, the reality is that we must remain agile in our approach. While we carefully observe market conditions, we will be deliberate with our production and inventory planning.

Production swaps are full for Q1 and for Q2 and ag is full -- for Q2, ag is 3 quarters fall in construction is half full. We're excited about the commercial launch of our new midrange tractors and our internal organizational changes are helping us to improve the speed of our product launches by a great deal. That goes for both our iron and our tech, and you will see an increased frequency of our technology releases.

We're also making progress in our development of new product categories, such as our cotton harvester that is coming. We have made great strides already on our long-term targets for quality and for operational excellence, and we will continue to do so in 2026 with an incremental 50 to 75 basis points margin improvement. That will be offset by the incremental tariffs and regional mix, but we will continue to work with our dealer partners on finding the right network configuration in each of the markets that we serve.

The right answer will vary by region and brand, but we will remain focused on what makes the most sense for servicing our customers. Even in the face of the most significant downturn in our industry in decades, we are delivering better products with higher quality while improving our underlying margin profile. The markets are moving slowly, but CNH is moving fast to deliver our commitments.

As there is today, there will always be a full suite of competitive construction equipment, branded as Case or New Holland construction available through our construction dealer network and our agricultural dealer network as well. With no urgency or pressure for outcome, we have restarted discussions with several players about the partnering options for our Construction business. To fully leverage our brand strength and reach, we will explore partnership options to regain a strong footing in the recovering global construction industry.

When there is news to share, we will include those in our earnings calls in 2026 or 2027. This concludes our prepared remarks, and we can now start the Q&A session.

[Operator Instructions] We will take our first question from Steven Fisher with UBS.

Just wanted to clarify the inventory situation. It sounds like you didn't hit the $1 billion, but it's really just because of Europe. Can you just comment a little bit on the progress in North America? And then just to frame that in terms of how you see the setup for 2027. It sounds like your second half of the year seems like it's going to be a little more positive in ag than the first half? Is that sort of a reflection yet of the setup for '27 or is it just easier comps?

Steven, let me take that one. We have made good progress. And by design, we slowed down a little at the dealer destocking, particularly in Europe, as I mentioned, because of the market coming back and us getting ready for the season. We had similar stock-ups in some lines by design in South America in order, again, to be ready for the season 2026 to come.

So for us, this , let's say, it was about $100 million, $150 million shortfall where the target we gave ourselves at the beginning of the year, which was around $1 billion, we landed at $800 million. This is a great accomplishment by the CNH team globally. But now as we are now scratching more and more towards the lower levels of inventory, we got to be pretty smart about where -- how deep do we want to dip in inventory because when the market returns and it won't return in a sudden rush, it will return steadily. We want to be ready with high-quality machines and the full lineup in all the regions where we operate as we go through 2026.

But the dealer destocking, by and large, is accomplished in the last 2 years. 2026 is now a bit fine-tuning by product lines and by market depending on how the different segments are moving. So as we will continue to talk about here and there some dealer stocking, as Jim said, also we'll talk about underproducing retail pace in Q1, this is now for us more like the last innings of that journey. And we'll see when the market starts to show signs of lives and a better trajectory as we finish '26 and enter into 2027. So now it is about not going too low actually, and we'll see what that means by market and by region.

Your next question comes from the line of Kristen Owen with Oppenheimer.

Really appreciate all of the incremental color on the guidance and in particular, Q1. As I'm furiously writing down these notes, I'm wondering, can you maybe help us put it all together in something that would look like an EBIT bridge for 2026? How much of that incremental savings that you're expecting versus the offset of mix versus the offside of geo? Can you kind of build a bridge for us just so we can put that together into the context of the 2026 margin guidance?

Good question, Kristen. So happy to answer that. For ag, I assume you're focusing on ag. Volumes are about 190 basis points of reduction in margin walking from 2025 to the full year margin. Geo mix, we said between up to 50 basis points to, call it, 25% for purposes of modeling, 25 basis point negative. Price call it, 175 basis points midpoint of our price guide 1.5% of 2%. Operational improvements -- tariffs, tariffs about 110 basis point headwind. And then operational improvements combined with the higher SG&A netting about 25 basis points improvement. So that should get you at around 5% midpoint for 2026.

Your next question comes from the line of David Raso with Evercore ISI.

Just following up on that, I just want to clarify first before my question. The first quarter ag profitability, I just want to make sure I heard correctly about the plus or minus Ag segment EBIT. Is it basically around breakeven for the quarter, just to clarify?

Yes, that's right.

Okay. I'm just trying to think about the guide, what it implies for the rest of the year, right? The first quarter is down -- talking ag, right, down 5% on revs year-over-year breakeven -- it means the rest of the year, sales are still down 2%, the subsequent 9 months, but your margins are up a little bit year-over-year. And I'm just trying to figure the cadence of that, assuming those numbers are right, the cadence of that, when do we start to see the margin improvement despite sales still down and maybe the cadence on the...

Yes, you'll see margin improvement beginning in Q3, but I'll just call it second half, better margins, better profits in total. Q2, we expect to be better -- much better than Q1 sequentially, but not quite as good as Q2 of 2025.

Your next question comes from the line of Tim Thein with Raymond James.

Jim, maybe just going back to your comment on when you kind of walked through the dynamics on margins in ag. Can you -- on the 150 to 200 basis points of price, can you maybe just give us some regional color as to the expectations for '26, what's in backlog and just how you're thinking about the contribution? Is there a notable geographical contribution or difference as you think about that?

Yes. I'd say North America is probably the leader in terms of price growth, followed by EMEA that's where we're getting most of the pricing in 2026.

Your next question comes from the line of Mig Dobre with Baird.

This is Peter Kalemkerian on for Mig this morning. Quick one here for me on South America ag. Your industry forecast, call it, down 5% to 10% between tractors and combines. That's a bit more negative than your peers who've outlined more of a flattish retail environment. Is there any color you can provide on what you're seeing in that market? And is there any significant difference between Brazil and elsewhere on the continent?

Yes. Look, the -- I think we're just cautious here in the market. We have elections coming up. We are very, very close to our dealer partners as well as our farmers directly. And we have carefully listened, particularly as we closed last year to what they expect to happen in 2026. And I think there is a fan of outcomes for South America in total. It depends on several factors, one of which is the global trade and is China going to really start buying those 25 million metric tons of soy from North America or more or less or -- and how and who is running in Brazil for presidency. I think there are so many unknowns that we took a cautious view here on the market in South America.

And I think, look, Argentina has shown signs of momentum also politically, there was quite some support, but I wouldn't necessarily call it out as a bright spot in South America. I mean, Brazil is clearly what pulls the region. And there's not an upside to be expected from Venezuela in case you were wondering about that. So this is -- the entire region is predominantly Brazil, followed by Argentina and -- we see replacement demand now forcing a continuous -- a level that we currently see in the machine sales, but I wouldn't go that far and say this is now going to be a rebound in 2026 as we actually did expect last year to see more life in South America this year. But at this point, with all the factors that I mentioned, we still need to see and watch a few more quarters to see what happens. But that's why we are a bit more cautious on this end. But in the end, the market is the market, and we'll see but we are less forward-leaning here.

Your next question comes from the line of Kyle Menges with Citigroup.

Hi, good morning. This is Randy on for Kyle. Just going back to some of your targets you laid out on the target to reduce the ag dealer owners by 1/3 by 2030 and then also increase sales of dual-branded dealers over the same time frame. Should we be thinking about progress on these 2 initiatives as kind of linear over the next couple of years, a little more back-end weighted? I guess just how should we be thinking of your progress in the timing that we should be expecting to see some of those things flow through?

Randy, it was kind of hard to understand what the question was, was about sales and inventory development?

Through dual-branded dealers, the progress.

Okay. So through dual-branded dealers. Look, this is -- it's a steady advancement on this number. I mean, you've seen a number of deals. We just had another one announced in Q1, which is a pretty sizable large deal we did in Northeastern Germany, where we basically converted the largest network of one of our smaller competitors completely to CNH effective immediately more or less. And these moves are all going to be multibrand out of the gates.

And we have picked up a lot of positivity and as expected, by the way, and forward-leaning attitude from our strongest dealer partners. And strongest means not only in terms of size, largest, but also most ambitious dealer partners to be consolidator in their respective regions with multi-brand attitude. So I think from the multi-branding percentage point of view, we expect that to be a steady growth. We will have a few bigger hits in the earlier years, but then it will be a long grind to the tail of network where we possibly here and there, decide to not have all the brands in a particular region, because, again, our target is not to have all the brands everywhere. This we never said.

We said where it makes sense, we will have dual-branded dealerships in North America, South America, where it makes sense as well as in Europe. And there might be regions where we just have New Holland or we just have Case, because it is the farming in the region that requires only one brand. So we'll be smart about it. So that is how to think about it. It's steady with a few big ones coming over the more near term and then a long grind through the tail of the network overall, setting ourselves up to once and for all, finally, focus on who competition is, and that is not the other CNH brand.

Your next question comes from the line of Joel Jackson with BMO Capital Markets.

Just a 2-parter. Looking at North America, we've seen really farmer sentiment come down across a whole bunch of different metrics and articles and things that associations talk about. So the first part of the question would be, can you comment about just what's going on with farmer sentiment in the States, how your view of it is, how it may play out for your sales? Second part of the question would be, we've also seen in the U.S. in the political arena, a lot talk about equipment and crop inputs and what the government might want to do on some initiatives going forward. Any views on that? Any things you want to talk about that thing?

Joel, the farmers sentiment in North America is not great. And you're reading the same articles plus we have a lot of conversations directly with them. And the farmer's income for 2026 is projected to be more or less flat. I mean, slightly up. You need to dig into the data to see some positive elements here, but it all comes back down to the commodity prices for the usual commodity, soy and corn. And at this point, there is no relief really in sight for those.

And hence, there is -- the farmer sentiment remains where it is at this very moment. We'll see what happens, what the administration in the United States has in store. There is a great level of attention to farmers and to agricultural industry in total, and there is a great deal of help being prepared.

And I don't know exactly what is going to happen. We have a list of things that are under discussion, but we'll see what the administration is going to put in place over the next couple of months and, let's say, the near term in 2026. As a matter of fact, I'm actually on my way to Washington tomorrow to meet my peers and to have meetings to exactly discuss these points.

Your next question comes from the line of Angel Castillo with Morgan Stanley.

I just wanted to revisit a little bit more on the comments around Europe earlier. You had mentioned some green shoots, if you could unpack that a little bit more. And Gerrit, you outlined a pretty robust product launch pipeline here. Just can you talk about which of these we should be watching closely in terms of particular product lines that you're perhaps most excited about in terms of maybe unlocking or having a more meaningful impact on your ability to compete and gain share, particularly in Europe, but if any other region stands out, that would be helpful. And then just more broadly, if you could talk about the competitive environment in Europe, that would be helpful.

Okay. I mean asking me about product risks the rest of the call. So let me take a few items here that are particularly exciting for me. We showed that the Agritechnica completely renewed short mid-based and long mid-based mid-range tractor lineup with horsepower ranges that we've never had before. I mean, our horsepower range was all the way up to 300, 340 in the European mid-range tractors and we are now offering a lineup all the way up to 450 where we never played and the feedback from farmers who now pay our brand and our color over the other that they usually have is really, really encouraging.

And with our attitude and focus on quality first, we'll supply these machines with great care at low quantities in 2026 before we start scaling in the market comes back. That's super exciting. I mean the feedback we've received on our next-gen combine over the last 2 years is overwhelming. When we look at the shipments that we have, whether it is to Australia, New Zealand, to North America, across North America and Europe, this point at a really, really good of the, let's say, next-gen combined in the field across and around the world. So that's pretty good.

Another thing that is super exciting for me and maybe you think this is like small, but it is not, is the cotton picker. That's why I mentioned that. We will be the only other manufacturer with a round baler integrated cotton picker that is going to be one of the center machines in the farming system for farmers in South America for farmers in Australia, but also in the southern states of the United States in order to build a multicolor fleet here versus just a single color. I mean that is the cotton picker that we were missing for quite a while.

We have our new compact tractors coming out of India as we speak right now, all new, they reach these shores very soon and the new utility light tractor lineup, which we didn't have really at this level of technology before is also entering production in 2026. So we are all over the place on the products and with quality as a mindset, these things will start to show at low quantities in '26 and then accelerate in quantum and financial impact in '27 and going forward.

Well, when you think about Europe, I mean, Europe, there are a couple of positives that are clearly around the resilience of that region and good momentum and state support in markets like Germany, Poland, Eastern Europe here and there that has actually helped mainly the tractor sales in Europe, while combines are still low, and you know we are pretty strong in combines there. So that is an adverse product mix. It was an adverse product mix in '25, and it's still a little drag in '26.

So it's mainly a tractor Europe, mainly Germany, German-speaking, Eastern Europe a bit pull that we have seen and observed in Europe. But I would not call this a recovery or a swing in the market necessarily. This very much depends also on the global trade environment. Mercosur is out there and farmers have already reentered the cities with a tractors protesting against the Mercosur agreement. So I think it's -- it is the region with the best growth potential in terms of TIV for our industry in '26 and maybe also '27, but we got to be cautious there because it's still a little fragile.

And you know the stability and the solidity of the European Union and their ability to make a coordinated decision-making when it comes to such important interest groups like farmers. We'll need to see where this will land. But it is from all the signs that we see the region with a better momentum of all the big ones.

Your next question comes from the line of Daniela Costa with Goldman Sachs.

Maybe just a clarification on something I didn't -- well, maybe you didn't hear correctly on sort of where did the prebuy come. Did you just say that it came from Europe, particularly? And then my main question was regarding whether everyone is talking a lot about AI and potential for cost savings and system simplifications and given you have so many self-help actions going on? Are you finding any some simplifications and given you have so many self-help actions going on, are you finding any incremental pockets where maybe AI could help you push faster with savings?

Daniela, so yes, the positive is mainly around Europe. So that's true. It's mainly Europe, and it's mainly tractors. That was my comment here. That is what we see in the near term. We'll see -- what we do see is basically, if you start on the other side of the world, like Australia, New Zealand, that is basically all replacement driven. That region is not really impacted by tariffs, and it's a fairly steady market, and we have seen that this is going to bottom out, and it's already on a positive trajectory as we can see. .

We are holding our ground in China quite well. And actually, we are gaining here and there in the non-Chinese brand universe there. So that is okay. In India, we have had the highest-ever market share of CNH in the region. We are scouting for on the next site for a small and compact tractors and continue to grow market share there and make this a hub for utility and compact for CNH Global.

Yes. And look, the AI application is everywhere in our company. We are distinguishing between not only the generic but also agentic AI. We have launched it in our FieldOps platform where we basically connect different agentic AIs in order to provide a fully connected experience. We have in our machines, contextual AI running as we speak. And when it comes to back office and structure costs, we are looking at AI applications in order to speed up and drive efficiency into our processes.

Because overall, I think in CNH, we have a pretty substantial upside in getting leaner when it comes to processes and there is a good potential here for the application of solutions that are driven by either generic or agentic AI, and we're on top of these things. But I'm not committing any percentage number to AI at this point because what we experienced actually is that it drives the outcome a much faster, more efficiently, and we are getting more for the same at this point, while obviously also cost savings are part of the mix.

Your next question comes from the line of Ted Jackson with Northland Securities.

First question is just pretty straightforward. You had a pull forward you said in fourth quarter that normally would have been in the first quarter. And if I kind of pill around with your guidance and stuff, I mean, are we talking somewhere between $50 million, $100 million in terms of revenue in the fourth quarter that you would have normally expected to happen in the first quarter? That's my first question. And then I have one more behind it.

Yes. It's Jim. I'd say about $100 million, $150 million of those sales that happened in Q4, we would otherwise expect it to occur in Q1.

Okay. And then normalizing out for that and kind of thinking through your inventories are for conversational sake, at this point, your retail inventories are aligned with demand. You've generally been underproducing to demand for a period of time. Is it a fair scenario to think that as we get to the back part of '26 that you might be able to put up some revenue growth just simply because you'll be able to produce retail demand and not below it and that we will be able to see that continue into first half of '27, absent even a turnaround in the cycle?

Yes, I think that's very fair. That's the way we're thinking about it. That's right.

Your next question comes from the line of Tami Zakaria with JPMorgan.

I wanted to ask about SG&A. I think you saw a sequential step down more so than what we saw last year. So anything to call out then how we should think about SG&A growth in 2026 versus 2025?

Yes. It's Jim. We -- SG&A came down in Q4, largely due to lower variable compensation expense. And so that was versus full year '25 versus full year '24. For purposes of modeling and guidance, we're assuming a normalized level of variable comp, among other things. So SG&A, I would expect to grow next year by about 40 basis points or so headwind from SG&A growth.

Our last question comes from the line of Kristen Owen from Oppenheimer.

Just because it wasn't discussed in any of the other questions, I was hoping you might be able to touch on the free cash flow guidance, and in particular, your CapEx outlook. It seems like a pretty sizable step up year-on-year. So I'm just wondering if you can provide some color on that, if that's related to what you're doing on the dealer side or anything else we should be considering?

Yes, happy to answer that. It's a great question. So there's multiple reasons we're driving it's growing in '26 versus '25. The primary use of that extra CapEx is to enhance and improve our manufacturing facilities. The best time to get that done and deployed is when the factors are slow, and we want to get that done before the upturn and things pick up in a bigger way in '27. So that's the majority of the extra CapEx.

But to your point, it's also being used for, to some degree, dealers, dealer enhancements and also our strategic sourcing plan and program. We have to -- we buy new tooling for that as well to help keep those -- that pipeline of savings coming forward as well. So it's mostly manufacturing, some manufacturing footprint moves. As you know, we're calling you today from Wichita, some of the equipment is being moved from Burlington to Wichita among other places. So there's some money in there for those kinds of things as well. But primarily enhancing our manufacturing, get lower costs, more efficiencies, dealer enhancements and also our strategic sourcing program.

And ladies and gentlemen, that does conclude our question-and-answer session, and it does conclude our call for today. Thank you for your participation, and you may now disconnect.

Hi, everybody. Welcome to CNH's 2025 Tech Day. My name is Jason Omerza from Investor Relations. We're grateful for all of you for joining us today, both those of you here in person at Agritechnica in Hanover, Germany and those of you joining us online for our live webcast. Before we get started, there are a few housekeeping items that I need to cover. First, today's webcast is copyrighted by CNH. Any recording, transmission or other use of any portion of the webcast without the written consent from CNH is strictly prohibited. Next, please note that we're not going to be talking about financials today, but any forward-looking statements that we do make are covered by the safe harbor statement that's available in the presentation material, which you can download from our website.

With that, let's get this kicked off and enjoy the Tech Day.

[Presentation]

Good afternoon, everyone, and thank you for taking the time to join us here today at the Agritechnica for our Tech Day. It's an honor to stand before you at my first Agritechnica as the CEO of CNH, representing over 35,000 engaged team members of a great team. And as a lifelong engineer, I'm an engineer, I'm especially proud to showcase the work of our 5,000 talented R&D experts based at our 35 engineering centers around the world. Together, we represent a company that is not only deeply rooted in innovation, but also uniquely positioned as the only other truly global full-line agricultural player in our industry.

Today, we are here to show you how we are stepping up our game. This event represents the heart of innovation in agriculture. So today, we are here to show you that agriculture isn't just the place. It is the place where the next great wave of growth, technology and impact will happen, and it is already happening all around us. 6 months ago, many of you were with us at the New York Stock Exchange for our Investor Day on May 8. There, we laid our path to 2030, which is built on 3 interconnected and mutually reinforcing pillars. First is breaking new ground in iron and tech to become the #1 or #2 ag player in all major markets where we are present. The second is our goal to deliver 16% to 17% mid-cycle adjusted EBIT margins in agriculture.

And finally, we have a commitment to increase our through-cycle industrial cash flow generation by 25% and return substantially all industrial free cash flow to our shareholders. Today, we are thrilled to show you how we are progressing on this path to 2030. You will see our innovation products and go-to-market strategies come to life here through new launches, solutions and services. But beyond the machines themselves, what truly sets this moment apart is how we are embedding intelligence into everything we do. CNH's vision is to power the next era of farming with AI, creating autonomous, predictive and sustainable systems that give every farmer the tools to see ahead, act smarter and produce more with less.

That vision is not abstract. It is right here today. You can see it in our brand new medium horsepower tractors, the Case IH Puma, the New Holland T7, which is on that side, and the Steyr Impuls, which is in -- and the Steyr booth. And in our new high horsepower tractors, the Case IH Optum 440, the New Holland T7 440, both of them have 440 horsepower, you can guess that, I guess. And the Steyr Cervus, which is our highest horsepower tractor ever built for Steyr. These aren't just new high horsepower tractors, they represent a deliberate and strategic step forward here in Europe, where CNH hasn't traditionally competed in the 350 to 450-horsepower range. We were not there.

These tractors are integral to our global product portfolio. Thanks to them, we are addressing this critical marketplace gap which is especially relevant to markets such as here in Germany. We are also showcasing significant upgrades across our entire lineup and introducing AI-powered precision technology updates as well as new exciting new concepts that show our vision for the future. Two of our harvesting technologies have won the Innovation Awards right here at Agritechnica and you will hear more about them this afternoon. Across all of this, you will see CNH's passion for excellence in agriculture on full display, which show you how we are executing on our ambition to lead aiming to be the #1 or #2 player in every major market by 2030.

Today, this is already the case in North and South America and obviously, in some markets here in Europe. Germany, however, represents a significant opportunity for us. And if we zoom in on Germany, the opportunity is pretty clear. With our latest products and technologies, we are well positioned to accelerate growth and gain ground here. So why are you here? Why invest in agriculture. Agriculture is the $4 trillion global industry. This sector is driven by the daily work of over 600 million farmers and directly supports the livelihood of 2.5 billion people. The world depends on agriculture and agriculture depends on innovation. The transformation underway in this sector is not just necessary. It is strategic because every field feeds the future.

The challenge of our times is to feed more people with constrained land. And at CNH, we are here at Agritechnica to show you that we have the solutions to face it. The United Nations projects that our global population will grow from 8.2 billion people today to over 10.3 billion over the next 50 years. That is an incremental 35 million people each year and every year. Yet while demand for food is rising, the land available to grow it is at best constrained. Only 26% of the earth's surface is above sea level. And just 10% is usable for agriculture. And of that, only 3% is suitable for crop production. And the situation is getting way more serious. The UN's Food and Agriculture Organization estimates that 40% of the world's soil are already degraded meaning that they are missing nutrients and conditions for optimal crop growth and yield.

And over 90% could be degraded by 2050 if we do not act. As the world evolves at an unprecedented speed, we are moving with agility to keep pace and shape what comes next. That's our call to innovate. A call for technology that enhances productivity without compromising the planet. A call for collaboration among OEMs, startups, data scientists, farmers, engineers to rethink what's possible. This is the challenge of our generation. We must feed more people with less land and under increasingly difficult conditions. And it all starts with the soil. The #1 asset that farmer has is their land as it is passed down through generations and needs to be preserved from one generation to the next. And the most valuable part of that land is the top soil.

It's not only just a few inches thick, but the health of this soil determines not only productivity and yields but also the quality of foods that we produce and that we eat. As an equipment maker, we often make up only less than 10% of the farmer's total cost with our machines. That said, our equipment must work seamlessly with the other 90% of their spending, which includes seeds, inputs such as fertilizer and obviously, labor and this often quite considerable investment is focused on ensuring the health of the top layer of their soil as that's where their real wealth builds. So the pressure is on to increase agricultural productivity and to do it sustainably to preserve that precious soil.

At CNH, we believe the answer to supporting our customers with this lies in technology. That is why we continue to prioritize our R&D investments. Last year, we spent over $800 million on our agricultural R&D. 25% of our R&D spend is dedicated to precision technology. And we expect to nearly double our percentage of net sales in this area by 2030, as we explained during the Investor Day. The most critical of these technologies is AI because when AI meets the physical world, the impact is real. It is in every hectare harvested more efficiently. And every soil layer kept healthier in every decision made smarter. We are bringing intelligence into the field. Every time our machine touches the ground whether it's in tillage, in planting or harvesting, we focus on minimizing soil compaction and preserving its vitality because the health of the soil defines the health of our planet.

We are already in the age of AI. Agentic AI is the next big leap forward, which will further accelerate the pace of innovation. Here's just 1 example of how it will work or already works. AI agents will connect the entire agricultural ecosystem from seed producers and chemical suppliers to machinery manufacturers, providing our customers with an end-to-end solution and service. This will generate a digital twin of the farm, a virtual model where farmers can simulate every step of the growing cycle before it even begins. As you will see here at Agritechnica and all around us. For example, optimizing planting schedules and identifying the best moments to harvest is one of those elements. At the same time, CNH is already applying AI in the field today.

And when used in conjunction with the power of onboard edge computing, this technology will significantly accelerate the benefits AI is bringing to our industry. Our combined sprayers and tractors, which you will have already seen today at the show and you will see later on, adapt in real time to changing soil conditions and crop conditions and weather conditions and in our innovative -- innovation pipeline, Generative AI is accelerating how we design and test new products, turning field data into smarter features and machines built faster than ever before. This is farming driven by foresight, where every decision is informed by data and powered by intelligence. And that data belongs to our farmers. They generate it. They own it. They always have, they always will and their data belongs to them.

Where we come in is by offering them a full digital and open ecosystem that is compatible with data from any third party, including seed and fertilizer providers. By putting ownership in the farmers' hands, we turn insights into action. Fewer passes, lower soil compaction and healthier, more resilient soils season after season. Connectivity is essential for this transformation. Our latest collaboration with Starlink ensures that even in the most remote regions from Mato Grosso in Brazil to the plains of Western Canada, our machines remain fully connected all time. Through low orbit satellites, we collect real-time data on yields, soil health and crop performance, giving farmers insights that were unimaginable just a few years ago. Because in today's world, data is the new fuel and connectivity is not a choice. It is a necessity.

And AI is not just changing our products, it's transforming how we work. We apply AI across 3 main areas at CNH, product, people, processes. In our products, AI enables real-time automation all the way through to full autonomy. This ranges from onboard technologies such as our Grain Cam on combine harvesters assessing the quality of incoming crops. By the way, we won the price for that yesterday, to vision systems that scan fields and detect weeds as our sprayers here on the booth and obstacle detection on tractors through to our off-board AI assistance and agents as well as preventative maintenance interventions on all mechanic parts. For our people, generative AI and Agentic AI are embedded across our R&D, manufacturing and business operations. We use them for knowledge and project management, training, testing, product inspection, safety and collaboration.

Take the example of content management, for example, by deploying AI, we've automated document classification, generated technical briefs and streamlined content management across dozens of engineering content types. In our processes, we are using AI across our manufacturing operations from vision systems that automatically detect quality issues during assembly to deep learning models that analyze thousands of end off-line tests to predict rework needs and prevent defects. So we can simply fix them before these issues occur and become real. It's also working to assist our dealers and service teams in diagnosing and fixing issues faster.

For example, our AI tech assist can digest thousands of pages of data and provide tailored solutions in seconds to the service staff. As AI is not new in our company and our customers have been benefiting from it for some time already. So what's different today as is the scale and speed of applying it? That's different. AI is becoming the driving force of a more productive, sustainable and autonomous future in farming. But ultimately, everything comes back to the soil to the farmers' fields that feed the future. Over the next 1.5 hours or so, our technology leaders will walk you through our strategy and solutions, which cover the entire agricultural crop cycle from soil preparation to harvesting and everything in between. So back to the initial question, why invest in agriculture because it sits at the intersection of purpose and sustainable returns. For all our stakeholders, shareholders, employees, business partners and farmers, the world needs more food and it needs to produce sustainably. We are leading the way with technology that transforms soil into opportunity and farms into future-ready enterprises.

We are bringing farmers the solutions they need to profitable and to ensure the longevity of their businesses. As one of our most innovative customers, Jordan Kambeitz likes to say, our soil is our factory. I'm thrilled to say that Jordan is here with us today to share his perspectives with us directly. So thank you again for being a part of this next chapter for CNH. And our mission to drive productive and sustainable agriculture around the world through our products and technology. At the end of the session, you will come away with clarity about our direction and even more conviction that the opportunity in agriculture has never been greater, and the need has never been more urgent.

By investing in this sector, you are backing our high-return business one driven by the novel purpose of feeding the world, helping to solve 1 of humanity's most pressing challenges. And as a leader in this industry, we have the responsibility to deliver. So let's get started. Please welcome Franziska Zimmermann, our moderator for the day, Franziska.

Well, thanks, Eric, and hello, everyone. Yes, my name is Franziska Zimmermann, and I'm very pleased to guide you through CNH Tech Day. And in today's interviews and panels, we'll take a close look at all the current and future agricultural technologies from CNH and how they are solving the biggest challenges in farming. Now the theme around this event is that every field feeds the future, and we'll be examining that close up. So let's get started. First, it's my great pleasure to introduce Jordan Kambeitz to the stage. He is a first-generation farmer running a large-scale operation in Blucher, Saskatchewan, Canada. So please give a very warm welcome to Jordan.

Jordan, so great to have you here with us. So can you please let us know a bit about your background and what makes your farm unique?

Yes. Thank you for having me. A fifth-generation farmer deeply rooted in family values. We've had a long history of innovation around technology in the mechanical side of farming in our operation for many decades. We're working very closely with CNH and New Holland for several years, working on prototypes, a lot of the new innovative equipment that you're seeing coming down the pipeline and a lot of the future technologies, we're very proud to call New Holland and CNH a partner. We currently are using the full suite of tractors from New Holland sprayers as well as the new generation CR10, CR11 combines and complemented with the CR 9.90 legacy machines.

Great. And as Gerrit mentioned, you often say the soil is my factory. Can you please explain why historical health so central to your philosophy?

Yes, the soil is everything. It's not just about maintaining the soil health. For us, it's about building it. I'm fortunate to be the fifth generation, and I hope to prepare that soil, continue to improve and build on it and create a platform for the next generation. Gerrit alluded to it, the several centimeters or meters of soil that we farm on, we owe our existence to it, and it's everything for us. So we're monitoring it with the current technology at a pace that I would have never guessed in previous years. We're using the latest technology to understand what the limitations are, what the capabilities are and how we can properly feed that for maximum value and not overloading the soil with excess nutrients.

Okay. And how has technology, especially from CNH helped you become a better steward of your land and resources?

Yes. The technology has been a huge enabler for us. It's about monitoring and measuring what's happening. For us, we're focused on ROI in our operation, and we're deeply rooted in understanding where we can create value and where we can create sustainability moving forward. And the CNH suite of technologies is complementary approach for us and how we manage that.

Great. And can you please let us know a bit more in detail what role does CNH technology play in the growth of your operation?

For us, it comes down to scalability. The technology really has transformed us. It's allowed us to go from a bit of a helicopter style operation where we're trying to oversee everything all at once to really empowering our team members getting complete buy-in across our force on staying active and current real time for us, we can deploy human resources, allocate them differently. And back to my previous comment about measuring and monitoring, it's allowing us to make real-time decisions. We're facing weather that's been active -- or sorry, more active than it's ever been in my life and it's important to have the technology at your fingertips to be able to make these decisions.

Definitely. And can you share some examples of what this technology has enabled for your teams?

Yes. technology for our team. I spoke to the scalability piece before. It's allowed us to hone in on exactly where we need to be, when we need to be and how it needs to be done. We're relying on just-in-time decisions, where the ball is moving quickly. Weather plays a big, big role for us. The ability to measure, monitor not only for us, but our industry stakeholders is key. It provides accountability not only for us as an operation, but for our team members, but also as stewards of the land, we want to be accountable to the global stakeholders of agriculture and provide a proper message and strategy around that.

Why have you chosen to actually partner with CNH and New Holland for so long?

It comes down to a few things. Shared values is a big one. So since 2009, we've been partnered with New Holland. And currently, our dealer Mazergroup, shared values, a shared vision, transparency and dealer support. It's really paramount to us. For us, it's uptime. It's understanding the trajectory of not only where New Holland and CNH is going with current trends, but also at the dealer level, how they can support us, how we can work together on a combined vision. That's all those things combined is creating a successful atmosphere for us. And I think lastly, we've been able to forge some very important relationships within CNH at both the manufacturer level and the dealer level and we're just a phone call or an e-mail away from getting solutions and answers.

That's so great to hear, Jordan. Thank you so much for sharing your story and insight. And I think really became clear that innovation stewardship and partnership are at the heart of your operations. So thanks again. This is your round of applause.

Thank you. So now before we kick off with our panel sessions, let's welcome Jay Schroeder, Chief Technology Officer at CNH to the stage.

Hello, everyone, and thank you, Jordan, for being with us to really show us why we're here today. At CNH, we develop technology to serve farmers like Jordan on their soil to make the job farming easier, more profitable and more sustainable. We're excited to share with you today the technology we have in the market now as well as the great new technologies we're developing for the future for our farmers. I'm Jay Schroeder, Chief Technology Officer at CNH, and a farmer at heart. After more than 30 years in the ag industry and the lifetime on the land, I know that every field is different and every growing season brings its new challenges and new opportunities.

Everything we do starts with understanding what farmers need, wherever they are, however they farm, engineering solutions rooted in their local soil and powered by global innovation. Growing up on my family's farm, I learned early on that no 2 seasons are ever the same. One year, it might rain too much. The next, it might not rain hardly at all. I know that taking care of the soil, is essential to maximize long-term sustainable value and operating profits for our farmers. The prescription for optimal soil care and health rarely looks the same year-over-year or field to field. That's why technology needs to adapt to the land, not the other way around.

Throughout my 3-decade career, I've seen firsthand how the local challenges of weather, variation in soil types, cropping practices and regulations, all demand local solutions. Today, I want to show you how CNH's precision technology meets these localized needs with global innovation. As Gerrit said, every field feeds the future. That's why at CNH we're committed to developing innovation for all types of farmers. We serve one of the world's most diverse customer segments, spanning cash crop to high-value specialty crop segments, and we're delivering easy-to-use solutions for farmers in all of these segments around the globe.

You'll see this real time in field ops, the centerpiece of our ecosystem. Field ops empowers farmers to make smarter, data-driven decisions to keep the soil crops and machines in the best condition. Whether they're reacting instantly to machine alerts during critical planting or harvest windows or planning future season applications based on yield and economic insights. Whether you're in the cab, at home or really halfway around the world, field ops makes it easier than ever for customers to manage their machines, field work and complete farm operations from anywhere at any time from their phone, computer or even iPads.

Since launch, we've seen a 185% increase in registered machine use and a 40% increase in digitized acres in the system. And since we're here in Germany, I want to introduce you to our customer [ Jörg ]. Let's see how field ops is supporting his operation right here.

[Presentation]

You just seen field ops makes critical farm management decisions, easy. This modern interface is designed for simplicity and it's intuitive for farmers to learn and to use. From real-time monitoring to historical data analysis, field ops helps farmers improve yield and equipment uptime. Farm managers and dealers can even troubleshoot machines with a remote view into the operator's display in the cab, collaborating seamlessly as if they're in the field themselves with the customer. A fully connected ecosystem is the backbone of a continuously improving operation. Our bring your own connectivity approach means farmers aren't limited by geography or infrastructure. They can stay connected to the best available network as they drive across the field, switching access points as needed over large areas.

Investment in our satellite connectivity partnership with Starlink improves that strategy, delivering stable connectivity to rural areas across the globe. Throughout today, you'll see that customers who connect their fleets make every in-field minute count, improving efficiency and profitability. This connected ecosystem is also helping dealers move from reactive to proactive service with our AI tech assistant tool, helping them fix problems up to 30% faster. No matter where they are in the world, our farmers are using these connected services to take better care of their soil, to take better care of their equipment and to secure their future.

After today's presentations, I invite you all to fully immerse yourself in our crop cycle journey in our tech area. There, you meet our engineers and product specialists who develop these solutions with the utmost passion for quality and we care deeply for every farmer that use our technology. Many of them group on farms, just like me. They know firsthand the impact CNH technology can have on our farmers. Thank you for joining us on this journey. Together, our investment in Ag technology will continue to serve farmers everywhere, on their soil, in their fields for their future. Let's welcome Franziska back to the stage to lead our panel discussions.

Well, thank you Jay, and hello again to everyone. Yes, as Jay and Gerrit said in agriculture, it all begins with the soil. And to walk us through how CNH precision technology is optimizing every seed bed and seed. Please now welcome our panelists. First, we have Mr. Eric Shuman. He's the Director of Precision Technology Product Management. Second, I want to introduce John Preheim, who heads our Precision and Electronics product development. And last but not least, Dr. Allison Bryan, a research agronomist at CNH. So welcome to the stage. Hello. So nice to have you here. And let's start our journey through the crop cycle right at the beginning, getting the soil prepared for the crop. Eric, what do we need to understand about this process?

Sure. Thank you. As mentioned by our previous speakers, the soil is our biggest asset. So it's where the crops take route and they build the structure and the foundation. It's source of the key nutrients that contributes to plant health, and it's much more than just dirt. It's living, breathing foundation of our farmer success. So it's of the utmost importance that as we prepare the ground, we do it perfectly while protecting the asset during field preparation.

And John, what can you add?

Thanks, Franziska. It all starts with preparing the soil for crop growth. Soil needs tailored treatment field by field based on its specific needs. That includes managing soil texture and structure to reduce compaction while maintaining enough firmness to support the route growth. Each plant needs a perfect seedbed with a deal seed to soil contact, which really optimizes yield. The seed to soil contact is critically important and the work required to create the seedbed is unique to different soil types and seed types, especially when you realize that seeds get planted anywhere from 1 centimeter to 30 centimeters in every type of soil imaginable. Moisture content, clot size and soil types are just a few of the things that need to be considered for optimal field preparation.

Right. And field preparation can achieve many different goals, including weed control, residue management, herbicide and fertilizer incorporation, alleviation of compaction and creating that quality seed bed to plant into, all depending on the soil itself and what the farmer needs.

Thanks for explaining Allison. And what would you say is the main challenge farmers face as they look to create the perfect seed bed?

The main challenge is consistency. The soil is so dynamic. You may see 1 field, but in reality, there are billion conditions affecting each individual plant. In our technology -- for our technology needs to be able to treat all of those different variables. Whether the farmer tills or not, every square centimeter of every field needs to be maintained and maintain that structure and integrity. When the soil gets compacted, for example, it tills up differently, and it's harder for the crop to grow, restricting the root growth, hurting yield and profits. CNH's agronomic design inherently addresses these challenges.

That's right, Allison. In some cases, just driving across the field with our equipment produces less compaction than when operating with comparable competitor machines leaves more space for crops to effectively take root in the soil, take our award-winning Quadtrac system, for example. We maintain 4 points of ground contact each contact point being a wide rubber track that evenly distributes the way to the machine. This large distributed surface area creates nearly the same level of compaction as me just standing in the soil on 1 foot, leaving the soil virtually undisturbed reducing compaction to this level, helps farmers preserve the ideal root structure for development while still completing valuable field work.

That's awesome. And speaking of fieldwork, Allison, how is CNH accounting for variables in tillage applications.

One example is through prescription tillage. We can utilize this to reduce erosion, which degrades the soil and hinders yields. We can also use it for residue management, which helps manage the soil temperature and moisture and also for alleviation of compaction. So first, focusing first on erosion and residue management with prescription tillage, we utilize a vertical tillage tool and created a prescription that altered the depth depending on the topography in the yield level or residue level of the field. In areas that were highly susceptible to erosion, such as a hillside, we ran it at 0 depth, just driving across the surface leaving the roots intact, the soil mostly undisturbed and just simply knocking over the stems. And as a result, this practice actually increased the residue coverage by 6% in those vulnerable areas, which reduces the amount of rain and wind that can detach that soil.

This ultimately results in a more sustainable approach to tillage tilling aggressively only where needed to maintain residue in other areas for reduced erosion. Now cost savings and profitability are other huge benefits so in another study, we utilized a disc ripper in North Carolina, running very depth prescription tillage. This meant that we only ran as deep as we needed to, to alleviate compaction and we compare that to traditional tillage method where we ran at a constant consistently -- consistent tillage depth. In the end, we concluded that this technology saved us roughly USD 36 per acre. 17% less fuel was used by only running as deep as we needed and allowed for increased speeds, helping farmers cover 9.5% more acres per day.

And because of site-specific tillage, we increased yield by 4%. So if you consider a farmer seeing these responses on 500 of their acres, they would be looking at about USD 18,000 per year back in their pocket, pretty incredible.

That's really awesome, Allison. And Eric, what would you say what digital tools can actually be used to manage the farm?

Sure. Yes. As Jay mentioned, field ops, which is our digital farm management tool, that's where all the information comes together. It's where we can plug into the agronomists, the consultants and the farm managers to create the prescription maps, which is based on the soil type, the field conditions and the agronomic reports. That gives them a very site-specific plan for prescription tillage to execute on. We strive to make field ops extremely intuitive and easy to set up. And I think, John, you can probably give us a little bit more idea on how that prescription tillage actually works.

Yes. And 1 area we're going even beyond prescription tillage is a new product called seedbed sense speed control. This product has sensors on the machine on a field cultivator measures seedbed quality in real time to control the tractor speed automatically up to 16 kilometers per hour, creates the highest quality seed bed in the least amount of time possible, which in the end, optimizes both yield and profit for our customers.

Beautiful. And Eric, how are you continuing to build on this development to solve future challenges?

Sure. Yes. If we look to the future, I think we think we understand the future need very clearly. We have a constrained labor market. We've got short times of wind -- or short windows to operate in depending on the season. We have less than ideal conditions. And couple all that with inconsistencies that come from soil moisture, compaction or operator differences. Our customers are continually looking for solutions to get the job done even faster while still getting a consistent high-quality results. That's why we're continuing to build out on our autonomous tillage solutions.

Okay. And John, can you maybe explain how it works?

Yes. The autonomous system builds on our current tech stack with the newest automation guidance and perception technologies, all of which are accelerated by AI. This empowers the farmer to work independently and reallocate resources to tasks to really maximize our overall efficiency of the operation. At CNH, we start with a customer-first approach to development. We're focusing on making autonomy work in a way that helps farmers get more done while reducing costs. It's a bold step forward, smarter machines, smarter decisions, all to help farmers be more efficient and productive for every field that feeds the future.

Indeed, that's where we start a smart step for the future of farming. So let's move forward a bit. Now that we have the seedbed ready to go, let's talk about the next stage, seeding and planting. Eric, what is the primary goal as we get the seed in the ground?

Sure. What we're looking for is a consistency placement for even emergence. And if we get that across the field, the seeds will grow evenly, and we get the best yields, the most grain and the best returns from the farm.

Okay. Great. John, anything to add from your side?

I'll add. No problem. At its core, planting seems pretty simple. Placing a seed in the ground to grow. But for a farmer, it is more accurately described as putting out the correct number of seeds one at a time, singulated with the proper spacing, depth and seed to soil contact. All of these are vital for proper crop sand establishment. And the goal is to have a picket fence of evenly spaced uniform plants that produce the highest yield.

Okay. Now it's your turn.

I'll jump in. We want to hear from Allison anyway. Yes, like she mentioned, we really want that picket fence, having skips or planting 2 seeds in the same spot known as doubles, it costs more money and it reduces yields at the same time to put it simply by giving every seed the best start, we are helping maximize yields, ultimately sustaining our growing population year in and year out. Allison, I think you can probably expand on an example here a little bit.

Yes. So let me paint a picture for you of just how different micro climates can be between properly planted seeds and those misplaced by implement drift into strip tillage. The till strip has a smooth, clean quality seed bed as well as a warmer and drier condition. If a planter drifts off that strip, the soil is denser and has a different moisture and temperature causing inconsistent plants and yield potential. In our study, we planted directly in the center of the strip 3 inches off and 6 inches off the center. And we saw the more distance from the center of the strip, the less sand established and the less the crop yielded, negatively impacting the bottom line.

Very interesting. And how do farmers manage to get the best out of every seed.

Well, like we said, implement drift is 1 of the key challenges that we face, and you're going to see some new technology out here. It starts by getting the planter on the correct path or the seeder on the correct path throughout the season. Implement drift is when the planter or the seeder shifts off course, due to either terrain or soil conditions, which deeply influences the planter performance, and it causes many common mistakes. So why does this all matter? Like Allison said, you lose yield, seeds are misplaced in tougher growing environments and the soil nutrients can become imbalanced.

Okay. Got it. And how is CNH helping farmers to compensate, implement drift.

So CNH is offering 2 new technologies you see out here, which is active and passive implement guidance. These are technologies that help farmers plant more accurately and repeat their passes throughout the year. Both of these solutions correct the implements position by keeping it centered on a desired line. Regardless of the train, it's virtually eliminating unpredictable variances while keeping every pass consistent. John can give us a little more color on how both passive and active implement guidance work.

Of course. So in active implement guidance, you have a GNSS receiver on the implement that connects to the implement's hydraulic system to steer the planter automatically and keep it perfectly aligned with the auto guidance line that the tractor is following to correct for drift. Active implement guidance is extremely precise. It delivers centimeter level accuracy even at high speeds up to 24 kilometers per hour cultivating as close as 1.5 centimeters in some cases, about the same width as my ring finger, so very precise. It enables the precise planting and efficient pre-emergence weeding operations, which minimize crop damage and ultimately reduces operator fatigue. It's a really big deal for our customers. Our newly passive implement guidance system solves a challenge, but it works a little bit differently instead of steering both the tractor and implement, like active implement steering does. It moves the tractor off path to get the implement exactly where it needs to be regardless of the train the farmer is operating on.

Okay. And Allison, can you maybe explain why keeping the implement exactly where it needs to be is so important?

It maximizes the yield potential. And as John said, active implement guidance keeps the planter within centimeters of the intended guidance line, which if you remember from our study, limits the yield loss to roughly 4% or less.

Okay. Wow, thanks for explaining Allison. Eric, how are you looking to make the planting process even better for farmers in the future?

Sure. Whether we're using the active or passive solutions, implement guidance helps place those seeds and inputs exactly where they need to be, giving the farmers the best root growth and healthier soil for generations to come. On top of all that, farmers can see all this coming together in the digital platform of field ops where they can manage this. They get real-time as planted maps in the field so they can see the accurate rows and regularly update -- to see the regular updates to reassure that things are happening and operating on track.

Okay. Great. And John, can you give the audience some flavor on how we are using technology to enhance future solutions?

Yes. Within the next 5 years, CNH's next-generation planters will become much more automated. Our advanced planting automation will include sensors, vision and perception technologies, again, all enabled by AI. All in all, it will make planting experience smoother for our farmers making it as easy as possible to set up and plant immediately while maintaining the highest standard for accuracy for even emergence. We're also preparing our planters and customers for an autonomous future where farmers can just tell the plant what they want done, and the machine will go out and do it. Farmer doesn't have to spend time figuring out configurations and settings that are needed to get the optimal result. It makes it easier to plant without need for highly skilled labor, making sure every seed is intentionally placed, every row unit smarter and every change in direction is guided.

Great. So Allison, to come to an end as an agronomist, how would you summarize the impact of CNH seeding and planting technologies?

When planting is precise and every seed is placed in the right micro climate, the plants are happy, the soil is healthy and the crop has the best chance to succeed, helping every field feed the future.

Wonderful. Well, what a great note to the end. So thank you so much, Eric, John and Allison, this is your round of applause. Now with seeds on the ground, we need to make sure our crops keep growing to their fullest potential. And to help us understand how to balance every individual plants need without harming the soil, please now welcome our next panelists. First, we have Monte Weller, CNH Global Crop Production Product Manager. He is joined by George Varvarelis, their Global Vision System Director. And welcome back to the stage Jordan Kambeitz, CEO of Kambeitz Farms. Welcome.

So great to see you all. Let's dive right in, Monte, what would you say is the key game changer for CNH sprayers today as they are used to protect our soil and crops?

The game changer is being able to spray each specific environment with exactly the treatment it needs with our Sense & Act technology. These computer vision and machine learning-based application solutions keep the plant, the soil and ultimately, the yield in a healthier and better condition. George? Why don't you share us how all this began?

Absolutely. Well, I mean our Sense & Act portfolio really started when as a farmer and engineer knew it in my gut that I was over spraying my fields back in Greece every time. It was wasteful, overly expensive and harmful to the environment. I wanted each plant to get exactly what it needed, but managing that manually while staying within the very, very strict chemical label standards was nearly impossible. That's why my partner and I founded Augmenta using computer vision and machine learning to help farmers treat every square meter of their fields with precision, applying the right treatment in the right place at the right time. It's been truly incredible to see that idea grow from a start-up to a robust solution that is now built into CNH's machines with even more advanced capabilities, helping farmers everywhere, far smarter and more sustainably.

Awesome. And why is investment in Sense & Act important? How is CNH continuing, Monte? What would you say?

It's not just smart tech. It's about tremendous value for our farmers, especially with today's self-propelled sprayer needs. That's why we're increasing our investment in Sense & Act. We also have doubled our R&D investment in spraying technologies over the past 5 years.

Awesome. And Jordan, I'd love to get your view on this. What are some of farmers' needs and expectations for this technology?

Yes. I think a big one for every farmer today is everything we do has to be deliberate. We need a deliberate prescribed approach. We need to understand the consequences of every single thing we're doing. We're constantly battling upcoming resistance, whether it's on herbicides, various pesticides, disease and it's an important piece of our fertility management program as well. And ultimately, the visibility for us and our customers and stakeholders is very key.

Great. And George, anything you want to add from your side on that?

Yes. I mean, absolutely. As Jordan said, in very, very early growth stages, that deliberate approach is extremely important, right? Because starting preemergence with minimal weeds is key. Why? Because weeds take the nutrients from the crops. So early weed control sets the stage almost always for a very, very healthy season.

Got it. And how is CNH Sense & Act technology addressing these needs, Monte?

Well, today, self-propelled sprayer offers 2 distinct Sense & Act capabilities. Green on brown selective spot spraying, which really targets individual green weeds against the brown soil. And live variable rate application, which adjust flow rates on the go across the sprayer boom, so that we're applying the precise amount of product based upon the crop's needs. All in one cab-mounted system. There's nothing else like it in today's market. Today, George, why don't you share just a little more about that?

Absolutely. Just to double down to what Monte just said. I mean, we are the only ones in the industry that offer both modes in a single cab-mounted sensor powered by AI. It's cost effective with no per acre subscription fees that I'm sure you appreciate. It can be used year around and works on both bare and residue covered fields. Year around utility means better ROI for our farmers.

Okay. And Jordan, maybe you can share what that practically means because you're using that technology on your farm.

Yes. We've been deploying the Sense & Act for a few years now and going full scale on it as we speak. And the deliberate prescribed approach for us is everything. Traditionally, we would chase the lowest common denominator, and we'd spray every acre. And we didn't have a prescribed approach. There's a lot of waste and a lot of extra cost to that. So both from an environmental and a financial side, it's got a significant impact to our bottom line. It's reducing our reliance on synthetic chemicals and ultimately reducing weed and fungal resistance. And for us, that's bottom line dollars. ROI, we're seeing anywhere from 15% to 20% right now increase in gross margin in chemical applications and around 10% in fertility applications.

The significance around this on our farm, 80,000 acres, we're averaging 5 passes per year so 400,000 acres recovering so any incremental gain we can have on ROI with this technology is huge to our bottom line. Combining this with field ops, being able to monitor and measure this, it's just been very impactful for us. So we're very pleased with the technology.

Great to hear. And George, anything you would like to add from the perspective of other customers, maybe.

Yes, absolutely. First of all, thanks for sharing that, Jordan. It means a lot, especially to me. I mean, for the record, Jordan savings are in variable rate applications are in the exception to the role. We see up to 20% savings consistently across the board. Now with green-on-brown targeted with spraying, the herbicide savings that we see is up to 60% per single application. As Jordan said, this is extremely easy to use or see rather through our digital platform, field ops. Farmers get dynamic as applied data layers from every application. Everything is traceable, actionable and visible.

Great. And how are you continuing to expand this Sense & Act technology, George?

Yes. I mean the reality is that we need to cover more acres even faster and more precisely, even after the crops have emerged, right? So as such, we are investing in green-on-green solutions, which identify, target and spray weeds even against crop canopy, while also continue to grow our green-on-brown capabilities.

Monte, do you agree?

We're addressing the need across the globe through a multipartner strategy that expands our Sense & Act portfolio and delivers real customer value across regions. For us, it's all about making sure our customers get the value they need no matter where they are. We are currently integrating third-party One Smart Spray solution as a factory fit, and that will be launched in North America in 2027. Different to our cab-mounted system, this is a boom-mounted green-on-brown and green-on-green AI vision system. It will be fully integrated into our vehicles and will help our growers save up to 80% of their inputs in post-emergent herbicide applications. This will reduce negative environmental impacts on the soil even further. We're also enabling key partners around the world to deliver measurable value, including input savings, operational efficiency and sustainability gains.

For example, our aftermarket partnership with SafeFarm is already enabling boom-mounted green-on-green spot spraying in Latin America. Another aftermarket partnership with Agtechnic SenseSpray is delivering another boom-mounted green-on-brown solution to Australia. That's accelerated real-world impact today. And our global capabilities will only grow from there. By leveraging multiple partners and technologies, we're delivering measurable value, all while tailoring solutions to the agronomic conditions and customer ecosystems. Every system we invest in helps our farmers be more productive and profitable, making the most of every hector on the soil while keeping every crop in the best condition.

Perfect. Now George, do you want to comment on that as well?

Yes, absolutely. I mean this approach really helps us move faster, build trust while staying competitive in the global sprayer market, right? An early adoption in a real world performance that's exactly how we win.

And the agronomic impact of this technology is huge. We're seeing smarter weed and pest management, better nutrient utilization and more water and input conservation, reinforcing that every field feeds the future.

Yes. What a perfect way to end up this discussion. So thank you so much, and this is your pause. All right, everyone. We have now come to the final and most critical stage of the crop cycle. The all important harvest. And on this topic, I'm also joined by 2 experts on stage. First, we have Francesca Protano, she's Head of Product Innovation and Technology Strategy, and she is joined by Christian Gonzalez. He heads up CNH's harvesting product management teams so welcome Francesca and Christian.

So great to have you here as well, Francesca, we've prepared the land, planted the seeds, protected the crops and now it's time to harvest what's grown. What is the most important goal for a farmer during this stage, what would you say?

Well, when it's time to go for harvesting, farmers are focused on 4 things. So it's yield, it's quality, it's cost and it's time. So one, they need to get the maximum yield harvested with the minimum possible losses. Two, they want all that yield collected at the highest quality. Three, they're looking to run their operation at cost efficiently as possible; and four, they need to get all their harvesting done as quickly as possible in a limited operating window. Quite simply, our combine harvesters are factory on wheels working to get this done.

Thanks for explaining Francesca. And Christian, why is CNH best place to support farmers in achieving these 4 things.

Well, we are a global leader in combine harvesters and that's because we design and build the best combines out there. We always have. We invented rotary combines, the world's most advanced harvesting system 50 years ago, and we never stopped innovating since. Let's take over latest generation combines. Our CR 11 won the only gold medal on the last addition of Agritechnica out of over 250 submissions. And this was the first time that the single machine rather than a single technology was awarded gold. Together with our Case IH AF11 stable, they feature an impressive 75 new patents developed by our engineers. Among these patent systems are key automation technologies that use sensors and artificial intelligence to continuously adjust machine settings in real time.

Well, congratulations again on these achievements, Christian, and how do these automation systems support farmers doing the harvest?

Well, they basically remove the guess work from harvesting and they solve a major challenge for our customer that skilled labor challenges and shortages, put yourself in the position of a combined operator, especially one that doesn't have a lot of experience. Without automation, you have millions of possibilities to make manual adjustments across multiple systems, constantly reacting to changing field conditions. The level of SKU required to manage intake and maintain crop quality is immense. And automation solves that challenge. Our systems are constantly monitoring and adjusting every 20 seconds to select the best action out of 280 million possibilities to really maximize the harvest.

For example, crop moisture can vary widely across an entire field. So the Cummins moisture sensors, which are part of the automation system, they continually transmit data. When you combine that with many other data points such as spot yield, for example, that's used to automatically adjust trashing and separation parameters to deliver the highest quality and throughputs across highly variable field conditions. Operators across all experience levels, they benefit from our automation which is viewed into everything from the header on the front to the residue spreader at the back.

Okay. Thank you, Francesca, anything you would like to add?

And our patent residue management system here is a great example on how we preserve soil health. Evenly spread residue means that we are enabling nutrient cycling and that improves soil fertility, reduce erosion, optimize planting and boost productivity, all ensuring that the land is fertile and ready for the next season?

And how does it exactly work?

It uses automation with AI-powered sensor and vision to spread crop residue evenly across the 19-meter width of a combine heather. That is why there's a commercial airplane wingspan, our system compensates for factor as wind, moisture and varying condition to get it just right.

Really fascinating, Francesca. And Christian, what financial benefits are your customers seeing from this combined automation?

Well, come automation is enable. Farmers are harvesting average 7.4 million more tons hour, 7.4% more tons per hour. In weed operation, that translates to an average EUR 70 and I say EUR 70 more per hectare in net revenue. These are tangible gains, these are efficiency, productivity and profitability, all working together to improve our customers' bottom line.

Yes. And can you please make clear where do you get all these numbers from?

Of course. This is based on cloud data from thousands -- tens of thousands of connected machines and millions of harvesting hours. Let's pull up an example of a combine automation from a customer field in Kansas, U.S.A. to illustrate a little bit those benefits. What you're looking at are 2 maps from the same field, on the left, you have the yield map with color pattern highlighting the different yields. On the east side of this map, so on your right-hand side, the crop is quite uniform. So the combine requires minimal adjustment. When we look on the west side of the field, the use variability is higher, so prompting the combine to adjust more often to ensure a uniform performance.

Okay. But what does this mean? And why does it matter?

Well, with so much variability in the field, no operator, not even the most experienced could consistently over the course of a long harvesting day achieve those results manually. And you can clearly see these on the map on the right that represent our automation system responsiveness. On the left-hand side of the map, you can see many transitions in color, each 1 representing a required machine response, showing how often our technology benefits the operator and deliver an optimal harvest result.

Excellent. So Christian, this is some of the automation that is currently at work in fields with your customers. But looking into the future, what's next for CNH harvesting technologies.

Well, we just won an Agritech Innovation Award for a New Holland corn header automation. This new technology use sensors to automatically adapt all the settings in real time, such as road speeds, header angle and ground speed. Put simply, it stops the corn from bouncing out of the combined header before they have a chance to be trashed. In our field tests, grain losses were nearly halved dropping from 63 to 32 kilos per hectare, thanks to this automation system, resulting in additional net savings of almost EUR 5 per hectare. And Francesca, you explain it out from harvesting.

With pleasure. So beyond combine automation, which you mention our Baler automation. We can bale crops as diverse as hay, silage and straw. One of the biggest challenges of baling is having uneven wind draws. So with our AI-powered baler, we can with automation use LiDAR sensor to ensure that the baler perfectly follows the wind draw. This ensures that the baler has fully collected the crop, making less experienced operator even more productive. Other sensors on our baler can monitor the feed rate and control the tractor's speed to ensure uniform bale shape and density. And that's not even mentioning how we automate routine action on our round balers such as net wrapping and bale ejection. So all this results at the end of the day with fewer blockages, optimized fuel usage, and high-quality bales every time.

Beautiful. And you also won another -- or a second Agritechnica innovation medal this year for another harvesting technology, please tell us a bit about this as well.

Yes, we did and proudly so. Our Foragecam is a spout-mounted camera for forage harvesters that are collecting crops for animal feed. And so it uses AI vision to monitor crop flow and correct machine setting. This tailor a process of kernel collection by allowing farmers to set their desired kernel processing scores based on livestock type. So this ensures every kernel -- every corn kernel is properly cracked to maximize nutrient absorption to improve animal nutrition. That means better milk, better meat and quality of it. So it's a major leap in agronomic precision and operator convenience and even we told that automation in harvesting, forage harvesters still face a unique challenge. They don't have a building tank. That means the corn must be transferred directly into a trailer pulled into a tractor that falls alongside. Transferring to the trailers requires constant attention by the operator.

That's why we're developing the filler automation, with our AI-powered trailer filling automation system, we can automatically scan and identify any trailer alongside the harvester, filling it evenly and efficiently. So this reduced at the end of the day, operator fatigue, prevents spillage and boost productivity. So this builds really on our existing trailer filler technology which has been available for farmers for many years. And all of this works really drives innovation across every step of the harvesting ecosystem, creating a seamless experience between products simplifying fleet management and helping farmers operating more efficiently every day.

Well, thanks for explaining and congratulations again on winning another innovation medal. So Christian, any final messages for the audience on harvesting from your side?

Well, at the end of the day, everything we do ties back to the 4 things that matter most for every farmer during harvest, yield, quality, cost and time. And it's our job to help farmers to achieve all 4, making every pass and every kernel count. Going back to what our colleagues have said we need to produce more high-quality food for a growing population because every field feeds the future.

Christian and Francesca, thank you so much for sharing these insights, your applause. Now Francesca is going to stick with us for the final session. And for our final topic of this session, we're going to focus on high-value crops, grapes, olives, apples and oranges. They had a pride of many regions and a cornerstone of high-value agriculture. So Johnny, Francesca and myself on stage now to discuss our CNH strategy around specialty machines is Thierry Le Briquer, Specialty Crop Business Development Manager. Welcome to the stage.

Great to have you here as well. So can you please paint the picture for the audience about the specialty crop segment and where CNH sees opportunities for growth?

So right now, there are over 55 million hectares of land, which can be mechanized for high-value crops out of around 1.6 billion hectares of existing crop plan according to the most recent land statistics. Today, only 10% of the world's fruits picking is mechanized. And this field are 8x more profitable than grain. And the global specialty crop market is projected to grow at a component annual growth rate of 4.6% from 2022 to 2029 according to the UN's food and agriculture organization. With figures like this, the huge growth potential in this segment is quite clear.

And can you please highlight what is CNH's direct role in supporting this industry?

Yes. The more specialty farmers mechanize, the more stable their businesses will become. By shifting to high-density mechanization, farmers can control close to 100% of their growing irrigation, fertilizing and harvesting time. They are currently nowhere near that, and we are the best positioned to support their mechanization journey. Currently, at CNH is the global market leader in specialty equipment through our New Holland brand with over 50% global market share in grape harvester for viniculture, 1/3 of the global share in specialty tractors and over 90% share in olive harvesters.

Great. And where does this leadership stem from?

We have over a century worth of experience in specialty tractors through legacy brands and over 50 years of experience in self-propelled grape harvesting. This experience today sees us offer a comprehensive range of tractors through New Holland designed for narrow low clearance areas typically in orchard, vineyards and other specialty crops. We are proud to have long-term customers such as Moët et Chandon, [indiscernible] put their trust in all machines.

Okay. And Francesca, how does your technology factor into these specialty business.

Technology is central to this segment because the challenges are so specific. Customers see real value in this tech solution and are quick to invest and adopted so we are working to address this need with a dedicated R&D team for specialty equipment, a tower center of excellence in Coëx, France. This team collaborates closely with other R&D teams around the globe, especially the team in Modena, Italy to tailor our solution for different markets.

Okay. Now we discussed automation and autonomy in the earlier panels. How are they being integrated into CNH specialty crop equipment? And what are the benefits to your customers, Francesca?

So today, we are offering guidance across our specialty equipment. And our land turn sequence for the agricultural vehicles allow operators to automate a series of implemented vehicle functions to simply turn at the end of each row. Our Smart Sphere technology supports the operator by detecting the end of each row even without the GPS signal. So in terms of benefits, customer feedback and our data have proven that our automation leads to 10% input saving across. So water, seed, fertilizer and fuel. So we have also seen a reduction in operator workload, more consistent performances and the ability to get more done in less time even when skilled labor is really hard to find.

Excellent. And what about autonomy?

Well, full autonomy is in the segment is well underway for the future. So in fact, we are very excited to be unveiling a prototype here at Agritechnica. Our New Holland R4 hybrid power robot for orchard and fruit producer is on display here today. This fully autonomous prototype has no cab and is built to handle repetitive time-consuming tasks such as brain mowing and trimming. Traditionally, operator will drive the same role up and down for 20x per season to perform their tasks. With this machine, the number drops to 0 by reducing the human input needed to get the job done. So guided from our own internal tech stack using GPS, LiDAR and vision cameras, it can remotely supervised. So much like our colleagues discussed earlier in autonomous tillage, this was developed with a customer-first mindset.

To directly address the pain points free up skilled labor and let farmer focus on higher value tasks.

Okay. And how are you accelerating your technology pipeline to respond to new customer demands?

Well, we are in the early stage of developing advanced robotics for apple pickers. So this is an advanced vision system that automate labor-intensive harvesting task where gentle handling and precision are critical. So to accelerate our product innovation, we have long adopted an open approach, collaborating with disruptive third parties. That was how we first met John from Raven that you met earlier and George from Augmenta, which was just on the panel before us. From who they are both great success stories of vertically integration and tech acceleration in CNH. In a great current example of external collaboration is with the American start-up Stout ag, in which we have a minority stake.

Their technology uses AI for green-on-green to detect vegetables such as lettuce from weeds at a different growth stage to mechanically till the land. By integrating their offering, we brought a suite of new game-changing solution quickly to the market.

Awesome. And now let's talk about the impact. Thierry, what results are specialty crop growers seeing from these technologies?

So these results are impressive. In the case of the R4 robots, growers can achieve up to an 80% labor reduction, making it possible to manage operations even with fewer skilled workers. They have also seen and up to 20% lower total cost of ownership. But in my view, the greatest benefit is our ability to consistently deliver high-quality fruits giving our customers a stronger revenue stream.

Francesca, anything to add from your side?

Yes, absolutely. So by integrating alternative propulsion system and expanding our journey for automation to autonomy to robotics, we're giving specialty crop growers the solution to overcome the toughest challenges in modern agriculture. So reducing their cost, improving their sustainability and making their operations more resilient today and for the future.

Thank you, Francesca and Thierry for sharing these insights. Your round of applause. Thanks so much. All right, everyone, and that concludes our opening session, and I'd like to invite now Gerrit, Jay and Jason, back to the stage for our Q&A session.

Yes. Okay. So we're going to do the question and answer. [Operator Instructions] Okay. Let's take the first 1 from Adam right here.

Great. Thanks, guys, for the presentation today. So I wanted to ask maybe a high-level one first here. So there's a lot of solutions across a lot of different markets. So when you think about everything that CNH is talking about today, how much of what you guys are talking about today is closing the gap versus leading on new technology that you're unveiling to the market?

Well, look, a lot what we talked about today and a lot that is here on this booth here today at the Agritechnica and for the next couple of days, actually further building a leadership. I mean when you look at the combines, we talked about the single rotor, dual rotor, we were ahead and now we are a whole generation ahead on the combine side and everything they're in, whether it's the contextual AI, we talked about or the other sensorized automated adjustments of the inner workings.

When you think about the spray tech, I think there on the green-on-brown, we are pretty well aligned with where competition is at this moment. So I would not claim any kind of leadership in that regard, but we are among the leaders in the space. Mastering the green-on-brown, highly effective green-on-brown and also green-on-green technology. On the grape harvesters or on the permanent crop, the high-value crop side, we clearly had as Thierry said, we have 50% market share in grape, 90% in olives and the mechanization of permanent crops is just only accelerating. And what wasn't in the presentation because we just got this award, our specialty tractor won Tractor of the Year as well as specialty Tractor of the Year and is with the CVD transmission, the leading product for farmers in permanent crops, whether it is vineyards, orchards of whatever kind. So these are aligned to leading positions, I would say, Jay, what do you think?

I think we have many areas, as Gerrit said, where we're leading. I think even in green-on-brown, we have VRA that George talked about. So it is one-of-a-kind technology with 1 system, we can do 2 different solutions. I think we look at our 785 Quadtrac in the corner. That's also a leading technology with suspended tracks that no one has in the industry. So a big part of what we are showing is we were just as good and over 1 step better.

David Raso, Evercore ISI. Really just a simple question. when you put up those savings, how do you think about capturing those savings as a corporation as an industry, right? I think the thought is how much can you actually keep it or is it just really a cost to stay at the top of the industry. So maybe an example that $18,000, $36 an acre or 500 acres, what are you thinking at business. When you think like your 2030 targets and you think of these savings. What are you baking in on sharing the savings versus what you keep.

As I said multiple times, every year is different, every season is different even in the same field. Jay alluded to that, Jason alluded to those things. I mean the point is when we have these advantages, we obviously market them. We say, "Hey, we have seen this in our own trials, in our fields and our customer demos, et cetera, et cetera. But for good reasons, farmers know that every season is different. Every crop is different. So it's a kind of, hey, let me try this out for a season or 2 and then I'll see where that really shows on the bottom line. Because when we do this, we are very convinced that this is showing, but there's a lot of -- it depends and mostly on the weather, the climate and the other conditions that are a little bit out of control.

So how does it translate? It does shine. It does show in real life, in real impact work over time. And then it leads to not only rebuys but it also leads to obviously a higher penetration over time, a higher demand for the machines. And with that, over time, also ability to price, ability to capture the upside benefits of what the machine truly delivers.

But it's different like a car, you take it on the spin or you take a truck, you take it for 10,000 miles and then you know what the TCO is and then you buy another 100. Farming is different, 1 season, 1 harvest in many places of the world. In Brazil, it's 2.5 seasons or 2.5 harvests for a year, there is a -- there's a higher frequency of experience in some parts of the world, but in countries where regions where you have basically 1 harvest per season, it takes time to adopt and then it will show in market share, in pricing and loyalty.

I was just trying to equate it with the 16% to 17% mid cycle margins in ag. Was there just some assumption? We keep a 1/3, give 2/3 to the customer, but there's no framework that you would say is inherent to the 2030 targets.

It is about loyalty. It is about market shares, and it's about our overtime ability to price for these things. So there is no arithmetic excel connection that translates, I don't know, an 8% higher yield on a combine into something that adds to any excel sheet on the bottom line. That doesn't exist because we don't model it like this. What we model is it's a product that has a customer base that has a promise and that promise delivers when it delivers, it translates into loyalty into shares and over time into price.

Let's see Kristen right here.

Kristen on from Oppenheimer. Jay, you shared some new facts with us on field ops penetration. I think you said since launching a 185% increase in registered machines, 40% increase in digitalized acres, can you contextualize those data points for us? And then for your organization, how you see that connectivity sort of feeding into the technology feedback loop when you're coming up with new product development?

Sure. Sure. So within our group, we're looking at the application of field ops and connectivity from a couple of different metrics as I mentioned in my statement from the initial launch. We had a system that we phased out and field ops came in. So from that initial launch, we've had a significant increase in uptake of 185%, which is substantial as well as more acres actually being put into the system that's really driven by the additional functionality that we have with field ops and the ease of use. So it's an all-new user interface. It's much more simple to navigate and understand where the data is. It also has a lot more functionality. So there's more understanding of data layers. It has better data transmission capabilities. So those things make it easier to use and therefore, customers are seeing the value in it, which is driving adoption.

We're also taking that information from a future-looking perspective and starting to pull that information into our product development process to say how our customers actually using the equipment. Now that they're connected, we can actually see as Christian showed, are they actually using combine automation and why? So we can start to connect the customer application in the field and used to engineering solutions to better tie the 2 together and provide even more customer-focused, customer-centric, customer value-creating solutions with all of our products.

The other element is also uptime and reliability. We can monitor engine performance, drive line loads to really take that data back into the development process and say, are we actually designing to the right use cases and design criteria that our customers are physically using in their fields around the world. If yes, great, if not, what do we need to do differently within R&D to better tailor our equipment to the needs of our specific customers, which, as I said, is an extremely broad base, but that's our fun job to do.

Take the next 1 from CC right here.

CC from Federated Hermes. You talked about how direct costs make up to 10% for a farmer's total costs. And we've talked about farm management in AI and data precision. But in the context of actual physical equipment resilience, has there been any advancements or innovations, especially in the context of climate change and extreme weather conditions, how resilient is your equipment? Is that something you take into account in the R&D and the investments you make in that sense?

Well, we do not have a specific investment program that says climate change and, let's say, build thicker roofs or -- but what we do in our machines, they are built for the toughest jobs in the world, basically. They are built to go into the fields and do really, really tough operations. So when it comes to climate change, the biggest development input that we have is speed and power. When you look at the CR11s, they are the fastest harvesting machines in the industry and as well as the AF11s and the AF10s. And when the weather comes, I think the most unpredictable element is the weather, and it's the biggest single influence over yield by far. And it's the moment when to plant, and what and then how to spray and how often. And in the end, it comes to the harvest and Christian and Francesca have alluded to that, it comes to making the right call when you enter the field with which machine and to finish it as quickly as possible to have the most consistent yield, which was the quality in Christian's speech. And that comes with power and speed and performance of the machine.

When you go in the field with 3 machines, all the types or you can go in with 1 that harvests faster, I think quality and all the other factors like cost and yield are clearly pronounced on the CR11, AF8 to 11 machine. So power and speed is on the iron side. the key enabler when it comes to climate change, if you will, to react faster, be more efficient and effective in delivering the season.

Let's go to Kyle next.

Kyle Menges from Citi. At the top, you guys talked about potentially gaining some share, I think, particularly in Germany, it sounds like part of this is just through some product launches, but curious if you could expand on that a little bit in other countries in Europe that you feel like you're positioned to maybe gain some share and just how are you positioning yourself to gain some market share in some of these areas that have historically been underpenetrated for you guys?

I'll happily expand on that, which is on top of my mind. And by the way, we are not focusing on German because I'm a German. So you think like, okay, next CEO is a French. So we focus on France. So that is not the reason why we focus so much on Germany. When you look at the profit pool, the gross margin pool for tractors in Europe, the 2 markets, France and Germany together are about 40 in some years, even 50% of the gross margin profit for the industry in Europe. So these are very, very key 2 markets. We are pretty strong in France when it comes to harvesting, not only on the grade side, where we are basically strong. But also on the tractor side, on the combine side. In Germany, it's a particular market.

Here, we were simply missing a particular product. And this market is the product that gave rise to that famous single brand 1 of our competitors has, which is a fairly strong 200 to about 500-horsepower tractor, European design that is made for moderate, I wouldn't say heavy field work, combined with on-road driving comfort, particularly this last element, on-road driving comfort was something that wasn't particularly designed in our high-horsepower mid-range tractors because these were heavy working power shift machines for the field doing the tough job but going with those machines, those tractors on the road with the trailer, 26 tons of payload and going from the field like 10 kilometers, 15 kilometers or more to the mill or the destination wasn't a particular comfortable ride with a rigid front axle.

So our development was now focused when you think about the Optum 440, which is a 360 to 440 power range, similar to T7 or the Cervus from Steyr, they have independent front suspension. They have a [ Cursor 9-liter ] engine that spans the entire power range, and they have multiple upgrades when it comes to cap comfort, cap noise. Actually -- I'm there to say it's the quiet -- the most quiet cap in the industry now and suspension. So it's a very nice ride on the road, while it does the tough job in the field. And CNH, we never had a tractor above 350-horsepower European design. We have the Magnum. The Magnum is a U.S. design. It's very well appreciated by many customers across Europe for a certain job type, but there is this particular German driven and German speaking also an Austrian task that is particularly powered by this higher to high-horsepower mid-range tractor.

And this is a segment that we never had. We never had that. So that was basically 1 player in that market more or less alone with another green -- the 2 greens -- and us, we are now dropping 3 of our brands right into this market in order to gain momentum in this quite relevant field. This is a particular machine that has certain customer segments for sure in Western Canada as well, certainly here and there also in the United States, but the volume, obviously, in those markets is the Magnum and that's an attractive concept of the Magnum. And that's why -- that's one of the key products you see here on the show to regain ground on Germany. So again, France, Germany, 40%, 50% gross margin profit pool which we're just lacking the product to gain market share with a very low market share in all brands in Germany, high single digit, if you add them all up, which is nothing for a number -- global #2.

And that had nothing to do with the lack of attention. It was a lack of product. And with this today or the launch of the last couple of days, we have closed this gap, and we will make these tractors available to the world in New Holland in case, while again, Steyr is a very regional local brand. It is Austria made, made in Austria, with an Austrian brand which is not to be underestimated when you talk to farmers in Germany, branding is a key point. I keep stressing always there's B2C, this is passenger cars, business to consumers then you have B2B. This is a truck company, a truck OEM selling a truck to another trucking companies, B2B, TCO-driven kind of manager sales to manager but this is B2F.

This is business to family or business to farm. And this is a very different type of business, very different type of partnership all the way even to friendship and that has elements of C and B as well. So brands do matter provided the machine delivers. If you don't have the machine, the brand can come up for that. You must have the machine first. And then the brand and the TCO, which is the business and the total cost of ownership, they do add to the overall package, and that is the winning mix. So this is the story around Germany and what is now coming.

We've got time for 1 more. Do we have another question? Right here, Elissa?

So my name is Elisa from Federated Hermes. My question was around impacts that you talked about. So for example, water, soil quality using less fertilizer, for example. How are you positioning those broader impacts in R&D? And also, how are they resonating with your -- with farmers recently.

So for sure, as I said, everything we do starts with focused on what do farmers need and it's not just to generate profit, but it's also sustainability. So one of the question was what are we doing with our iron. We're also designing our products with sustainability targets for recyclability and reuse, longevity, less service parts. So there's other elements that we're putting into our products. We will look at the actual applications for the farms as many of the presenters here talked about, all those elements of caring for the soil, putting down less fertilizer, less chemicals, only the amount of seeds you need in the right places. We talked about the preciseness of our implement guidance. That allows us to place smaller bands of fertilizer close to seeds so we optimize the usage of the chemicals and artificial things we put into this soil.

So all of those things are part of the agronomic design of our equipment that we build to provide those solutions for the customers. We talked about residue from the combine and how that even spread of residue protects the soil from erosion and helps the water filtrate through the soil more evenly and more uniformly.

So all of those elements of the agronomic designs of the machines, plus now being able to map those different characteristics and qualities through field ops, a farmer or a farm manager, an agronomist in the back and look at that information and say, what should I do different on the next pass based on my previous past to get a better agronomic outcome for the future.

Great. That takes us to the end of our Q&A session. So we're going to wrap up the webcast now. We'd like to thank everybody who joined us for the webcast. Have a great day, and we'll see you in the future.

Good morning, and welcome to the CNH 2025 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I will now turn the call over to Jason Omerza, Vice President of Investor Relations.

Thank you, Julianne, and hello, everyone. We would like to welcome you to CNH's third quarter earnings presentation for the period ending September 30, 2025. This live webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited.

Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website.

Please note that any forward-looking statements that we make during today's call are subject to risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material.

I will now turn the call over to Gerrit.

Thank you, Jason, and welcome to everyone joining the call. Our third quarter ended in an evolving world of global trade, but with progress along our articulated priorities, to lighten channel inventory, reduce our quality and product costs, break new grounds across our lineup of iron and technology and build a solid foundation for our recently announced 2030 mid-cycle margin commitment.

Since the very early days of our industry, farmers have seen many cycles and shifts in global trade, some even larger and more disruptive than this one. As we look forward beyond the current cycle, it is certain that most arable lands around the world will be used for technology-led crop production and livestock farming to feed the growing population even if it requires growing different crops.

As the only other truly global full-line agriculture machinery provider, CNH is going to play an even larger role in helping feed the world as we will showcase next week during our Tech Day at the Agritechnica Fair in Hannover, Germany. We are thoughtfully transforming our global supply chain footprint and dealer network to mitigate the risks of further volatility that may emerge in the -- in our industry. With this clear direction in mind, we have maintained the overall low levels of production that we initiated in the third quarter of 2024 to help reduce CNH steel inventories and clear aged products while still defending and in some cases, growing market shares.

Both ag and construction production was flattish year-over-year, but large ag production was down 10%, while small ag was mostly up. Our ag dealers' new inventory levels saw another sequential decline of over $200 million, putting them on track to achieve our targeted levels over the next 3 to 4 months.

Our North American dealers' used inventory also saw another sequential decline in the quarter. While it's all good news for CNH, market fundamentals remain uncertain and challenging for our farmers. And it is difficult to say if we would enter 2026 with more visibility or even more momentum. Conditions in South America and Brazil, in particular, continue to be a headwind for our farmers. While we had expected to see this region as the first to emerge from the downturn, difficult geopolitical and market circumstances have persisted.

Similarly, conditions in North America have been difficult for farmers as they see the global trade shifts impact their very own operating bottom line. Even with the recent announcements around the trade deal with China, material subsidies for farmers in their different forms are needed while the leveling of the global trade playing field is progressing. So in the meantime, we use all these shifts, changes and drags on global framework conditions as an opportunity to invest our resources in building a better and higher performing CNH during these slow quarters.

We can prepare for upcoming product launches and define new ways of working more efficiently. This business has always been very cyclical and maintaining a through cycle perspective on what matters accompanied with consistently delivering profits and cash flows make all the difference.

We're advancing our investments in iron and technology all the way to Agentic AI applications for our digital farm management system, FieldOps. We continue to take obsolete costs out of the operations to improve our underlying margin profile outside of the near-term tariff impacts. And we continue to make progress on our new go-to-market network development strategy with regionally important steps to emerge over the next year. So while we thoughtfully navigate near-term challenges, our focus remains on investing in the business to secure leading positions across all our major markets.

In full alignment with our Board of Directors, we are pursuing the path we laid out on May 8 with determination and a healthy dose of flexibility as we navigate near-term challenges. We are CNH and we will deliver. With that, let's turn to the results.

As expected and projected, our Q3 results now reflect the delayed impact of tariffs on our costs, which did not yet have a material impact in Q2. As a reminder, we introduced additional pricing adjustments effective with new orders received after May 1, and we also started to see some of that benefit in Q3. It is our intention that we will eventually offset all the tariff cost impact through cost mitigation, structure realignment and pricing actions. In 2025, however, we are absorbing some of the impact alongside our suppliers, network partners, farmers and builders as we navigate these new trade realities.

The changed conditions for purchase components and ship machines impact the entire industry and relative differences in exposure and footprint will impact near-term results differently. 2026 will be a year of alignment and adjustments for our industry, and we expect those to play out fully for the 2027 season.

Consolidated revenues for the quarter were down 5% at $4.4 billion. Our Global Ag segment sales were down 11%, with North America down 29%, but EMEA up 16%. While the geographic mix shift has a negative effect on our margins, it is encouraging to see some bright spots in EMEA sales, particularly tractors, especially in Eastern Europe and in the Middle East and to some extent also in Germany. Some of our product launches to be revealed next week in Hannover are precisely targeted to fill gaps and gain more ground in those markets for CNH. We will explain these step changes in greater detail next week.

Industrial EBIT -- industrial adjusted EBIT was $104 million, down 69% compared to last year, mainly reflecting the impact of lower industry demand, tariffs and geographic mix. Adjusted net income was $109 million with adjusted EPS for the quarter at $0.08. While the markets are not helpful to our farmers, growers and builders these days, we remain more committed than ever to strengthening the company and prioritizing long-term value creation. Our company strategy is centered around 5 key strategic pillars. Expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence and quality as a mindset. These pillars remain front and center to ensure we stay aligned with our long-term strategic objectives. And our team remains focused and united in our shared purpose to feed and build the world we all live in.

Today, I would like to focus on a few of these items that demonstrate our commitment to the future. While we turn the challenges of the present into opportunities for the future. First, in the area of expanding product leadership, I'm revisiting a chart that we showed at our Investor Day in May. It shows a sample of our extensive product offering across many different farming applications. At the 2025 Agritechnica show next week, we will be unveiling several new products highlighted here with key launches across our tractor and hay and forage lineup. Furthermore, we will be launching significant upgrades across our full product portfolio in terms of both iron and technology. Stay tuned as more news will be revealed about these products next week, but we are very excited about the advancements that we are making here.

Speaking of Agritechnica, in advance of the show, we received 2 innovation awards -- Silver medals for our corn header automation and ForageCam. The corn header automation system uses advanced AI and automation to enhance corn harvesting, which ultimately results in more high-quality grain in the tank. ForageCam uses a camera to instantly analyze crop flow and kernel fragments delivering real-time kernel processing scores and helping to boost livestock nutrition. These technologies, which deliver significant agronomic advantages demonstrate how CNH continues to deliver the tools and innovations that create the most value and the greatest impact for farmers.

We have transformed how we think about quality within CNH. We are taking a 360-degree view of quality, spanning product development, supply chain, manufacturing and our dealer network. Let me give you a few examples.

We have embedded quality into everything we do, and our suppliers are a big part of that. Through our strategic sourcing program, we are selecting suppliers who meet our stringent quality standards. These collaborative partnerships yield more reliable, durable parts that directly enhance our machines performance. In an industry downturn, it's tempting to focus only on the purchase price of our components, but we are maintaining a holistic view of quality throughout the sourcing process, while we still take cost out from our purchase goods.

Programs that we piloted at our Racine plant, such as no fault forward and dynamic vehicle validation testing are now being deployed at other facilities. I'm happy to report that, as measured by our dealers, we are now achieving the highest delivered quality scores for our large tractors that we have seen in over a decade. Our dealers recognize the difference and our customers are seeing it too.

We never want to have machine downtime. But when problems do occur, our motto is fix right first time. Our diagnostic AI tech assistant tool is providing dealer technicians with the real-time insights at their fingertips. It has significantly reduced the time it takes to identify solutions, and we see that in our dealer help desk efficiency. We already see the benefits in our bottom line. Year-to-date, we have reduced our quality costs by over $60 million, and there's a lot more to go as we discussed during the Investor Day. But perhaps more importantly, this commitment to a quality mindset reinforces the trust our customers have in our brand and lays the foundation for achieving a higher net price realization for new and used machines over time.

With that, I will now turn the call over to Jim to take us through the details of our financial results.

Thank you, Gerrit. Third quarter industrial net sales were $3.7 billion, down 7% year-over-year, mainly driven by decreased agricultural shipment volumes on lower industry demand, compounded by reduced ag dealer inventory requirements. Adjusted net income decreased by nearly 2/3 with adjusted diluted earnings per share down from $0.24 to $0.08. The decrease was mainly due to lower sales levels, tariff impacts, unfavorable geographic mix and increased risk costs in financial services.

Q3 free cash flow from industrial activities was an outflow of $188 million, roughly in line with Q3 last year, as the lower year-over-year EBIT was offset by better net working capital and cash taxes.

Agriculture Q3 net sales were just under $3 billion, down 10% year-over-year, driven by the 29% decrease in our higher-margin North American market, where we are experiencing both a weak retail demand coupled with dealer inventory destocking. The year-over-year net sales increase in the EMEA region was mostly driven by higher demand in Eastern Europe and in Middle East, Africa. Pricing was favorable overall with North America positive 3%, and which starts to include some tariff-related price adjustments. This was partially offset by some negative pricing in South America, where we have seen aggressive competitive incentives.

Third quarter adjusted gross margin was 20.6%, down from 22.7% in Q3 2024, affected by the lower volumes, tariff costs and unfavorable geographic mix, partially offset by purchasing efficiencies and lower warranty expenses. Product costs were favorable, $33 million year-over-year despite including $45 million of unfavorable tariff costs after FIFO inventory offsets. Manufacturing and warranty quality costs were lower by $44 million in the quarter. The supply chain efficiency is making up the remainder of the favorable year-over-year results. So despite the tariff headwind, we are making good progress on our underlying margin improvement initiatives, and this remains central to our path to 2030 strategy. We'll provide a more thorough progress report on our long-term goals during our Q4 call.

SG&A expenses were $36 million higher than in the third quarter last year mainly due to higher variable compensation accruals in 2025 and labor inflation. As a reminder, we took out over 10% of our white collar head count in late 2023 and early 2024. And since then, the levels have been essentially flat while we work on improving our organizational effectiveness. Adjusted EBIT margin for agriculture was 4.6%, a sequential decline from Q2 2025 levels as a result of the increase in tariffs and our normal quarterly business seasonality.

CNH enjoys the distinction of being the most geographically balanced of all the ag OEMs in terms of our sales mix, and we've been profitable in every reach of the world so far this year despite the consistently depressed markets. We expect that trend to continue in the fourth quarter. The EMEA region is weaker than North and South America in terms of margins, but we know what needs to be done to raise its profitability profile. Many of the improvements discussed at our Investor Day such as improving dealer network presence and improving operating performance, along with the private launches mentioned by Gerrit earlier, are designed to improve the fortunes of the EMEA region with our focus on this critical area that will yield benefits for the entire agricultural segment.

Construction third quarter net sales were $739 million, up 8% year-over-year, driven by higher sales in North America and EMEA. The increase is mainly due to the low sales level last year as we had cut production aggressively in 2024. Gross margin for the quarter was 14.5%, down from 16.6% in Q3 2024, mainly as a result of the tariffs.

Purchasing and manufacturing efficiencies of $12 million favorable were more than offset by $26 million of tariff costs. It's important to point out that we seem to have been a bit more aggressive on price increases as a result of the tariffs that we have seen from our competitors.

Like in agriculture, construction SG&A was unfavorable due to variable compensation accruals and labor inflation. We closed the third quarter with an adjusted EBIT margin of 1.9%. I would also like to note that earlier this week, we finalized our previously announced plan to stop production at our construction plant in Burlington, Iowa by the second quarter of 2026 due to declining demand and underutilization. Production will be moved to other existing CNH facilities, including our plant in Wichita, Kansas. This is part of construction's manufacturing optimization effort that was discussed at the Investor Day.

Moving to Financial Services. Third quarter net income was $47 million, the $31 million year-over-year decrease was driven by higher risk costs in Brazil, partially offset by better margins in all regions. Retail originations in the third quarter were $2.7 billion, down 6% year-over-year, reflecting the lower equipment sales environment. The managed portfolio ended the quarter at $28.5 billion. The wholesale portfolio was down nearly $1.5 billion since 12 months ago on a constant currency basis, mainly driven by the lower dealer inventory levels. While credit collection rates have been relatively steady in most regions, despite the market downturn, we, along with others in the industry, are experiencing persistent delinquencies in Brazil. Accordingly, we increased our credit reserves again in the quarter. We believe that our reserves are adequate, and we work with farmers in the region so they can continue to operate their farms and pay for their equipment.

Our experience from past cycles is that most farmers in delinquent status will eventually catch up on their commitments, but this increase in risk reserves is a needed measure while observing how the market environment unfolds.

Our capital allocation priorities remain unchanged. We will continue to reinvest in our business while maintaining a healthy balance sheet. During the third quarter, we repurchased $50 million worth of CNH stock at an average price of $11.25 per share.

Before I turn the call back to Gerrit, I want to give you an update on our net tariff assumptions for this year as well as a view of the gross run rate impact of the tariffs. The numbers on this page reflect the expanded Section 232 steel and aluminum tariffs, which were not factored into our previous guidance and reflect that China tariffs will be lowered by 10 percentage points on Monday. For 2025, we estimate the net impact of agriculture at around $100 million at the midpoint and construction at $40 million at the midpoint. In the fourth quarter, that will be around $60 million for ag and $20 million for construction.

In the short term, we are working diligently to offset as much of the tariff impact as we can. This includes collaborating with our suppliers to identify alternative sourcing options and consuming pre-tariff inventories. The price adjustments implemented to date do not fully offset the gross tariff impact, as we have chosen to share the burden alongside our suppliers, network partners, farmers and builders, while the trade environment is in flux. The 2025 impact is only a partial year impact as the ramp-up in tariff levels and our FIFO accounting pushed most of the impact into the second half. If we annualize the gross impacts still at 2025 volumes, we estimate approximately $250 million of impact in agriculture and $125 million impact in construction. That is approximately 200 basis points of agriculture margin headwind and 425 basis points of construction margin headwind.

I'm only showing the gross cost run rate impact here because as Gerrit said, we do intend to be able to fully offset the tariff impact over the long run. We will take advantage of our ongoing strategic sourcing program to identify the right suppliers with a global footprint to help us identify the most favorable countries of origin. Likewise, we will leverage our global manufacturing footprint to identify the ideal production locations. And ultimately, we will pass through the remaining incremental costs through our pricing and has been done across the industry in the past. Our 2030 margin targets will not be jeopardized by the tariffs.

With that update, I will turn it back to Gerrit.

Thank you, Jim. And now let's review our latest outlook for agriculture in 2025. Global industry retail demand is expected to be down around 10% from 2024. We have narrowed our net sales guidance as we approach the end of the year. Full year pricing will be positive about 1%, and there is no expected currency translation impact.

We've also updated our margin guidance. As you recall, last quarter, we said that margins would likely fall somewhere below the midpoint and the guidance. However, since our last call, additional Section 232 tariffs on steel and aluminum were introduced. As such, our revised guidance now reflects those tariffs as well as the geographic mix shift between North America and EMEA and product mix between large ag and small ag.

The Section 232 tariffs will impact all players in the industry, whether they are components imported or locally sourced as domestic steel and aluminum prices will rise as well. We expect to recover those impacts through pricing of our products.

In Construction, overall industry retail volumes are expected to be down about 5% from 2024. As with ag, we have also narrowed our net sales outlook for the year and lowered our margin expectations. We are still working on our 2026 industry estimates, and we'll need to see how some of the larger market players react on pricing before we are able to finalize an opinion here. With the narrowed sales estimates in ag and construction, we are guiding total industry net sales to down 10% to 12% year-over-year with margins reflective of the net tariff exposure between 3.4% to 3.9%. Free cash flow is now expected in the $200 million to $500 million range. EPS is now forecasted to be between $0.44 and $0.50, again, reflecting the latest net tariff impact.

I will end our prepared remarks by looking at our priorities for the remainder of the year as we close out 2025 and position ourselves for success in a likely transition year in 2026. We are carefully observing the different leading demand indicators. At the same time, while we are dealing with a rapidly changing trade environment, we are working very closely with our network partners and suppliers to ensure that we are responsive to ongoing shifts in the market. We are taking orders for model year 2026 products now at new prices, reflecting another round of cost recovery. Each region has their own cadence for order collection, typically North America ahead of the other regions. Production order slots are full for the remainder of 2025, and we are about half full for the first quarter of 2026.

Some products in some regions are a bit further out than that. North America's Q1 slots are already full. For example, we are monitoring order collection closely to understand overall industry retail demand in 2026 and to make the appropriate shift in our production cadence when needed.

Besides our order collection, other factors that we are evaluating include commodity prices, stocks-to-use ratios, progress on trade deals, especially a finalization of the recently announced agreement between the United States and China, clarity on renewable fuel standards in the U.S., used inventory levels and their values and competitive pricing dynamics. As of right now, we would expect global industry retail demand to be flat to possibly slightly down in 2026 when compared to 2025, that likely includes EMEA being slightly up, North America, slightly down in large ag and South America and Asia Pacific somewhere in between. As year-end approaches, we'll assess market developments to refine our industry forecast with greater precision.

As I discussed earlier, we will continue to produce at our current low levels through the end of 2025 and likely into the beginning of 2026, given continued soft demand. Our North American dealers are on pace to achieve our inventory targets for new equipment within the next few months, whereas improving sentiment in Europe will allow dealers to increase their stock somewhat. Like our continued dedication to investing in the future through iron and tech R&D, we are not taking our eyes off our margin improvement initiatives regardless of the market environment.

We are maintaining our relentless focus on our homework and executing the cost management strategy that we presented to you in May. We are pursuing productivity improvement and the strategic sourcing program to drive further cost reductions with a particular focus on delivering the highest quality products to our customers. I want to reiterate what Jim said, our 2030 targets are not jeopardized by the current trade environment or status of the ag cycle. Things are very positive for CNH. And during times like these, continuity through dedication and consistent execution are more than ever important.

At our Tech Days next week, we will exhibit our latest products, technology applications and solutions. We are excited to show you how our technology evolves to serve farmers on their field and to preserve their soil health. Our solutions help them rise to everyday challenges, particularly the unexpected ones. We hope to see you in person in Hannover or connected to the webcast. That concludes our prepared remarks, and we are ready for the Q&A.

[Operator Instructions] We will take our first question from Kristen Owen from Oppenheimer.

A lot of discussion this morning on the ag margin bridge, and you hit on some of the points, but I'll ask you to articulate on 3 particular items that stood out to us. First, can I ask you on the decremental margin on the volume mix? How much of that was the decline in North America as the total percent? And how should we think about that decremental going forward? The second item here is on the SG&A and the $37 million drag? And then finally, I'll just ask you to unpack some of the product cost puts and takes, tariffs versus some of that underlying quality work that you addressed. I realize there's a lot there, but I appreciate you addressing that bridge.

Okay. Kristen, happy to answer those questions. The decremental in ag was really driven by the declining sales in North America, 29% decline in North America, EMEA, up 16%. So you've got a fairly sizable geographic mix element in there. SG&A did grow. To answer both parts of your question with here, the ag EBIT margin decline -- 12% of that decline was from higher SG&A due to the variable compensation. So last year, very low bonus accruals. This year normalized, rate of bonus accruals is being accrued. So you've got the SG&A growth. Tariffs were a meaningful portion of that as well, than geographic mix I mentioned. And then to a lesser extent, our ag JVs are delivering lower profits this quarter than it did a year ago. So those are the 4 primary buckets. If you take those out, you are back to the normalized 25%, 30% decremental. So that answers the ag question. Gerrit?

Yes, I just would like to -- on the first one on the mix point, Kristen, I would like to add that in EMEA, particularly the tractor segment was up while harvesting segment was still behind in the overall mix. And I think as you might recall, we -- while strong on tractors, we are particularly pronounced on harvesting equipment and I mean large combines. So that was in another -- it's not a regional mix. It's like an in-region product mix to some extent. And as Jim and I alluded to is Europe is -- or EMEA is for us from a marginality, a trailing region is actually at the bottom. And we have launched quite some substantial turnaround and restructuring actions across the region starting as well from the product side that you will see next week in order to regain momentum and share in a region that shall be no weaker than any of our margins in North or South America.

So this is very much in focus, and we are going to talk you through those things next week when we stand in front of our local new product lineup with tractors that we -- and the serve segments that we never had, okay? So high horsepower midrange tractors, we never had and now we have, and we'll show that next week as another measure to turn around Europe.

Yes. And then continuing to answer your question, so the product cost unpacking, that really is $33 million of favorable product costs, excluding $44 million of tariff costs. So without the tariffs, that number would have been $77 million of favorability. That breaks down as $44 million in quality improvements, $17 million in purchasing and manufacturing improvements and $60 million of other improvements. So that sort of, I think, shows the good work we've been doing on our path to 2030 from an operational perspective. The tariff supports our headwind that weren't there previously. And tariffs are growing a bit in Q4. Q4, we expect tariff costs to be $60 million in ag and $20 million in CE, but we'll give you a more detailed breakdown of the full year cost improvements toward our Investor Day targets when we report out in Q4. So I think that addressed all 3 of your questions.

Our next question comes from Angel Castillo from Morgan Stanley.

Just 2 factors impacting fiscal year '26, I was hoping to get a little bit more color on. First, in terms of the annualized tariff gross headwind that you laid out, I just want to triple check, I guess, it seems to me a rough math that, that implies maybe a 2% to 3% kind of incremental headwind in terms of your North America sales next year. So just one, is that correct? And kind of second, based on pricing you're putting out through your orders right now for next year and the preliminary kind of cost inflation you see. I guess how much of that 2% to 3%, do you think you can offset your pricing versus other kind of cost initiatives that you laid out? And how much do you -- basically you already have covered versus you still need to go out and get a kind of enact initiatives?

And then the second piece of fiscal year '26, just under production, what gives you confidence in being able to achieve desired dealer levels in 3 to 4 months? And basically, how much more inventory do you need to kind of work down and how much of a tailwind that could be next year? That would be helpful.

Yes. Let me tackle the first one, Angel. So the -- I think you're about right on the headwind effect of the tariffs -- the basis point headwind. And the pricing that we put out, if you couple the tariff costs with normal inflation costs, the list price growth that we put out is not adequate to cover 100% of the tariff costs. However, we're working to -- over the course of 2026, we'll be working to cover that through various means, further cost cutting. And there's also -- we can adjust our discounting to some degree as well to maybe help offset. So from a list price perspective, not there, but through other actions we'll be endeavoring to get through throughout the course of 2026. And as it relates to the production question.

Yes. And relating -- related to the production question. When we look at 2026, and it's consistent with what we, I think, we said also during the last 1 or 2 calls is we expect that the production pace equals retail pace. And in next year, we expect in terms of production hours versus a 2026 production hours over '25 production hours to be up around mid-single-digit percentages basically across all regions, across all products because we do see, as we mentioned, that we will achieve the target of about $1 billion inventory reduction in 2025 that gets us to a much better place by this year-end. So we plan to increase production hours next year. And that might entail even a further inventory reduction at the same time, if needed. And that is not a general statement across the world because, as I mentioned earlier. I mean EMEA show signs of momentum in some markets, which means depending on where we are in the season that we are going to stock up some machines in those markets. Again, depending on the season, why we have here and there still some pockets of machines where we might continue to see a further destocking next year. But in large, we have achieved the target of $1 billion destocking this year over the next couple of months. And with that, we see space now to restart production in the mid-single digit up.

Our next question comes from Tami Zakaria from JPMorgan.

I wanted to touch on tariffs a little more. Is there a way to think about how much of the total tariff costs you quantified, I think, $205 million to $225 million. How much of that is tied to AEPA versus Section 232 versus the baseline? Should the industry get some relief from any Supreme Court ruling in the coming weeks, months? Just wanted to get some sense what could be the opportunity there?

Yes. About 20% of the tariff costs are from Section 232. So any release is granted, that would be wonderful. We're not counting on that or taking that into our plans at this point, but we'll wait and see where that goes.

Our next question comes from Kyle Menges from Citi.

I wanted to follow up on some of the pricing comments on the comments that maybe you've been a little bit more aggressive on price increases versus competitors this year. And just how that's influencing how your pricing model your '26 machines as your opening order books for next year. Curious what the customer feedback has been on pricing as you start to price model your '26 machines and feedback on maybe where you're priced versus competitors in some of your different markets as you're opening order books for next year?

Yes, just to clarify, Kyle, the -- where we are more quick to raise prices was on the construction side, where we didn't see really much else happening with our competitors. So we were probably out in front on that one. As it relates to ag, I would say we're 3% to 4% list price you put out there for the early order program that's -- that's translating well. We think that's where the market is, and we're -- it seems to be working as planned. And you can see it from our production slots being filled. That's encouraging. It's tracking as we would have expected. So that's lined up, I'd say.

So construction pricing, we're a little bit more aggressive on increases. Ag, I think we're in line with the market, and that seems to have been well received by the market.

Our next question comes from Jamie Cook from Truist Securities.

I mean, if you look at your guide, your fourth quarter sales implies we're finally up year-over-year versus decline. So I'm just trying to think about that and the backdrop for 2026. It sounds like you broadly think industry demand is sort of flattish in ag, different pockets, obviously, and construction is probably up. Just trying to think of the company-specific items that you can control. And to what degree do you think your earnings could grow next year in a flat market as like next year, you would produce in line with retail demand or potentially better, quality should be an incremental savings potentially supply chain, I guess, tariffs a headwind. But just the big puts and takes there, the things that you can control to hopefully get us comfortable or maybe not that that 2025 would represent the trough of earnings?

Yes. Great question, Jamie. So the production increases that Gerrit outlined in 2026 are not because of the industry is rebounding, it's because we're producing closer to the retail. So under producing less than we did in 2025. So we will get some absorption benefit from that, from the higher production rates. We will, of course, continue and amplify our ID2025 targets that we put out around quality, around supply chain efficiencies. Those areas are sort of working. We're seeing it, strategic sourcing. These are all things that are coming through, as we talked about in Q3. We expect those to keep growing and building. So those are the sources of tailwinds that we're looking towards. And the headwind that you'd point out is the one that we have less control over in the short term, and that's the tariffs.

So as I mentioned on my question we answered Angel, we'll be looking for ways to help offset those tariff costs, but those right now are probably the most significant headwind we've got to grapple with.

Our next question comes from Steven Fisher from UBS.

Just maybe to follow up on that. I'm just curious what the drivers are of the smaller declines in revenue guidance for 2025 and maybe some of the regional color on what you have embedded for Q4 because it seems like ag overall looks like it's implying around 4% growth and construction in the -- and perhaps in the mid-teens. So just a little color on those changes and what's implied?

Yes. So in ag, EMEA will continue to be more strongly performing versus other regions. And construction industries also -- equipment is also to be the one that's driving it forward. The end markets there have been improving. And so those are the 2 areas where we see the sales growth coming from. Part of it also is the -- we're producing -- we're underproducing retail less in Q4 on the ag side, that would also help above and beyond sort of the EMEA improvement. So hopefully, that answers your question, Steven.

Our next question comes from Tim Thein from Raymond James.

Maybe just coming back to the concept of production versus retail in '26. And we covered a lot of ground there earlier, but I just want to make sure I heard correctly with respect to large ag in North America, as I think back in recent months and the commentary for '25 has suggested that in many cases where inventory was a bit heavier, it was more on the small ag side. So I would assume that that gives you more of a production tailwind as we're thinking about into '26, i.e., if there's more upside pressure to production, it would be on the large side versus small, just given the fact that more of the inventory issue has been on the small ag in North America.

So again, kind of bouncing around ideas here, but is that a fair kind of characterization as we think about the outlook -- potential outlook for production in North America split between large versus small?

Yes. I think you're directionally correct, will be a few percentage points -- in the current planning will be a few percentage points higher in large ag than in small ag, when we look at production hours, '26 over '25.

Our next question comes from Daniela Costa from Goldman Sachs.

I have a follow-up on the -- what's implied for Q4 in the guidance because most years, we have a negative seasonality into Q4. I understand you have a little bit of delivery growth here. But even when we have delivery growth, we tend to have negative and you mentioned you don't offset the tariffs entirely. They're higher in Q4, and there's sort of all the other headwinds. So can you walk us a little bit through the tailwinds that drive you to a better than usual seasonality in Q4?

Yes. Yes. Good question. From a margin perspective, the improvement versus history is we've got, again, a line of sight improvement in quality costs and our manufacturing cost. So we're looking for good product cost improvement in Q4. And of course, those are growing. So that's something we're -- we're expecting when you compare it versus 2024 levels. So everything we talked about before, the ID2025 targets you put out, those initiatives are underway, they're delivering. We expect that to continue in Q4.

Our next question comes from Mig Dobre from Baird.

Just a clarification, if I may. I'm a little bit confused about moving pieces to the guidance here. So I'm looking at Slide 17, right? So if I look there on an 11% revenue decline you used to expect 6.5% margin. Now on an 11% revenue decline, we're looking at something more like 3.7% margin. So just the rough math would be we're cutting EBIT here by $430 million, give or take. And this is all second half of 2025. What are the moving pieces here? Because as I understand the tariff assumptions, that alone does not account for this move. So maybe specifically, within this, how -- what dollar figure is associated with tariffs? And what are some of the other elements here?

Yes. It's a good question. So Page 17 is corporate, right, the entire enterprise. What's not broken out there is the mix effect. So we've got construction -- the CE business sales growing. Those are incredibly low margins. So I'm happy with where those are at, but that's not delivering the margin with those earnings or that revenue. And the ag business is not growing at the same pace. So you're seeing a sort of within a segment -- between segment mix happening there. So that also explains why the industrial activities decrementals were so poor in this quarter. CE sales were up. Ag sales were down. And that has that same dynamic. So that's what you're seeing.

Part of what you're seeing on Page 17 is what we experienced in Q3, and that will continue in Q4.

Our next question comes from Mike Shlisky from D.A. Davidson.

It sounds like, as you've been saying you're a few months away from getting to the right level of new inventories in the channel. Are you also a few months away on the used inventory side. Just update us on what's happening there? And is that the point where both new and used are at decent levels at optimal levels, we'll start to see your wholesale sales to be above your retail sales and some kind of restocking again happening at the dealership level?

Yes, great question, Mike. So I think we've seen good success on dealer -- on the used inventory side. I think there's been 3 quarters in a row for CNH Ag dealers declines in the used inventory. So we're pleased with that trend. I wouldn't say it's done at the end of this year, though. It's still higher than historical norms would imply. And so I think there's more work to be done there. That's always been less of a concern for us though. I think it's more of a -- I think your broader industry concern, a bigger concern for CNH and CNH dealers, but it's higher than we'd like. We're making progress over the last few quarters. We think it will continue, but we won't be done. That effort won't be done into Q4.

Our next question comes from Joel Jackson from BMO Capital Markets.

Definitely a couple of months ago, there was some optimism, I know expressed by the management team around South America maybe turning, wasn't clear, but there was optimism a couple of months out later now as you mentioned earlier, the optimism is sort of died down a bit. Can you talk about what you're thinking then and what you're thinking now, what you've seen in the last couple of months?

Well, look, the South American market experienced a higher attention from China when it comes to not only soy, sorghum and other commodities. And we had the sentiment there that overall, when trade clarity comes up that this region would react first to this increased level of certainty when it comes to global trade. As we are still in a moment of uncertainty, I mean, there is a deal announced between the U.S. and China, about 25 million metric tons of soy over the next couple of years, 3 years. We still await the exact numbers, and we will still need to see as an industry, not as only CNH, what are the actual purchase volumes of China when it comes to South American soybeans and other commodities. That will then refuel farmer sentiment in the region when it comes to 2026 planting season, and related equipment sale or purchase consideration.

So it's really around continued ambiguity of global trade and a still existing lack of certainty because I mean you have heard many trade deals being announced, but then the details are not yet disclosed and are not there yet until our farmers are and so are we, we are curious to see those details coming through, which will then lead to more certainty, and that will also then lead to a higher level of predictability when it comes to purchase equipment sales, I mean, equipment purchases. So that is the difference. We haven't really improved on certainty as it comes to global trade conditions. That's the main driver.

Jim alluded also to an increase in -- Latin American increase in delinquencies. Our farmers were expecting a payout from the -- from the local Brazilian farm bill as it comes to purchase of seeds and fertilizer. That was delayed. And so farmers preferenced or basically prioritized purchase of seed fertilizer and imports that purchased rather those instead of, let's say, giving priority to our equipment or the industry's equipment rates. And so that is another drag in the market that is another indicator for uncertainty that has very much unfolded in the third quarter. And we are taking a very cautious view here and so do the farmer.

So more uncertainty and wait and see mentality in Brazil, that's really what has changed. And we need to see what China really buys in the end. One thing is a deal, the other thing is the actual purchase and the consistency of such purchases month after month.

Our next question comes from Ted Jackson from Northland.

Two questions for you. One, with regards to the tariff guidance and what is it -- is it $80 million, I think you said you were going to have in the fourth quarter. What was -- when you -- at the second quarter, what was the view for the tariff impact for the remainder of the year? Honestly, I don't recall what it was when I looked at the past presentation, I didn't see anything in [indiscernible] -- is this -- are the costs that you're putting forth there, is that incremental relative to what your view was, exiting the second quarter going into third?

Yes. Good question. The Section 232 costs were not part of our guidance at Q2. I think we indicated $110 million to $120 million of full year net tariff costs, and then we bumped that up to the current view. So that's -- the biggest reduction in guidance is not from tariffs. Tariffs were a small piece of that. The bigger reduction was more of the items we've gone through were the SG&A increases and the mix effects. Geographic mix came in tougher than we thought.

My next and last question obviously is, even with all the stuff and you look at the change in guidance, you did take your sales number up. At the midpoint, it would be up $650 million to $700 million. In your third quarter, at least relative to consensus was a bit higher this year ongoing. So even if we just say, okay, well, third quarter was better and just use consensus as a proxy, you can back that out. There's another $200 million of sales in the fourth quarter relative to kind of what would have been expected to do something like this with prior guidance. It sounds like it's construction in EMEA that's driving that. And then how much of that increase is, am I right with that, and then is there -- how much of that pickup in revenue is from you being able to push along pricing as you're compensating for things like tariffs and such?

Yes. Yes. So pricing remains a positive driver of revenue in Q4. So that's definitely a favorable item that we've got baked in. The second half change in the guidance that you're seeing though was, again, mostly driven by higher volume sales with -- in sales areas with sort of lagging margins. So the margin that you would associate with any given dollar of sale, just wasn't there given where the sales occurred. So higher sales without the margin delivery coming through it. That's what's really affecting the -- what appear to be a bad incremental or decremental. It's really just the sales mix.

Our final question today will come from David Raso from Evercore ISI.

When you speak to global industry retail next year being flat to slightly down, the order books as they sit today, where are the order books right now versus a year ago? An ideal if you can help us between the North American large ag commentary for next year in EMEA. If you can give us some sense of the order patterns in those 2 regions would be great.

Yes. I think the order coverage we see right now is basically, as I said, Q4 is basically covered everywhere. Q1 largely, let's say, very well on track. We have a bit more order coverage on the North American side than in other regions, but this is pretty comparable, I would say, to prior years. I think there's not a particular pattern here. We are working through, obviously, the other programs, and we're working through, which will be quite exciting for us to showcase the machines next week at the Agritechnica. We have a full lineup of renewed tractors on offer and similar upgrades also on the combines side. So I think the Agritechnica as well will be another stimulating moment when our farmers will see what great machines we are putting out there. And so we're pretty excited to walk you around and show you what we have on offer, but the order books are very much in line with expectations.

David, one more data point that we're excited about, and it's very comforting and validating our flagship combines in North America. The production slots are sold out for the entire year. I think that's evidence of how well that machine is performing, how well it's been received and the value proposition. So that's another good sign about building the right products and markets receiving them quite well.

That concludes today's conference call. You may now disconnect.