CNH Industrial

Thank you Sara, good morning and good afternoon everyone. We would like to welcome you to the webcast and conference call for CNH Industrial first quarter 2021 results for the PO ending March 31st. This call is being broadcast live on our website and is copyrighted by CNH Industrial. Any other use, recording or transmission of any portion of this broadcast without the express written concept of CNH Industrial is strictly forbidden. We are pleased to have here with us today our CEO, Scott Wine, and our CFO, Donin Shiza, who will be hosting today's call. They will use the material available for download from the CNH Industrial website. After today's presentation, we will be holding a Q&A session. Please note that any forward-looking statements we might be making during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor Statement, including the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company most recent report to NTF and EU report as well as other periodic reports and filings with the US Securities and Exchange Commission and the equivalent authorities in the Netherlands and Italy. The company presentation may include certain non-GAAP financial measures. Additional information including regulation to the most directly comparable GAAP financial measures is included in the presentation material. One final remark, once again, our team is connecting from different countries, so please forgive us if there are moments of silence during the call while we manage the transition between speakers. I will now turn the call over to Scott.

Thanks, Federico. I would like to begin by commending our entire C&H Industrial team, especially our supply chain and production personnel, for their exceptional efforts not only to keep our factories working for our customers, but also to drive margin improvement in this very turbulent environment. We're seeing very strong market demand across the board in every region and each of our segments. This rapid acceleration is typically a more positive scenario and certainly upside remains. But in conjunction with COVID-related slowdowns and other unique capacity constraints, this spike in demand is exacerbating the commodity shortages and shipping restrictions we are creatively working to address. For example, Tom Verbotten and his team's adroit management of an excessively long list of lagging parts and services has both kept operations running and increased inventory turns, leading to strong revenues and lean stock levels at the end of the quarter. Our robust start to 2021, exceeding both the first quarter of 2020 and the first quarter of 2019 results, reflects the team's ability to deliver solid top and bottom line growth while overcoming the aforementioned challenges and, of course, assimilating a new CEO. It is a testament to the commitment, drive, and ingenuity of our global workforce, as well as the wisdom and drive of our senior leadership team, which together are our foremost competitive advantage. Next, I'll review the industry volumes that we saw in the quarter to better put our business results in context. The ag machinery industry was quite healthy in Q1 due to a range of factors, including rising commodity prices, improving trade with China, and replacement of aging fleets. Tractor sales worldwide were up over 50% and global combine sales were also strong. We expect the agriculture segment to continue performing well in 2021, given that our order backlog now extends deep into the second half of the year with production for cash crop equipment fully covered through year end in North America. Construction equipment again saw growth in light machines driven by the ongoing surge in the residential segment And we were pleased to see fleet demand drive expansion in heavy equipment as well. Our regions outside of Europe demonstrated vigorous year-over-year recoveries, albeit from fairly easy comps. For an industry that for years has been driven almost solely by China, this renewed global strength is encouraging. The European truck market was up over 22% year-over-year in the quarter, recording the highest quarterly industry volume since the third quarter of 2019, and only marginally below the first quarter of 2019. In total, light trucks were up over 20% year-over-year for the quarter, driven by Europe but with double-digit growth across the board. Medium and heavy-duty trucks were up 16%, also with strong performance in all of our end markets. Finally, the worldwide bus market continues to lag, driven by effects of the pandemic on travel, as well as delayed spending in municipal and regional transportation authorities. Despite supply chain constraints and higher than projected retail demand, we outproduced worldwide tractor retail by 5% in the quarter, while in combines we overproduced by 14% worldwide and by 41% in North America. The company inventory levels for tractors and combines versus year and 2020 was therefore up 25% and 60%, respectively, ahead of the key ordering and delivery season for these machines. These elevated production levels enabled us to keep pace with demand, but output challenges remain as our ag order book more than doubled year over year for both tractors and combines. Very strong growth in North America for tractors and South America for combines is keeping pressure on our factories, but thanks to the determined execution of Derek Nielsen and his ag team, daily production rates will increase progressively throughout the year. Construction equipment overproduced retail worldwide by 14% in the quarter, but just 5% in North America, where demand was exceptionally strong. Company inventory for light and heavy equipment was up 38% and 13% respectively versus previous year-end levels. Our order books remain up year-over-year in all regions for both heavy and light construction. Trucks overproduced retail sales worldwide by 18% in the quarter. In Europe, we overproduced retail in light duty trucks by 18% and by 16% in medium and heavy trucks. Company inventory was up 38% in light trucks and 4% for the medium and heavy segments. Truck book to bill was 1.92 for Europe and 1.29 for South America. Market share in Europe for trucks was flat overall versus the first quarter of 2020. IVECO's LNG market share was at 53%, and industry penetration for LNG trucks was approximately 4%, up more than 100 basis points from 2020. With improving economic conditions, government stimulus, and another round of tightening engine emissions requirements, order intake in Europe was up almost 100% compared to the first quarter of 2020, with light-duty trucks up 95%, and medium and heavy-duty trucks up 101%. Order intake for natural gas-powered trucks nearly tripled, driven by Poland, Germany, and Italy. This combination of solid retail performance and very healthy order books gives us confidence in the strength of our sales through most of 2021. I will now turn the call over to Adonay to take you through some of our key financial details.

Thank you, Scott, and good morning, good afternoon to everyone on the call. I'm now at like six with our Q1 results highlights. For the top line, first quarter net sales increased 41% with higher volumes, mix, and price realization across all segments. Likewise, these drivers accounted for 700 basis point increase in our gross margin, also benefiting from higher production levels. Moving down the P&L, first quarter industrial activities adjusted EBIT surged to 545 million with an adjusted EBIT margin of 7.7% driven by strong performances across segments. Free cash flow in the quarter was a cash outflow of $371 million, reflected seasonal capital absorption. Industrial activity net cash ended the quarter at $591 million, a decrease of $0.2 billion from December 31, 2020. Q1 net income was at $425 million, or $0.30 per share. Adjusted net income was $454 million, or adjusted yielded earnings per share of $0.32. an increase of $520 million compared to the same quarter of 2020. The drafted effective tax rate for the quarter was 25%. At the end of Q1, our available liquidity stood at $13.9 billion, down $2 billion sequentially. Turning now to slide seven, we focus on industrial activity net sales, which were up $2.1 billion and 36% on a cost and currency basis. Sales by region and product in the quarter-over-quarter comparison were up across the board, certainly helped by the initial COVID impacts in the prior year period, but also significantly supported by accelerating demand. Foreign exchange translation had an impact of approximately 5% in the first quarter, and net sales split by region was directionally aligned with last year, but we continued to model the rest of the world share increase. Agriculture's net sales totaled $3 billion in the first quarter, up 34% on a cost and currency basis versus prior year, mainly due to higher industry demand, better mix, favorable price realization of 4.2% gross, and lower stock inactions. If we look at the performance by region, North America and Europe showed better mix in high-horsepower tractors and combines. In South America, we have strong harvester sales. Construction net sales were $656 million in the quarter, up 55% on a cost and quality basis as a result of higher volumes, realignment of dealer inventories to higher retail deliveries, and better price realization. Commercial and specialty vehicles net sales reached $2.8 billion in the quarter, up 30% on a cost and quality basis year-over-year, primarily driven by higher truck volumes across all regions, and an already strong COVID-19 impact in Europe in March 2020. Powertrain net sales totaled 1.2 billion in the quarter, up 52% on a cost and currency basis, driven by stronger OEM demand. Sales to external customers of FPT accounted for 47% of net sales. That number was 44% last year. Turning now to slide eight, with the industrial activities adjusted EBIT by driver and by segment. Volume and net pricing were the primary drivers for earnings increase across all segments in the quarter. Q1 2021 adjusted EBIT for ag was $399 million with an adjusted EBIT margin exceeding 13% driven by strong sales, better mix, and positive price realization. For construction, adjusted EBIT was $25 million with a 3.8% margin, an increase of $108 million due to the positive price realization cost containment, lower quality related charges, and favorable volume and mix. Commercial and specialty vehicles adjusted EBIT was 76 million with adjusted EBIT margin at 2.7%, driven mostly by favorable volumes and mix in Europe and South America and positive price realization on the back of stronger demand. This was the highest Q1 profitability for the segment since 2013. Paltrain adjusted EBIT was $115 million, an increase of $84 million, with adjusted EBIT margin of 9.3%, thanks to higher production and strong sales, partially offset by higher freight costs and higher R&D spending. On the right-hand side of this page, you can appreciate the gross margin performance across segments. That was driven by price realization, high production volume, and lower quality costs, despite the initial raw material adverse impacts and raising trade costs. Moving to the slide nine and our financial service business, net income was $91 million, up $11 million compared to quarter one 2020, primarily because of lower credit risk provision, favorable retail loan and lease margins in North America, and better results from the sales of off-lease used equipment. In the quarter, retail originations were $2.4 billion, and the managed portfolio, including JVs, at the end of the period was $25.8 billion. Delinquencies were down 50 basis points over the same quarter last year and remain at historically low levels. Next on slide 10, I'd like to discuss the net financial position and free cash flow performance of our industrial activities. Free cash flow with industry activities was negative $371 million as a result of historically low seasonal working capital growth, with inventory increase partially offset by higher payables. Consolidated debt, including our financial service liability, was $23.8 billion at March 31st, 2021, and industry activity net cash position at $591 million decreased from $786 million as of December 31st, 2020. During the quarter, the industrial activities gross net debt decreased 14% to 6.3 billion for $7.3 billion at the end of December 2020. It was in large part accomplished by exercising the make-all call on the residual €316 million CNH Industrial Finance Europe notes due in May 2022, and the early repayment of various bank facilities due in early 2022 for $440 million. This is in line with our capital allocation that includes an effort to lower industrial activities gross debt while our operations improve their financial performances. On this note, I will ask Scott to comment on our growth path, and I'll be back for the Q&A.