CNH Industrial

Thank you, Sandra. Good morning and good afternoon, everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's second quarter 2021 results for the period ending June 30. This call has been broadcast live on our website and is copyrighted by CNH Industrial. Any other use, recording, or transmission of any portion of this broadcast without express written consent of CNH Industrial is strictly forbidden. We are pleased to have here with us today our CEO, Scott Wine, and our CFO, Don Enchisa, who will be hosting today's call. They will use the material available for download from the CNH Industrial website. After their presentation, we will be holding a Q&A session in which also Gary Marks, President, Commercial and Specialty Vehicles, and CEO designated for the to-be-created on-highway company will be available to respond to questions alongside our CEO and CFO. Please note that any forward-looking statements we might be making during today's call are subject to the risk 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's most recent report, 20F, a new annual report, as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and equivalent authorities in the Netherlands and Italy. The company presentation may include certain non-GAAP financial measures. Additional information, including reconciliation to the most directly comparable GAAP financial measures, is included in the presentation material. One final remark, once again, our team is connected 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, and welcome to all of those of you joining the call. I recently equated our tireless efforts to manage this crazy supply chain situation to a game of whack-a-mole. If they ever make that an Olympic sport, I put odds on CNH Industrial to win a gold medal. Our entire team performed admirably in the second quarter, adroitly navigating supply chain constraints, rising commodity costs, and ongoing COVID concerns to deliver robust financial results. Solid operational execution and healthy demand from our end markets drove strong net sales across all segments, which in combination with positive pricing and margin improvement activity, helped us establish second quarter records for earnings per share and free cash flow. Impressively, Derek Nielsen and his Ag team delivered record EBIT margins of 14.7%. I'm extremely proud of the outstanding execution of our C&H Industrial team in the second quarter for keeping our employees safe, delivering for our customers and dealers around the world, and making C&H Industrial a little bit better every day. Our industries are clearly in a cyclical upturn, and our team's tireless and innovative efforts enable us to capture much of the benefit. This very healthy demand environment, along with the excellent second quarter performance of each of our businesses, contributed to growth in both shipments and order books. With the acquisition of Raven Industries, we are adding significantly to our precision agriculture capabilities and establishing the foundation for sustainable competitive advantage. We also continue to make progress toward the spin, defining leadership structures and roles for each company with an emphasis on agility and customer centricity. Both SpinCo and RemainCo are laser focused on delivering for our customers throughout these activities. With market demand and customer sentiment rising, our production facilities moving mountains to satisfy customer needs, and a comprehensive plan being nimbly executed by our dedicated team, C&H Industrial is poised for a very respectful second half. We do anticipate more cost pressure than the first half, but we're ready to start 2022 strong with two independent businesses. While it is customary to discuss industry volumes in year-over-year format, comparing our Q2 results with last year's pandemic depressed numbers is not exactly insightful. Of note, however, is that in most industry segments, we outperformed pre-pandemic levels. The ag machinery industry remains strong, extending the themes we saw last quarter, including rising commodity prices, growing trade with China, and the replacement of aging agricultural machinery fleets. High horsepower tractor sales were impressive across all regions, up almost 50% in North America and nearly 25% worldwide. While in combines, the demand continues to improve, with all markets growing over 10% versus 2020. Compared to 2019, both tractor and combine industry volumes were up across all regions, except in combines in Europe, which were relatively flat. We are confident that the agriculture segment will continue to outperform through 2021, given our existing order backlog, which now extends well into 2022. For construction equipment, we see persistent growth in both the light and heavy segments. The former is largely driven by continued strength in residential construction, while the latter is due to increased contractor demand as well as preparations for the probable U.S. infrastructure bill. Construction equipment demand in South America is particularly high, driven by overall segment demand in Brazil. Versus the same quarter in 2019, the construction industry grew double digits on a worldwide basis and was up across all regions aside from heavy in North America and Europe. The European truck market was up 45 percent year over year in the second quarter. Light trucks were up 40% driven by a combination of surging e-commerce sales, continuing camper growth, and an upswing in construction. Medium and heavy-duty trucks were up 60% due to vaccine progress, accelerating industrial activities, and government-funded truck replacement schemes. Compared to Q2 2019, the European market was down 11%, with light-duty trucks up 5% and medium and heavy down 12%. The over 3.5-ton South American truck market increased by 78% compared to Q2 2020. This market also grew 22% versus Q1 2021 and 24% versus Q2 2019, with solid demand increase across all segments. Buses saw a slight uptick in the quarter driven by post-pandemic commuting increases and transportation authorities adding capacity. Despite the minor improvement, we still see bus registrations a bit negative for the year. The overall situation for production and dealer inventories did not improve much throughout the quarter, but I am still pleased with our team's adept handling of the ongoing supply chain issues. Looking at the sequential quarters, retail trends improved, with trucks and ag up more than CE, which was flat. Retail trends depend on production and dealer inventory, and improving those continues to be challenging. Dealer inventories remain at historically low levels, and between supplier-constrained production on one hand, and exceptional retail demand on the other, we were unable to fully meet consumer demand or replenishment requirements. Fleets continue to age, and indications are that this cycle will remain positive momentum for the next several quarters. Our ag order books more than doubled year over year for both tractors and combines, driven by strong demand across all regions, with the North American high horsepower order book almost up six times for tractors and five times for combines. Although somewhat inflated by anticipated production constraints, the backlog for products now extends well into next year, with farmers booking fiscal year 2022 combine slots before even starting to harvest this year's crops. As expected, ag production slightly trailed retail in the quarter. For construction, we underproduced retail worldwide by 6%, with company inventory down 40% versus Q2 levels last year. Our order books are up 2.8 times year-over-year for the segment, with growth in all regions. For trucks, we overproduced retail sales worldwide by 10% in the second quarter in preparation for the planned August break. Light trucks overproduced retail by 11%, while in medium and heavy duty, we overproduced retail by 7% for the second quarter. Company inventory was up 22% in light, down 18% for medium and heavy. The truck book to build in the EU was at 1.22, with light-duty trucks at 1.07 and medium and heavy at 1.74, of which heavy-duty trucks ended at 1.89. Market share for trucks in continental Europe was up overall for the second quarter of last year, with light up 350 basis points to 13.4 percent and medium and heavy up 80 basis points to 9.1 percent. Liquified natural gas market share for IVECO was at 57%, and market penetration for LNG trucks overall remained steady at about 4%. Order intake in Europe was up 150% compared to the second quarter of 2020, with light-duty trucks up 140% and medium and heavy-duty trucks up 170%. We also saw continued strong demand and results from our parts and service businesses, supporting the efforts of our whole good businesses, as well as providing a boost to our margins. I'll now turn the call over to a donor to take you through some of our key financial details.

Thank you, Scott, and good morning or afternoon to everyone. I'm now at slide six with our Q2 results highlights. For the top line, second quarter net sales increased 65% due to higher volumes, mix, and price realization across really old segments. Similar drivers also accounted for an 800 basis points increase in our gross margin. On the bottom line, Q2 adjusted EBIT increased by 757 million with an adjusted EBIT margin of 8.2%, driven by strong performance across segments. Free cash flow in the quarter was a cash inflow of $1 billion due to the strong operating performance and positive working capital contribution. Industrial activities net cash at $1.4 billion, an increase of $800 million from March 31, 2021. Q2 adjusted net income was $583 million, or $0.42 adjusted earnings per share. The adjusted effective tax rate for the quarter was 25%. At the end of Q2 2021, our available liquidity stood at $14.4 billion, up $542 million sequentially. Turning to slide seven, we focus now on industrial activities net sales, which were $8.5 billion, up 55% on a cost-to-currency basis. As you can see at the bottom of the slides, sales by region and product in the quarter-over-quarter comparisons were up across the board on admittedly easy comps, where they were almost 19% higher on a cost-to-currency basis when compared to the second quarter of 2019, with agriculture 30% higher. Foreign exchange totalization had an impact of approximately 10% in the quarter. Agriculture's net sales totaled $4 billion, up 49% on a constant currency basis versus prior year, mainly due to the higher industry demand, better mix in all regions, and favorable price realization. If we look at the performance per region, North America and Europe were driven by a better mix of high-horsepower tractors, where South America was fairly strong across all product categories. Construction net sales were $808 million in the quarter, up 86% on a cost and currency basis, as a result of higher volumes driven by industry demand, channel inventory, the stock in actions in 2020, and higher price realization. Commercial and specialty vehicles net sales reached $3.2 billion in the quarter, up 71% on a cost and currency basis year over year, and 16% higher than 2019, primarily driven by higher truck volumes. Powertrain net sales total 1.3 billion in the quarter at 55% on a constant currency basis. Sales to external customer accounted for 42% of total net sales. That was 63% last year. It is worth noting that the comps on FPT are difficult on external sales as those sales remain strong to Chinese customer after the first quarter of 2020 and appear lower in 2021 in proportion to the recovery that is happening now in the other geographies. Additionally, in the back half of the year, we will start noticing the effect of discontinuation of a large third-party contract for non-road engines. Turning to slide eight now, with a look at the industrial activities adjusted by segment and driver, volume and net pricing were the clear drivers for the increase across all segments in the quarter. Pricing alone was higher than the combination of surge in production costs in 2021, and more normalized SG&A spend when considering exceptional circumstances of Q2 2020. If we take a closer look at each segment, Q2 2021 adjusted EBIT for ag was $582 million, with an adjusted EBIT margin at 14.7%, driven by higher volumes, favorable mix, positive price realization of almost 6% for the quarter, partially offset by higher raw material and freight cost, and higher SG&A and R&D spent, as well as higher variable compensation. For construction, adjusted EBIT was $24 million, an increase of $111 million, with an adjusted EBIT margin of 3% due to better volume and mix, positive price realization, and favorable quality performance, partially offset by higher material cost and freight cost. Last year, profitability, was significantly impacted by COVID-19 and exacerbated by necessary stocking and pricing actions. Commercial and specialty vehicles' adjusted EBIT was $100 million, with adjusted EBIT margin of 3.1%. The $256 million increase was driven by favorable volume and mix and positive price realization, partially offset by higher material costs and IRS, G&A, and R&D spent from low levels of prior year, as well as higher variable compensation. Powertrain adjusted EBIT was $74 million, an increase of $42 million, with adjusted EBIT margin at 5.7%, with increased volumes partially offset by exceptionally high freight costs of $25 million in the quarter and higher spending for regulatory and new programs. In summary, on the right hand of the slide, gross margin was up across segments with price realization and increased fixed cost absorption, more than offsetting the higher input and transportation costs. Moving now to slide nine and our financial service business, net income was $99 million, up $46 million compared to Q2 2020, primarily due to lower risk cost and improved pricing on user equipment sales. In the quarter, retail originations were $2.9 billion, and the managed portfolio, including JVs, at the end of the period was $27 billion. Delinquency was down sequentially by 10 basis points, and they remain at historically low levels. Slide 10, I'd like to discuss the net financial position and free cash flow performance of our industrial activities. Free cash flow of industrial activities was positive $1 billion due to the strong operating performance. While working capital did contribute to the overall result, it was not as notable this quarter as there were more of a balance of inventories and payables growth. Total debt was $24.5 billion at June 30, 2021, and industrial activity net cash position was $1.4 billion. In May 2021, the company paid $180 million in dividends to shareholders, and in the same month, CNH Industrial Capital LLC issued $600 million in aggregate principal amount of 1.45% per annum notes due to 2026. Liquidity remains strong at 14.4 billion. And as a reminder, the consideration for deposition of revenue industries will be fully paid out of available cash at the closing of the transactions expected in Q4 this year. Slide 12, we have our full year 2021 outlook. We have again increased our industry expectations across most of our regions and segments as the combination of global reopening, escalating industrial production, and increased movement of people and goods continue to drive demand for our products. We expect the ag industry recovery to continue. At this point, we see notable strength in North America and South America for combines and tractors, with generally strong demand across all ag regions. Farmer sentiment was stabilizing recently. is still at a high level due to commodity price and income both rising, as well as continued Chinese soy and corn demand. The sentiment has been slightly muted by higher input cost inflation, drought situation in some pockets, and somehow constrained availability of machinery. For construction equipment, we see industry demand continue to recover, with heavy equipment significantly increasing its contribution to the upcycle. Optimism from contractors alongside a strong housing market continues to drive sales and order books. Demands for trucks continues to show substantial industry upside for 2021. And while we have slightly lower outlook for Europe, heavy and medium trucks will still increase a fair amount on a year-over-year basis due to the combination of consumer spending, vaccination rates, and initial grants from the EU Recovery Fund. We expect this positive momentum to continue, contingent upon the cadence of the main European economies and the ability of the supply chain to keep up with demand. Buses are the only segment expected not to grow, mainly due to a still substantially depressed tourism and college success. Considering our strong Q2 financial results and our robust order books for the remainder of the year, we have chosen to update our guidance as follows. For 2021, we now expect net sales of industrial activities to be up between 24% and 28% year-over-year. Our expectation for SG&A is confirmed lower than or equal to 7.5% of net sales. We anticipate positive free cash flow of industrial activities to be higher, exceeding the $1 billion mark. R&D and CapEx will be up slightly from the projected $2 billion combined spend for the year. Lastly, we now estimate the impact of raw material cost increases, freight costs, and other supply chain constraints to be at around $1 billion for full year 2021 when compared to 2020, offsetting a large portion of the price realization we continue to pursue. Finally, as mentioned earlier, in the back half of the year, we expect FPT's margin to be pressured by both constrained engine component supplies and discontinuation of a meaningful third-party engine contract. FPT is developing new customers to replace these volumes, but these will start in 2022. So for modeling purposes, I wanted to point these out. This concludes my prepared remarks, the financials, and I will now turn back to Scott for his final remarks.