CNH Industrial

Good morning and welcome to the CNH third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We do ask that you limit yourself to one question and one follow up. Thank you. I will now turn the call over to Jason Omer, the Vice President of Investor Relations.

Thank you, Jeannie, and good morning, everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's third quarter results for the period ending September 30th, 2024. This call is being broadcast live on our website and is copyrighted by CNH. Any other use, recording, or transmission of any portion of this broadcast without the express written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO Garrett Marks and CFO Adone Anchisa. They will reference the material available for download from the CNH website. Please note that any forward-looking statements that we might 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 10-K annual report as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. The company 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. In addition, the presentation has been updated for an immaterial revision to our reported joint venture results for 2023 and the first half of 2024 related to our unconsolidated Turkish joint venture whose functional currency is the Turkish lira. The Turkish economy was deemed highly inflationary in 2022, and CNH has determined that CNH's translation of the joint venture results into U.S. dollars under highly inflationary accounting resulted in an immaterial overstatement of CNH's results. In today's presentation, prior period results, and variances to those results have been updated to reflect this revision. The impact by quarter can be found in the appendix of today's presentation materials. With that, I will now turn the call over to Garrett. Thank you, Jason, for clarifying this point up front, and thanks to everyone for joining our call.

The third quarter marked my first three months as CNH's Chief Executive Officer, and I wanted to take a few moments to share some of my observations with you. As in every cycle downturn before, this is a financially challenging environment for most of our farmers. Depressed commodity prices continue to weigh on farm income, and sentiment remains muted and uncertain across regions. We've had low visibility on the industry cycle so far, especially as the retail pace has been slowing month over month. As in prior cycle swings, but in a more proactive way, We continue to work with our dealers as they reduce their inventory levels, which are above our set targets entering 2025. We know what needs to be done here, and our efforts to underproduce retail demand will continue into 2025. I have visited many of our manufacturing R&D sites, and I'm encouraged by the desire and attitude to drive quality more consistently in everything that we do. We are on a very good trajectory here. With this spirit, we have also taken significant strides to address quality issues stemming from a protracted labor strike, and we have the fixes in place to support our end customers. Overall, within 2024, we will have spent around $100 million to address various field quality priorities. We've also been diligent in pursuing cost efficiencies in our plants. and we are taking action to rebalance capacities where necessary. Beyond that, we are also evaluating options to simplify our footprint. I'm really excited about the strategic sourcing work we are doing and how it will transform our supply base and how we work with our supplier partners. We are taking many strategic actions to drive long-term value and efficiency across our businesses in continuation. of the well-timed and properly targeted interventions Scott Wine launched some time ago. We have an outstanding product portfolio, and I appreciate the tremendous amount of work being done to bring our new tech to market with in-house solutions, both for factory fit and the aftermarket. We have a lot of great things in our product launch pipeline coming over the next few years, and you will see our unprecedented lineup in about one year at the AgriTechnica 2025 show. Despite the headwinds we are experiencing in the macro environment, I'm very energized by the passion and expertise of our employees, and I thank them for their diligent work in delivering for our customers and for their daily suggestions on how to improve our business. As we work together as one team, we bring practical, reliable, and performing solutions to farmers and builders. There's a lot to do and to transform as we write our next chapter, and I'm humbled and honored to lead our global team on this transformational journey. Turning to the quarter, we continue to execute our cost reduction activities. As Adon will explain in detail later during the quarter, we have saved an incremental $85 million in costs to shore up our gross profit, and we achieved an additional $45 million in SG&A savings. These cost savings are an obvious must-do for two reasons. First, we must respond to the market reality and ensure we align our operating efficiency and effectiveness across all areas. We must continue our journey to structurally improve our margins for the long term while investing in our future products and services. This is a daily and weekly grind and will progress inch by inch. Our refocused organization structure has been operating throughout the business for about two months now. Our leadership team is working together more closely and frequently than ever, and that's helping to ensure the team is aligned on the ground and making well-informed decisions. Following the successful progress of the first wave of our strategic sourcing program, we kicked off the second wave with our supplier convention in Orlando, Florida, with 700 existing and potential future suppliers representing just about $2 billion in annual purchase volume. While one part of our team is working on implementing the Wave 1 contract, worth around $2 billion in purchases, another part of the team is starting the supplier selection for the Wave 2 components. Such a comprehensive challenge of our entire supply base has not been done in a while and has already started to surface great new and existing relationships with our supplier partners. We are upgrading and aligning most of our commercial and qualitative supply terms for a mutually beneficial future. In August, we fully launched FieldOps, our new and long-awaited off-board farm management system that was developed in-house, and we are already getting very positive feedback from our customers. This new web and mobile platform allows farmers to monitor their equipment, whether CNH or other OEMs brands, and gather agronomic data with the tap of a screen. FieldOps relies on the same software foundation that we'll be fully integrated with the new onboard operating system rolling out in our equipment over the next couple of years. Our in-house technology journey is accelerating. The third quarter brought continuous challenges across the industry. We saw ongoing pressure on retail demand, but we have moved to reduce production and shipment volumes in response, which is reflected in the financial results and in our updated guidance. We are pursuing a material reduction in dealer inventories by the end of the year and will continue our efforts until we reach our target levels. Third quarter consolidated revenues were down 22% and industrial net sales were down 25% as we worked toward underproducing the retail demand to help our dealers to lower their inventories. Sales were down in all regions across both agriculture and construction tied to a 27% year-over-year reduction in production hours on top of the first cut of 10% in ACK in Q3 2023. Our industrial gross margin reduced by 220 basis points versus the same quarter last year, and the adjusted EBIT margin was 8.4%, down 340 basis points compared to Q3 2023, primarily driven from the lower equipment deliveries partially offset by our cost reduction actions. APS was $0.24 compared to $0.40 last year. I already mentioned how industry demand remained weak in the third quarter as farmers dealt with lower farm incomes and builders are largely caught up on their CapEx backlogs. Ag demand in Brazil and Europe continues to be weak, and the expected softness in North America row crop demand has begun to manifest. Dealers continue working through their new and used inventory, which is above our target levels. We estimate dealer new inventory is about $1 to $1.5 billion, or around 1 to 1.5 months too high. While we reiterate that in the current market, our primary lever for achieving channel inventory reductions is to lower production. We also took some focused pricing actions on specific subsets of inventory that that are directed at retail sales and dealer support for used sales in the coming months. There's so much good that comes from a relentless focus on quality, from more efficient plant operations to lower warranty claims to healthier price realization and higher customer satisfaction levels. Our machines do very tough work, and the stress is exceptional at times. We not only have to get first-time quality done right, But moreover, the service performance for our end customer needs to be an area of attention as we redeploy our resources from the back end to the front end of our business. We are proud that despite the industry headwinds, our teams remain steadfast in delivering excellence to our customers along all of those lines. With that, I will now turn the call over to Adonis to take us through the financial results.