CNH Industrial

Good morning and welcome to the CNH 2026 Second Quarter Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. 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 30th, 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 Garrett Marks and CFO Jim Nicholas. 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 Garrett.

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 farmer 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 three to five 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 subsidize 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 three indicators across our major regions, although there is still work to do through year-end. Dealer new and used inventories continue to normalize, equipment fleets 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 break-even levels for many growers, 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 demands. 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 farmer confidence 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 discipline 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 13 cents. 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 five 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 Gritz in Wisconsin, ATV Sachsen in Germany, and Kokri 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 the 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 suppliers 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 demands 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 suppliers 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% from 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. By 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 toward reducing dealer inventory by another 400 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 lower effective tax rate. Retail originations in the second quarter were $2.5 billion, and the managed portfolio ended the quarter at $28 billion. The liquidity rates saw their usual 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 one-time income items, primarily a VAT-like tax credit in Brazil. So that provided about one cent of non-recurring 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 CNH 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 had 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 than 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 onto 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 impacts from the non-renewal of the USMCA 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 reduced Section 232 rates. With that, let me address IEPA 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 one claims process. Now that phase two is open, we're 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 2 claims, we estimate to have about $15 million in claims to be filed in Phase 3 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. We have made tweaks to some of the numbers, mainly based on how we have seen the first half develop. 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 mid-cycle when balancing all the products together. With our order slots now nearly full for the year, we are moving 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. Agriculture 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 forecasts 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 two 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 and $400 million and slightly improved sales and lower working capital assumptions. Adjusted EPS is now narrowed to between 41 and 46 cents. As a reminder, the guidance does not include IEPA tariff refunds beyond the $5 million received in Q2, but it also doesn't include any costs for the discrete or one-off projects that we intend to cover with those refunds. To help you 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. Event 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're lapping that easier comparison now in 2026. But we will be watching market dynamics as the quarter progresses. With that, I'll turn it back to Garrett.

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 farmer 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 maintain continued production discipline as we work towards leaner channel 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, increase 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 two 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.

Thank you. We will now begin the question and answer session of the call. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. To allow time for as many participants as possible, please limit yourself to one question and then return to the queue for any follow-ups. Your first question comes from the line of Chad Dillard with Bernstein. Your line is open, please go ahead.

Hey, good morning, guys. 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'd give me some color on some of the moving pieces to get there. And then, you know, just kind of thinking through the exit rate, you know, how to think about the transition into 27 with those margins.

Yeah, hey, good question, Chad. This is Jim. So a couple of things for the Q3 to Q4. We've got the higher volumes. That's a chunk of it. Lower tariffs are finally, you know, this Q2 we've lapped. This is the first time it's, this is the 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 little bit of a lift as well. And then the operational improvements that Garrett mentioned, we expect to continue as well. So I'd say Vimes and Lower Terrace are the primary, followed by pricing and operational improvements coming in next.

Your next question comes from the line of Stephen Fisher with UBS. Your line is open. Please go ahead.

Great, thanks. Good morning. It's nice to see the positive ag revision to guidance. Just wondering 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, Garrett, you mentioned $400 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 two different directions of things. Thanks.

Yeah, it's Jim. The underproduction will come largely in Q4 this year. The $4,500 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 dissimilar 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 in the guide we gave last time. So the increase we're seeing This year, 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 on to the full year view. And then we did that one-time non-recurring benefit. in corporate expenses from the VAT-like taxes in Brazil. And then, of course, we do see favorable pricing and more operational improvements and then the 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. Your line is open. Please go ahead.

Hi, good morning. I guess it sounds like next year you feel like the ag landscape at this point is going to be flat. Construction's 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. Sounds like pricing should be okay. But any commentary you can frame how you think the setup is for 2027 earnings. Thank you.

Yeah, in your assumption where industry's flat, a couple of things. We should have production levels that are higher because we're selling at closer to 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, operational improvements will continue as well.

Yeah, on the operation side, Jamie, we were making very good progress on the very different ends. I mean, as I alluded to before, on the procurement side, we keep building. We have, you know, we have a four waves procurement program of which the first two waves are now in full swing. Thank you for joining us. 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 plan to have increased production levels in line with retail next year, which should be then the year which is retail flat-ish 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. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my question and sorry to belabor the point here. I guess I just wanted to continue to dive deeper into kind of the second half implications. So you've 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. So, and if I heard you correctly, I think there's still quite a bit of underproduction in that fourth quarter. So can you just, I guess, as we think about a flattish 27 and 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, you know, all else equal, given again, lack of underproduction, operating efficiencies and other factors. That should pull through performance there, or is there anything else that we're kind of missing here?

Yeah, no, it's Jim. Good morning, Angel. I'd say we aren't implying a double-digit EBIT margin in Q4, so your starting point is probably a little too high, to be honest with you. 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 Thank you for joining us today. Diverted, instead of going to shareholders, they're accruing 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'd 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 Rosso with Evercore ISI. Your line is open. Please go ahead.

Thank you for the time. Can you help us a bit with where the 4% underproduction 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 does the tariff help Thank you.

Yeah, 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 and some higher pricing as well.

Your next question comes from the line of Tammy Zakaria with JP Morgan. Your line is open. Please go ahead.

Hey, good morning. Thank you so much. Question on the corporate expense line because I think it's a step down in 2Q because of the tax refund. How should we think about that line for the remaining two quarters?

Yeah, I think typically we ask people to model 55 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'll 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. Your line is open. Please go ahead.

Great. Thank you. And I appreciate some of the commentary on 2027. And was hoping you've provided some good color. 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 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?

Yeah, hey Kyle, Jim, good morning. 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 the more detailed bridge walk just yet.

Your next question comes from the line of Michael Schliske with DA Davidson and Co. Your line is open. Please go ahead.

Good morning and thank you. I know you had some tailwinds on price and currency in the quarter for ag. Can you share with us whether CDH gained any market share in ag anywhere globally?

Yeah, I'm Michael Garrett here. We did indeed have some gains in market share. It is going across the board, actually, from tractors to combines, and it differs a bit by region. And as you know, in most of 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 equipments in EMEA in 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 two brands is really starting to show and that is something that you know 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 Maggie with BNP. Your line is open. Please go ahead.

Hey, morning, guys. Thanks for taking the question. Industrial free cash flow was negative in the first half, and you ended up raising the full year guidance. So I'm wondering if you could help us understand the bridge components to get there.

I'd say Q2 was lower than Q2 last year, largely due to trade payables. We had increased production quite a bit Q2 of last year compared to Q1, so that drove the increase in payables. We didn't see that increase in production this year, and so the trade payable didn't grow. That's basically the chunk of Q2 that accounts for most of the Thanks very much. 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 and kind of what you see going on in Europe and maybe the ramifications for that for the remainder of the year? Then I have a follow up on construction.

Yeah, 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 in EMEA. 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 fertilizer, fuel, etc. All those things have combined, I think, to really put a bit of a pall, cast some gloom over farmer sentiment in the MAF.

And was it across the region in general, or was it located at any particular country?

I think most of Europe. I think UK 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 drought, and that was, I think, in those regions. But we are pretty well spread across, so... Thank you for joining us. 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 By a draught. But we, you know, at the, you know, 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 Thine with Raymond James. Your line is open. Please go ahead.

Thank you. Good morning. I just wanted to come back. Jim, you made a couple comments about, as you're thinking about the fourth quarter, how pricing has come in, the outlook for pricing, all better than you had been assuming. And just thinking about that in the context of what you will be a fairly sizable dealer, de-stocking. So maybe just can you help square that? Is it was it a which obviously can can sometimes weigh against that. So maybe just is there a specific region or or I don't know, segment that you've become a little bit more incrementally positive about.

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

Oh, okay. Thanks.

Your next question comes from the line of Daniela Costa with Goldman Sachs. Your line is open. Please go ahead.

Hi, good morning. Thank you for taking my question. 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?

Yeah, hi, Daniela Garrett here. 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 in 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 thriving on the high volume of the Indian market as we do. So India for us is a great success 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. 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 and Co. Your line is open. Please go ahead.

Hi, good morning. 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 appreciate the incremental color on the dealer consolidation story. 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? Thank you.

Christian, on the dealer consolation, it 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 effective in the regions quite quickly when we have these Better aligned go-to-market stories. And for that reason, we don't see any drag there. When you asked about Brazil combines, I mean, we are looking at the Brazilian combine market. 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 a fairly young combined population in Brazil and that has been aging now in over the last three years of market decline considerably and we are going to approach I think average historic Fleet Ages of Combines we're going to you know approach that probably by you know over the course of next year when then largely the replacement divant is going to carry the industry we need to see what what happens with the elections we need to see what when finally the farm bill that was announced in Brazil starts to pay and when that also helps us to restructure some of the Thank you very much. On the Finco, Jim.

Yep, on the Finco. Look, we think we've got adequate reserves. So nothing in our forecast implies a dramatic change there. That said, it is a concern of ours. We're keeping an eye on it. 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 an eye on this 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. Your line is open. Please go ahead.

Thanks very much. Yeah, my follow up question is really on construction. We spend 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 to walk through with regards to how you see the outlook for 2027, given the backdrop. I mean, like here, here's Volvo. You know, 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, you know, the market for construction is, you know, We agree with your view of the construction market. It is benefiting from heavy infrastructure build-out, data centers, etc., power generation.

We're seeing that as well. I think it's got legs. 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 our CE business. And so we're taking our own actions to improve our own operations. So I think I expect things to get better next year tariffs also um aren't the headwind we don't think 27 that they were in 26 I mean they're not going away but they're not growing um and again you know once once that stabilizes for us we can we can we can focus on on delivering higher results through through through uh new products better pricing and lower costs so I agree with your overall assessment though we see that happening 27.

That concludes the question and answer session. I will now turn the call back to Garrett Marks.

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.