CNH Industrial N.V. (CNH) Q4 2025 Earnings Call Transcript
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Overview
The earnings call reveals several negative factors: a decline in global industry demand, reduced net sales guidance, and margin pressures due to tariffs. Despite some product development and strategic initiatives, these are overshadowed by unfavorable financial metrics, including a significant drop in consolidated revenues and EBIT margins. The Q&A indicates management's cautious outlook and lack of clear guidance on key areas like government initiatives and AI savings, further dampening sentiment. The overall market reaction is likely to be negative, with stock price expected to decrease by 2% to 8%.
Key Financial Performance
Fourth quarter consolidated revenues $5.2 billion, up 6% from Q4 of 2024. Reasons: Positive pricing, higher production, cost-saving actions, and lower corporate expenses offsetting tariffs and geographic mix headwind.
Agriculture segment sales $3.6 billion, up 5% year-over-year. Reasons: Favorable pricing and positive currency translation, with EMEA up 33% and North America down 10%.
Construction sales $853 million, up 19% year-over-year. Reasons: Better sales in North and South America, despite $35 million of tariff costs.
Industrial adjusted EBIT $234 million, up 21% year-over-year. Reasons: Positive pricing, higher production, cost-saving actions, and lower corporate expenses offsetting tariffs and geographic mix headwind.
Adjusted net income $246 million, with adjusted EPS at $0.19, up from $0.15 in Q4 2024. Reasons: Higher sales and income due to favorable pricing and positive foreign exchange impacts.
Industrial free cash flow $817 million, essentially in line with Q4 of the previous year. Reasons: Lower year-over-year change in net working capital offset by better EBIT and cash taxes.
Agriculture adjusted EBIT margin 6.5%, down from 7.2% in Q4 2024. Reasons: Positive pricing and lower R&D offset by negative product and regional mix and higher SG&A related to variable compensation.
Construction adjusted EBIT margin 0.6%. Reasons: Tariffs weighing on profitability, with $35 million of tariff costs offsetting favorable purchasing and manufacturing efficiencies.
Financial Services segment net income $109 million, up 18% year-over-year. Reasons: Interest margin improvements across all regions, partially offset by higher risk costs in Brazil and lower volumes in North America and EMEA.
2025 consolidated revenues Down 9% year-over-year. Reasons: Higher tariff costs and unfavorable geographic mix, partly offset by pricing and cost litigation actions.
2025 Industrial adjusted EBIT margin 4.3%. Reasons: Higher tariff costs and unfavorable geographic mix, partly offset by pricing and cost litigation actions.
Dealer inventory reduction $800 million for the full year. Reasons: Efforts to reduce inventory, though slightly below target due to higher-than-expected Q4 shipments.
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Operating Highlights
New midrange tractors: Introduced a new lineup of midrange tractors tailored for the global market, specifically addressing the European need for large mid-range high-horsepower tractors.
Combine harvesters: Showcased award-winning CR and AF Series machines, highlighting leadership in this segment.
Precision technology: Plans for over 30 precision technology releases by 2027, including advancements in green-on-green spraying and AI-enabled field boundary management.
Aftermarket kits: Launched FLEETPRO line of aftermarket kits in EMEA, targeting legacy products with competitive pricing.
Market share growth: Grew market share in large tractors and combine harvesters in North America during 2025.
EMEA recovery: EMEA is recovering with market share gains in the midrange tractor segment and improved margins.
Dealer network consolidation: Reduced the number of agricultural dealer owners by 5% in 2025, aiming for a 33% reduction by 2030.
Cost savings: Achieved $230 million in cost savings in 2025, targeting $550 million by 2030.
Quality improvements: Realized $150 million in quality cost savings in 2025, with an 8% increase in Net Promoter Score.
Lean manufacturing: Saved $45 million in 2025 through productivity and workflow improvements.
Sustainability: Ranked #1 in the industry on S&P's Global 2025 Corporate Sustainability Assessment, with high scores for climate and water actions.
Construction business partnerships: Exploring partnership options to strengthen the construction business.
Long-term EBIT margin target: Aiming for 16%-17% agricultural EBIT margin by 2030, despite tariff challenges.
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Risk or Challenges
Commodity Prices: Commodity prices remain low, which is a significant challenge as they are the single largest contributor to farm income. This makes it difficult for farmers to operate their farms and purchase equipment, directly impacting CNH's sales.
Trade Environment: The trade environment remains uncertain, creating challenges for farmers and builders to make capital investments. This uncertainty affects CNH's ability to forecast and plan effectively.
Tariff Costs: Tariffs have had a significant impact on profitability, with gross tariff costs affecting EBIT margins in both agriculture and construction segments. The impact is expected to grow in 2026, further pressuring margins.
Geographic and Product Mix: Unfavorable geographic and product mix has negatively impacted EBIT margins, particularly in agriculture. This mix shift is expected to continue to be a challenge in 2026.
North American Market Weakness: The North American market is expected to decrease the most in terms of large equipment industry retail demand, which will significantly impact CNH's revenue and profit pools.
South American Market Weakness: Conditions in South America remain weak, particularly in the construction segment, adding to the challenges in this region.
Dealer Inventory Levels: Dealer inventory levels have not met reduction targets, creating additional pressure on production and sales planning.
Residential Construction Weakness: Persistent weakness in residential construction markets is negatively impacting the construction segment.
Delinquency Rates in Brazil: Delinquency rates in Brazil have stabilized but remain at elevated levels, posing risks to financial services.
Variable Compensation and Labor Inflation: Higher SG&A costs due to variable compensation and labor inflation are pressuring margins in both agriculture and construction segments.
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Guidance & Outlook
2026 Agriculture Industry Outlook: Commodity prices remain low, below many farmers' breakeven point, leading to cautious equipment purchases. North America is expected to see the largest decrease in large equipment industry retail demand. South America remains weak, while EMEA is forecasted to have flattish demand with slight variations in tractors and combines. Global industry retail demand is projected to be around 80% of mid-cycle, down approximately 5% from 2025 levels. 2026 is expected to represent the trough of the cycle.
Agriculture Segment Guidance: Net sales are forecasted to be flat to down 5% compared to 2025, including favorable currency translation of 2% and positive pricing of 1.5% to 2%. EBIT margin is expected to be between 4.5% and 5.5%. Cost initiatives will improve margins by 50 to 75 basis points, but tariff headwinds are expected to grow from 110 basis points in 2025 to about 210 to 220 basis points in 2026. Regional and product mix shifts will have an additional drag of up to 50 basis points.
Construction Segment Guidance: Demand is forecasted to be flattish in both light and heavy equipment, except for South America, which is expected to face further demand pressures. Nonresidential construction markets are expected to offset residential construction weakness. Net sales are expected to be flat year-over-year, including 1% favorable currency translation and 2% pricing. EBIT margin is forecasted to be between 1% and 2%, with tariffs having a gross impact of around 500 basis points of margin.
2026 Industrial Segment Guidance: Industrial net sales are forecasted to be flat to down 4% year-over-year. Industrial adjusted EBIT margin is expected to be between 2.5% and 3.5%. R&D expenses are planned to be flat year-over-year, while CapEx will range between $600 million and $650 million. Industrial free cash flow is forecasted to be between $150 million and $350 million. The effective tax rate is expected to be between 24% and 26%. Adjusted EPS is forecasted to be between $0.35 and $0.45.
Q1 2026 Considerations: Q1 is historically the weakest quarter, with sales expected to drop sequentially in the low to mid-20% range for construction and in the low 30% range for agriculture. Low production levels, unfavorable geographic mix, and full tariff impacts will likely result in breakeven or slightly negative EBIT for agriculture and negative EBIT for construction. Free cash flow is expected to be an outflow, larger than in Q1 2025, due to lower EBIT generation.
Long-Term Strategic Plans: The company plans to launch over 15 new tractors, 10 harvesting products, 19 crop production products, and over 30 precision technology releases by the end of 2027. Precision tech components within agriculture sales are targeted to nearly double to 10% by 2030. Dealer network consolidation aims to reduce the number of first-level owners by about one-third while maintaining competitive point-of-sale coverage. The agriculture EBIT margin target is 16% to 17% by 2030, with ongoing cost-saving initiatives and operational improvements.
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Shareholder Return Plan
Dividends in 2025: CNH returned $333 million to shareholders through dividends in 2025.
Share Repurchase in Q4 2025: CNH repurchased $45 million worth of stock at an average price of $10.02 per share during Q4 2025.
Share Repurchase in 2025: For the full year, CNH repurchased $100 million worth of stock.
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Key Q&A
Q:Can you comment on the progress in North America regarding inventory and the setup for 2027?
A:The company made good progress in North America, slowing down dealer destocking in Europe and South America to prepare for the 2026 season. They fell short of their $1 billion inventory reduction target, landing at $800 million. Dealer destocking is largely accomplished, and the focus is now on fine-tuning inventory levels by product lines and regions as they prepare for 2027.
Q:Can you provide an EBIT bridge for 2026, including incremental savings and offsets?
A:For agriculture, volumes are expected to reduce margins by 190 basis points, geo mix by 25 basis points, and tariffs by 110 basis points. Price improvements are expected to add 175 basis points, and operational improvements combined with higher SG&A will add 25 basis points, resulting in a 5% midpoint margin for 2026.
Q:Is the first quarter ag profitability around breakeven, and what does the guidance imply for the rest of the year?
A:Yes, the first quarter ag profitability is around breakeven. Margins are expected to improve starting in Q3, with better profits in the second half of the year. Q2 will be better than Q1 but not as strong as Q2 of 2025.
Q:Can you provide regional color on the 150 to 200 basis points of price growth expectations for 2026?
A:North America is expected to lead in price growth, followed by EMEA.
Q:Why is your South America ag industry forecast more negative than peers, and is there a difference between Brazil and other countries?
A:The company is cautious due to upcoming elections, global trade uncertainties, and other factors. Brazil is the dominant market in the region, with Argentina showing some momentum. However, the overall outlook remains cautious due to various uncertainties.
Q:How should we think about progress on reducing ag dealer owners by 1/3 by 2030 and increasing sales of dual-branded dealers?
A:Progress will be steady, with some larger deals in the earlier years. The company is focusing on consolidating with ambitious dealer partners and selectively implementing dual-branding where it makes sense.
Q:What is your view on farmer sentiment in North America and the potential impact of U.S. government initiatives?
A:Farmer sentiment in North America is not great, with flat projected income for 2026. The company is monitoring potential government initiatives that could provide support to the agricultural industry.
Q:Can you elaborate on the green shoots in Europe and the product launch pipeline?
A:The company sees positive momentum in Europe, particularly in tractors, supported by state initiatives in Germany and Eastern Europe. They are excited about new product launches, including mid-range tractors, next-gen combines, cotton pickers, and compact tractors, which are expected to have a meaningful impact starting in 2026.
Q:Where did the prebuy come from, and are there incremental savings opportunities with AI?
A:The prebuy mainly came from Europe, particularly in tractors. The company is exploring AI applications across various areas, including FieldOps, contextual AI in machines, and back-office processes, to drive efficiency and cost savings.
Q:How much revenue was pulled forward to Q4 that would have otherwise occurred in Q1, and could revenue growth occur in late 2026?
A:Approximately $100 million to $150 million in revenue was pulled forward to Q4. Revenue growth could occur in late 2026 as the company aligns production with retail demand.
Q:How should we think about SG&A growth in 2026 versus 2025?
A:SG&A is expected to grow by about 40 basis points in 2026, assuming a normalized level of variable compensation.
Q:Can you provide color on the free cash flow guidance and CapEx outlook for 2026?
A:CapEx is expected to increase in 2026, primarily for enhancing manufacturing facilities, dealer enhancements, and strategic sourcing programs. The focus is on improving efficiency and preparing for an upturn in 2027.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the potential impact of U.S. government initiatives on the agricultural industry, stating only that discussions are ongoing. Additionally, while they mentioned AI applications, they did not commit to specific cost savings or efficiency improvements attributable to AI.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Agriculture segment
Agritechnica
America EMEA
Sustainability
ability
ag basis
ag sale
basis tariff
benefit
breakeven
commitment
currency translation
dealer access
dealer partner
excellence
expansion
feature
goal
harvester
improvement
machine connectivity
margin tariff
message
order dealer
owner point
pace saving
partner progress
point EBIT
point margin
point market
point sale
point tariff
pool year
product launch
product mix
production level
profitability
pull
reliability
sale currency
saving warranty
sustainability
tariff mix
tool
CNH Transcript
CNH Industrial N.V. (CNH) Q4 2025 Earnings Call Transcript
Unknown2-17
The earnings call reveals several negative factors: a decline in global industry demand, reduced net sales guidance, and margin pressures due to tariffs. Despite some product development and strategic initiatives, these are overshadowed by unfavorable financial metrics, including a significant drop in consolidated revenues and EBIT margins. The Q&A indicates management's cautious outlook and lack of clear guidance on key areas like government initiatives and AI savings, further dampening sentiment. The overall market reaction is likely to be negative, with stock price expected to decrease by 2% to 8%.
CNH Industrial N.V. (CNH) Q3 2025 Earnings Call Transcript
Unknown11-7
The earnings call presents a mixed picture. While there are positive signs like reaffirmed EPS guidance and better-than-expected currency impacts, concerns remain over tariff costs and declining margins. The Q&A reveals uncertainties about offsetting tariffs and achieving inventory targets, which could weigh on investor sentiment. Despite positive developments in production and sales, the lack of guidance for 2026 and global trade uncertainties further complicate the outlook, resulting in a neutral sentiment.
CNH Industrial N.V. (CNH) Q2 2025 Earnings Call Transcript
Unknown8-1
The earnings call reveals a mixed outlook with several concerning factors: declining revenue and EBIT margin guidance for 2025, uncertainties around tariffs, and increased delinquencies in Brazil. Although there are positive signs for 2026 and efforts towards cost savings and quality improvements, the immediate guidance is weak. Additionally, management's unclear responses on tariffs and partnerships further add to uncertainties. Given these factors, and without the influence of market cap data, the overall sentiment is negative, expecting a stock price decline of -2% to -8%.
CNH Industrial N.V. (CNH) Q1 2025 Earnings Call Transcript
Unknown5-1
The earnings call reveals significant challenges: declining revenues, margins, and EPS, compounded by tariff uncertainties. While management projects improvement in the latter half of the year, immediate financial metrics are weak. The Q&A session highlighted uncertainties and management's lack of clarity on key issues like EPS impact from tariffs and pricing adjustments. Despite a share buyback and dividend, the overall sentiment is negative due to weak guidance and financial performance, suggesting a likely stock price decline in the near term.
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