Daniela Costa

Daniela Costa sought clarification on the source of the 'prebuy' (specifically Europe) and asked about the potential for AI to drive incremental cost savings and system simplifications within CNH's ongoing self-help initiatives.

Answer

CEO Gerrit Marx confirmed that the positive 'prebuy' was mainly from Europe, particularly in tractors. He also provided regional updates: Australia/New Zealand are replacement-driven and on a positive trajectory; China is holding ground; and India achieved its highest-ever market share. Regarding AI, Marx stated that applications are 'everywhere' within CNH, including FieldOps, contextual AI in machines, and back-office processes to speed up and drive efficiency. He noted that AI is driving faster, more efficient outcomes and contributing to cost savings, though he did not commit to specific percentage numbers.

Daniela Costa sought clarification on the source of the 'prebuy' (Europe) and asked whether AI applications are helping CNH accelerate cost savings and system simplifications amidst ongoing self-help actions.

Answer

Gerrit Marx, CEO, confirmed that the 'prebuy' was mainly from Europe, specifically in tractors. He also noted positive trends in Australia/New Zealand (replacement-driven), China (gaining share in non-Chinese brands), and India (highest-ever market share, scouting for new compact tractor sites). Regarding AI, Marx stated that it's applied across the company, including in the Field Ops platform and for back-office efficiency. He believes AI drives faster, more efficient outcomes and contributes to cost savings, though he did not commit to specific percentage numbers for AI-driven savings.

Daniela Costa of Goldman Sachs asked about two distinct topics: the drivers behind the increase in financial delinquencies and the current status of the previously paused search for a partner for the construction equipment business.

Answer

CFO Jim Nicholas attributed the rise in delinquencies almost entirely to Brazil, citing a tough cyclical environment for farmers there, and stated the issue is believed to have peaked. CEO Gerrit Marx clarified that while some discussions for a construction partner were paused due to tariff uncertainty, other strategic talks, particularly for large excavators, are still progressing. He said the current focus is on execution without distraction.

Sought clarification on the reasons for the North American market outlook downgrade and the basis for the comment that the German market is bottoming out. She also asked if Germany is a margin-accretive market.

Answer

The North America downgrade was based on public Q1 market data showing a 9% decline, not on observed project cancellations. The view on Germany bottoming out is based on feedback from the sales force and expectations of a slow pickup in infrastructure projects. It was confirmed that Germany is a margin-accretive country.

Asked why an HVAC contract was prioritized for the Charleston facility over potentially more attractive HVDC projects, and inquired about the risk of aluminum from Asia being dumped into Europe due to U.S. tariffs.

Answer

The HVAC contract was chosen for the Charleston plant based on lead time to fill a production gap, not technology preference; HVDC projects are scheduled for 2026. While the risk of aluminum dumping from Asia exists and requires vigilance, it has not been observed yet, as Europe's supply chain has already been diversified away from single sources.

Daniela Costa of Goldman Sachs inquired about the supply-demand balance in the low-voltage market, asking about current lead times and visibility, especially given capacity additions by ABB and peers and a potentially softer U.S. macro environment.

Answer

CEO Morten Wierod responded that capacity is being added to meet strong demand and reduce reliance on imports. He noted that lead times are still longer than historical norms, indicating that demand remains robust. He expressed no short-term concerns, citing the strength of long-term electrification and infrastructure projects.

Daniela Costa from Goldman Sachs Group, Inc. inquired about the supply-demand balance in the low-voltage market, given that ABB and its peers are adding capacity. She asked about current lead times and visibility, particularly in the context of a potentially softer U.S. macro environment.

Answer

CEO Morten Wierod responded that capacity is being added to meet strong existing demand and reduce reliance on imports. He noted that lead times remain longer than historical norms, indicating that the market is not yet oversupplied. He expressed confidence in the long-term electrification trend, especially in infrastructure, which provides resilience against short-term macro softness.

Daniela Costa from Goldman Sachs followed up on the 2025 Electrification margin, asking about the mix within the backlog and whether strong market conditions are enabling greater pricing power compared to other divisions.

Answer

Executive Morten Wierod stated that he does not expect significant help from pricing in 2025, as it contributed only about 1% in 2024 and capacity is improving. He emphasized that margin improvement will come from 'self-help' initiatives like supply management and productivity. He also noted that no significant change in the full-year business mix is anticipated for 2025.

Daniela Costa from Goldman Sachs followed up on the 2025 Electrification margin, asking about the mix within the backlog and whether strong end-market demand is creating enhanced pricing power for the segment.

Answer

Executive Morten Wierod stated he does not expect significant help from pricing in 2025, as it was about 1% in 2024. He emphasized that margin improvement will come from 'self-help' initiatives like supply management and productivity. He also noted that while quarterly mix can vary, no significant change in the full-year business mix is anticipated for 2025.

Daniela Costa from Goldman Sachs Group, Inc. followed up on the 2025 Electrification margin, asking about the mix within the backlog and whether the segment has increased pricing power due to strong demand.

Answer

CEO Morten Wierod stated he does not expect significant help from pricing in 2025, as it was about 1% in 2024. He emphasized that margin improvement will come from 'self-help' initiatives like supply management, automation, and productivity. He does not foresee a significant change in the full-year business mix for 2025, though quarterly fluctuations are possible.

Daniela Costa from Goldman Sachs inquired about the supply-demand dynamics in the low-voltage market, given that ABB and its peers are adding capacity, and asked for an update on product lead times.

Answer

CEO Morten Wierod responded that the capacity expansions are necessary to meet strong market demand and reduce reliance on imports, as lead times remain longer than historical norms. He expressed confidence that the long-term electrification trend and infrastructure needs, especially in the U.S., mitigate any short-term overcapacity risks.

Daniela Costa from Goldman Sachs Group, Inc. asked about the impact of large prepayments on cash seasonality and requested an update on cost inflation trends for the year.

Answer

CFO Laurent Martinez explained that while the order pipeline is strong, the phasing of bookings between H1 and H2 is still uncertain, which will impact cash flow. He confirmed the full-year free cash flow commitment remains. On inflation, he stated there were no surprises and the company continues to mitigate it through indexed contracts and back-to-back supplier agreements, expecting no issues.

Daniela Costa from Goldman Sachs asked for insight into the expected pace of free cash flow recovery, considering the recent strength in service orders which typically do not include down payments.

Answer

CFO Laurent Martinez explained that the key drivers for H2 free cash flow are the acceleration of deliveries and standard down payments from a strong non-services order intake. He expressed confidence that the cash flow generation in H2 would align with previous expectations, seeing no negative evolution from the H1 perspective.