Executive Summary / Key Takeaways

• Strategic Reorientation Amidst Cyclical Trough: CNH Industrial is deliberately underproducing to retail demand and aggressively destocking dealer inventories, aiming to align production with retail sales by H2 2025. This "painful" but necessary strategy positions the company for the anticipated market upturn, expected to trough in 2025, by ensuring a lean channel with fresh, high-quality inventory.
• Deepening Technological Moat: Significant investments in in-house precision technology, exemplified by the FieldOps platform and the Starlink partnership, are enhancing product capabilities and farmer productivity. These innovations are crucial for CNH's long-term competitive differentiation, pricing power, and market share gains.
• Robust Cost & Quality Transformation: CNH achieved substantial run-rate cost savings of $600 million by end of 2024 and is relentlessly focused on quality improvements, which are reducing warranty costs and bolstering operational efficiency. These structural changes are vital for expanding mid-cycle margins and improving financial resilience.
• Financial Resilience Despite Headwinds: Despite a challenging market leading to a 14% consolidated revenue decline in Q2 2025 and a 55% drop in Industrial Adjusted EBIT, CNH reaffirmed its full-year 2025 guidance for sales, EBIT margin, and EPS ($0.50-$0.70). Favorable working capital management is expected to push free cash flow towards the upper end of its $100 million to $500 million guidance range.
• Competitive Positioning and Risks: CNH's geographic balance and integrated financial services provide a distinct advantage, though it faces strong competition from peers like John Deere and Caterpillar , particularly in technological leadership and overall profitability. Macroeconomic uncertainties, including evolving tariff policies and regional market pressures (e.g., Brazil delinquencies), remain key risks to monitor.

The Resilient Roots of CNH Industrial: A Foundation for Future Prosperity

CNH Industrial N.V. (NYSE:CNH) traces its origins back to 1842, a testament to its enduring presence in the capital goods sector. Over nearly two centuries, the company has evolved into a global powerhouse, designing, producing, and selling essential agricultural and construction equipment. A pivotal moment in its recent history was the 2022 demerger of Iveco Group N.V. (IVG), which sharpened CNH's focus on its core agricultural and construction machinery businesses. This strategic streamlining has allowed CNH to channel its resources more intently on innovation, operational excellence, and market leadership.

The company operates through three distinct yet interconnected segments: Agriculture, Construction, and Financial Services. This diversified structure, coupled with a globally balanced exposure, positions CNH uniquely against its peers. Its financial services arm, CNH Capital, provides critical retail and wholesale financing, fostering deep customer loyalty and offering a strategic advantage, especially during volatile market cycles. This integrated approach, from equipment manufacturing to financing, underpins CNH's ability to support its extensive dealer network and end-use customers worldwide.

Forging a Technological Edge: The Iron and Tech Integration

At the heart of CNH's long-term strategy is a relentless drive to integrate cutting-edge technology with its robust machinery, a concept management refers to as "iron and tech integration." This commitment is not merely aspirational; it is yielding tangible, differentiated solutions for its customers.

A prime example is the FieldOps platform, CNH's in-house developed offboard farm management system, which fully launched in August 2024. FieldOps allows farmers to monitor equipment—regardless of brand—and gather agronomic data with a tap of the screen. This platform is foundational, relying on the same software architecture that will be integrated into new onboard operating systems across CNH's equipment over the next couple of years. The strategic intent is clear: to deliver "several updates and upgrades to our onboard and offboard digital technology every year," accelerating the pace of innovation.

Further enhancing connectivity and data flow, CNH announced a collaboration with Starlink in May 2025. This agreement will provide superfast and cost-efficient satellite-based connectivity to farmers using Case IH and New Holland machines, even in remote areas where cellular connections are unreliable. Available as both factory-fit and retrofit options, Starlink seamlessly integrates with FieldOps, promising to "help farmers stay connected and enhance their productivity." This connectivity is critical for advanced applications like prescription spraying, where CNH's SenseApply (Case IH) and IntelliSense (New Holland) solutions—powered by vision technology from the 2023 acquisition of Augmenta—leverage AI to transform drone images into field maps for precise application, thereby "reducing input costs and helping farmers grow more sustainably." The "cost-effective solution for farmers as it requires no annual subscriptions or per-acre fees" highlights a direct, quantifiable benefit for end-users.

For investors, this technological roadmap is a critical competitive moat. By bringing more technology in-house and integrating advanced digital solutions, CNH aims to gain greater control over its product ecosystem, enhance the "value functionality content" of its machines, and ultimately command stronger pricing power. This focus on innovation directly supports the company's goal of expanding product leadership and growing margins, positioning it for sustained success in an increasingly data-driven agricultural landscape.

Navigating the Current: Financial Performance and Operational Discipline

The global economy is experiencing volatile disruptions, marked by soft commodity prices, high stock levels, and shifting trade policies. This challenging backdrop has significantly impacted demand for capital goods, leading CNH to implement a deliberate strategy of underproduction to retail demand.

In the second quarter of 2025, consolidated revenues were $4.71 billion, a 14.2% decline (13.7% on a constant currency basis) compared to Q2 2024. This was primarily driven by lower shipment volumes due to decreased industry demand and continued dealer destocking. Industrial Adjusted EBIT for the quarter fell 55% to $224 million, down from $502 million in Q2 2024. This decline was largely a result of lower shipment volumes and an unfavorable geographic mix, particularly a 36% decrease in sales from the higher-margin North American Agriculture segment, which accounted for over 90% of the total Ag sales decline.

Despite these headwinds, CNH demonstrated operational resilience. The Agriculture segment's gross margin was 21.8% (down from 24.4% in Q2 2024), impacted by lower production volumes but partially offset by purchasing efficiencies and lower warranty expenses. Management noted that pricing was "a bit better than neutral" in Q2 2025, supported by targeted incentives to clear aged and used inventory. The Construction segment's net sales decreased 13.1% to $773 million, with Adjusted EBIT at $35 million, reflecting lower volumes but partially offset by favorable net price realization.

The Financial Services segment, a crucial differentiator for CNH, reported net income of $87 million in Q2 2025, a decrease from $91 million in Q2 2024. This was mainly due to increased risk costs in Brazil, stemming from depressed crop prices and adverse weather events, and a higher effective tax rate. However, the segment benefited from interest margin improvements and favorable volumes in most regions, underscoring the value of a captive finance arm in volatile times. The managed portfolio stood at nearly $29 billion as of June 30, 2025.

CNH's commitment to cost optimization is evident in its achievement of $600 million in run-rate savings by the end of 2024, with $375 million in Cost of Goods Sold and $186 million in Selling, General, and Administrative expenses. These structural cost reductions are providing a partial shield against market downturns, contributing to a 25% industrial decremental EBIT margin in 2024. Furthermore, a "relentless focus on quality" is beginning to yield results, with total year-to-date quality expenses "significantly below last year's," and management expects the $146 million in higher warranty costs incurred in 2024 (to proactively address field quality issues) not to repeat in 2025.

Competitive Landscape: A Balanced Global Player

CNH operates in a highly competitive heavy machinery market, vying for market share against formidable rivals such as John Deere , Caterpillar , and AGCO Corporation . Each competitor brings distinct strengths and weaknesses, shaping the strategic dynamics CNH must navigate.

John Deere (DE), a dominant force in agricultural equipment, typically exhibits stronger revenue growth and profitability margins. Its TTM Gross Profit Margin of 39% and Operating Profit Margin of 23% surpass CNH's 32.38% and 18.32%, respectively. John Deere is often perceived to have a more advanced edge in precision agriculture technologies. CNH, however, counters with its integrated financial services, which can foster stronger customer loyalty and potentially lower customer acquisition costs. CNH's geographic balance, particularly its strong presence in emerging markets like India and South America, also provides a unique advantage, allowing it to benefit from shifts in commodity demand that might favor these regions.

In the construction segment, Caterpillar (CAT) stands as a global leader, known for its durability and performance in heavy-duty applications. Caterpillar's TTM Gross Profit Margin of 36% and Operating Profit Margin of 20% also exceed CNH's, reflecting its market dominance and pricing power. While CNH's Construction segment focuses on versatility and a broader portfolio that includes agricultural offerings, Caterpillar's brand presence and faster innovation in areas like engine technology give it a material advantage in large-scale projects. CNH's strategic decision to pause discussions on strategic partnering for its construction business, due to market uncertainties, highlights its cautious approach in this competitive arena.

AGCO Corporation (AGCO), another significant player in agricultural equipment, often demonstrates competitive gross margins (TTM Gross Profit Margin of 25%) but can experience more volatile profitability due to its exposure to agricultural cycles (TTM Operating Profit Margin of -1%). CNH's comprehensive ecosystem, including its financing arm, offers a differentiated customer experience compared to AGCO's more straightforward equipment sales model. CNH's extensive dealer network also provides a broad distribution reach, a key asset in competing for market share.

Overall, CNH's market positioning is competitive but not dominant. Its financial health, as reflected in its TTM Debt/Equity ratio of 3.59, is higher than John Deere's 2.87 and Caterpillar's 1.97, indicating a more leveraged capital structure. While CNH's integrated financing and geographic diversification are significant competitive advantages, it acknowledges a need to accelerate technological innovation and operational efficiency to narrow profitability gaps and capture greater market share, particularly in high-tech segments. The company's strategic sourcing program, aimed at transforming its supply base and achieving cost reductions, is a direct response to these competitive pressures.

Outlook and Guidance: A Path to Rebalancing

CNH's management maintains a clear outlook for 2025, anticipating it to be the "trough level of global market demand." The company has reaffirmed its full-year 2025 guidance, projecting:

• Industrial Net Sales: Down 11% to 19% year-over-year.
• Industrial Adjusted EBIT Margin: Between 4.5% and 6.5%.
• Free Cash Flow from Industrial Activities: Between $100 million and $500 million, with management expecting it to be closer to the upper end due to favorable working capital management.
• Diluted Earnings Per Share (EPS): Between $0.50 and $0.70.

This guidance is predicated on several key assumptions. Production hours are planned to remain intentionally low through the first half of 2025, with the goal of aligning production with retail demand in the second half and into 2026. This strategy is designed to aggressively reduce dealer inventories, which were estimated to be $1 billion to $1.5 billion too high at the end of 2024. The company expects to hold, if not grow, market share in 2025.

The outlook also incorporates the evolving impact of tariffs. While tariffs on Chinese goods have decreased, steel and aluminum tariffs have doubled from 25% to 50%. CNH is still calculating the full 2025 impact from tariffs on U.S. imports of copper and potentially semiconductor chips, but the overall assumed tariff impact is roughly in line with the midpoint of prior guidance. Management anticipates that most of this impact will flow through in the second half of 2025. Pricing for the full year is expected to be positive, despite the need for targeted incentives to support dealer destocking.

Regionally, North America's large cash crop segment is expected to see a significant decline of 25% to 30% year-over-year in 2025. South America, having entered its downturn earlier, is expected to show the first signs of recovery, though the exact timing remains uncertain. EMEA is also anticipated to experience a lower decline phase in 2025 compared to North America. CNH's globally balanced exposure is seen as a key asset in adapting to these regional shifts.

Conclusion

CNH Industrial is navigating a challenging cyclical downturn with a clear, disciplined strategy focused on long-term value creation. By deliberately reining in production to aggressively reduce dealer inventories, the company is preparing its distribution channels for the eventual market upturn, which is anticipated to trough in 2025. This strategic patience, while impacting near-term financials, is crucial for maintaining pricing power and ensuring a healthy, efficient sales ecosystem.

The company's significant investments in in-house precision technology, exemplified by FieldOps and the Starlink partnership, are foundational to its future competitive edge. These technological differentiators, combined with a relentless focus on quality and structural cost optimization, are expected to drive margin expansion and enhance customer satisfaction, positioning CNH to capture market share in an increasingly technology-driven industry. While facing stiff competition from larger peers and macroeconomic uncertainties like evolving tariff policies, CNH's unique geographic balance and integrated financial services provide a robust framework for resilience and future growth. Investors should watch for continued progress in inventory reduction, the realization of cost savings, and the successful rollout and adoption of its advanced technological solutions as key indicators of CNH's trajectory towards sustained profitability and market leadership.