Good morning, and afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2018 Full Year and Fourth Quarter Results Conference Call. For your information, today's conference is being recorded. [Operator Instructions]. At this time, I'd like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir.

Thank you, Emma. Good morning, and afternoon, everyone. We would like to welcome you to the CNH Industrial Fourth Quarter and Full Year 2018 Results Webcast Conference Call. This call is being broadcast live on our website and is copyrighted by CNH Industrial. Any other use, recording or transmission of any portion of this broadcast without the express written consent of CNH industrialist is strictly forbidden. We are pleased to have here with us today CNH Industrial CEO Hubertus Mühlhäuser; and our CFO, Max Chiara, who will be hosting today's call. They will use the material you may download from the CNH Industrial website. After their presentation, we will be holding a Q&A session. As a final comment, please note that any forward-looking statements we might be making 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 report 20-F and EU Annual report as well as other periodic reports and filings with the U.S. Securities and Exchange Commissions and their equivalent authorities in Netherlands and in Italy. The company presentation may include certain non-GAAP financial measures. Additional information including reconciliations to the most directly comparable GAAP financial measures is included in the presentation material. Please also note that starting from Q1 2019 onwards, as a result of the new jack organization, we have consistently updated the geographical composition of our regional sales information as indicated in supporting material of this earnings release. I will now turn the call over to Hubertus. Hubertus Mühlhäuser: Thank you, Federico, and good morning, and good afternoon to everybody on the call. The last time that we spoke I stated that one of…

Thank you very much, Hubertus, and good morning or good afternoon, everyone on the call. Moving now to Slide 5. The key figures for the fourth quarter and full year. In summary, we finished the quarter with strong earnings and improved operating profitability across all our segments after most end markets remained healthy during the quarter. Net sales in our industrial segments were up 3% in constant currency for the quarter and ended up 7% for the full year. Importantly, adjusted EBIT was up 24% in the quarter and 40% for the full year, leading to an adjusted net income for the year of $1.1 billion, up 72% from 2017. EPS was up $0.34 to $0.80 per share for full year 2018. The tax rate for the year was 27%, down from 38% in 2017 and we expect it to remain stable at this level during 2019. We were able to lower net industrial debt by 1/3 to $0.6 billion by focusing on improving cash flow and reducing overall debt levels. Available liquidity was $8.9 billion, down $0.4 billion compared to full year 2017. The liquidity to revenue ratio was maintained at 30% with a third-party industrial debt-to-EBITDA ratio at 2X, down from 3X last year. This performance is a clear sign that we remain fully committed to further improving our credit rating from the current levels as well as achieving a net industrial debt-free position. Turning on to Slide 6. Let's discuss the full year performance in our Industrial Activities net sales, excluding the impact of foreign exchange translation. For the full year, net sales increased $1.9 billion, up over 7% with all businesses up year-over-year. Agricultural Equipment contributed $1.1 billion and was up 10.4% as a result of a favorable cash crops subsegment in North America and recovery…

Thank you very much, Hubertus. This concludes our prepared remarks for the full year results. And we can now open up for questions. Operator, over to you.

[Operator Instructions]. We will take our first question from Steven Fisher from UBS.

It sounds like you assume more or less the current conditions in AG but maybe with a more challenged first half on tougher comps. Could you just talk about what you assume for the second half? And kind of what were the various trade scenario possibly -- possibilities mean for your outlook?

Sure, this is Max. So the answer is yes, we maintain a very cautious approach in AG. And as you know, the resolution on the trade dispute is still up in the air and which doesn't allow us to make any particular confident statement about the back half of the year. So I would say that we continue to maintain cautious throughout the year for now. Hubertus Mühlhäuser: And as we've said as between -- this is Hubertus, between flat term up 5%. And obviously, if the trade issues are resolved earlier, this can go higher but for the time being to everybody that we're talking right now, this seems to be the reality that we're living in right now in 2019.

Yes, but a status quo in your mind will still support enough of replacement demand market to... Hubertus Mühlhäuser: The replacement, the replacement is...

Your outlook, it sounds like... Hubertus Mühlhäuser: Yes, currently, currently that demand is driven by replacement demand that is there. Commodity prices could come a bit better, they're not really helping right now. They have stabilized but they're still below what they have been last year. So if we see a positive sign there, which we should if these trade issues abate, then it could go higher. And the absence of that, and the absence of resolution, we are living through a replacement demand right now which would give us flat to 5%.

Okay, great. And then on construction, I think you said your order book on heavy construction was flat but you're looking for 10% industry growth in North America, which is your largest segment of course. Can you just talk about what you assume there for 2019 to drive some acceleration? Or is your North American order book actually up and how much?

Yes, the order book is reflecting a much healthier position at the dealers in terms of having restocked their inventories to support the larger demand. So I think we are kind of -- now that the inventory positions at the dealers is lineup with the new industry, we are seeing an adjustment to the order book for the first part of the year. And this is a comment that is valid for NAFTA. In the rest of the geographies, we see a solid order books in line with previous years.

And just how are you thinking about... Hubertus Mühlhäuser: And of course, we're hopeful. Sorry, I said we're hopeful that we're going to have a huge infrastructure within NAFTA that can drive even higher numbers but we have -- we don't have that right now.

Yes, I was -- because I was just going to ask about how you are thinking about the first half versus the second half in construction overall? And whether anything like that factors into how you might think about the second half in your guidance? Hubertus Mühlhäuser: Same comment, that's an uncertainty. If it comes through, it's going to be very, very good if it doesn't come through its going to be what we have said. That's the cautiousness in our guidance right now.

We will now take our next question from David Raso from Evercore ISI.

I was curious, the scope of what we should expect to hear at the capital markets day, shall we expect business targets for each division? And maybe give us some sense of -- you obviously went through enough of a strategic review to change the organizational setup. Maybe just give us some sense of where we stand today versus sort of completing that strategic assessment if there's bigger portfolio decisions or things of that nature we shall also expect to hear at the meeting? Hubertus Mühlhäuser: Yes, well, as you've seen, we have made quite some significant changes to our organizational structure and taking complexity out. And with that new announced team, we're in the midst of developing that strategic plan, which we will announce in the course of the year. That plan obviously is going to have margin targets per segment with the underlying strategic initiatives that will get us there over the next years. And that's what we're going to share with our investors. We will also of course look at the portfolio and as said in our earlier statements, we basically want to bring each of our business to a full potential and we have heavy investments into the megatrends, and then, however, we also have a lot of synergies between the different divisions and total investments minus synergies is then going to drive the portfolio strategy, which of course we are going to share at that capital markets day as well.

And while you are expecting -- please go ahead. Hubertus Mühlhäuser: Rest assure we are -- Pardon. Yes.

Sorry, please go ahead. With the step up in CapEx and R&D -- sorry for the delay on the phone. Go ahead. Hubertus Mühlhäuser: No, it's okay. Ask your question, it's fine, it's your time.

I was curious that the meeting in the strategic assessment. I know we want both revenue growth and margin expansion. Just trying to think through the step-up in CapEx, the step-up in R&D, if we're trying to digest a -- as a tone change but really just trying to understand where you're looking to take the company, when we think of pruning any businesses, where we're looking to focus, would you argue this is more of margins overgrowth if you had to say where we're trying to lean as a more of an operational improvement angle? Or would you say the step-up in CapEx and R&D would argue, it's very balanced trying to find acceleration of growth and margin? Just trying to get a sense of as a tone change of how we [indiscernible] going forward. Hubertus Mühlhäuser: Well -- we going to look at our business from an operational lens and from a strategic lens. Needless to say the operational lens, a lot of the different items are already in play. I mean, we're rolling out 80/20, we're de-complexing the organization, we're driving continuous improvement with world-class manufacturing. We just basically have to put everything on the table and then see where that leads us operationally, and then we're also going to take a strategic lens, where do we want to ring those business. Just evolution is not going to be enough. So we're going to look, where can we grow. And in other areas perhaps beyond our classical equipment business and as the AG scene, for example, is changing dramatically and so is the Construction Equipment we will look also into other segments where we can basically find pockets of growth and that might lead them to M&A activity. But let's not jump to conclusion at this point in time. It's just very clear we're going to have an operation and a strategic lens when driving our strategic plan and looking at our strategies and we will share all that with the investor community later in the year.

That's helpful. One last quick question, the 2018 sales guide -- sorry, 2019 sales guide was essentially flat. Can you help us with which segments you expect to be up and which ones down to net to the flat? Hubertus Mühlhäuser: Well, we said flat to modestly up. I guess you can assume that construction is going to be continue to grow. So will AG. And Max, anything to add on that?

No, just I would like to add a comment that the segment that is going to be kind of seeing a little bit of headwind's next year on the top line is probably Powertrain because of the stockpiling activity that went through in 2018. There's going to be some stockpiling going on next year but at the much milder pace, it's going to affect engines below 56-kilowatt.

We will now go to our next question today from Ann Duignan from JP Morgan.

My first question is around the whole notion of flattish to slightly up demand in AG in through for next year or agricultural versus the build-up of inventory. I mean, why we're overproducing this year particularly tractors up 27%, combines up -- I mean, was that just to boost Q4 profits and absorption? Or we now sit with 4% more inventory, date on hand is extraordinarily high versus a year ago and our outlook is for flat at best with no visibility?

There has been no particular portion on the Q4 earnings and this is Max speaking. The 27% number for the tractors in unit equivalent is 4,000 tractors in total on a worldwide basis and is evenly split among the regions. We're actually producing to kind of bring the inventory up to the level that is required by the slightly sustained demand that we have seen vis-à-vis historical comparable periods. So I mean, in general terms for tractors, there was a step-up in inventory to support demand. For combines, the inventory is actually almost flat and we have recovered the under production that we went through in 2017 on row crop NAFTA in 2018 and now we expect to produce in line with retail going forward.

For combines and tractors?

Yes.

Okay. And then as a follow-up on the commercial vehicle business, the trade-off between diesel products and the loss of market share in the heavy and medium-duty diesel business versus the ramp-up of CNG, LNG and then the alternative fuels is probably going to lag the decline in your current market share. Can you describe what -- how bad could it get for margins in that business as we try to transition away from scale, heavy-duty, medium-duty diesel to alternative fuel vehicles which could ramp slower? Hubertus Mühlhäuser: Well, we're not going away from diesel completely, we've changed our commercial policies and reduced our buybacks, which was basically a goal in reduction of market share by design. And this has been mostly compensated by an increase in LNG- and CNG-driven vehicles. And we see this trend to continue but it's more -- less driven by us and more by the demand because the business case for an LNG heavy truck is just so much better than for a diesel truck that despite us having a very, very competitive diesel offering, our customers are moving and switching over to LNG because specifically, in Europe, diesel has a lot of uncertainties these days. And now our customers fear that they're not allowed with their diesel trucks into the Metropole city areas and so, therefore, the LNG is a credible alternative. And that would, of course, help us also to fill our factory specifically in Madrid. So I think that's going to be good and it's going to help absorption. Yes. And on the infrastructure I think that's also noteworthy Ann, because I think you have been at last year at the IAA in Hannover and Germany is lagging a good infrastructure and I think we're making a mega push this year with that consortium and also with our mobile LNG stations that by latest midyear I would say, we have a grid that is supportive of large truck fleets. And as you know the autonomy on LNG is fairly remarkable. I mean, you drive from London to Madrid with 1 fill, it's around 1,600 or 1,700 with 1 fill up, which is really good in terms of autonomy and independence, plus, all the other benefits, economic benefits that you have.

Okay. And just finally, any idea around when the Capital Markets Day might take place? You gave us calendar for '19 and it's conspicuously absent?

It will not be in Christmas, okay. It will be before and it will not be a supreme event. It's going to be mid of the year. It's going mid of the year and we're trying to find a very nice place to hold you guys, okay.

Our next question today comes from Rob Wertheimer from Melius Research.

So maybe this is a question you're going to defer but I want to ask you anyway is when you came in Hubertus, and you looked at where you stood on some of the megatrends that you highlighted and that we've been talking about. Was it an obvious conclusion that you felt like you are behind? Maybe it's a multiyear race and it's just getting started? And then do you have any comment on whether partnering is adequate or whether you need to be doing more internally? Hubertus Mühlhäuser: No, actually and I think I said this last time. I mean, the more I get to know the company the more positive surprises we see and sometimes, we had been shy talking about what we really do. So if you take the digital revolution in AG, I don't think they were that bad. I think if you look at the rollouts that we have done last year and this year, we're absolutely competitive with our digital AG offering but our objective is not to catch up with some of our competitors just to leapfrog them. And I think if you look at our moves into agronomy space, I think that is actually setting the pace here in AG and if we drive now jointly with Farmers Edge these agronomy solutions further, I think we're going to be in a very, very competitive spot in AG. The same goes for the truck market. I mean, everybody is talking about electrification but make no mistake, electrification for a heavy-duty truck, battery-powered that's going to be 8, 9 years out and what are you doing in the interim. And I think we have invested the last decades into the LNG and CNG technologies and we are the market leader by far on that…

We'll move to our next question today from Joe O'Dea from Vertical Research Partners.

Can you talk about price cost assumptions for 2019? I didn't catch whether or not you're assuming pure neutrality? Or whether you think that price can offset cost based on what some peers have talked about with AG pricing and some construction pricing that could be a more favorable backdrop?

Sure. So as we said last quarter, the situation is not changed we continue to see headwinds into raw material particularly in the first half of the year, including also the impact from the tariff now that in absence of resolutions remains an estimated impact of between $50 million and $100 million for the full year 2019. All of those more than offset by pricing performance expected in 2019. Some of that pricing performance is already in the market, some of that is being announced and it's going to be rolled out in the course of Q1. So we expect in the course of the year to be able to wash the two impact one with the other.

Okay. And then on Commercial Vehicles, your expectations for performance relative to the end markets and I guess, primarily Europe and as you talk about being more focused on more profitable product lines and clearly, more proactive on the pricing front in the quarter. Do you think that translates into some underperformance? Or it doesn't look like in 4Q there was any apparent underperformance versus the end market but I'm just wondering, what you think that means in 2019?

So the game plan is, obviously, we are taking into the neck from a volumes less negative absorption point of view when we reduce our deliveries that are primarily associated with those buyback transactions. The expectation is that we had a cover that impact from a better pricing and a better product mix and that is what has happened actually in the last 2 quarters. We expect to continue to be, let me say, in that race particularly in the first part of the year when we're still going to have tough comps to compare against from a volume point of view. But as we move into the second part of the year, the expectation is that we should actually have a tailwind on the potential -- tailwind on the volumes less absorption as we continue to build our book on the LNG, CNG applications.

Our next question comes from Chad Dillard from Deutsche Bank.

So the guidance bakes in a healthy amount of margin expansion. So I was hoping you could potentially unpack the drivers by segment and comment on whether you're seeing as more of a first half or second half event? Hubertus Mühlhäuser: Max do you want to?

So we don't guide yet margin by segment. The expectation as we said during the call is there's going to be more tough comps in H1. So probably let me say, the stronger improvement is backloaded but yes, the expectation from the management team is to continue to look at year-over-year margin progression as we move along the course of the year.

That's helpful. And then just going back to your comment about building inventories across the business. Maybe can you help us think through where inventory should land as we exit 2019 by segment?

So again, it's going to be painful to go by segment on the inventory. Let me say that we expect inventory now that we have ramped up company inventory to be kind of in good shape from end market point of view. There are certain uncertainties as an example associated with the situation in the U.K. with Brexit. So we are kind of putting together countermeasures to protect our businesses in case of a no deal situation. So we're kind of affecting our inventory right now with some buffer to protect the market uncertainties. And depending how those unfold, we may be able to release the inventory buildup or not but it remains to be seen.

Our next question today comes from Ross Gilardi from Bank of America.

Hubertus, if you guys are going to come out with margin targets across the different businesses, should we presume that you're going to really strive to hit those targets before you make any big portfolio changes? Hubertus Mühlhäuser: Well, first of all, we don't put our targets that we don't want to hit, that's the first thing. And we're going to show you how we're going to hit it. So it's got to be not only fantasy it's going to be very, very clear steps how we're going to get to those margin targets. And on the portfolio question, let's cross the bridge when we get there by midyear and then we're going to answer the question then.

Do you have a view right now if we're at a peak in the European truck cycle? Hubertus Mühlhäuser: I mean, we are -- yes, I think that is very clear and the question was always when is the industry going to go down a little bit. I mean, and there was the fear in December that that would happen because December was a bad month. It somehow abated with what was more positive in January but we're trending at very, very high levels there. So the industry will not grow -- definitely grow higher at one point in time, it will basically end the cycle and we go down. When this is going to be we'll be see but as you see in our guidance on Commercial Vehicle, we had been minus 5% to flattish, this is kind of where we see the industry trending this year.

And then just on IVECO, I'm not asking like what you're going to do with the business but as you have gotten to know the assets I mean, can the truck business in and of itself be -- is it separable into different pieces is that even an option? I mean, can you separate any of the heavy versus medium duty versus light business because -- or you seem to have more of your strategic advantages more on the light and medium side versus heavy or maybe you don't have the scale of some of the other players or are there any other ways where you could -- the assets could be separated from one another just within truck or -- I'm just asking if it's feasible? Hubertus Mühlhäuser: I mean, if you look at our commercial and especially vehicles, it's basically a sum of very different businesses. You have a very, very strong bus business with order books skyrocketing by the way right now and with a completely different footprint in the distribution channel. Then you have the firefighting business, which is a completely different distribution business in the completely different footprint. And then within the truck segment, of course, there is also different assets around medium, heavy and light and the distribution, however, is the same. But again, whether we are subcritical or not, let us do the analysis right now and let us really see what this revolution right now that's going on with the megatrend around alternative propulsion and LNG, what this is going to bring to our volumes because we are seeing high 2 digits up to 3 digits growth in that segment and currently, LNG is at a 1% only in Europe and in Germany. And that can go easily, easily to a 10%, 15% share of LNG in the truck market in Europe and considering that we are the undisputed leader in that segment, that can be very healthy for our volumes. But let's do the analysis now in the next months and then we come back to you, we basically give you our conclusions, okay?

Got you, fair enough. I mean, the CapEx and the R&D, are you viewing this right now as sort of a 1 year step-up or do you view this as potentially a new multi-year run rate because fairly... Hubertus Mühlhäuser: No, we view this as a run rate. Run rate could go even higher on the R&D side we would say. Again, we're putting a full potential plan out here. Our objective is to lead in the segments we operate in. Okay? And that needs investment into R&D.

Is this new consortium with Shell and some of these other players on LNG, part of that CapEx increase at all. Can you just explain a little more about what your role in that project is? And is there going to be an ongoing capital commitment that you have to make to that? Hubertus Mühlhäuser: Let's take that offline Ross that's a longer discussion. We take that offline. We give you a call later on and give you some details on that and how the funding mechanism works okay?

We will now take our final question today from Larry De Maria from William Blair.

Hubertus, with the Farmers Edge announcement past year, just curious, Hubertus, how do you think about the commercial opportunities there and the potential for channel conflict? Hubertus Mühlhäuser: No, we don't see channel conflict there. It is a platform, it is an independent company. It has many positive effects for our end customers. It also has a lot of positive effects for us, for example, the connectivity of our installed fleet because we move our customers over into Farmers Edge, we automatically connect thousands of machineries that are in the field right now and that are not connected. And obviously, the connectivity will then give the telematics aspects and FX positive for a better usage of their assets for the farmer and also positive for us because we're going to increase our aftermarket business with that. So that's the reason why we're very positive around the Farmers Edge development and if you look at agronomy at large and you look how agronomy is now digitizing, if you look at the Farmers Edge business model, which we like very much, we think it's a very, very strong partnership and as you know they are kind of exclusive with our dealers. So I think we have a very, very good platform there, which is different to our main competitor it's an open platform. So there is no conflict. If somebody wants to continue to basically go in Climate Corp. this is not a problem. If somebody wants a continue using other solution that's not a problem. We are kind of having an android approach here and we can basically interface to any existing infrastructure that is there in the farm. And by the way, we are also working -- we're working very well also with Climate Corp. and we give the freedom to our customers, of course, to work with either AgDNA in Australia, by the way, it's a smaller company in the agronomy space or with climate Corp or with Farmers Edge. We just believe that the Farmers Edge solution right now is very, very competitive. We like the team there, we like the company, and we're supporting them.

Okay, thanks. And then your previous comment about being a leader in your industries. I guess agriculture is, obviously, the one you're closest to, you having the leadership position and the others are further behind. So I'm curious about how the uptick in R&D is skewed between the segments? And if it's particularly skewed towards AG? And maybe not so much towards the other segments which are much more difficult to get to that leader position? Hubertus Mühlhäuser: Yes, I mean, the question is always how you define leader. I mean, obviously, and that was my comment on construction, we're not a market share leader in Construction Equipment. So the question, is, in this perspective segments you operate, you want to have leadership position in technology. And I think what also people have not yet realized is with the going down of diesel, and the emergence of electronic drives or also gas drives I also think that we're going to see in the off-highway market a lot more LNG and CNG powered equipment. And that for me is then a leadership position that you would then having in that specific segment because that's going to be a competitive advantage, it's going to be USB for us. So that's how I would define leadership, it's in the segments where you act that you have a leadership position in terms of a service or product that you offer. And needless to say, our margins today are not where they should be. I think they're very, very competitive in the Powertrain segment. I mean, we're industry-leading there. We are very, very competitive in AG but we have enormous room for improvement in Commercial Vehicles and on the CE side. And I think we can do this despite having the scale of some of our larger competitors, and that's what we're going to analyze in the -- in our strategic business plan. How we can basically bring those markets up, how we can increase scale where needed or how we can refocus in areas where we do have a competitive advantage, and where we basically get that innovation premium that will drive the margins. And talking about innovation premium, and we're not the largest CV manufacturer on the planet, clearly not. We're #5 in Europe, however, in that niche which is become a very, very prominent segment of LNG, we have a USB and we have a competitive advantage and also a margin advantage and people are paying for the innovation premium.

Thank you. That will conclude the question-and-answer session. I would now like to turn the call back over to Federico Donati for any additional or closing remarks.

Thank you, Emma. I wish to thank you, everybody, to participate today at call and have a nice day. Bye-bye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.