Good morning, and afternoon ladies and gentlemen, and welcome to today's CNH Industrial 2019 Second Quarter and First Half Year Results Conference Call. For your information, today's conference is being recorded. [Operator Instructions] At this time, I would now like to turn the conference over to Federico Donati, Head of Investor Relations. Please go ahead, sir.

Thank you, Karen. Good morning and afternoon, everyone. We would like to welcome you to the CNH Industrial Second Quarter and First Half 2019 Results Webcast Conference Call. This call is being broadcasted live on our website and is copyrighted by CNH Industrial. Any other use, recording or transmission of any portion of this broadcast without the expressed written concept of CNH Industrial is strictly forbidden. We are pleased to have here with us today CNH Industrial's 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 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 Commission, and equivalent authorities in the Netherlands and Italy. The company presentation may include certain non-GAAP financial measures. Additional information, including reconciliation to the most directly comparable GAAP financial measures is included in the presentation material. I will now turn the call over to our CEO, Hubertus. Hubertus Mühlhäuser: Thank you, Federico. And good morning and good afternoon to everyone. As we have reached the halfway point in our fiscal year, we continue to be faced with a well-publicized issues ranging from trade disputes and tariffs to global weather uncertainties driven by climate changes. If there is a silver lining here, it would be that our visibility into the effects of…

Thank you, Hubertus and, good morning or afternoon to everyone on the call. In summary, terms, we finished the quarter with solid earnings in spite of a very challenging market environment. We had market weakness, we are experiencing in the combination of the current slowdown in North America, row crop and effects from a dry unfavorable 2018 European harvest, coupled with persistent challenging market conditions in Turkey and Australia. In this environment, we have continued to push pricing and diligently managing our cost and we have taken additional actions to accelerate the savings in the coming quarters. Moving now to Slide 5, and the key figures for the second quarter and first half. Net sales of Industrial segments were down 7% on a reported basis and 2% in constant currency. Adjusted EBIT was down 8% in the quarter and 3% year-to-date. Second quarter adjusted net income of $430 million was up 8% from last year and for the first half it was $678 million, up 13% from the same period in 2018. Adjusted EPS up $0.03 to $0.31 per share for the quarter and up 6% for the first half. The adjusted tax rate for the quarter was 24%, relatively flat from last year and we expect it to be 27% for the full year 2019. Not included on the slide, but worth nothing is the decrease in net interest expense when compared to the second quarter of last year, as well as the improved foreign exchange result compared to last year due to the non-repeat of FX losses in emerging markets, both contributing to the year-over-year increase at the bottom line level. Net debt of Industrial Activities was flat in the quarter to $1.5 billion, free cash flow of Industrial Activities was $0.4 billion offset by dividend payments of…

Thank you very much for that. This concludes our prepared remarks for the second quarter results, and we can now open up for questions. Karen, over to you.

[Operator Instructions] We will now take our first question from Ann Duignan from JPMorgan. Please ask your question.

My first one maybe on commercial vehicles. If you could explain the strategic rationale for re-entering the heavy duty markets, why does the market need another S-WAY truck and can you talk a little bit about the number of new competitors entering the natural gas environment. Please? Hubertus Mühlhäuser: Well, interesting quite some. First of all, we are a significant player in that segment in Europe, obviously. Secondly, I think if you look at the lineup of our commercial vehicle we had profitability issues and the heavy segments which we have now sold with the new S-WAY, which actually has far better cab -- it was received very, very well and the same time takes cost out, and hence, improving our margins. So it's no question that we will continue to producing and also providing to the market and heavy-duty trucks. And what I said is -- it is a game changer for our business. This truck was received very, very, very positively by really all stakeholders. And then thirdly, it goes without saying that our distribution network in Europe, of course, depends on a full-lineup of commercial vehicles from light to medium to heavy. And so, all-in-all we are very, very pleased with this truck as it will allow us, we believe, to increase our market share to go back to historical levels. And on top of that, of course, given that we have the leader with 55% market share in the LNG, so liquefied natural gas segment for the heavy, and that this segment as predicted has nearly doubled already year-to-date with 2% coming from 1% last year and continues to grow. We see this growing as we have said to the low-double-digits, perhaps in the near future. And given that we are the leader there with our heavy duty LNG trucks. I think these are all reasons that's been very much for us staying in that segment. And of course I'm saying in the commercial vehicle business. Does that answer the question?

But the competitors in LNG, how many are new, who are your competitors. And how many new competitors are entering the market as we speak? Hubertus Mühlhäuser: Ann, you're very difficult to hear. Can you repeat that, I think you said competitors on the LNG side entering the segment. Is that what you said?

Yes. Hubertus Mühlhäuser: Who is entering is very obvious, [indiscernible] is really the second player in the market here, being a bit late to the party. They are gaining share, obviously, as you would expect, however we still keep the majority of the market and the third player in that is Volvo. But the majority of the shares I said 55% with us. And we basically believe firmly that with an improved cab and truck. S-WAY plus the LNG, we can definitely maintain that share or even increase that share. Max, you want to add something.

Now, I just want to add that we have this record in terms of economy of 600 kilometers that is unsurpassed in the industry right now. With the less -- with less developed infrastructure is key to push demand forward. Hubertus Mühlhäuser: Yes. And on the infrastructure, by the way also that has improved dramatically and I think the increase of nearly ten folds of the penetration in Germany and speaks for the sustainability of that trend and the resilience, and the adaptation of LNG and very solution in the truck industry that's going to stay there. Okay…

I appreciate that. And I look forward to 80/20 in the PowerPoint presentation, Hubertus. Hubertus Mühlhäuser: Pardon?

I look forward to you applying 80/20 to the PowerPoint presentation on earnings day. Hubertus Mühlhäuser: Okay, good. Very good. Interesting comment. Thanks, Ann. Next question. At least make sure that you ask one question per person please. Thank you. Thanks Ann.

Thank you. Your next question comes from the line of Joe O'Dea from Vertical Research. Please ask your question.

You heard us a number of things that you touched on at the end of your comments around some of the things that give you optimism on AG heading into 2020 or arguably things that could also help the back half of the year. And so, just a question around what you think keeps that demand on hold it in the back half versus the recent taking advantage of better commodity prices. We're seeing some of the aid payments flow through this month. Why that's not translating into better demand in the back half. Hubertus Mühlhäuser: Well, I think the farmers itself have benefited from the higher commodity prices and have reduced their stock of crops in the last month, which is a positive, but I think the hanging in there right now and waiting now for the harvest they want to see whether there's Frost and we believe that we're going to see then the demand pattern coming up in Q4 beginning of October. So that's right now what is holding it up. They are waiting in there. There, you're going to see what they're going to have in the beans then, how the yields are they want to see, how the weather comes and then also they want to basically use the positive effects of caps depreciation and tax incentives as I've said. We are cautiously optimistic that in Q4, demand will pick up and we are still confirmed and also optimistic for 2020 but make no mistake, it's not an easy time right now for the U.S. farmers because as we said, other people stepped into the supply chains of soft commodity, we're seeing that in South America right now. That is the reason why our order book is significantly up for AG, specifically in Brazil, and these are kind of competitors that the U.S. farmers then have to deal with because of these uncertainties that have been created around the trade disputes, so that in all, it's kind of the reasons why I guess demand right now is a bit muted. But why we are cautiously optimistic for the latter part of the year Q4 mainly and then going into 2020, but it won't be easy for them.

Your next question comes from the line of Larry De Maria from William Blair. Please ask your question.

I understand you're cautiously optimistic sentiment around the fourth quarter and into next year. Curious and I apologize if you discussed this earlier and I missed it, but curious about how you're thinking about second half production and the usual four quarter true up in the Ag markets in North America specifically, if you think you're at what point do you think you need to maybe make a call on production and compare that to where your inventory you think is and where the industry inventory is, please. Thank you. Hubertus Mühlhäuser: Well I give that to Max, we have make calls on our production. I think we said something about second half that, Max….

We have took the call right now for the balance of the year and we are expecting to production to be down 10% in Q3. Q4, there will be the positive trend. The expectation is for a positive trend in retail as typically happens at the end of the year and with as our production program right now. We expect to under produce returns significantly in Q4 to close the year-end balance production to retail for the full year.

And how would you characterize. Thank you for that characterize inventory in the industry vis-à-vis, you guys were taking inventory into next year. Hubertus Mühlhäuser: Right now for our perspective on inventory and total channel between company inventory and dealer inventory on our end, we see two areas where there is some work need that needs to be done, particularly, obviously the situation in the combined market in Europe is not helping Hence, there is a potential risk of some inventory sticking out there for longer than anticipated. And then the second area obviously is we continue to keep a very close eye on North America, row crop, which is, under control. While we expect lower horsepower tractors also to be watched out during the balance of the year.

Your next question comes from the line of Chad Dillard from Deutsche Bank. Please ask your question.

So I just had a question on North America. Just trying to think through just like what your expectations are for that market facilitation program. To what extent is that cash flow built into your back end outlook for agriculture and do you think that could actually please farmers to either pay more debt back or buy more equipment? Hubertus Mühlhäuser: Okay. Max why don’t you take that.

I think the question is about cash flow on the, on the pharma side although you expect. Right.

Yes. The market facilitation program, just the impact and what you're kind of what you're baking in terms of growth there?

So I think between waiting for the harvesting results and allowing the farmers' to cash in on the subsidy programs, we expect demand to move forward in the latter part of the year starting in October and which is what Hubertus said during the call. And also, there will be a tweaking on intention to purchase equipment based upon farmers level of profit to optimize the tax, environment.

And then over to South America -- over to South America. What activity levels have you seen since the phenomenal funding was replenished are you starting to see a snap back and into what extent is that assumption of pent-up demand baked into the back end of the year?

So basically, what happened in South America, the funding that was appropriated through then BNDS the Bank of Development in Brazil run out at the end of April. And so, and end of April mid of May, so basically there has been at a halt on the retail market for a month and a half. At the beginning of June out, the government, the Brazilian government has announced the new [indiscernible] program for the before the harvesting year 2019-2020, which start at 1 of July of the year at more or less similar conditions, so slightly higher interest rate but actually more funding available and so the expectation is that the demand that halted in the second quarter would be catched up in -- caught up in Q3, and together with the expectation of a strong harvesting season and the potential increase in arable land in particular in Brazil, we expect demand to improve significantly in the second part of the year after a negative first half. Hubertus Mühlhäuser: And to add on that despite the negative first half we have gained share in South America and Brazil, specifically by mid-single-digits, and we basically, of course, we want to continue to attack and want to increase our share there. Now on a better market in the second half. So we're really positive about Brazil. Thank you.

We will now take our final question. Your next question comes from line of conversion Gungun Verma from Goldman Sachs. Please ask your question. Q – GungunVerma: I had one question on Precision AG, obviously you're investing increasingly in the development of this technology. Can you remind us how material is the contribution from Precision AG in overall sales and EBIT in AG? Hubertus Mühlhäuser: Well, I don't think that we disclose the individual sales and I also want to keep our powder a bit dry for the Capital Markets Day. I think you are going to hear a lot about Precision AG there and I think we disclose there what the sales are and for most importantly what our projections are, but at this point in time we don't want disclose, but we will see a lot more about that on the Capital Markets Day. So stay tuned and please be there.

Sure. Can I then ask a follow up question, please. Just one on commercial vehicles, your competitors are talking a lot about aftermarket and services segment. I'm not sure if you've disclosed this in the past, but can you comment on how big the aftermarket businesses is for IVECO? Hubertus Mühlhäuser: Same thing there, we basically -- Max going to -- are we disclosing that. I mean what we basically, what you're going to see is, and I said that with the new track which is completely connected, right now, we will significantly increase the aftermarket by offering services that we have not yet provided so far. We are working there in partnership with world-class companies such as Amazon and Microsoft and I said facing here, I'm just going to be part of the Capital Market Day, where we basically going to give a trajectory how this so-called trend around privatization, driven by digitalization is going to affect positively our business and as of course improving the mix dramatically, because the margins, of course on those services are significantly better and then on the whole goods business. Max, do you want to add anything?

Not this time. Hubertus Mühlhäuser: He does not. Okay, thank you very much.

Thank you. That concludes our 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, Karen and thank you, everybody. And have a nice day. Hubertus Mühlhäuser: And I think we wish everybody a nice summer, right. Stay tuned and see on September 3rd. Bye-bye.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you for participating. You may now disconnect.