CNH Industrial N.V. (CNH) Q2 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the CNH 2026 Second Quarter Results Conference Call. [Operator Instructions] I will now turn the call over to Jason Omerza, Vice President of Investor Relations.

Thank you, Paige, and good morning, everyone. We would like to welcome you to CNH's second quarter earnings call for the period ending June 30, 2026. This live webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website. Please note that any forward-looking statements that we make 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 annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material. I will now turn the call over to Gerrit.

Thank you, Jason, and welcome to everyone joining the call. Second quarter results were generally in line with our expectations as we continued managing through a difficult point in the agricultural equipment cycle. Operationally, we are making good use of this period to drive improvements in quality, sourcing and manufacturing efficiency. These actions are supporting performance today while strengthening our foundation for the future. We also continue advancing our precision technology capabilities with increasing adoption of connected and AI-enabled solutions across our installed base and dealer network. While overall market conditions remain challenging, particularly given pressured farmer profitability, we are seeing encouraging developments in several but not yet all equipment cycle indicators. As we think about the eventual recovery in our end markets, we find it helpful to focus on a handful of indicators that have historically provided a good signal for both the timing and strength of the next up cycle. First, channel inventories of new machines need to normalize in line with the near-term 3 to 5 forward months of sales demand depending on the machine type and support a steady production environment. Second, used equipment inventories need to return to healthy levels, creating the financial and physical capacity for dealers to manage new equipment flow through. Third, the spread between new and used equipment values needs to normalize, allowing farmers to trade equipment economically, supporting replacement demand. Fourth, commodity prices need to move sustainably above production costs and provide farmers with confidence that current profitability levels are durable enough to carry new equipment investments. And fifth, farmers generally need a profitable season behind them and confidence in another profitable season ahead before replacement demand broadens. In addition, something that helps but is not necessarily a demand driver is government assistance programs and interest rates. Farm bills that subsidize crop insurance or borrowing rates, for example. This is all helpful, but it does not set the market recovery in motion. The industry is making good progress on the first 3 indicators across our major regions, although there is still work to do through year-end. Dealer new and used inventories continue to normalize. Equipment fleets continue to age and the price gap between new and used equipment has begun to converge following several years of divergence. What remains largely absent are the fourth and fifth indicators. Commodity prices remain at or below breakeven levels for many growers, while fuel, fertilizer and transportation costs remain elevated. As a result, overall farm profitability remains under pressure and farmers remain cautious with larger capital investment decisions beyond immediate replacement demand. When we put all these factors together, our baseline expectation is for an L-shaped recovery with 2027 retail demand remaining broadly flat with replacement demand continuing to carry much of the market. As inventories normalize, we expect to increase production to better align with retail demand. Beyond replacement demand, however, it will take stronger farm profitability and greater farmer confidence to support a more pronounced industry recovery. While we don't yet see evidence of a sustained recovery, conditions are becoming more constructive and several of the foundational elements required for the next phase of the cycle are falling into place. Turning to the results. Our second quarter performance reflects seasonal sequential volume improvements after a low Q1 and continued disciplined execution across the business. Consolidated revenues were $4.8 billion, up 2% year-over-year, including about 2% positive currency impact. Our Ag segment sales were up 1% with North America up 10%, EMEA up 1%, but South America down 27%. With farm incomes depressed and macroeconomic uncertainty, we saw continued softness in equipment demand. Industrial adjusted EBIT was $167 million, reflecting lower industry demand as well as the continued impact of tariffs. These factors were only partially offset by positive pricing and cost-saving actions. For the quarter, adjusted net income was $161 million with adjusted EPS at $0.13. Free cash flow from industrial activities was $150 million, a year-over-year decline due to lower EBIT and higher working capital investments. We remain fully committed to our long-term strategy and delivering sustainable value through the cycle. Our company strategy is centered around 5 key strategic pillars: expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence, and quality as a mindset. Even in a challenging market environment, we continue investing in the capabilities that will differentiate CNH over the long term and position us strongly for the next cycle. Today, I would like to focus on the progress we are making in our dealer consolidation efforts and our strategic sourcing program. In February, we told you about some flagship transactions around the world where we are expanding and consolidating our dealer network. Today, I'm going to review a few more success stories with you. Splintered Oak in East Texas is an example of a dealer expanding its territory. We also have dealer owners expanding to both brands, such as Gruett's in Wisconsin, ATV Sachsen in Germany and Cocari in Brazil, all expanding into dual brands through acquisitions of Case IH locations. Expanding our dealers' reach not only helps their ability to service farmers in their markets, it also helps focus our strong and iconic brands more individually and in their collective lineup to compete more effectively in the marketplace. We're getting ready to officially launch the next wave of our strategic sourcing program next month with our supplier convention in Amsterdam. So I thought I would take the opportunity to remind you what this program is and what it is delivering. The program is a disciplined process where we identify potential suppliers alongside our existing vendors and conduct rigorous evaluations to achieve the best supply chain for CNH. The goal is not just material cost reductions, although that is certainly one of the outcomes. We are also looking for a supply base that can grow with us, deliver outstanding quality, service production and aftermarket demand and work with us on finding the best total value for our farmers and builders. The program has been a great success so far, and we are well on our way to meeting our target of adding 100 to 150 basis point margin improvement from this sourcing effect alone by 2030. I look forward to meeting with our next wave of prospective suppliers in September and continue this important transformation. With that, I will now turn the call over to Jim to take us through the details of our financial and guidance.

Thank you, Gerrit. Agriculture Q2 net sales were about $3.3 billion, up 1% year-over-year, including 2% positive currency translation. North America saw higher year-over-year volume and pricing, while South America was down on both fronts. Sales in EMEA were about flat. Gross margin was 19.7% from 21.8% a year ago. While sales were about flat overall, we saw unfavorable product mix in North America with large tractors down more than small tractors and in South America with combines down more than tractors. Agriculture adjusted EBIT margin was 5.2% from 8.1% in Q2 2025, reflecting the unfavorable product mix and a tariff headwinds with positive pricing only partially offsetting these pressures. The good news is that price/cost was again positive for the quarter, and we expect that to be true for the full year as well. Dealer inventories were slightly down sequentially, but we would say almost flat. By region, inventories were down in North and South America, but were partially offset by increases in EMEA, where retail demand was softer than expected. We are working toward reducing dealer inventory by another $400 million to $500 million by year-end, and our timing was always weighted more towards the fourth quarter. Construction net sales in the quarter were up 12% year-over-year to $866 million, driven by higher sales in North America. Performance in North America was strong, driven by volume growth, which included some of the machine shipments that were delayed in Q1 as a result of the supplier quality issue that we discussed last quarter. EMEA saw modest volume growth, supported by favorable currency, while South America saw the most challenging conditions during the quarter. Q2 gross margin was 11.9% from 15.7% a year ago, where the decline was mainly driven by the impact of the tariffs. Construction adjusted EBIT margin was 1.7%, down from 4.5% in Q2 2025, reflecting significantly higher tariffs, which more than offset the strong volume performance. In Financial Services, segment net income in the quarter was $71 million, down versus 2025, mainly due to margin compression in all regions, higher risk costs in Brazil, partially offset by a lower effective tax rate. Retail originations in the second quarter were $2.5 billion, and the managed portfolio ended the quarter at $28 billion. Delinquency rates saw their usual seasonal uptick in Q2 to 4.4%, but were higher year-over-year, primarily driven by the persistent economic difficulties in South America. Just as a note, our Q2 corporate expenses were partially offset by roughly $20 million of onetime income items, primarily a VAT-like tax credit in Brazil. So that provided about $0.01 of nonrecurring EPS benefit this quarter. Our capital allocation priorities remain the same, reinvesting in our business while maintaining a healthy balance sheet and then returning cash to shareholders. During the second quarter of 2026, we paid our annual dividend totaling $126 million and repurchased $36 million worth of CNH stock at an average price of about $10.31 per share. Before we dive into our guidance, let's take a look at the expected tariff impact on our margins as we have a change recently in the way Section 232 will be applied to some of our products. Under this updated rule, tariffs on certain categories of equipment have been reduced to 15% from 25%. In our Agriculture business, that brings down the expected 2026 tariff cost impact to about 170 basis points. For Construction, we now forecast about a 470 basis point impact. As we've previously outlined, Construction is more heavily impacted than Agriculture given its higher exposure to imported finished equipment and higher percentage of sales in North America. It's important to remind everyone that we have not passed all the tariff impacts on to our customers. Even with this temporary relief of Section 232 rates, it is still a net drag on our margins. And we won't see all the benefit of this reduction drop to the bottom line either as there have been other recent cost impacts, notably higher transportation costs due to the shipping lane disruptions. But certainly, this reduction in tariff rates is a welcome benefit. We are reviewing the recent Section 301 tariffs for forced labor that went into effect 10 days ago. At this point, we think the impact of CNH will be minimal, but there are still ongoing Section 301 investigations on excess capacity. We have not included any factors for that or any potential impacts from the nonrenewal of the USMCA in this forecast. We will provide an update if there are material changes. At these levels, we expect Q3 2026 tariffs to be about flat year-over-year, whereas Q4 tariffs should actually be a little lower year-over-year. On a run rate basis, the tariffs will be a little lower in 2027 as we get the full year benefit of reduced Section 232 rates. With that, let me address IEEPA-related tariff recoveries, which are also not included in the numbers shown on this page. In the second quarter, we received $5 million of refunds as part of the Phase 1 claims process. Now that Phase 2 is open, we are in the process of filing approximately $135 million in claims. We are accounting for the refunds as gain contingencies and will, therefore, recognize them when they are received. As the timing of the refund receipt is uncertain, they are not included in the guidance that we will review in a moment. In addition to the $135 million in Phase 2 claims, we estimate to have about $15 million in claims to be filed in Phase 3 whenever that becomes available to us. When these refunds are received, we do intend to redeploy a meaningful portion by reinvesting them in discrete projects benefiting the business. This could include accelerating investments in precision technology, upgrades to our manufacturing facilities or providing limited term incentives to accelerate inventory destocking among other areas. Let's now look together at our agriculture industry outlook for 2026. We have made tweaks to some of the numbers, mainly based on how we have seen the first half develop. Overall, it is net lower with reductions in small tractors in North America and in combines in EMEA and South America. That still puts us at about 80% of mid-cycle when balancing all the products together. With our order slots now nearly full for the year, we are moving our net sales guidance to the high end of our previous range. We now forecast sales to be about flat year-over-year. That includes our unchanged assumptions for favorable currency translation of 2% and positive pricing of 1.5% to 2%, offset by lower unit shipments as a result of the industry demand. Agriculture production hours will be down slightly year-over-year. The updated Section 232 tariff rates are providing some cost relief, but this has been largely offset by increased freight and transportation costs as well as continued market challenges in South America. Despite this, we are confident in our ongoing cost reduction programs and manufacturing performance. As a result, we are narrowing our EBIT margin guidance to the high end of the previous range now at 5% to 5.5%. In Construction, we have also fine-tuned our industry forecast across the regions based on first half trends and market conditions. And overall, we are more positive in overall outlook, especially for heavy equipment. With the healthy construction markets and our own success in the field, we are raising our net sales guidance up to 5% to 10% year-over-year, including about 2% of favorable currency translation and 1% to 1% of pricing. EBIT margin is now forecast to be between 1.8% and 2.3% as the improvement in sales levels and tariff rates positively impact our profitability. Production hours in the Construction segment will be up to support the year-over-year increase in sales. Putting the 2 segments together, we now forecast 2026 Industrial net sales to be flat to up 2% year-over-year, with Industrial adjusted EBIT margin between 3.2% and 3.8%. Industrial free cash flow is now forecasted to be between $200 million and $400 million on slightly improved sales and lower working capital assumptions. Adjusted EPS is now narrowed to between $0.41 and $0.46. As a reminder, the guidance does not include IEEPA tariff refunds beyond the $5 million received in Q2, but it also doesn't include any cost for the discrete or one-off projects that we intend to cover with those refunds. To help you with your modeling, I'll provide some additional considerations for the third quarter. In Agriculture, we expect Q3 net sales and EBIT margin to be about flat on a year-over-year basis as we keep an eye on how market conditions evolve in South America. In Construction, we expect continued strength in North America, driving global sales up in the low to mid-teens year-over-year, similar to what you saw in Q2. EBIT margin will improve year-over-year to a low to mid-single-digit range. Like for Agriculture, South America is a watch point for construction. Financial Services net income in Q3 is expected to improve year-over-year off a low base. Recall that we recorded a lot of risk reserves in Q3 of 2023, and so we are lapping that easier comparison now in 2026. But we will be watching market dynamics as the quarter progresses. With that, I'll turn it back to Gerrit.

Thank you, Jim. And let me finish up with some thoughts about the rest of the year. We're closely watching model year 2027 order intake as one of the clearest indicators of where the agriculture cycle is headed. So far, order intake would indicate a flattish 2027 industry retail demand, but we are still early in the process. We do not have enough information yet to assess whether the constructive signs we are seeing in dealer inventories, fleet age and used equipment pricing will translate into higher equipment demand even at modest levels. We're also tracking the macroeconomic factors that continue to shape the agriculture industry cycle, particularly farmer profitability, commodity prices, interest rates and input costs. Farm economics remain pressured in several regions. So our outlook will continue to reflect both the encouraging cycle indicators and the realities of customers' current cash flow environment. We will remain -- we will maintain continued production discipline as we work towards leaner channel inventories by year-end. This remains an important part of protecting pricing, supporting our dealers and ensuring that production levels will be aligned with underlying retail demand as we move into 2027. Producing in line with retail demand in 2027 means we have an automatic tailwind next year since we are currently underproducing to the 2026 demand by about 4%. We expect our margin improvement efforts to be supported by the work underway in quality, sourcing and operational efficiency. These initiatives are helping offset some of the current cost and tariff pressures while strengthening the foundation for better performance as markets improve. We will continue to make sustained investments in both our iron and our technology capabilities. Our goal is to bring those together in ways that improve productivity for customers, increase adoption in connected and AI-enabled solutions and further differentiate CNH over the long term. We will continue supporting multi-brand dealership consolidation across all geographies where it improves customer coverage, dealer strength and long-term network effectiveness. We believe the right dealer configuration in each market is essential to delivering better service, stronger aftermarket support and a consistent customer experience. And one final comment. We already shared with you that we have restarted our conversations with several potential partners in the construction space, exploring different collaboration models. The goal of the discussions is to find a solution that profoundly upgrades 2 things: First, our Construction segment's economies of scale, geographic reach and competitiveness across all product lines, but most notably our heavy excavators. And second, the breadth, depth and technologies of construction machines supplied to our agriculture network. We are being diligent and thorough in these discussions and considerations, and we will let you know when there is something new to report. This concludes our prepared remarks, and we can now start the Q&A session.

[Operator Instructions] Your first question comes from the line of Chad Dillard with Bernstein.

So I just want to dig into the implied guide for the Ag business from 3Q to 4Q. It seems like there's a pretty healthy step up. So I was hoping you could give me some color on some of the moving pieces to get there. And then just kind of thinking through the exit rate, how to think about the transition into '27 with those margins.

Yes. Good question, Chad. It's Jim. So a couple of things. For the Q3 to Q4, we've got higher volumes, a chunk of it. Lower tariffs are finally -- this Q2, we've lapped. This is the first time it's -- this is the last quarter, hopefully, where we have a tough comp. So Q3 and Q4, favorable comparison from a tariff perspective versus last year. And sequentially, Q4 should have lower tariffs than Q3 of this year, thanks to the lower Section 232 rates. Pricing should be a little bit of a lift as well. And then the operational improvements that Gerrit mentioned, we expect to continue as well. So I'd say volumes and lower tariffs are the primary, followed by pricing and operational improvements coming in next.

Your next question comes from the line of Steven Fisher with UBS.

It's nice to see the positive Ag revision to guidance. Just wondering if you could help us reconcile that with kind of more cuts to the ag industry retail sales versus those raises. Was it sort of an underproduction dynamic? I know I think, Gerrit, you mentioned $400 million to $500 million of underproduction this year. I think that was $500 million last quarter. So maybe that was part of it, but just trying to reconcile those 2 different directions of things.

Yes. It's Jim. The underproduction will come largely in Q4 of this year. I mean the $400 million to $500 million will largely come in Q4. But that's, again, comparison versus a very significant dealer destocking that we had last year. So it's not too dissimilar from what we saw last year. So I think there's no real change there. But the guide we gave last quarter for the full year -- we had mentioned some risks to South America, Latin America. So we sort of view those were out there on the horizon and our guidance reflected that to some degree. So those risks have come to fruition. South America has weakened further. We did incorporate some of that in our previous guide. So to some degree, we anticipated that worsening, and it was already built into the guide we gave last time. So the increase we're seeing this year for the remainder of this year is a couple of factors. One, we have outperformed modestly what we guided towards in Q1 and Q2. So we're just sort of passing that on. We're baking it and building it into the full year view. And then we had that -- we did that onetime nonrecurring benefit in corporate expenses from the VAT-like taxes in Brazil. And then, of course, we do see favorable pricing and more operational improvements and then lower tariffs in Q4, also benefiting Ag. That's versus the prior guide.

Your next question comes from the line of Jamie Cook with Truist Securities.

I guess if you -- it sounds like next year, you feel like the ag landscape at this point is going to be flat. Construction is probably up a little. But under that scenario, can you just talk about your ability to at least keep earnings flat? I mean it sounds like we'll get some tailwinds from operational initiatives, maybe tariffs is a modest negative. It sounds like pricing should be okay. But any commentary you can frame how you think the setup is for 2027 earnings?

Yes, holding -- in your assumption where the industry is flat, a couple of things. We should have production levels that are higher because we're selling at closer to the retail level. We won't be underproducing as much, one. Two, we've been pretty successful with pricing in excess of cost even despite some of the tariffs. I think that dynamic will continue. So that should help from an earnings perspective next year. And of course, the operational improvements will continue as well.

Yes. On the operations side, Jamie, we're making very good progress on the very different ends. I mean, as I alluded to before, on the procurement side, we keep building. We have a 4 waves procurement program, of which the first 2 waves are now in full swing. Wave 1 is already delivering. Wave 2 will start to deliver next year, and then we're kicking off Wave 3 now and Wave 4 to come. So this all builds, and we feel pretty good about that trajectory. On the quality side, we have delivered on what we targeted last year, even a notch above, and we are tracking quite well this year as well to further improve on that end. So we have a lot going on, on the operations side, obviously, also in our factories where we invest and see also improvements on the operational efficiency and productivity side. So overall, the underlying cost base performs. We will have -- we plan to have increased production levels in line with retail next year, which should be then the year, which is retail flattish as we currently see it in an L-shaped recovery. And with that plus pricing, we feel confident about printing a proposal for next year that should be no less than what we do this year.

Your next question comes from the line of Angel Castillo with Morgan Stanley.

Sorry to belabor the point here. I guess I just wanted to continue to dive deeper into kind of the second half implications. So you've given a lot of good color on it. And if I'm doing the math correctly, I think the implied adjusted EBIT margin for the fourth quarter in Ag is double digits. So -- and if I heard you correctly, I think there's still quite a bit of underproduction in the fourth quarter. So can you just -- I guess, as we think about a flattish '27 and that exit rate, should we take that to mean that you think double-digit EBIT margins or adjusted EBIT margins is kind of the right way to think about 2027, all else equal, given, again, lack of underproduction, operating efficiencies and other factors that should bolster performance there? Or is there anything else that we're kind of missing here?

Yes. No, it's Jim. Angel, I'd say we aren't implying a double-digit EBIT margin in Q4. So that your starting point is probably a little too high, to be honest with you. The -- and what that implies for next year, I think to what we said earlier, we would expect -- of course, Q4 is our best quarter. And so you can't sort of use that as a launching pad for the entire year. But I would say it certainly points to our momentum and improvement trajectory that we've been on since our Investor Day in May of last year. The things we said we're going to do, we're doing. Frankly, we're quite happy with the success we've seen with those operational improvements. Unfortunately, they've been diverted instead of going to shareholders that accrues the benefit of the U.S. government in the form of higher tariffs. And so it hasn't dropped the bottom line like we'd hoped. But the things we said we were going to do, we're doing, and we're seeing it. Next year, assuming tariffs don't change again, that's sort of in the baseline and our price cost performance should accrue to the benefit of shareholders going forward.

Your next question comes from the line of David Raso with Evercore ISI.

Can you help us a bit with where the 4% underproduction is coming, maybe help geographically and product type? And just on the fourth quarter Ag margin, just so we're clear, you have sales implied down $44 million year-over-year, but EBIT up $84 million. And we're just trying to understand how much does the tariff help year-over-year to have EBIT up $84 million?

Yes. I think the underproduction, it's mostly in North America and South America for this year, particularly Q2 through Q4. And as far as Q4, a sizable portion of the uplift is coming from lower tariff rates and some higher pricing as well.

Your next question comes from the line of Tami Zakaria with JPMorgan.

Question on the corporate expense line because I think it saw a step down in 2Q because of the tax refund. How should we think about that line for the remaining 2 quarters?

Yes. I think typically, we ask people to model $55 million to $60 million per quarter. Of course, that can be quite volatile given whatever might be going on with some unique activities. So I think for now, you might want to assume that going forward. Of course, in Q4, typically, we'll adjust for variable comp up or down as needed, and that can be a bit of swing factor. But right now, that's not assumed in the guide.

Your next question comes from the line of Kyle Menges with Citigroup.

Great. And I appreciate some of the commentary on 2027. And I was hoping -- you've provided some good color. I was hoping just to the extent you can provide somewhat of a margin bridge for 2027, thinking about annualizing lower tariff impacts and then some of the cost savings initiatives around procurement and quality. And then it sounds like base case volume would be up a little bit and you get some price. Just how do we think about that margin bridge then based on some of those factors going from '26 to '27 in Ag?

Kyle, it's Jim. There's much as I would love to provide that to you. I can't do it just yet. We're not quite ready to talk about 2027 in detail. So stay tuned on that more to come. But I will point out, we did provide a view of 2027 impact from the tariffs in the slide deck. So we did give you some information there, but I can't give you the more detailed bridge walk just yet.

Your next question comes from the line of Michael Shlisky with D.A. Davidson & Co.

I know you had some tailwinds on price and currency in the quarter for Ag. Could you share with us whether CNH gained any market share in Ag anywhere globally?

Yes. Michael, Gerrit here. We did indeed have some gains in market share. It is going across the board actually from tractors to combines, and it differs a bit by region. And as you know, in most of our regions, market is measured by retail and in some geographies by wholesale, and it is sometimes also related to us or other market participants turning their farmers from an equipment point of view. So at times, launching programs and launching sales initiatives in those territories can have here and there some impact on market shares on a quarterly basis. On a full year basis, we do look at a market share recovery across the board, all equipments in EMEA and Europe. And we do look at some targeted gains as well in North America and South America as per plan. So what we're doing right now with the dealer network consolidation, building a stronger dealer base, multi-brand and now more focused on actually competition instead of us and our 2 brands is really starting to show, and that is something that will continue over the next years as we have laid it out during our Investor Day in 2025.

Your next question comes from the line of Edward Magi with BNP.

Industrial free cash flow was negative in the first half, and you ended up raising full year guidance. So I was wondering if you could help us understand the bridge components to get there.

Yes. I'd say Q2 was lower than Q2 last year, largely due to trade payables. We had increased production quite a bit Q2 of last year compared to Q1. So that drove the increase in payables. We didn't see that increased production this year. And so the trade payables didn't grow. That's basically the chunk of Q2 that accounts for most of the decline versus last year. But we do see that timing reversing in the second half of this year, a. And b, of course, our improved profitability is a big piece of the other area of increasing the cash flow.

Your next question comes from the line of Ted Jackson with Northland.

My first question is, was I hearing correctly that you saw that the European market was a little softer in the quarter than you expected? And if that's true, could you provide a little color on kind of what you see going on in Europe and maybe the ramifications for that for the remainder of the year? And then I have a follow-up on construction.

Yes. We did see a soft -- a turn to a little bit more negative sentiment in EMEA, and it was a surprise. We weren't expecting it. We had viewed EMEA as a bright spot. And again, while we had hoped inventory -- dealer destocking everywhere, and we expected it in EMEA, it actually increased demand. So that was the one area we were a little bit caught by. And I think really due to a couple of factors. One, the weather there is extremely hot, drought conditions, it's hurting crops, it's hurting sentiment, coupled with the higher input costs we're seeing from the war in Iran with fertilizer, fuel, et cetera. All those things have combined, I think, to really put a bit of a pause, some gloom over farmer sentiment in EMEA.

And was it across like the region in general? Or was it like located in any particular...

I think most of Europe, I think U.K. was a bright spot for us, maybe Italy as well, but by and large, it's...

I think France and Germany have seen quite some drought, and that was -- I think in those regions. But we are pretty well spread across. So its -- we need to see how the weather turns out. I mean we have El Niño, impacting South America, not only South America, also North America and other parts of the world. We have the monsoon season that is coming in lighter than we expected as shown in prior years. So I'd say, rainfall is differently allocated this year, and we will see challenged regions with too much water, too much rain and too little. And then we have a few regions that are more or less on target. But Europe overall, it's really different when you look between the different countries. France, as I mentioned, in particular, was impacted by a drought. But we at our risk mapping, we did see that coming, and we did obviously also manage our production volumes accordingly in order to keep on the good path of depleting the inventories as well as company inventory. So overall, this didn't come as a surprise. We just consciously managed it through setting us up for a good and healthy entry to 2027.

Your next question comes from the line of Tim Thein with Raymond James.

I just wanted to come back, Jim, you made a couple of comments about as you're thinking about the fourth quarter, how pricing has come in, the outlook for pricing, a little better than you had been assuming? And just thinking about that in the context of what you will be a fairly sizable dealer destocking. So maybe just can you help square that? And was it a -- which obviously can sometimes weigh against that. So maybe just -- is there a specific region or segment that you become a little bit more incrementally...

Well, I think it's really a sequential Q3 to Q4, you have price -- model year '27 pricing starting to kick in. And so a comment around sequential pricing in Q4 versus Q3, that's what I was referring to.

Your next question comes from the line of Daniela Costa with Goldman Sachs.

I just wanted to ask regarding competition. When we look at sort of China exports of tractors, we've seen sort of a steady pickup in their own exports. Do you see them in any of your sort of main markets becoming a bit more aggressive? And how do you plan to tackle that?

Daniela, Gerrit here. Yes, we do see them here and there in -- across Africa. You find Chinese tractors, also Indian tractors from India exported. You see them as well in South America, more on the very small horsepower range actually. And across Southeast Asia, obviously, this is pretty obvious. So yes, we do see them. When you look at the competitors from India, they are more on the tractor-only play, like very small tractors driving on the high volume of the Indian market as we do. So India for us is a great success story where we have been gaining market share. We have been the fastest-growing brand in India last year. We have been so far year-to-date, the fastest-growing brand in India as well in 2026. So winning in India means that you can compete very effectively with whatever is exported from India by others. And so that works well. And the same holds true for China. So not a surprise, and we have seen them in some specific tenders and some specific situations, but not yet at a significant scale.

Your next question comes from the line of Kristen Owen with Oppenheimer & Co.

Two quick questions for me. First, on Brazil combines. Just any incremental color that you're seeing on the ground and any impact that we should anticipate for the FinCo in the second half now that you've taken some accruals? And then the second question, just appreciate the incremental color on the dealer consolidation story. Can you -- is there any way that you could give us a sense of how much of a drag those dealer actions have taken so far this year, just so that we can think about the overall impact that that's having on the margin trajectory currently?

Kristen, on the dealer consolidation, it hasn't been a drag at all actually. When we work through our opportunities and currently with, obviously, the dealers who take charge of these, it's not a drag at all. I mean we are getting more effectively -- more effective in the regions quite quickly when we have these better aligned go-to-market stories. And for that reason, there we don't see any drag there. When you ask about Brazil combines, I mean, we're looking at the Brazilian combine market. We are looking at it quite closely and very regularly as there have been in the past in 2022 and 2023, there were some peak sales in the region that have basically led to a fairly young combine population in Brazil. And that has been aging now over the last 3 years of market decline considerably, and we are going to approach, I think, average historic fleet ages of combines, we're going to approach that probably by -- over the course of next year when largely the replacement demand is going to carry the industry. We need to see what happens with the elections. We need to see what -- when finally the farm bill that was announced in Brazil starts to pay and when that also helps us restructure some of the debt exposures in the region. But overall, I think combines are on a pretty low point in these -- in 2026 these days. And we'll see when we hit the average historic ages next year of the population, we should see that get back on a growth trajectory beyond 2027. On the FinCo, Jim?

Yes. On the FinCo, look, it's -- we think we've got adequate reserves. So nothing in our forecast implies a dramatic change there. That said, it is a concern of ours. We're keeping an eye on it. It's a risk area that we've called out before. It has not gone away. So it's something that there is watching certainly. So we'll be keeping an eye on this every quarter and updating you folks accordingly, but it's still a risk area for us, certainly.

We have a follow-up question from Ted Jackson with Northland.

My follow-up question was really on Construction. We spent so much time talking about Ag that it kind of gets the short end of the stick. And I guess I wanted to sort of maybe have you guys walk through with regards to how you see the outlook for 2027 given the backdrop. I mean peers although they generally took up their view of Construction for the remainder of the year. You saw some of the larger rental houses pick up their CapEx spend. And it seems to me that the market for Construction is constructive. And just maybe a little color on how you see that playing out as you roll through '26 and into '27.

Yes. So we agree with your view of the construction market. It is benefiting from heavy side -- heavy infrastructure build-out, data centers, et cetera, power generation. So we're seeing that as well. And I think it's got legs. So there's that. The industry is helping. And also, we're doing our own self-help. So we've closed Burlington. We're doing other operational improvements in our CE business. And so we're taking our own actions to sort of improve our own operations. So I think I expect things to get better next year. Tariffs also aren't a headwind. We don't think '27 that they were in '26. I mean they're not going away, but they're not growing. And again, once that stabilizes for us, we can focus on delivering higher results through new products, better pricing and lower costs. So I agree with your overall assessment that we see that happening in '27.

That concludes the question-and-answer session. I will now turn the call back to Gerrit Marx.

Thank you. I would like to thank you all for joining the call today. Despite the industry conditions, this is an exciting time to be at CNH with our transformational efforts in the dealer network, our technology investments, new product launches and operational improvements. We look forward to seeing some of you at the Farm Progress Show in a few weeks, and I wish you all a happy and healthy summer. Thank you very much.

This concludes today's call. Thank you for attending. You may now disconnect.