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

Thank you, Jenny. And good morning and afternoon, everyone. We would like to welcome you to the CNH Industrial First Quarter 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 expressed written consent of CNH Industrial is strictly forbidden. We're 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 CNH Industrial website. After their presentation, we will be holding a Q&A session. As a final comment, please note that any forward-looking statement we might be making during today's call are subject to the risk 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 20F and EU Annual Report as well as other periodic reports and filing with the U.S. Securities and Exchange Commission and the equivalent authorities in The Netherlands and in Italy. The company presentation may include certain non-GAAP financial measures. Additional information including reconciliation to the most directly comparable GAAP financial measure is included in the presentation material. As a reminder, please note that starting from Q1 2019 onwards, we have updated the geographical composition of our regional sales information as indicated in the supporting material of this earning release consistent with the new jack organization. I will now turn the call over to our CEO, Hubertus. Hubertus Mühlhäuser: Thank you, Federico. And good morning and good afternoon to Europe, to everyone. While many of us felt and clearly hoped that some of the uncertainties that…

Thank you, Hubertus. And good morning or afternoon to everyone, and thank you for joining the call today. As a general remark, despite the uncertain industry scenario in agriculture and the volatile and generally weak economic activity in certain high growth markets, we were able to achieve our expectations and close the quarter with an improved operating margin on the back of a sustained performance across our portfolio with continuous focus to drive cost discipline in our operations. Moving now to Slide 5 and the key figures for the first quarter. Net sales in our industrial segments were down 5% reported and up nearly 2% in constant currency with currency translation impact primarily due to the weakening of the Euro and the Brazilian Real more than offsetting the strong price realization performance in excess in 3% in agriculture and construction and sales volume improvements in Commercial and Specialty Vehicles would increase the leverage in light duty trucks and in buses in Europe and Brazil. Adjusted EBIT was up 7% in the quarter. We had a record first quarter adjusted net income of $248 million, up 22% from Q1 2018 as we continue to make improvements in our interest and tax expense lines and resulted in an adjusted EPS up $0.04 to $0.18 per share. The adjusted tax rate for the quarter was 26%, flat from Q1 2018 and we expect it to be at 27% for the full year 2019. Net industrial debt increased to $1.5 billion, up $900 million versus year-end as a result of normal seasonality and working capital in the first quarter as we ramp up our industrial machine in preparation of the spring season. Despite the higher net industrial debt, this $400 million is better than one year ago. Available liquidity was $10 billion, up $1.1…

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

We'll now take our first question from Evercore from the line of David Raso.

I appreciate what the trade tension is, it's really challenging to forecast the year for agriculture. But I'm just trying to kind of balance the comments on the second quarter sound a little more cautious on AG. But then you look at your industry outlooks for AG and some up, some down, some maintain. So what I'm really trying to figure out is, have you really made any changes to your thoughts on '19 given the trade tensions have dragged on and obviously this week maybe they took another step backwards? And at the same time, if you haven't, is there a certain point, be it early order programs, mid-summer, when you'd have to really address, if there is no trade resolution, there's a step function change and how you view targeted ending inventories for the year in agriculture? I'm just trying to square it up with all the different commentary, near term more cautious, but no real change in your industry outlooks and aggregate for AG? Hubertus Mühlhäuser: Yes. Well, I'd started with the sentiment and then Max takes the inventory question. I think, I mean, sentiment asset is still muted. Honestly we don't really know what to take from the Tweets over the weekend by the President. But we're still cautiously optimistic that there is going to be a trade deal with China, despite all the posturing in the last days. That being said, it's also weather right now that is of a concern which in agriculture of course has an influence. But still, putting all together, we don't want to change yet the industry outlook for the year as that outlook was based kind of on this scenario of uncertainty. So that's the reason why we're still kind of confident that we can deliver those numbers that we have predicted. And on the inventory side, perhaps you want to say something, Max?

Sure. So as we stated last year, we are continuing to look at destocking inventory in hay and forage in North America, also [indiscernible] this year. Net we expect production for the full year to be flat year-over-year 2019 versus 2018 in general. The slight overproduction, which was just above 10% in row crop sector for Q1 was expected and is in line with the pickup in activity seasonally Q1 to Q2. For the full year we expect to be flat, slightly down in terms of production to retail. Hubertus Mühlhäuser: Yes. And I think one thing also needs to be noted. The disastrous, the tariff discussions for North America right now and for the world economy, obviously South America is benefiting from that. And if you basically look at our Brazil business, that's up and thriving. Order books are up, business is up. And as we said continuously, the Brazilian farmers are right now eating the American farmer's lunch and that's, again, not in their interest, but for us it's a hedge that we have here.

And could you help us by quantifying the AG order book trends year-over-year?

I would say that the comparison is not fair because last year we were ramping up in terms of sentiment Q1 to Q2. So there was an expectation of significant pickup in activity. So when I look at year-over-year, they are down, but they are still at very healthy levels. And again, the used inventory in the field is, continue to being reduced and that is a good support to demand of new equipment. And actually pricing on use is also holding up pretty well.

Last quick one, on construction, the year-over-year inventory gain, I wasn't sure. The inventory year-over-year is up more in construction than it was year-over-year in the fourth quarter.

We reduced dealer inventory in North America by about 700 units, which is $30 million more or less, take it or leave it, on compact equipment of revenue. We increased company inventory in the balance of the business. And again, this is to take off the activities from the very low levels that we normally achieve at year-end when the activity shuts down for the year-end.

We'll now take our next question from JP Morgan from the line of Ann Duignan.

I'm just going to continue on David's question and ask you, if sales don't materialize in the AG sector in Q2. Is it your intent to cut production in the back half of the year and end up with lower inventories? Or are you going to just sit on higher levels of inventory through the course of the whole year and hope that the market comes back next year?

Ann, this is Max speaking. I'll take this question. So for Q2, we expect to be down and production is slightly down year-over-year, low mid-single digit. And so we expect to start rebalancing that inventory early on in the year and not wait until the last quarter.

Okay. I appreciate that. And then on construction equipment, can you comment a little bit more on the weakness in your compact equipment? Yes, I appreciate that that might be leveraged to residential construction. But can you talk about maybe how much of that business goes to rental versus through sales? Just a little bit more color, so we understand what exactly is happening in that business?

Yes, I would say, besides the sluggish residential demand in North America, there is also an AG component. As you know, compact equipment goes into AG and livestock and hay and forage is coming from two years of lows. So we don't see a lot of pickup in activity over there as well. And that's why we continue to look very conservatively at the inventory over this. Hubertus Mühlhäuser: Yes. And some of it is a bit self-inflictive. So I think we can do better and we had a nice discussion with our team. So I think you're going to see an increased performance going forward there. By the way, I think to be fair to the others, we should really limit it to like one to two question for analysts because we have a pretty full line and we only have 15 minutes left. I hope that's okay, Ann, right?

We'll now take our next question from Equita from the line of Martino De Ambroggi.

Two questions. The first is on pricing. I saw AG and CE still with a positive price effect in your EBIT Bridge. Should we expect similar trend going forward even if the visibility and the market environment is not particularly favorable? And still focusing on the pricing, what happened to the CV which was down after several quarters in a row with a positive mix in price effect? And the second question is on the competitive scenario in the gas LNG engine, in the truck business, because in your remarks, Max, you talked about new entries. I was wondering if you could elaborate on what's happening in the competitive environment for these potential megatrends and if these generated price pressure which could reduce the profitability of this segment? Hubertus Mühlhäuser: Okay. Let me let me start and then Max chimes in. So on pricing for construction on AG, pricing is holding. We're also pricing for the tariffs and raw material headwinds that we're seeing and we see this holding throughout the year. On top of that, we do believe that we have pricing possibility also in construction equipment because as you know, the 80:20 methodology looks of course at different A and B products and A and B customers and that allows you to price for your B customers and for your B products. So you're going to see some positivity there despite all the uncertainty around. Max is going to talk about the commercial vehicle in a second. Let me also comment on your second question on LNG. As we predicted, we had 70% share there and the second competitor that has a solution had 30%. We've now balanced that out a little bit, we are 60%, they got 40%. But it is with healthy margins. And we also don't have to lower our prices. We looked a little bit at our MRA contracts and our buyback amounts and have adjusted those slightly little bit more to reality to become a little bit more customer friendly. But it is a very, very successful and profitable segment for us, which is growing high two digits. And as you know, we have said by the end of the year, we think that LNG is going to compose 2.5% of the European heavy-duty truck market. And that number can go significantly higher in the quarters and years to come. Given that LNG is really the only short-term solution to reduce CO2 emissions, particulate matters and NOX. And then, Max, you want to say something on pricing for CV?

Sure. So as I said in my prepared remarks, the underlying price and performance in CV is still positive and is primarily a light-duty application performance. But in our walk, we show a net pricing, which is netting out the underlying pricing from the transaction FX and year-over-year hedge impacts on our currency hedging portfolio, which actually were higher than the price increase that we achieved in the quarter. That's why you see a negative number.

So going forward it should remain positive for the rest of the year?

We expect the price - yes, the pricing function before forex is supposed to stay positive on CV as well.

[Operator Instructions]. We'll now take our next question from Vertical Research from the line of Jo O'Dea.

Could you talk a little bit now that you're kind of giving us a little bit more detail on the construction business. Could you just talk about the revenue breakdown across compacts, general, road building and then mix opportunities there? May be if we liken it to trucks and some of what you're doing on the light duty side and sort of driving out growth and margins up there, what are the opportunities that you have with construction and where you can put a different emphasis on different parts of that business? Hubertus Mühlhäuser: Yes, I don't know how much detail we really want to provide by product line now, but I think we basically have in our strategy a stronger focus on customer end segments and trying to create leadership in those subsegment and that strategy proves to be fairly successful and on the back of that obviously we're improving profitability. And then if we switch to the commercial vehicle sides, obviously we are one of the leaders in light commercial vehicles and with a new daily launch right now with the new platform, we are extremely excited about that and we see a lot of positive market reaction and perception in that. So we think that we can grow sales there throughout the year. And then when you comes to the heavy, apart from our leadership in LNG which is going to drive sales and replace diesel units, we are also launching a complete new 2019 heavy duty platform which is also going to help the profitability on the diesel side and will then concurrently drive diesel and LNG sales. Do you want to add something to that, Max?

We'll now take our next question from Bank of America from the line of Ross Gilardi.

Hello, Hubertus, I was just wondering, given everything you are saying on new equipment demands and in agriculture for row crop. Just given the near term headwinds, what's your best explanation for how the used market is staying so well balanced aside, pricing is holding up so well. This is inevitable, but that market is going to build some slack over the rest of the - in a year and can you, do you think the industry and more importantly CNH can sustain that without having to cut production on new more aggressively. Hubertus Mühlhäuser: Max, you want to say something to that? Kick it off and then I'll chime in.

So when we transition from tier 4A to tier 4B, the productivity enhancement were not decisive. So I would say the recent model year used equipment is pretty well performing and hence in a period where net farm income is not on the upswing, but farmers still need to replace dated equipments, they'd probably look first into what is available on the recent model year used and that is mainly the reason why pricing is holding up so well over there. But obviously when that recent model year used is depleted, there is only one place to purchase the new equipment and that's why as well the demand of new equipment although not growing, is holding up well. Let's remind all of us that we're still 20% below, the 20% or average in terms of units for highest power tractors and combines in North America. Hubertus Mühlhäuser: Yes, and that's the replacement demand that Max was talking about and then just to be clear, what the U.S. administration is doing right now with the tariff discussion is really, really not helping the U.S. farmers and again if we can't find a trade solution with China and Europe soon, it will have a very negative effect to U.S. farmers and also to equipment. However, we do believe that in this case then we're going to see a lot of supports given and support is already given as you know for soybeans for example; however, the support that the farmers receive right now from the administration is kept, it's kept at pretty low values like $150,000 for soybeans for example. We do believe that those caps have to be lifted up significantly and as a matter of fact we will be in Washington tomorrow and we're going to talk exactly about that because we do believe that to help U.S. farmers, the U.S. administration has to basically lift up those caps to more reasonable levels because right now the large scale farms which are important in the row crop sector for our case customers, they are limited to $150,000. So they are leaving hundreds of thousands of dollars on the table and that's not justifiable. So we do believe that in this uncertain environment, we're going to see also some measures to support those farmers if those trade discussions linger on.

Okay. Got it. And then if you think [indiscernible] spending for AG in the quarter [indiscernible] flag, but how much of that is for the stage V emissions versus precision farming and anyway to quantify that for the rest of the year? Do you expect that that margin headwind to persist for the balance of 2019? Hubertus Mühlhäuser: Yes, Ross, your question was really not very well, acoustically we couldn't hear it out. I think you're asking for the margin performance in AG and we were referring to the Magnum tractors, which is actually an entirely new cash crop platform that we are developing and that's the reason for the significantly higher R&D spend in the first quarter. Needless to say, we're launching this product this year and with the launch, the R&D headwind is going to abate a little bit. So we kind of have a frontloaded R&D budget there. So we think that margins are going to hold and as you've seen on the gross margin side, we've improved that nicely by 40 bps exactly and we think we've got more room for improvement there. So we're fairly positive on the margin side for AG and again the drag on the EBIT margin was really with the frontloaded R&D for the significant investments that we do in precision agriculture on our new tractor platform, which actually is going to be a game changer in the cash crop sector for us.

And our final question comes from Melius from the line of Robert Wertheimer.

My question is really on LNG and the ramp. I'm curious if you have any thoughts on the current fueling infrastructure that your current sales base sort of uses and then how far the sales base can expand with current infrastructure. Does there need to be any step function change in order for the sales growth to continue? Hubertus Mühlhäuser: No, investments happened as we speak and this is not a show stopper for the rolled out of LNG. As we discussed, numerous times Germany is behind, has been behind, but we're going to have an infrastructure of 30 to 40 LNG stations by mid to end of this year and this is sufficiently to run your large fleet. So what we're seeing right now is that talking about those large fleets, they never buy a couple of hundreds at the same time. They basically buy a couple of handful pieces of equipment LNG to try it out and once they basically work, they then, and they do work of course, then they basically increase the quantity. So we are very, very firmly in that right now, all the large fleets are right now in test of LNG equipment. We do have the infrastructure available throughout Europe and also in Germany and that's the reason why we're very, very confident that these high two digit if not three digit increases of LNG participation are going to continue well into the next years.

And the current market is in fact freight hauling or is it more local trucks that you are selling to? And I'll stop there. Hubertus Mühlhäuser: No, no, no, it's long haul. LNG is long haul because it's really where you need the distance or where you need to wait and as we have said, our record right now stands from one trip with one filling from London to Madrid, so 1700 kilometers, so a bit more than 1000 miles. So this is clearly a long haul application. If you think about medium and short hauling, so the light commercial vehicles and the medium trucks, there you talk about CNG which is compressed natural gas. So the same engine, it's just a different tank system which is significantly cheaper because CNG is just compressed whereas LNG is liquid and is frozen down to -170 degree Celsius, I don't know what the Fahrenheit of that is, I should know that, but I'm still thinking your team here. And then the other one which we mentioned is and this is also for urban application is methane because CNG can be replaced by methane, bio-methane and this really comes from waste incineration, it comes from biogas and if you basically put them biogas, so bio-methane into go CNG engines, then you're actually cleaning the environment and this is the reason why we think politicians should be mindful of that because this is significantly better that electrification because you are really cleaning the CO2 in the environments and with the CO2 because you go down to -160 to -180 CO2 reduction which is far better than any battery powered or fuel cell powered equipment can do. And that's something that people need to understand. And as you know, being the leader on the on-highway side on that one, we're now pushing for that in the off-road side. So agriculture, it's a no brainer with all the biogas that you have and of course also for construction equipment, specifically in urban areas. It's actually [indiscernible] and we're creating the market there because we're kind of the only competitor in the off-highway side that has a competitive offering there. So good things to happen for us.

Thank you very much. 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 everybody and have a nice day. Hubertus Mühlhäuser: Thank you. Bye, bye.

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