Good morning and afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2021 First Quarter Results Conference Call. For your information today's conference is being recorded. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead sir.

Thank you Sara. Good morning and good afternoon, everyone. We would like to welcome you to the webcast and conference call for CNH Industrial first quarter 2021 results for the period ending March 31st. 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 expressed written consent of CNH Industrial is strictly forbidden. We are pleased to have here with us today our CEO, Scott Wine; and our CFO, Oddone Rocchetta who will be hosting today call. They will use the material available for download from the CNH Industrial website. After their presentation, we will be holding a Q&A session. 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 including 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 the equivalent authorities in the Netherlands and Italy. The company presentation may include certain non-GAAP financial measures. Additional information, including the reconciliation to the most directly comparable GAAP financial measures is included in the presentation material. One final remark, once again, our team is connecting from different countries. So please forgive us if there are moments of silence during the call, while we manage the transition between speakers. I will now turn the call over to Scott.

Thanks Federico. I would like to begin by commending our entire CNH Industrial team, especially our supply chain and production personnel for their exceptional efforts not only to keep our factories working for our customers, but also to drive margin improvement in this very turbulent environment. We're seeing very strong market demand across the board in every region and each of our segments. This rapid acceleration is typically a more positive scenario and certainly upside remains. But in conjunction with COVID related slowdowns and other unique capacity constraints, the spike in demand is exacerbating the commodity shortages and shipping restrictions we are creatively working to address. For example, Tom Verbaeten and his team's Android [ph] management of an excessively long list of lagging parts and services has both kept operations running and increased inventory turns leading to strong revenues and lean stock levels at the end of the quarter. Our robust start to 2021 exceeding both the first quarter of 2020 and the first quarter of 2019 results reflects the team's ability to deliver solid top and bottom line growth while overcoming the aforementioned challenges, and of course, assimilating a new CEO. It is a testament to the commitment drive and ingenuity of our global workforce as well as the wisdom and drive of our senior leadership team, which together are our foremost competitive advantage. Next, I'll review the industry volumes that we saw in the quarter to better put our business results in context. The AG machinery industry was quite healthy in Q1, due to a range of factors including rising commodity prices, improving trade with China and replacement of aging fleets. Tractor sales worldwide were up over 50% and global combine sales were also strong. We expect the Agriculture segment to continue performing well in 2021 given that…

Thank you, Scott and, good morning and good afternoon, to everyone on the call. And now slide six with our Q1 results highlights. For the top line first quarter net sales increased 41% with higher volumes mix and price realization across all segments. Likewise, these drivers accounted for a 700 basis point increase in our gross margin also benefiting from higher production levels. Moving down the P&L, first quarter Industrial Activities adjusted EBIT sorted to $545 million, with an adjusted EBIT margin of 7.7% driven by strong performances across segments. Free cash flow in the quarter was a cash outflow of $371 million, reflecting seasonal capital absorption. Industrial Activities net cash, ended the quarter at $591 million, a decrease of $0.2 billion from December 31st, 2020. Q1 net income was at $425 million or $0.30 per share. Adjusted net income was $454 million or adjusted diluted earnings per share of $0.32, an increase of $520 million compared to the same quarter of 2020. The adjusted effective tax rate for the quarter was 25%. At the end of Q1, our available liquidity stood at $13.9 billion down $2 billion sequentially, turning now to slide seven. We focus on Industrial Activities net sales which were up $2.1 billion and 36% on a constant currency basis. Sales by region and product in the quarter-over-quarter comparison were up across the board, certainly helped by the initial COVID impacts in the prior year period, but also significantly supported by accelerating demand. Foreign exchange translation had an impact of approximately 5% in the first quarter, and net sales split by region was directionally in line with last year, but we continue to model the rest of the world share increase. Agriculture's net sales totaled $3 billion in the first quarter, up 34% on a constant currency…

Thank you Oddone. While we remain firmly committed to our ongoing efforts to lower industrial debt, we do intend to hasten our organic growth by investing heavily in research and development equipment and infrastructure. We see this as a multiyear escalation in R&D funding as we strive to accelerate market share gains and profitable growth. We will continue to make strategic inorganic investments intended to accelerate growth, innovation and margin expansion. During the first quarter, we acquired CEG, our long-time distributor in South Africa, enabling us to improve margins and better serve our customers in the region. We also took minority stakes in three key technology companies, Monarch Tractor, Bennamann and Augmenta to accelerate our alternative propulsion and autonomous strategy. Augmenta is a technology company based in Greece, focused on automating farming operations through real-time processing of on-the-edge computer vision and artificial intelligence for crop sensing and overall machine automation. These partnerships underscore CNH Industrial's ongoing commitment to targeted investments in advanced agriculture technologies, facilitating the creation of an open innovation ecosystem that will strengthen our entire range of products and solutions. This ecosystem will enable us to offer customers' rapid and easy access to breakthrough agriculture technologies, which enhances both farming productivity and sustainability, and will also reinforce the product portfolio of AGXTEND, the company's accelerator for tech start-ups. As a leader in sustainability, we intend to take a pioneering role in the development of the circular economy and alternative propulsion with plans to deliver complete net zero carbon solutions. In March, we completed the acquisition of a minority stake in Bennamann Limited, a UK-based technology company that specializes in producing LNG with their proprietary cryocooler, liquefication technology, using biomethane from organic farm waste or agricultural waste. Their technology also provides flexible methods of packaging LNG tanks on smaller…

[Operator Instructions] And we will now take our first question from Ann Duignan from JPMorgan.

Hi. Good morning, everybody. Just two quick follow-up questions. One, you mentioned in your opening remarks just there that demand is strong across several sectors, which of course we understand that but it's likely to spill into 2022. So could you comment on that beyond North America row crop? I think, we all understand the fundamentals there. But beyond North America row crop, where else do you anticipate demand remaining strong into 2022? And then as my follow-up, can you size the specialty business for us both revenue and profitability just so we can update our – some of the parts valuations?

Yeah. Thanks, Ann. Obviously, the North American market is driving the vast majority of our significant confidence in the AG market going forward, but we did see encouraging strength in Europe. And South America is still especially with combines remains a very strong market that we think is likely to get better as the global economy continues to improve.

So was all agriculture that you're referring to when you say 2022 strength? And then my question on NewCo please.

Yes. No I think that most of the 2022 strength that we see right now is in North American AG. Although, I'd tell you I'm very encouraged by the performance of Stefano Pampalone and the construction team because that business is as strong as we've seen it in quite some time. So not quite pushing into 2022, but likely will before too long.

And specialty business outside?

Oddone, do you want to take that one?

Yes. So on the second question if you look at the details of our net sales split the specialty vehicle is what is listed as others in the CSMB. So it's around 6% of sales. And we'll get -- as soon as we have the packages ready we will come with the numbers for on-highway and off-highway with some additional details.

Okay. I appreciate that. I will get back in queue. Thank you.

We will now take our next question from Steven Fisher from UBS. Please go ahead.

Thanks. Good morning. Good afternoon. Obviously, very strong pricing ahead of costs in the first quarter. Can you just talk about how you see that developing the cadence of it over the course of Q2 to Q4? And it sounds like it's going to ultimately be a net headwind but just wondering how quickly that translates from the strong positive in Q1 to that more challenging position?

Thanks, Steve. And obviously with commodity inflation like we're seeing across the space pricing has been a better environment than we've seen in quite some time. And I really across the board in each of our segments we're seeing strong pricing and we think that's likely to persist through the remainder of the year. And as we said we're not sure it's going to quite cover every aspect of the cost that we incur, but certainly the team as they demonstrated in the first quarter feels confident that they can get most of it.

Okay. And it sounds like your order book gives you much better visibility for the second half than you had just three months ago. I'm curious where do you see the biggest uncertainties at this point? I'm guessing, you're going to say broadly supply chain, but I'm wondering how much risk do you see to actually delivering your targets versus restricting any upside or if there's any other areas of the uncertainties you'd call out.

Yes. Well I mean you surmised right the biggest challenge and uncertainty is in the supply chain. But as we saw the team in the first quarter managing the industrial machine really did a nice job of -- I mean essentially it's not managing. It's micro managing the supply chain and they did that very well. I think we see near-term pressure in the second quarter that we just have to work through. And obviously, you see that but there's -- we believe based on our actions and what we see that it's going to get better throughout the second quarter and we expect a better situation an improving situation in the third and fourth quarter. But we've just got -- the semiconductors fortuitously haven't impacted the overall business or because we've -- the team has done a very good job managing it. We have a specific issue with IVECO that we're handling with heavy-duty trucks and a key supplier that will likely impact a little bit in the second quarter. But overall, I think, we do see our way through managing it and we'll look to capture as much upside as we work through the year as we possibly can.

Perfect. Thank you.

We will now take our next question from Martino De Ambroggi from Equita SIM. Please go ahead.

Thank you. Good morning. Good afternoon, everybody. The first question is on the incremental margin. If I look at AG and CE they were astonishing in excess of 40%. I clearly understand it's comparing two very different quarters. There is a ForEx impact affecting the performance. But could you elaborate on what is the reasonable incremental margin in the different divisions in the current environment? And the second question is on the failed divestiture of IVECO. I understand what you mentioned at the beginning. But can we say is there any one or two reasons justifying the change -- particularly justifying the change of the decision? And once you spin off the business, in my view, the less likely scenario is to see the on-highway business staying -- as a standalone entity. Am I right or totally wrong in this assumption?

Oddone, do you want to take the incremental margin? And I'll pick up on the spend.

Yes. But I think you commented well. I mean the incremental margin to the first quarter last year are not that significant. And we are looking at incremental margin for the remainder of the year that I have let's say a shape that is similar to the incremental margin we typically have when we have growth in sales. So, I would say mid low double-digits, 20 plus consider that we have additional R&D expenses in the second part of the year which will affect the margin.

And as it relates to the spin or the failed discussions that we had, really we've always from the beginning felt like we had a clear path to create a NewCo, anchored with some key shareholders that we would share and that was and remains our primary goal. We did get a -- an interesting bid from a counterparty that we all know and we thought that was worth pursuing. And I will tell you that we vigorously pursued that. There was tremendous effort on both sides. And I -- we thought if it could be executed, it would be a very good path forward lots of scale benefits for the business. And quite frankly, we worked as hard as you can possibly imagine to try to get that to fruition. And as we really assess things when we backed away, we did not see after all of that energy and effort that there was a clear path to do that in a reasonable timeframe with reasonable certainty. And that really is what drove us to move a different way. And I think if you look at the industrial landscape and search for successful Chinese mergers or acquisitions of European or US companies, it's not very prevalent. I mean it's a very difficult task. And ultimately, as we work through it, we saw that.

Yes. And for the future once it is spun off?

Yes. Well, I mean, obviously, our friends at Daimler have seen the same thing that there's an opportunity to create a separate truck company. We think that benefits us. I mean remember IVECO is showing improving results. And I feel like that with the lead we've got in LNG and the partnership to use Nikola to bring in additional alternative powertrain technology, we feel like that they can be a leader in that space. And with very strong brands in Southern Europe and then obviously with the key resources of FPT and our very strong defense business currently, we think it's a very, very positive opportunity for shareholders going forward.

Okay. Thank you, Scott.

We will take our next question from David Raso from Evercore ISI Group. Please go ahead.

Thank you. My question relates to how the 2021 dynamics are setting up 2022. Normal seasonality for your business on revenue given the strong start to the year the normal sequential trends would -- you would suggest the revenues could be up over 25% and you're guiding 16%. So, I'm just trying to get a sense of is that sort of a fair representation of how you're digesting the supply constraints where it's call it roughly a 10% restraint on your revenues? Because when you look at even how you changed your industry outlook, you basically raised your revenues only as much as you raised the retail demand. And I'm curious how does that make us think about inventory at the end of the year? It doesn't seem like there's any inventory rebuild at all. And then lastly, with that setup, are you handling 2022 order books differently? Some of the plants or early order programs seem a little earlier. I'm just curious how you're addressing 2022 given all these dynamics. And particularly, of course, if you're willing to provide it, how are you thinking about pricing, if you're opening some of these order books up earlier? Thank you.

Good questions, David. As it relates -- I mean obviously the near term is limited. I mean we're going to run our plants at capacity for the year. And what we're able to yield, based on supply chain, is what we'll take. We've got -- we're actually having more discussions around 2022, the next year than would be typical, because of the fact obviously to get inventories, both in the channel and our factories where we need to be, it's likely -- and ultimately to stabilize the supply chain, you've got to stabilize your orders. And I think we're working through that dynamic right now. But, right now, it's -- with geopolitical concerns as much as they are, it's very difficult and probably not smart to predict too much too far ahead. But I will tell you that your early signs at this point are that it's going to be quite strong and that means pricing actions should continue to be strong throughout the year and into next.

But can you provide some sense of are you -- like the plant or early order program seemed to -- at least it seemed a little bit earlier to me than I've seen in the past. Are you opening up the ability to take orders for 2022? But of course, I assume the customer wants a price point with it. So, I'm just trying to understand even the inventory levels where are they today? Because it doesn't sound like there's any inventory build the rest of the year. So, not to push you, but just trying to get a little quantification, inventories are x percent below normal now, just so we can think about that as the setup exiting the year. Thank you.

Oddone, you want to take that, because I can't compare to what we've done historically?

Yes. I wouldn't say inventory are lower than we would like them to be, even though they're much lower than what they were last year and for part of the previous years, right? We overproduced in the first quarter on tractors and combines. Probably we would overproduce more, but demand was stronger than we expected. We keep producing, as Scott said, full capacity and we are also increasing the capacity of some of our plants for the later part of the year. That of course goes against with all the constraints we talk about in supply chain and our suppliers also needed to increase production. We have some even limited inventory built in the fourth quarter, but a lot will depend on how the demand will end up playing in the later part of the year.

Thank you very much. Appreciate it.

We will take our next question from the line of Brett Linzey from Vertical Research. Please go ahead.

Good morning, all. Wanted to come back to AG margins, obviously very strong in Q1 and -- in what is typically a seasonally lighter revenue quarter versus Q2. If I go back historically, just look at that seasonal lift Q1 to Q2, it's been around 400 basis points. Is that the right level we should be thinking about sequentially here? Just trying to think about the phasing for the year.

Are you talking about sequential margins or sequential growth?

Sequential margins.

Yes. I would not make that assumption given what we're seeing in the supply chain right now. Again, I was really impressed with the way the team managed through supply chain issues. I mean obviously we all know what they are in the first quarter. We are not seeing them abating. In fact, we saw them get worse towards the end of the quarter. We managed through April. It was difficult, and we expect it to be difficult, but get slightly better as we manage through the year. So that's what we're seeing. But there's no reasonable way to expect that we're going to be able to take the first quarter margins and grow them going into the second quarter. It is a challenge that we're working through and we will. We're very focused on delivering for our customers. We're very focused on getting the price to cover our activities. But it's not an external scenario with the supply chain that I would bet on margin enhancement going into the – from first quarter to second quarter. Obviously, we do expect things to – we'll manage them and they'll improve throughout the year but that first quarter to second quarter is not one I would bet on.

Okay. Thanks for that. And then just one more on precision farming. I was wondering if you could just update on how pull-through looks on new technologies. And if you might be able to quantify the revenue run rate for that platform, the precision farming and digital within the AG business?

Yes. Well, we've been working on this for many, many years. And I would say, the energy effort and money being spent to advance from where we are now to where we're going with precision AG, I think the positive news with precision is what the – most farmers need right now, we've done the research, we're extremely competitive. And where we're trying to make sure is when that next big transition goes is that we're also competitive. And we talked about some of the minority investments we took to position ourselves there. And obviously bringing Parag on board, just truly a digital precision somebody that I believe can really help us step up our efforts here. And the work that Jay Iyengar and the technology team have done – I mean we're really reasonably well positioned. To the extent that that drives a specific current revenue stream, it's not nearly where we think it can and ultimately will be. So we don't really break that out specifically, but we see – we have seen it increase quarter-over-quarter over time and we think there's a step function increase coming.

Got it. Thanks a lot. Congrats and a good start for the year.

We will take our next question from the line of Kristen Owen from Oppenheimer. Please go ahead.

Hi, good morning. Good afternoon, everyone. Just as a follow-up to that last question, if you could dig in a little bit more on sort of the corporate venture capital that you've participated in these three deals that you announced over the last quarter. Can you talk about how these early-stage investments sort of play into the overall capital allocation framework and then how we should think about the commercial opportunities presented by the investments as they mature?

Yes. We obviously have a tremendously capable and talented engineering team within the CNH Industrial network, but we certainly don't believe that we're the only ones that can come up with good ideas and new technologies. And so we have a pretty good ability. And because of our strong brand presence and global presence, there's a lot of opportunities that people approach us about bringing their technologies to market and leveraging our networks. And so sometimes we go find them and sometimes they find us. But every time we do it it's a – it's certainly an immaterial investment from a financial standpoint but it – a small investment from us can mean a lot of difference to get these start-up companies to get a little more perspective. But it's not just the money. Much – most of the time it's access to our platforms our distribution channels that really brings them to us. So it allows us to get in with not a ton of money but also to build something. And as I said in my prepared remarks, I mean we certainly plan to take many of these technologies and help us advance products that we can bring to market for our customers. And that is the goal.

Great. And then as a follow-up question you talked about the strong rates that you had in LNG, seeing that continue. Relative to your development work in battery electric and fuel cell electric, as the overall market comes back can you provide some commentary around customer appetite to experiment with some of these longer-dated technologies versus more of what would consider sort of the transitional fuels like natural gas? Can you just talk about what you're hearing from your customers in that regard?

Yes. We have some unique challenges in our end markets in that the use cases are very different than automotive, where I think battery electric has been more popular but still a quite de minimis share of the overall automotive market. So some of those challenges – and that's really the work that Gerrit Marx and his team are working through partly with the Nikola joint venture but also with the work that we're doing is how do you bring those technologies into different use cases and different requirements. And I think the work that they've done with LNG. And it's very small, still 4% of the overall market we've got more than half of the market share. So we've got tremendous experience there. Really LNG is hurt if you will, by the lack of government support and subsidies. If we could get that and we've certainly been lobbying for it, that would help in the on-highway segment. But because of the significant experience we have in on-highway, that's why we believe with the potential for a -- the circular economy of fuel and on a farm environment with methane, that that could be a very attractive opportunity for us, because of the similarities with LNG. And what we've already known how to do. So we're positioning ourselves really with the alternative fuels, but with various partnerships feel like, we can bring the battery electric solutions, if they will work in our environment. So I think we're as well positioned with alternative fuels and electric as anyone.

Great. Thank you so much.

We will take our next question from the line of Larry De Maria from William Blair. Please go ahead.

Thanks. Good morning everybody. Discuss a little bit about the Monarch, et cetera. But earlier in the call I believe you said, you'd want to -- you're going to increase investments in R&D. So can you give us an idea of absolute percentage R&D, we should model for RemainCo? And is this a change in strategy now, to do more internally over time, or is this more of a catch-up, because we haven't invested enough? Thank you.

The -- on the percent of the RemainCo sales, I can't figure that on the back of my paper here. But I will tell you, it is not necessarily a change in strategy. It is a continuation of a strategy that was put in place several years ago, that wants to expand both, organic growth, but also margin enhancement. And that does take an incremental investment in R&D. And really a lot of our effort is related to alternative powertrains and precision technology and digital. And I think it's no secret, that we are in a good position, but not as good as we can or should be when it comes to those categories. And I think that's an area, where you'll see us make a good bit of investment. But just if we look across our portfolio, we'd like to have market-leading products in all of our categories. And I can tell you, as we look at it, we're not there now. And we're putting the money to, ultimately -- you can't do it all at once. But we're making the investments to try to position the portfolio to be very, very competitive across the board. And that does take incremental R&D dollars. But it's not growth and margin expansion. ….

Okay. That's helpful. So …

… It's not just growth. We've got to deliver improving margins at the same time.

And was the comment specific to AG R&D increase, or was it overall R&D increase? And then just to clarify another question, are we officially sold out in large AG this year? Are we -- or are you still taking some orders for the fourth quarter? Thanks.

For -- we're taking orders for the fourth quarter in most markets, not much available in North America right now. And I'll tell you, our investments – again, I commented on the improving results in the Construction Equipment segment. And ultimately, that's an area, where we've talked openly about we need some product across the portfolio. We need a strengthening of product. So that will be an area that gets investment as well.

I understood. Okay. Thanks and good luck.

We will take our next question from Monica Bosio from Intesa Sanpaolo. Please go ahead.

Good afternoon everyone. And thanks for taking my question. I apologize maybe I lost part of the conference, I was wondering if you can give us, an indication of the raw material impact on the first quarter? And if it's possible, a likely scenario of the total impact adjusted for raw materials over the full year. I'm just trying to figure out, if your pricing increase is able to offset, at least the raw material impact, even if there is the issue of the semiconductor shortage. And the second question is on, the AG business. First quarter was really amazing in terms of profitability. I understand that R&D is going to increase. There is a challenging environment in terms of supply chain, but I'm supposing that it's reasonable to expect a double-digit margin -- well above the double-digit margin in terms of adjusted EBITDA margin by year-end. Is it reasonable? I am rounded? Thank you very much.

Have at it, Oddone.

Yes. So on the raw material, we say during the call that definitely we see a raw material increase and the headwinds and we also see headwinds in freight cost by moving parts from one plant to the other and from our supplier to our plants. But we also say that we expect to cover most of it with pricing and the environment has been favorable comprising throughout most of last year and this year and we expect to work more on that. Your second question was on Ag margins. I don't know if you were there, we commented that, we don't expect the Ag margin in the second quarter to be better than the first quarter, contrary to typical seasonality. And we expect to have more of these raw material headwinds and supply chain headwinds on the second part of the year, or on the remaining part of the year, I would say. But again, we will contrast most of that with price.

Okay Thank you very much. Thank you for the clarification. I lost part of the call. Thank you.

We will take our next question from Rob Wertheimer from Melius Research. Please go ahead.

Hi. Thank you. And I appreciate all the discussion on technology. I had kind of a narrow question on that subject and maybe a broader one. When you look at autonomous electric tractors, obviously, kind of big row crop stuff uses a ton of energy. I'm not sure electric will get there. But maybe from your knowledge of duty cycle, you have a view on how broad that could be within the smaller tractor thing. I don't know if it covers 10% of the range or 40% or potentially more. And then just in general, your philosophy, please, on how you intend to invest in technology. Do you intend to sort of continue the partnering like with Nikola and Monarch on more niche areas and focus hard on your core? What do you think is most important for CNH itself to invest in? Thank you.

Well, thank you. Monarch was an interesting one. As you may or may not know, we are a leader in specialty tractors. So we do very well in grape harvesting. And interestingly that is where their initial focus is. So it's a specialty market, a specialty need. And one of the things, as we're trying to become more customer-centric and really design the exact products that our customers need, Monarch has kind of given us an example of how to do that. They're spending tremendous time in the vineyards and making sure they understand the entire customer need and experience, so that they can meet that need with their autonomous electric tractors. And, obviously, we bring a lot of experience ourselves. So the combination does make sense. As you indicated, I think, these smaller specialty tractors is a more likely near-term benefit. We don't see our big combines and tractors high horsepower going out with pure battery electric anytime soon, but I think the specialty market and we believe Monarch is very well positioned to help them and us take that -- bring that technology to market. And then as far as, how we look at technology investments, we really look at our portfolio and try to understand what it is our customers want and need and then we just determine the best path to get there. Obviously, when we can, we prefer to develop it organically, but there's both a time and cost benefit you have to weigh as you look at these things. So sometimes it's better to go out and make an acquisition and allow you to essentially rapidly accelerate your position. So we'll look at both scenarios. And I mean, I think, in the next several years you'll see us make a lot of progress organically and probably some inorganically as well.

Okay. Thanks. And then, just where do you see like the biggest opportunities? Is it input savings? Is it big data around how to improve yield? Is it automating different features? I mean I'm just a little bit curious, if you're able to tell us what you think is the most appropriate pathway? And I'll stop there. Thank you.

Yes. Well, I mean, really I think as you look at the market the requirement, if you will for lower emissions is going to be a key driver. So we're going to make investments there as we talked about. We believe the need for less use -- there's -- the tillable acreage is not going to grow. And to be able to get yield from the acres that we have and all the things we can do that without putting more necessary, but not always helpful things into the ground. So I think a lot of the technology we're investing in give us the ability to both improve yield for the farmer and ultimately their returns as well, but also good for the environment. So those are where we're making the investments and those are the things we think we can get paid for.

Thanks.

We will take the next question from the line of Ross Gilardi from Bank of America. Please go ahead.

Yeah. Thank you. Good morning. Good afternoon, everybody. Look, Scott, I understand the supply chain challenges and how that can constrain this year from a margin perspective. You covered that many times already this call. But the guide clearly seems to be implying next to no revenue growth in the second half. And I guess that's where I'm a little bit confused. You're saying you were able to overproduce in the first quarter. You've actually been able to build some inventory. You're getting pricing. So are you concerned about your ability to keep your factories running due to supply chain constraints? I just don't really understand why revenue growth would slow that sharply given your comments on the order book and many of the other things that you've said?

Well remember the comps get more difficult as we go through the year. So the fourth quarter growth is not a layup that we're going in. So that's part of what's driving it. But it's also -- and obviously we're running our factories at capacity through the year. That's the plan. And to the extent, we are able to deliver that. But right now as I talked about with IVECO and the S-Way is we've got just a transmission problem that's going to caused us to set a few thousand units at the end of the quarter. So it's those kind of things that we have to manage through. And to the extent we can as I said in prepared remarks, there's this likely upside if we get some of that stuff behind us. But we're just not willing to look right now and to say that we can do that with certainty. So it's a combination of the comps getting tougher and our uncertainty about the ability to navigate significantly better throughout the year.

Okay. And then when do you think you'll clarify your thoughts particularly on Ag margins through the cycle? And then any initial thoughts that you're willing to share? I mean one competitor is saying they can do 10% and another saying 15% which now looks conservative. I mean are you willing at all to commit to being somewhere in the middle and say the 12% to 15% margin range through the cycle for Ag? And if not just when do you think you'll make that a bit clear? Obviously, you had the Investor Day before your arrival. But certainly the market will be clamoring to know what you think on profitability through the next cycle given everything…

Yes. You guessed right that I'm not going to prognosticate on where margins are going to go through the cycle at this point. But I will tell you from what I've seen so far, what Derek Neilson and his team have done in a very difficult environment in the first quarter and there's a tremendous amount of improvements that we can drive to take that to another level of performance. So I don't think we're anywhere close at this point to what we can do in the future. It's just -- the challenges are in the near-term. But I think our long-term margin potential is up significantly from the current standpoint and I'll put a number on that as we get closer to the spin.

Okay. Very good. Thank you very much.

Our final question comes from Tim Thein from Citigroup. Please go ahead.

Yes. Scott, thank you for the time. Actually, just to dovetail on that last thread there. Lots of discussion on the call regarding near-term margins and price/cost and all that. But I'm curious as you've had more time kind of to look under the hood, how do you feel about -- what the initial kind of takes you had was that you thought the company as a whole had a lot of opportunity just from a gross margin perspective. So how do you think about -- whether that's on the cost side, pricing side of both how do you feel about, again, just some of the opportunities there relative to your initial expectations? And then the second question was on -- there was an earlier question around presales. And I'm curious -- and this is maybe more North American AG centric or it is more North American AG centric, but that's historically not been as well utilized in my view anyway. Maybe you disagree, but by the case in New Holland dealers in North America, do you think is there an opportunity now just given how far out you are and with potentially a longer runway of growth ahead of us that there's an opportunity to increase that? Obviously, dealers will have to be involved in that, but how do you feel about just the opportunity to increase that again presell as a percentage of the total wallet? Thank you.

Yes. Well, we've already demonstrated -- without just the work that's been done our presales improved year-over-year going into 2021 and I'm extremely confident that they're going to improve rather dramatically going into 2022. So that's already starting to happen. I was encouraged on the last call by what I'd seen. I'm very confident and encouraged about what our future potential is now. Really this business as these industrials do comes down to product brand distribution. And we really have an opportunity to get notably better. I think we're better at product in most cases. Brand and distribution is a huge opportunity. We talked a lot about technology. We're going to make investments with both precision and digital to move up to scale there. Our -- but I feel really, really good about the outlook for this company. And I think as we talked about on the call even the spin-off of the on-highway business I'm encouraged by what Gerrit and the team have done, and I think they're well positioned as well. So the overall strategy was laid out, I think, is the right one. And with our investments that we've talked about and a little bit tighter execution, I think, the future for AG and Construction is really, really bright both from a revenue growth and a margin expansion perspective.

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 everybody and have a nice day. Thank you.

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