CNH Industrial N.V. (CNH) Q1 2022 Earnings Report, Transcript and Summary

Good morning and afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2022 First Quarter Results Conference Call and Webcast. [Operator Instructions]. At this time, I would like to turn the call over to Noah Weiss, Head of Investor Relations. Please go ahead, sir.

Thank you, Nadia. Good morning and good afternoon to everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's first quarter results for the period ending March 31, 2022. 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 webcast without the express written consent of CNH Industrial is strictly prohibited. Hosting today's call are CNH Industrial CEO, Scott Wine; and CFO, Oddone Incisa. They will use the material available for download from the CNH Industrial website. Please note that any forward-looking statements we might be making during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent Report 20-F and EU Annual report as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and the equivalent authorities in the Netherlands and Italy. The company presentation may include 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 Scott.

Thank you, Noah, and welcome to everyone joining our call. In our first quarter as a pure-play agriculture and construction business, we delivered strong sales growth of 13% year-over-year. This demonstrated the tremendous execution of our team who successfully navigated significant supply chain challenges, raw material cost inflation and a volatile geopolitical environment. I'm incredibly proud of what they've accomplished and for their deep commitment to making CNH Industrial better every day for our customers. We are spending more than normal on expedited freight, and we continue to adjust production schedules to accommodate for part shortages. Unfinished machines in our factories and in-transit inventory between our overseas locations were notably above plan at end of quarter. April production improved, and we are confident that we will be able to deliver more for our customers in the second quarter. Judging from conversations and other insights, our customers and dealers are managing fairly well in this difficult environment as increased soft commodity prices helped balance farm income, which has been hurt by rising input costs. For construction, we are seeing high demand in all of our regions. Overall dealer inventories of both new and used machines are at historic lows and service work and part sales are robust, providing reasonable support to our midterm outlook. In addition to positive progress with our Raven integration, we are also pleased to announce last week the successful divestiture of their Engineered Films division. While we no longer expect meaningful supply improvements in the second half and other external risks will likely endure, our original guidance included contingencies for such events. We remain confident in our execution and expect our AG and construction end markets to have more incremental resiliency than the general economy so our outlook for the year remains unchanged. As a reminder, our AG segment now represents 70% of CNH Industrial revenue and slightly more of our earnings. Derek Neilson and his team are definitely managing their business and brands to the storm, driving net sales up 13% on a constant currency basis, supported by favorable price realization and positive mix in North and South America. For the quarter, AG pricing was up 12%, again, more than offsetting rising costs. Order books also remained strong, up 40% year-over-year for tractors and combines. And this number will certainly will improve in the coming more weeks when we open up our order books for model year '23. The war in Ukraine is a humanitarian tragedy and its ramifications have global reach. The impact on food supplies is concerning, and we are closely watching the volatility in commodity prices and various farm input costs. However, it is the repercussions of energy inflation, especially escalating fuel cost, that is most concerning as they may have an even more adverse effect. We have suspended all operations in Russia and are offering financial and housing assistance for our employees based in Ukraine. We are supporting our Ukrainian dealers and have been able to redirect shipments, minimizing the war's financial impact on our business. Precision AG take rates continue to increase with our combination of factory fit and aftermarket digital offerings up almost 15%. With AFS and PLM Connect performing well and our overall precision offerings expanding rapidly with Raven, we are continuously developing better solutions for our customers. During the first quarter, we were excited to introduce the New Holland T6 Methane tractor in the U.S., reinforcing our commitment to advance sustainable farming practices. This incredible machine is the combination of a multiyear development project to build a tractor that runs on sustainable fuel naturally generated by farming operations. Construction equipment maybe the smaller of our 2 divisions, but the successful turnaround that Stefano Pampalone and his team are delivering makes them a vital part of our future. Net sales in the quarter increased 23% on a constant currency basis to $803 million. Encouragingly, this was the segment's most profitable first quarter in over a decade, delivering $32 million in adjusted EBIT at a 4% margin. Pricing was up high single digits to construction, which contributed to their improving profitability without deterring market share gains across various product categories in North America and promising results in Europe. Our improving CE performance is fundamentally sound, with a strong focus on product quality and design and expanding our market reach through the Sampierana acquisition. Commensurate with this progress, order books continue to build, up year-over-year for both light and heavy equipment across all regions. In North America, we are practically sold out for our 2022 production slots. As CASE Construction equipment celebrates its 180th anniversary, we're even more convinced that there is a profitable future ahead, both for CASE and our New Holland Construction brand. Precision Technology is an ambitious journey of transformation and growth, and it is exciting to see the highly capable team Parag Garg is assembling to accelerate our progress. We are partnering with customers to further enhance how our technology is used in the field, unlocking value with each software upgrade and expanding the number of connected vehicles and our new product launches. We're also optimizing auto guidance performance and releasing more tillage prescription features to increase farm productivity and reduce fuel and other input consumption. Raven is catalyzing further progress, supplying more robust architecture that satisfies the rigorous requirements for future AG features while enabling much faster progress for our advanced autonomy and automation developments. During the first quarter, we opened a new advanced engineering center in Scottsdale, Arizona, focused on artificial intelligence and data science for our autonomous vehicle platforms and precision agriculture applications. Along with our new technology center in India, we are positioned to efficiently code to cab on an almost 24-hour basis. These and other initiatives have expanded and accelerated our software development capability and set the stage for future progress, and we look forward to seeing our customers reap the rewards. In February, we laid out 5 strategic priorities that will be critical to our long-term success. Much of our current energy goes towards solving ongoing supply chain challenges, but we also invest heavily to ensure we're making consistent strategic progress. Each quarter, I plan to provide highlights from a subset of these initiatives. Customer-inspired innovation informs all that we do. I was able to spend quality time with some of our largest customers and best dealers during March. Of course, product availability is top of mind for them right now, but with input costs rapidly rising, their comments centered on how we can enhance their productivity. Not long after those discussions, our Board of Directors and I visited Sioux Falls to see the advanced autonomous vehicles in operation, which was timely and rewarding. Field testing with customers will validate our technology and provide assurance their expectations will be met. Our dealers are as eager as we are to serve customers and earn new ones, and our CRM enhancements are making that easier. While the topic of brand government is not exciting, it is important to our dealers, and the improved profitability and progress it is driving is noted and appreciated. Operational excellence is about accelerating productivity, enhancing quality and keeping our employees safe. Tom Verbaeten and our supply chain team did that in the first quarter, while also executing creatively and often miraculously to ensure material is available to our factories and finished goods were shipped to our dealers. They have really delivered on our ambition to be the best for our customers. Executing on these priorities will continue to make us better for our customers, dealers, investors and employees, translating into market share gains and higher profitability. I will now turn the call over to Oddone to take you through some of our key financials.

Thank you, Scott, and good morning, good afternoon, everyone. First quarter net sales of industrial activities of $4.2 billion were up 13%, mainly due to favorable price realization despite the FX headwinds of around 1.5%. Gross profit margin was 22.2%, up 60 basis points versus last year, primarily thanks to mix and pricing. Our AG segment delivered 24.1% gross margin, 80 basis points better than the first quarter of 2021 as better mix and price realization, mainly in the Americas, were stronger than the increase in product costs from raw materials inflation and expedited freight. Gross profit margin was 13.3%, down 1% in the first quarter of 2021 but higher than any of the last 3 quarters. Adjusted EBIT of $429 million, up $36 million from Q1 2021, with an adjusted EBIT margin of 10.3%, down 30 basis points versus first quarter last year on the back of higher sales and higher R&D expenses. Free cash flow from Industrial activities was negative $1.1 billion. This is higher than usual seasonal working capital and cash absorption in the first quarter of the year. May delivery from our plants and higher manufacturing inventories in raw material and partially finished goods led to higher-than-anticipated increase in overall inventories. Q1 adjusted net income was $378 million or $0.28 adjusted diluted EPS, up $0.02 from $0.26 in Q1 of last year. Reported net income of $336 million reflects a one-off adjustment of Russian assets for $71 million net of taxes. This is the immediate impact of our CNH Industrial suspending activities in Russia. Industrial activities net debt ended at $2.1 billion, an increase of $960 million from December 31, 2021, largely due to working capital absorption. At the end of 2021, our available liquidity stood at $9.4 billion, down $1.1 billion from December 31, 2021. Turning to Slide 9. Let's look in more detail at the performance for the quarter, with the usual work called Industrial activities adjusted EBIT by driver and by segment. We see that volume and mix was positive for both segments, while increased production costs were more than offset by positive pricing. SG&A variance reflects increased activity levels, and R&D expenses increased as we are investing more on our precision AG portfolio. Agricultural adjusted EBIT increased $27 million with a margin of 12.6%, driven by favorable mix and price realization with positive contribution for the Americas, partially offset by higher raw material and freight costs and growing R&D expenses. Again, adjusted gross margin was 24.1%, up 80 basis points from the same quarter last year. Higher volumes in Construction Equipment led to adjusted EBIT of $32 million with a margin of 4%, thanks to favorable volume mix and positive price realization, partially offset by higher production costs. Gross margin for Construction was 15.3%, down 1%, primarily due to raw materials and partially set by better mix and favorable price realization in our regions. For our financial service businesses, here on Slide 10. Net income was $82 million, up $4 million compared to the first quarter last year, mainly as a results of higher recoveries of used equipment sales in North America and a higher average portfolio in South America and EMEA. These were partially offset by additional risk out in Eastern Europe, mainly because of the Ukrainian conflict and $15 million of one-off charges of Russian receivables, which is adjusted for net income we're looking at the consolidated figures. For the quarter, retail originations were $2.1 billion, and the managed portfolio including JVs at the end of the period was $20.8 billion. Delinquencies were again down year-over-year to 1.3% and remain at historically low levels. Next, on Slide 11, we have the free cash flow and net financial position performance of our industrial activities. Free cash flow without activities was negative $1.1 million, largely due to seasonal working capital cash absorption. In the first quarter, we typically overproduce retail. What has happened also this year, due to the no supply chain disruption, we produced like the planned and later within the quarter. This created a situation of higher inventory of finished goods, many of which are in transit on March 31. Dealer inventories were, in fact, lower than the already low levels of Q1 2021 in tractors and Construction Equipment and only marginally higher in combines. In addition, we had again a large fleet of semi-finish equipment waiting parts before being shipped for numerous plants. Based on current visibility of our production schedule, we expect to sell through a large portion of these inventory in the second quarter. Total debt was $21.3 billion at March 31, and industrial activities net debt position was $2.1 billion. Liquidity remained strong at $9.4 billion, although slightly down from a year ago as we have funded working capital with available liquidity. During the quarter, we made progress on many of our capital allocation priorities outlined into the Capital Market Day 2 months ago. Organic growth accelerated in the quarter with CapEx of $53 million, up 47% year-over-year and R&D up 39% for the same period as we increased our digital technology spend. In February, Moody's Investors Service upgraded the company's senior unsecured rating from Baa3 to Baa2 with stable outlook. This follows the Fitch upgrade of our long-term rating by 2 notches to BBB+ in early January. Additionally, during the quarter, the company repurchased 1.5 million shares for a total cost of approximately $18.4 million. The shareholders have authorized the additional purchase of up to 10% of the company common shares and extended the period for an additional 18 months while we have a standing program in place to opportunistically buy up to $100 million in shares. At the annual meeting in April, shareholders approved the proposed dividend of EUR 0.28 per standing share for a combined return of EUR 380 million, which will be paid on May 4 to shareholders of record on April 20, 2022. In terms of inorganic growth, as Scott mentioned at the outside of the call and announced on last Friday, we have divested the Raven Films business for $350 million and our interested part is for the sake of Raven business we want to divest. I will now turn the call back to Scott.

Thanks, Oddone. We expect global AG industry demand estimate to remain resilient due to lower soft commodity reserves, geopolitical pressures and the impact of recent adverse weather in parts of North and South America. While it remains generally positive, farmer sentiment has decreased during the first part of the year, largely due to price volatility and strained availability of fertilizer and equipment. High input costs are a challenge but do prompt upgrades to more efficient and sustainable methods of farming and working, which is reflected in our technology adoption rates. Elevated commodity prices will continue to bolster farm incomes and encourage those who can expand real crop planning. Comparing this 2022 AG industry demand estimate with the one we issued at the beginning of the year, the only substantive change is lower volumes in Russia, Ukraine and Turkey. For construction equipment, our industry estimates are largely unchanged, except in South America, where we see some upside to demand in an election year. With solid recent print of the ABI and demand for customers ahead of projects related to the U.S. infrastructure bill, there could be also potential upside to our North American market estimate. Our visibility, and too often, lack of parts availability continues to be challenged by the conflict in Ukraine, ongoing supply chain lumpiness and the effects of the pandemic, which are still a significant factor in some geographies. Despite risks, we are confirming our previous 2022 guidance for industrial activities. Full year net sales are expected to grow between 10% and 14%, including currency translation. We will continue to invest to improve our business but expect to keep SG&A at or below 7.5% of net sales. Free cash flow for industrial activities is expected to exceed $1 billion. R&D and CapEx will be approximately $1.4 billion combined spend for the year. Although supply chain challenges now appear to be a headwind throughout the year, we do expect production and retail sales to increase in Q2 and beyond. Of course, this may be quite volatile, depending on the cadence of supplier shipments and the duration of fighting in Ukraine. From a broader economic perspective, I am less optimistic. The negative GDP print in the U.S. last week was a surprise, but we are anticipating weak reports from Europe. Interest rates are rising, inflation is ramping and China is largely locked down. And thus, we will not be surprised if there is a global economic slowdown in 2023. Nonetheless, as our current outlook indicates, we think that global food demand and associated productivity needs will support our industry better than others. While supply pressures persist, we will maintain our focus on managing them and minimizing any associated inventory buildup. As many of you have likely seen, our contract negotiations with United Auto Workers for our plants in Racine, Wisconsin and Burlington, Iowa hit a roadblock yesterday. Our previous contract expired on Sunday, May 1. And on Monday morning, we were advised by the union of their decision to call the represented employees out on a strike. The Union's decision to strike was disappointing. We had several weeks of constructive dialogue, but when the contract expired, we remain very far apart on some important issues. The very nature and purpose of a strike is to disrupt our business and create concern amongst our customers. Despite that intent, CNH Industrial is committed to reaching an agreement with United Auto Workers. We have made ourselves available to meet at the bargaining table at any time. We are determined to satisfy our commitments to our customers, the communities we serve and our other employees. It is our intent to continue operations. And to that end, we are prepared with the contingency plan that should minimize the impact to our operations. Our dealers and customers certainly need us too. Dealer views on the AG and CE economies generally remain robust and positive, which is validated by our order books. We endeavor to get them the products they need to support our customers and will be judicious in managing their inventories as we do. Elevated CapEx and R&D spending will continue as we invest in new vehicles, precision technology solutions and alternative propulsion. Additionally, we are increasing the number of Raven products flowing through our global distribution channels. We are creating a constructive path to lower CO2 emissions and improve our product offerings as part of our science-based target initiative commitments. Between the new Patriot sprayer, the New Holland T7 tractor and many other introductions, our model year 2023 products are exciting, as there is a tremendous engagement and execution of our global team who are truly breaking new ground. That concludes our prepared remarks. We will now open the line for questions. Nadia, please go ahead.

[Operator Instructions]. The first question comes from the line of Kristen Owen from Oppenheimer.

I was wondering if you could talk a little bit about the pricing and currency assumptions that are now baked into the full year guidance versus what you initially guided a couple of months ago. It just seems like a lot has moved around in those assumptions and wondering if you can help us understand the puts and takes there.

Yes. I think we can say we have some more pricing as also we have some more cost on the other side. And currency is now a bit more negative on our overall sales since the dollar is strengthening.

Okay. And then you called out market share gains in the prepared remarks. You talked at the Capital Markets Day about 200 basis points aspirational market share gain. Can you just give us a sense of the success that you had in the quarter? What's driving that? And how sustainable do you feel like that can be?

Yes. While our ambition is certainly to have sustainable market share improvement over the planned period, the current environment really dictates that availability is the sole driver of market share movement. So I'm not reading much into what's happening right now because it's literally who has products and dealerships and get that out. Our team is doing a really good job with supply chain, but certainly, in some of our products and some of our product lines, we're really not as good as we could or should be. So while we did gain market share in some regions, in some product lines, it really is strictly around availability right now. And I don't think that's a sustainable way for us to look at it. So it's really the investments in new product offerings and the value that we can create with our precision offering that I think is going to be the long-term contributors to market share. But that wasn't the case in the first quarter.

The next question comes from the line of Tami Zakaria from JPMorgan.

This is Tom Simonitsch on behalf of Tami. So last quarter, I think you commented that 30% to 40% of your backlog is backed by a retail order. Can you update us on the retail versus wholesale mix of your orders year-to-date?

Yes. That has actually increased in most of our markets as we certainly shipped a bit less than we expected to. And I think there is anxiety amongst most retail customers to be able to put their hands on iron when it does with the dealership. So we've seen that number move up almost double from what it was at the end of the first quarter, more in the 70% to 80% range.

And then just a clarification. I think you said that you're expecting your production levels to increase from the second quarter onwards. Can you confirm if that is contingent on strike resolution?

No, I will not confirm that it's contingent on the strike resolution. The strike is very unfortunate, but we knew it was a possibility. And it's very unfortunate. We certainly want to get our team in Racine and Burlington back as quickly as we can. But we built our plan so that we can operate. And really, it's 2 of our 38 plants, and we've got -- it's overall, I think, well below 10% of our global production. And we are continuing to operate the plant. So I don't think it would -- I would not say the forecast we just provided was contingent upon any aspect there. We knew there was -- we plan for higher labor costs. We knew there was labor risk, and we planned for those contingencies, and we'll continue to work as quickly as we can towards a negotiated settlement that's beneficial of all parties.

The next question comes from the line of Ross Gilardi from Bank of America.

You guys -- sorry, still 11% revenue growth in AG in the quarter with -- it sounds like essentially no volume growth and now production is improving. So should we expect AG revenue growth to accelerate through the year? And then in terms of the normal seasonal pickup that you see in AG revenue, I mean if we go back to most years for the last 7 or 8 years, excluding 2020 with COVID and I think, 2015, which was a difficult time in the cycle. I mean AG revenue normally goes up close to 30% in the second quarter versus the first quarter. And just given what you're seeing, do you expect to return to that realistic expected return to that type of growth trajectory, Q1 to Q2?

Ross, appreciate the history lesson and that's exactly how we're looking at it. Obviously, as we said about 16 times on the call, life continue to depend on the supply chain, but the team is doing a really nice job of dealing with it. Dealer inventories are extremely low, so we would certainly expect that trend that you laid out to be what we were aspiring to deliver.

Okay. And then just your latest thoughts on your agriculture margin specifically, I mean, do you get back to a 20% to 25% incremental margin for the full year, given what you did in the first quarter and just what you're seeing right now? And then just what about gross margin? I mean, your gross margin was up 60 basis points year-on-year and pretty much the toughest of all environments with all the production challenges and raw material cost pressure. I mean is there any reason why our gross margin wouldn't be up at least 60 basis points for the full year?

No. I mean that's certainly how we're expecting. Derek and Stefano have really done a nice job with keeping price ahead of cost and we expect to continue to be able to deal with that. There are some incremental costs coming in, but I think the team's demonstrated a nice job of working through those. We argue, have a number of new product introductions that will be helpful to margins as well. So we do feel reasonably good about it but don't underestimate how difficult the environment is. It's a battle and I'm proud of the way the team is handling to it.

Okay. And then just one last one, Scott. I mean, just overall on the AG cycle, I mean, how has your thought process evolved on the longevity of the cycle since the Investor Day and Russia and Beijing, does the flattish planning assumption in '23 to '24 just seem more or less appropriate to you? Or just any subtle changes and thought more on the longevity of the cycle?

Yes, I mean it was not exactly helpful that the invasion happened the day of our Capital Markets Day. But the -- it's so unfortunate for those that are impacted by it, so I shouldn't make light of it. But nonetheless, what we are seeing, and I said it in my prepared remarks that the global economy doesn't appear very good to me. But I'm probably more positive on the AG cycle than it was just because soft commodity prices are up so much and really weak, specifically, availability is down considerably. And late planting in the U.S., it's just -- it's really shaping up to be keep the soft commodity prices high, which is offsetting some of the hard input costs. So I do think the AG cycle is probably got a little bit more legs to it than I would have suggested several months ago.

The next question comes from the line of Martino De Ambroggi from Equita SIM.

The first question is on the guidance. You are an underlying assumption of 115. You already had a question on this. But may I ask you what is the sensitivity rule of thumb of the euro-dollar rate on sales, adjusted EBIT and free cash flow debt?

So Martino, the rule of thumb for revenues, as I would say, 1% lower revenues by every $0.05 of dollar appreciation, something like that. Then we have positive real-U.S. dollar right now, so there's some positive one in there. And for EBIT, EBIT doesn't affect too much or is not affected too much by our by exchange rate as we have a good chunk of our costs in Europe.

And the free cash flow or debt as you prefer?

There may be some tailwinds on the debt conversion because of the euro -- some of the euro-based debt.

Okay. And this is not the main reason for the change in the free cash flow guidance?

No, it's not. We haven't changed the guidance for the free cash flow. We kept the same just above $1 billion.

Okay. Okay. And the second question is on the operating leverage of the 2 divisions stand-alone because under the new macroeconomic environment, probably something is changing. I don't know.

We still forecast revenue growth in both. And so I wouldn't see an enormous operating margin change from historical -- operating leverage change from historical performance.

Okay. And the prices for the full year and your assumption for this operating leverage, it was 11%, 12% in the first quarter. Should we expect a similar or even higher effect for the full year?

I will go for a similar rather than higher.

Okay. And very last one -- sorry?

I would go for a similar rather than higher. So we stay to the same level that we have in Q1.

Okay. And very last on prices, after the renegotiation of the labor contract, would you be able to also offset this through price increase because typically are for production costs, raw materials and so on, but should we expect the ability to cover it?

I think it's probably better to assume that we anticipated higher wage inflation and have put that into our pricing already.

Okay. I cannot ask you how much of?

Good try.

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

Just two questions from me. I wanted to follow up on the demand commentary. There are some categories that you mentioned industry demand in the release has been down in the quarter, I think some categories of combined, for example. Shall we see those as more visit comps that influence those and they are more like one-offs and you still see overall a strong environment? I guess sort of trying to think about farmer sentiment versus consumer sentiment versus low dealer inventories, if we should read anything in from looking at those categories that are down? And then the second question, just relating to your backlog and the stickiness of that backlog. Can you comment a little bit on the type of level of advances that farmers need to put when they order equipment and the things that we should look into to have confidence that all the backlog will be delivered and there's no cancellations if the macro -- if the more bearish macro scenario materializes?

Well, first, on the demand question, I will tell you that -- I said it as it relates to retail performance and market share gains, but it also is true for the overall demand. Where we saw down markets, and I've looked at what's happening in the industry as well as it's happening for us, it's solely related to product availability. So as we ended the quarter with much larger fleet inventory, that means product wasn't available for the dealers, and therefore, they couldn't take it. So it really was not related to anything. I mean, we are seeing -- we talked about farmer sentiment being decreasing. It's still above the historical norm, but it is coming down, specifically the higher input cost and then the lack of availability of both fertilizer and equipment. But we're not seeing that in any demand impact at all at this point. We're watching for it, but nothing is suggesting that anything other than availability is impacting demand at this point. And as far as the second question was related to -- I'm sorry?

Backlog stickiness in terms of what's the level of advances, yes?

Yes. I don't think even our best dealers are getting significant down payments on backlog. We know that it could be canceled. I will tell you that the -- what's happened, because of low availability of used farm equipment, there's a lot of times people they really need to take it because they don't have something. They've sold something so they need to get it in. And I think that's probably better than any down payment we could get. So we're aware that some of these orders may fall out, but it's better to have a retail order at the end and just having it go into dealer inventory. So on balance, I think we're in reasonably good shape.

The next question comes from the line of Courtney Yakavonis from Morgan Stanley.

I'm wondering if you can just share a little bit of insight into the supply chain, what you're seeing in Europe versus North America and if there's any sourcing issues out of China right now, just where are the biggest pain points? And then I know that you are not providing a margin guidance, but can you just talk at all about how your expectations for improvement. I think last quarter, you had told us you were expecting semiconductors to be very similar this quarter as they were last quarter. Just any differences to how you're thinking about the supply chain at this point relative to last quarter.

I think the big difference from last quarter is that we are not expecting the overall supply chain situation, including semiconductors, to get better throughout the year. It is, at this point, we believe, going to be a battle throughout 2022 and potentially longer than that. Again, I'm extremely proud of the way the team has figured out how to navigate some of these challenges. And semiconductors is one that, especially -- it's a brutal situation. But we've managed for 5 or 6 quarters now to handle it pretty well, and I think we'll continue to be able to do that. The overall -- I mean, the situation with supply chain, obviously, the lockdown in parts of China has not helped. The war hasn't helped. But we're dealing with 300 or 400 suppliers that we're expediting. And that's an unprecedented number, but it's kind of consistent with what we've been doing for the past few quarters. So the team's kind of built some muscle and capability to do it. But I'm not seeing -- and again, you asked the question specifically around Europe. Early on, foundries -- and when I say early on, early on in the war in terms -- the foundries were potentially shutting down because of higher electricity costs, and we were able to navigate around that. And we're getting through most of those issues. We are expecting there's additional hiccups that could come out of the Russia-Ukraine region. Pig iron is one that we watch really, really closely. But generally speaking, I hate to say it, Europe is no worse than North America. I mean it is -- the supply chain is difficult. And it's a battle. But again, I think I'm quite pleased and impressed with the way the team is managing through it.

Okay. Great. And then you mentioned a couple of times on the call that sales is really a function of availability at this point. On your industry outlook, I do think you reduced some outlook, especially on the construction side in Europe and slightly in rest of world. Is there anything that you're seeing that's impacting that industry outlook from a demand perspective? Or is that also just a reflection of availability at this point?

I think that's probably related to Turkey, Russia and Ukraine, which we -- that -- we're down there for sure. But our construction business in Europe specifically has had a rough decade or so. And the team has done a nice job of getting putting there. And with Sampierana coming on, we are going to see construction growth and actually profitability for the first time in a long time in Europe. So if there was negative numbers, I'm pretty sure it's related to the region is affected by the war.

[Operator Instructions]. The next question comes from the line of Francois Robillard from Intermonte. François Robillard: Just a quick one to understand the new guidance was the previous guidance including all 3 divisions on sales? I mean, was the previous sales guidance including all 3 divisions of Raven. And does the recent sale of the EFD division? Is it reflected?

That's why we treated the EFD and CE other division as held for sale. So we haven't included in any of the numbers. François Robillard: Even in the previous guidance?

Not in previous guidance, not in the first quarter. François Robillard: Okay. So not in both, if I understood correctly.

Right. François Robillard: Okay. And on Precision AG, you mentioned that Raven penetration is increasing. Can you give us some more color on that and how you managed to navigate it, notwithstanding the tough supply chain situation in the first quarter?

Yes. I think one of the benefits of making the acquisition is instead of Raven trying to get into our dealers, we have all of our salespeople also helping to pull Raven through our channels. And I think that's what's driving the extra penetration. What ultimately is the main benefit profitability driver is integrating Raven into our vehicles and equipment. But right now, we've got a great opportunity in the aftermarket, and that's what we're seeing us take advantage of. François Robillard: Okay. Any chance you can give us, some estimate of an impact on your first quarter sales from this integration?

Oddone is shaking his head, so that means no.

The next question comes from the line of Steven Fisher from UBS.

I think I heard you say something improved in April. Did I hear that correctly? And if so, what exactly improved and why?

It must have been a misstatement. No, I'm kidding, Steven. No, we did see production improve in the quarter. We talked about -- we ended with a much heavier inventory level. We were able to work through some of that in the quarter, but also see the plants be more productive. So it was a benefit of both.

Okay. And with supply chain not expecting to get better, should we expect retail sales to year-over-year kind of align with your own sales? Because I'm still a little unclear as to why your sales volume seemed to be ahead of retail sales for Q1. It seems like it should basically just see if there's -- farmers are kind of clamoring to get whenever machines are available, it seems like it should just be a fairly seamless pass-through.

No, I would agree with you. No, we are -- I would love to be able to get inventory and our dealers up a little bit throughout the year, but that's not in our plan.

Okay. And then maybe lastly here, I'm not sure what you can say about this, but it seems like there's a playbook for resolution of the labor situation. So maybe you can just help us with anything that's different about your labor situation versus that of your competitor and how that was resolved late last year.

Yes. So I think the big difference is the number of their -- they had a much larger percent of their hourly employers leveraged by the union. I mean -- it's multiple factors higher than our 20%. And that's the big difference. And also, we've got so many other factories where we can produce and we've got the ability to bring in that we not have. We have our salaried workforce and contingent labor helping us to serve our customers, which is our primary goal. But we're committed to reaching an agreement. We -- again, we had several weeks of good dialogue with UAW, and we believe we made a very fair offer. We're continuing to be willing to negotiate. And we're optimistic that we can resolve this and that's what we need to do for our employees and for our customers. But we can't look at the dealer situation and make a -- that's the playbook we're going to follow because it's a very -- it's apples and oranges really.

[Operator Instructions]. There are no further questions. That will conclude the question-and-answer session. I would now like to turn the call back over to Noah Weiss for any closing or additional remarks. Please go ahead, sir.

Thank you very much, Nadia. Thank you, everybody, for joining.

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