Hello and welcome to CNH Industrial. My name is Caroline and I will be your coordinator for today’s event. Please note this call is being recorded and for the duration of the call your line will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions] I will now hand over the call to your host Jason Omerza, Vice President of Investor Relations to being today’s conference. Thank you.

Thank you, Caroline. 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, 2023. 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 prohibited. Hosting today’s call are CNH Industrial’s 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 that 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 the factors that could cause actual results to differ materially is contained in the Company’s most recent annual report on Form 10-K, as well as other periodic reports and filings with the U.S. Securities and Exchange Commission, and the equivalent reports and filings with authorities in the Netherlands and Italy. The Company presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures, is included in the presentation material. I will now turn the call over to Scott.

Thank you, Jason. And thanks, everyone, for joining our call. With a record first quarter margins in both agriculture and construction, we had a solid start to the year. Robust demand for large agricultural equipment continues especially in North America. In construction we benefited from better capacity utilization and higher volumes in North America and Europe. The margin growth in both businesses reflects our progress and I’m increasingly encouraged by the resilience of our end markets. Our lean manufacturing and strategic sourcing programs are introducing simpler, more efficient processes across the company. The teams are doing a lot of foundational work right now and we will accelerate these results along the way as we implement these multiyear margin improvement plans. We are successfully employing a variety of approaches to develop our tech stack and the benefits to our customers and business will be significant. In addition to our R&D and capital expenditures we also announced three key acquisitions, bolstering our strong precision agriculture and alternative fuel portfolios. With increased volumes and continued price realization in both agriculture and construction, revenues were up 15% in the quarter. Industrial EBIT was up 29% with a margin of 11.6% up 130 basis points over the first quarter of 2022. And also up sequentially from Q4 as supply chain improvements allowed our manufacturing teams to be less encumbered by fleet inventory completion. And as it should, all of this translates into higher bottom line results, visible in our solid year-over-year EPS increase. Derek Nielsen’s Ag team is laser focused on delivering for customers reflected in net sales of agriculture rising 16% with growth across all regions. Ongoing industry demand, especially in North America row crop market, strong year-over-year pricing, and a favorable mix all contributed to the higher sales. Rebounding retail sales in Brazil…

Thank you, Scott. Good morning, good afternoon to everyone on the call. First quarter net sales of industry activities of $4.8 billion were up roughly $600 million or 17% of the customer currency year-over-year. This was mainly driven by favorable price realization and higher sales volumes. Adjusted net income for the quarter was $475 million, with adjusted diluted earnings per share of $0.35, up $0.07 on the back of ongoing strong operating performance. Free cash flow from industrial activities was negative 673 million, about a $390 million improvement versus the first quarter of 2022. Quarter one as a normal season or build up a finished inventory in preparation for the spring selling season. Agriculture net sales were up 60% to $3.9 billion supported by favorable price realization, higher volume and favorable mix. Gross margin was a record 26.2% mainly due to higher volume and pricing across all regions offsetting higher manufacturing costs and purchasing cost. Agriculture’s adjusted EBIT increased by $144 million or 33% to reach $570 million, with a margin of 14.5%, mostly driven by the gross margin improvement. We are still seeing high carryover price and cost inflation when comparing year-over-year, and that will continue into Q2. That is also true for our SG&A and the expenses which like our manufacturing cost have been heavily impacted by inflationary pressure from the second half of last year. Carryover pricing will fade in the second half but that is also when our proactive efforts to contain costs and especially SG&A would be more evident. We have solid plans to increase the full-year margins versus 2022 by reduce volatility overtime. Construction lead sales were up 6% driven by favorable price realization as well as positive volume and mix in North America and in Europe. These more than offset the close of…

Thank you, Oddone. Most of our 2023 estimates for industry unit performance are consistent with our last earnings call. We have slightly increased our projections for combines in North America, but marginally lowered construction estimates in South America and APAC. Our order backlog remains solid well above 2019 levels, and agriculture and construction order books are full through the third quarter. Model year 2024 list price updates will be announced later this month and we will be opening the queue for order books shortly thereafter in most markets. Based on feedback from our dealers we expect the Q4 order slots to fill rapidly. Our dealers remain on allocation for products, where demand is outstripping our ability to produce, especially our large agricultural equipment with precision technology. Dealer inventories for high horsepower tractors and combines remain at historically low levels. On the other hand, with persistent small Ag demand softness, we are lowering production of the relevant equipment to keep dealer inventories near optimal levels. We saw an uptick in dealer inventories for light construction equipment due to high shipments in the month of March. But the inventory to sales ratio for these products remains quite low. As demand for row crop products is strong, pricing levels are proving durable order backlog remains solid and dealer feedback is positive. We are raising and narrowing the range of our full-year net sales guidance to about 8% to up 11%, compared to our prior forecast about 6% to 10%. We are reaffirming our previous 2023 guidance for the remainder of our metrics. With the progress we have shown so far and at today’s sustained volume levels, it is evident that we may approach or even meet our sales margin and earnings per share targets from Capital Markets Day a year early. What you…

Sure, thank you. [Operator Instructions] We will take the first question from line Daniela Costa from Goldman Sachs. Your line is open now, please go ahead.

Hi, good morning thanks for taking my question. I just have two questions, if possible. The first one sort of surrounding the current - given all the current credit situation. If you could give some color on how much of the equipment that you are selling, you are currently financing versus third parties and whether you plan to take on maybe more of their risks related to what maybe is not yet financed by you or for some reasons, that is sort of out of scope and what could that mean? And the second question, just on your comments on the journey you are making towards precision Ag. Can you maybe elaborate on that journey in terms of your inorganic journey, where do you think you are at the moment in terms of like the, the ideal product set that you have you got to where you want, and now it is more about growing up organically do you still miss certain parts that you would like to strengthen and which are those? Thank you.

Daniela let me take the first one. So in terms of retail financing, depending on regions and business about between 25% and 45%, of what is retail is financed by us. This is actually in a highly competitive market, there are other players their financing. We may with if there is some lower liquidity in the market, we may see an uptick on all of our penetration. But we don’t see this as an issue.

Yes, and as it relates to the tech stack, obviously, as you have heard me say before, I mean, I feel good about the actual precision technology and automation that is currently on our products. And what Raven does it rapidly accelerate our ability to go faster and do more, our autonomy is as good as anyone in the industry, but really enhancing the precision suite in our products, off Board, on Board, all of those things. What the team is doing now making tremendous progress, to make that whole system work better and easier for our customers. It is a journey, and we have got a ways to go there. But when we add competencies like Augmenta and Hemisphere, it just allows us to go much, much faster. The history of Raven, they added these bolt on acquisitions along their journey as well. So it is not, because I do think we have the capability, we have added over 500 engineers to the Raven team, we have the internal capability to do everything we need to do now. There might be opportunities for small acquisitions to enable us to go yet faster yet again. But I feel good about where Mark and Parag are and their teams are in ensuring that we can deliver value for customers along the way as we get this tech stack build out complete.

Thank you.

Thank you. We will take the next question from line Michael Feniger from Bank of America. Your line is open now, please go ahead.

Yes, thank you for taking my question. Scott, could you talk about the cost savings. I know there is the first wave and second wave. When do we think you will see this run rate savings you talked about, you are already kind of in line a target for your sales margin EPS, but it doesn’t feel like you have actually gone through with some of these savings initiatives that got pushed out so can you kind of give us an update of where we are in that story right now?

Yes. Actually, Oddone helping make it easy to answer that question because we did recommit this morning to the $550 million, that will be next year. And most of that actually comes in 2024. Obviously, the significant inflation that we experienced last year, and then this year, the beginning of this year, made some of that hard. But the work that we are doing, I talked about the progress, the strategic sourcing teams making Scott Moran and our CBS team are doing tremendous work in the plants, Derek and his team are driving better solutions, making the products that we design easier to assemble and source parts for. So it is a holistic approach to cost and I think, the fact that we will get many hundreds of millions in 2024, to get to that 550 million gives you a little bit of insight into what is to come. But certainly a lot of this stuff, as we see, supply chains improve, our lean programs improve, our strategic sourcing improved, our designs improve, really gives us a lot of confidence that the record margins we delivered, this quarter can be big in the years ahead.

And Scott, just to follow-up on that. I mean, obviously, nobody has a crystal ball, there is a huge debate on what 2024 looks like. But with the line of sight you have on your cost savings. You think you could expand add margin in a backdrop where units or maybe flattish even slightly down next year?

Yes.

Okay, thank you.

Thank you. We will take the next question from line Jamie Cook from Credit Suisse. The line is open now, please go ahead.

Hi, good morning and congratulations on a nice quarter. I guess just my first question. Can you just give a little color, more color on, what you are seeing in Brazil. I think last quarter, you are a little more cautious. It sounds like maybe there is some weakness on the smaller horsepower side, but large horsepower seems to be okay. So that would be my first question and then I have a follow-up after that.

Well, the situation in Brazil, just the timing of our earnings call last quarter affected how we looked at that and there was a lot of, for lack of a better term constipation with the government transition and our dealers there were incredibly cautious. Literally a week after the earnings call, we started to see things turned around, we had already made the decision to lower production. So it allowed us to reduce dealer inventory in Brazil, and we feel very, very good about where we are positioned now, with leaner inventories than anyone else in the industry, and a great product lineup, and more importantly, a really, really solid team in Brazil, to manage that market. So, we think Brazil is going to be a decent market this year, not going to grow as much as it did last year, but still a very, very good market for us.

And I guess just my follow-up question based on what you guys said about the cost savings kicking in 2024. And where your margins are today and related to the last question, Scott not to put words in your mouth, but it seems like we need to update the street favorably or positively, increase your targets that you laid out at the Capital Markets Day, at some point, just given what you said in the previous question. And so one confirm that, obviously, you don’t have to tell us what it is today. But my second question is, does the optimism just relate to the farm equipment side and sort of where are you in that process within construction equipment. Is it all Ag driven or where is construction relative to what you would have thought, relative to your capital market targets? Thanks.

Yes, well, we did put a comment in our prepared remarks about how we expected to get to some of those 2024 targets and we knew it was just a matter of time before that question. So thanks for getting a sweat out of the way early, we do feel good. The markets - remember what we had anticipated at the time of Capital Markets Day and it went over like a lead balloon was the markets would be relatively flat in 2024. What we have seen is the markets had just been better for us. And, as you can see, we are taking advantage of that and now as we sit here, the positive momentum that we have had looks like it is going to continue from a market perspective, and again, not at the same levels, but still the overall fundamentals are good. As we talked about, as my last question, we are putting just tremendous energy and how to make the margin and expansion opportunity as we serve our customers better, how do we deliver, better margins along the way. And I think with that backdrop the updated guidance will be reasonably good, but we would expect that to happen about a year from now. We haven’t put a date out there yet but, we want to get into 2024, have a better understanding of what that can be and I think we would update our long-term guidance, sometime in the first half of 2024.

Okay and it just a follow-up Ag versus construction, do you want to comment there. Do you feel better on Ag versus construction or is it sort of equal?

It is sort of equal. Obviously, I think the Ag cycle kind of exempts us a little bit from economics and construction doesn’t have that same exemption, but what we are seeing with really, really good innovation now the St. Pierre Jana acquisitions helping. But the optimism I saw from our team and our dealers at ConExpo gives me confidence that our construction business is going to going to do well for the remainder of this year. And it is positioned well to do well after that, but again, a little bit more susceptible to the overall economic woes if the economy tips over than Ag.

Okay, great. Thank you so much. I will get back in queue.

Thank you. We will take the next question from line Steven Fisher from UBS. Your line is open now, please go ahead.

Hi thanks, good morning. Just curious how you are thinking about margins later in the year. It sounds like the price is going to moderate but your costs will also moderate lots of different mix puts and takes there. So curious, how do you see that netting out relative to Q1. I guess I’m mostly thinking about the Ag side but curious on construction of wealth of course.

We will have variability over the year, quarter-over-quarter as we always have, but we are confident that year-over-year for the full-year we can increase our margins as we plan to do. So of course pricing as we have anticipated will start to fade in terms of year-over-year comparison but so will cost and we are putting all this costs reduction initiatives, including in SG&A that will come to fruition in the second part of the year.

Could we still see some higher margin later in the year relative to the first quarter in Ag?

We could, yes. And again for the full-year, we expect margins to be better than they were last year.

Sure yes, okay. And then on inventories that how aligned would you say CNH and CNH dealers are on the desired level of inventory for thinking about for the next year and I think dealers have been clamoring for more inventory. Does that still hold and how much of a desire do you have to build normal levels to meet their higher levels of demand?

Well, I got to be really careful as I answer this, because I have got a few dealers that will call me immediately after the call, if I say we are not committed to giving them the products they need. So in many markets, especially cash crop around the world, they just need more inventory. It is too low and what I have told our dealers is, we do not want to get back to the 2019, 2018 levels, where they are slightly over what they would like to have. We want to keep dealers relatively lean, we are not perfect at that. I mean, if you look at our, we are lowering production of the lower horsepower Ag equipment, because we didn’t slow down soon enough. So we are going to crack that very, very quickly. But overall, many of our cash crop markets are still too low on inventory, and we are ramping up production to try to meet those, other parts of the market, really low horsepower. And in some parts of Europe, we are trying to make sure that we pull back. So we get their inventories in better position. But I personally, and we, as a company, do not want to get to historical levels, we thought it was probably a little bit too high. And we would like to keep the DSO a little bit lower.

Perfect. Thank you.

Thank you. We will take the next question from line Tami Zakaria from JP Morgan. Your line is open now, please go ahead.

Hi good morning, thank so much for taking our questions. So my first question is, can you give us some color on market share trends for large Ag by region for this quarter or maybe over the last 12-months, if that is a better gauge of the trend, where you saw the most gains where you saw some relative weakness?

Yes. We said it all of last year and it is really true now as well, market shares based on who can build it in the large Ag and cash crop segment. And I hate to say it, but we are still ramping up production of high horsepower tractors, and that is not helping us. Our combined performance is exceptionally good. We have industry leading products and that gives us an opportunity to gain share in most markets. Europe is spotty for us, there is some markets where we are doing better than others. I think overall, we are probably down a little bit in market share and looking forward to turning that around in the second half. But generally speaking, I think our overall opportunity for market share is going to improve quarter-over-quarter, year-over-year, as we get a return on the investments we are making.

Got it, that is really helpful, thank you. And then my second question is, can you help us understand the bridge to the revenue guidance. How much of that is lower FX headwind versus higher organic sales growth outlook for the rest of the year. It seems like it is mostly driven by FX. But just curious how you how you thought about it?

Compared to the first quarter, there is going to be, yes, effects is going to be better and volumes and pricing, but will be a little bit lower than what we had in the first quarter from what we say.

Got it. Thank you.

Thank you. We will take the next question from line Larry De Maria from William Blair. The line is open now, please go ahead.

Hi, thanks and good morning everybody. Scott, you mentioned new list prices coming up in the month, obviously opening up 2024 onward. Market seems healthy, though commodity price has been volatile, especially an upward curve. Curious how you thinking first on list pricing, maybe even in general terms of just a breather year, or we can continue to push pricing into next year. And also with that commodity curve, what are you hearing, what are you seeing in terms of any incremental question is or is it still sort of all systems go from what you are hearing and feel? Thanks.

You know I think with pricing, what we are seeing, after a couple of years of unprecedented price increases, we are expecting, we haven’t finalized it yet, so I can’t say. But pricing is going to normalize and you know, what is normalized mean 2% to 3% based on features. But generally speaking, we expect 2024 pricing and maybe the next couple of years to be in that normal range. And you are a little bit swamped. So I didn’t catch the second part of your question, can you could repeat that.

I was just talking about the forward curve and commodities obviously, lower. Just curious about how you are seeing and what you are hearing in the field from dealers, is there any incremental cautiousness creeping up or is it all systems sort of go still at this point?

You know, the general feedback that I’m getting is, it is all systems go with a slight to call it I mean, the produce report came out yesterday, so farmers sentiments improving. The overall setup for soft commodities is relatively good. Overall, if the dollar movement also has an inverse relationship with commodity prices. So, generally speaking, I think, we expect, and it is part of the help, we are getting commodity prices are going to moderate at a level that we think is above historical norms, which helps farm income and ultimately helps us. We have to manage that as well, because we are expecting, as you have seen, steel comes down has come down tremendously, we are seeing shipping rates come down dramatically. So we kind of need to play both sides of it, keep the soft commodities relatively high and the rest of commodities that affect our input cost relatively low, and right now that seems to be working for us.

Okay, thank you and good luck.

Thank you. We will take the next question from line Marta Bruska from Berenberg. The line is open now, please go ahead.

HI good morning everybody. My question is on the margin, but I already asked her several times and was very helpfully answered. So I would like to just ask if you could please command on the decline in the under 140 horsepower tractors, is that driven by the dairy market was newcomers coming under pressure now or rather that comes from the general macroeconomic situation as under 140 is relatively broad category, if you would include also the under 140 horsepower tax declines, perhaps strongly?

Yes. The decline in the low horsepower market is really, it is related to the very high sales that happened during the pandemic and then post early years after the pandemic. So I think it is just a somewhat of a return to normal in that market. But what unfortunately, what happens is when not just us, the industry got caught a little bit surprised on how quickly it turns out, the dealer inventories a little bit higher. So what you are seeing is higher promotion rates there and all of us working through that situation.

Thank you. We will take the next question from line David Raso from Evercore ISI. The line is open now, please go ahead.

Hi, thank you. One question on pricing and one on the commentary around 2024. First, just indulge me for a second. If you pull pricing out of Ag revenues for this quarter and last quarter, it suggests the revenues were down sequentially in Ag 22%. But then the pricing gains fell 55% sequentially. And that same kind of math going back to a few quarters the relationship has been positive, meaning pricing gains up sequentially or better sequentially than what was happening on revenues, X pricing. Was there a certain mix issue in the first quarter, why would the pricing have slow that much relative to what we have been seeing and relative to the let’s call it volume, X price sequentially down, were something unique in the mix?

Well, there are many mix components. The first quarter is smaller quarter in terms of sales. We have also relatively slower sales in South America in the first quarter. And we talk about it and this mainly because of the stocking of the network that we have been doing. But we are pretty happy about how the prices play out in the first quarter actually. And if you compare it, I mean, if you think we started growing pricing in the second part of 2021. And as you say we have sequentially, price increased quarter-over-quarter and we also have been very clear that we don’t expect this to continue at this pace forever. But we need to have cost reductions in the industry in the system in the supply chain before we start increasing pricing.

No, I appreciate that. But I think by capturing volume revenue X price, we are sort of just looking at it sequentially. Why such a larger sequential slowdown in price than and then let’s call it volume. And it just the gap, is a gap some positive for multiple quarters. And obviously the costs are coming down, but it is a very unique gap, they are down 22 price revenue X price and down 55 on price?

Let’s look at what we focus at the price cost relationship and that has actually been better in the first quarter than it was in the fourth quarter.

- down in price slows as much?

No, I get it. But that is what is relevant for us is the fact that price cost is continued to be positive and is actually sequentially better compared to the fourth quarter. Then as you say, there is many mix components quarter-over-quarter and again, the first quarter is a relatively small quarter. So any variances there probably is sort of amplified.

And under 2024 comments, encouraging your comments about margins for 2024, sort of not requiring our growth for volume. Can you give us a little bit of understanding of when you, I’m not trying to ask for 2024 guide on incremental margins but when you think of a smoother supply chain, obviously, no labor issues assumed, when you think of the cost improvement, if we did give you volume up, I’m just curious how you are thinking about incremental margins, relative to what we have seen of late that kind of more low 20s, how would you think about a 2024, if you did have a little volume health? And then secondly on 2024, any order books extending into 2024 right now they can least give us a little early color? Thank you.

Well, let’s take tackle the margin, before I don’t answer your second question, I will tell you about the margin situation. It has been a really a brutal two-years with supply chain debacle in the supply chain, some labor issues affecting our ability to produce and because we were fighting those, we were not able to get as much traction with our margin improvement opportunities, as we expected. So what we are seeing now is those teams are starting to really, really get those projects underway and they don’t hit immediately so we are going to see the ramp throughout the year, which is why we got in better margins for the year. But as it gets into 2024, what we see is an opportunity really for with strategic sourcing is going to be better, our lean programs are going to be better, our product portfolio is going to be better. And don’t forget, we do get a margin boost from our tech stack improvements. And that stuff is a is a gift, it is going to keep on giving for a while. So I don’t think it is going to take, 26.2% gross margin for Ags pretty darn good. I’m sure there is room for us to make it better but from an industry perspective it is reasonably good. And what we are committing to is that is not as good as we can do and we see an opportunity for improvement. And construction as well, I think construction is going to continue to surprise you with our ability to drive margin expansion and combined together, that is a pretty good story for us.

Any order book commentary or is that a no answer?

That is a no answer.

Alright. I appreciate it, thank you.

Thank you. We will take the next question from line Mig Dobre from Baird. The line is open now, please go ahead.

Hi, thank you, good morning. Scott, I wanted to get you to talk a little bit about Augmenta and Hemisphere. Curious how you are looking to integrate this product and your equipment and kind of what the goal is here how these folks are going to be working with the Raven team. And maybe you can update us a little bit on the progress that you are making internally, from a tech stack perspective, considering that you have changed your relationship with Trimble. So I’m curious, your engineering folks, what are they doing to sort of address that in the near-term and how you are thinking about the next 18-months to 24-months on that?

First of all, we are thrilled to welcome the Augmenta team to the portfolio. What they give us is seeing act technology at a much more value oriented place than what other people in the industry offer. I have actually been in the field and seeing the product work and it is really, really encouraging. So and farmers can get into the augment to program and get see and spray opportunities at a much, much lower cost than anything else available in the industry. And that is encouraging. It is why we made the initial investment when we were a minority partner, and why we ultimately brought him to acquire. Now, we are still with Raven’s capability, doing a lot more work to advance our see and spray see and act capabilities, but we are just better with Augmenta and they will fold into the Raven team and John Preheim and the team there will really advanced what they can do for us from an automation and an autonomy perspective that gets better with augmented. With Hemisphere, we have had, you know, a really, really strong relationship with Trimble and NovAtel over the years. So we know that there are other solutions out there. But when it doesn’t, when you have to buy it from a partner, you don’t have the ability to innovate and integrate as fast as you would like. And so, what Hemisphere gives us is a really, really good team with a strong manufacturing base, which surprised us a little bit. But the opportunity just to go faster and as I talked to dealers and customers, their request is that we go faster, and this opportunity with both of these businesses, just allows us to do that. But that said, the work that - the benefit that we are getting from Raven, and then the team there have helped us bring on an additional 500 engineers, just gives us so much more software capability. Now, I hope I’m clear that we are nowhere near delivering for customers, what we will and what we expect to give and that is coming, and it is going to be incremental benefits through this year, and in the next year. But as I said in the prepared remarks, it is really 25, where we feel like we get to true, extremely great technology and products for our customers, but we are encouraged where we are on the path and how we are progressing there. And as it relates to Trimble, they made the decision to exit the relationship. And Rob and I are good friends, and we are managing through that so both of us can have a positive future going forward. Really with Raven, we have the ability to take over that work and really not miss a beat for our customers. And that is what we are striving to do.

Got it. My follow-up is on construction. I’m curious to get an update from you on what you are seeing in terms of orders, especially on the heavy construction side backlog maybe. One of the things that kind of puzzles me a bit is your commentary seems to be positive in the press release and slides. But if I’m looking at your Slide 16 at your outlook for both light and heavy construction, it is basically down across product across geography. So I’m trying to square relatively positive commentary with the industry output that you have provided there? Thank you.

Well, part of there is two things that are helping us in construction. First of all, dealer inventories are low and secondly, we have introduced a tremendous amount of new products. And as I mentioned in my earlier remarks, you were very careful about managing dealer inventory. But we also need to get these new products out there to our dealer network, and that is allowing us to put in settings. Now, that is from a kind of an input internal perspective. If you look at a market perspective, housing is actually a little more resilient than I expected, which doesn’t make sense to me from an economic perspective. But nonetheless, housing is a little bit better than we thought. And I don’t like the program, but the Inflation Reduction Act is actually putting money into infrastructure that is going to bleed out and help us and others over time. So I think that is giving us a little bit more encouragement from a construction side than we might otherwise have.

So you are saying your outlook is too conservative then, on this slide?

I very specifically didn’t say that. I’m just saying overall - I mean, we are not on an island saying this, it is not going to be a great year for construction but we are going to do a little bit better because of those opportunities that I spoke up.

Okay. Thank you.

Thank you. We will take the next question from line Timothy Thein from Citi. The line is open now, please go ahead.

Thanks, good morning. Just the first as a clarification. Oddone on the comment earlier about the revenue guidance change, you mentioned FX, obviously was a positive. But did you say that that was offset by lower volumes and pricing?

No, no, I would say that relative to Q1, the growth in driven by volume and price needs to be a little bit lower relative to the Q1 growth. Last year, volume price and FX.

And then on the, Scott, you mentioned that back to the market share comment in thinking from a high horsepower tractor standpoint. Where are you on the in terms of the progress of getting ramped back up and racing and how does that play into - assuming you are not at back to 100% as the year progresses, does that provide a more of a mixed tailwind for you, as you presumably, output there, I’m guessing is increasing as we go through the year, but maybe just to comment on that, and how meaningful that could be?

Yes. I probably won’t comment on how meaningful it could be. But I will tell you, we had our Board meeting earlier this week in Raisin. So I got a chance to be on the floor and see the work that they are doing. We are ramping up, but by our no means where we need we want to be or where our customers need us to be. There is a tremendous backlog globally for our high horsepower tractors and the teams, the team is working really, really hard. I was encouraged by what I saw, but there is a lot of work to do there. And I’m confident that week-after-week, month-after-month, we are going to continue to produce more for the racing plant And you know, that will obviously be a benefit to our customers and into our financials as well. The high horsepower market, cash crop market continues to be very strong, and I think our ability to continue to produce for that will be helpful for us.

Got it, thanks a lot.

Thank you. We will take the next question from line Dillon Cumming from Morgan Stanley. The line is open now, please go ahead.

Hey good morning, thanks for the question. Wanted to see if you put a finer point and some of the comments around the Lean initiatives and the sourcing savings again, say we get to a point call it middle of next year where supply chains a lot better price causes and we have an issue. Where do you see the greatest relative opportunity between the two segments in terms of how impactful the savings opportunities, the lean initiatives?

Yes. Well, obviously, just by a size perspective, Ag is going to get much more of the benefit. But Stefano and his team have already done a lot of lean work in Wichita, we are seeing actually, the margins they delivered in the first quarter. And I think you will see as the year plays out shows a little bit of the benefit that we can get, as we drive lean throughout the system. But obviously, because of the size and nature of Ag, we get more savings there. We are going to get meaningful and consistent savings from lean throughout. But I think a bigger nut comes from the strategic sourcing. And obviously, I don’t get lucky very often, but that strategic sourcing is a little bit, it doesn’t happen right away. It is not an immediate negotiation. So we are actually going to be doing the negotiations later this year. And I think, as we do that, we are going to be entering and this is a multi wave program. So we are in the first wave, what is likely to be four or five. But that first wave of negotiations is going to come when overall inflation is better commodities is going to be, supply chain commodities are going to be down. So I think we will be in a good position to get meaningful savings as we work through that. So we are encouraged by both the lien and sourcing initiatives, what they mean in 2023, but really, really what they mean in 2024, and beyond.

Thank you. We will take our final question from line Kristen Owen from Oppenheimer. The line is open now, please go ahead.

Great, thank you for fitting me in. I will be brief here. One is just a clarification again on the CE margins and obviously very strong pricing. But do I understand correctly, there was still a fair amount of strike drag there and just any commentary that you have around the regional exits and the impact that that may have had on margins in the segment?

Yes. The Burlington plant is also like racing is ramping up. The construction team did take advantage to get some alternative sourcing done, so that also helped from a margin perspective. But I think both that will benefit the year. The exits of China and Russia, obviously, it is not helpful to us, but we have got those in the rearview mirror and really didn’t hurt us much from a margin perspective in the quarter. But again, Stefano and his team have really done a lot of work with the portfolio and we are encouraged what we will be able to talk about next quarter when we have the call.

Okay, that is helpful. I think I was maybe assuming that perhaps those exits at least from China might be accretive to margins, not necessarily dilutive. Before you respond to that just want to fit my second question and in the interest of time. It is not a topic that we talk about very often I feel like on these calls, but can you just give us an update on aftermarket and parts, what percentage of revenue is that today, how much of that is Raven and just how to think about the aftermarket business specifically now that you are integrating more of these new acquisitions? Thank you very much.

First of all, China was the reason we exited because we weren’t very good, and so it wasn’t a big enough business to impact our margins negatively before or positively going forward, so that that is kind of a wash. Aftermarket business is really, really good for us. Our team does a really, really nice job of managing that. We finally got our inventories up a little bit so we can serve our customers, better there. Overall it is about 18% or 20% of our business and Raven was an aftermarket business so they are really, really good at it and as we ramp up our capability with our tech stack, a significant portion of that is in aftermarket. Obviously what we are most excited about is the integrated solutions that we can put in with the production but there is a very, very notable opportunity for growth, share gains and margin expansion with the aftermarket from Raven and what we build out there.

I think you covered it. Thank you very much.

Alright. Thank you.

Thank you. There is no further questions, so I will hand it back over to your host to conclude today’s conference.

Thank you, everyone for joining us today and have a great day.

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