# CNH Industrial N.V. (CNH) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CNH Industrial N.V.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1567094/000162828025009007/cnhi-20241231.htm
Accession: 0001628280-25-009007
Filing date: 2025-02-28
Report date: 2024-12-31
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference.
Confidence: high

Company profile: /company/CNH/
All MD&A years: /company/CNH/mda/
Previous year: /company/CNH/mda/fy2023/ (FY 2023)
Next year: /company/CNH/mda/fy2025/ (FY 2025)

Management's Discussion and Analysis

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to promote understanding of the Company's financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to the Consolidated Financial Statements.

This discussion includes forward-looking statements, which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the Company’s business under “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Overview

CNH is an equipment and services company engaged in the design, production, marketing, sale, and financing of agricultural and construction equipment.

CNH operates across three business segments: Agriculture, Construction and Financial Services. CNH refers to its Agriculture and Construction operations as "Industrial Activities".

We generate revenues and cash flows principally from the sale of equipment to dealers and distributors. Financial Services provides a range of financial products focused on financing the sale and lease of equipment to our dealers and their customers.

Revenues of Industrial Activities are presented net of discounts, allowances, settlement discounts and rebates, as well as costs for sales incentive programs, determined on the basis of historical costs, country by country, and charged against profit for the period in which the corresponding sales are recognized. Our sales incentive programs may include the granting by Financial Services of retail financing at discounts to market interest rates. The corresponding cost to Industrial Activities is recognized at the time of the initial sale and the revenues of Financial Services are recognized on a pro rata basis in order to match the cost of funding.

Principal Factors Affecting Results

Our operating performance is highly correlated to sales volumes, which are influenced by several different factors that vary across our segments.

For our Agriculture segment, the key factors influencing sales are the level of net farm income, which is influenced by commodity prices, and, to a lesser extent, general economic conditions, interest rates and the availability of financing and related subsidy programs. Variations by region and product are also attributable to differences in typical climate and farming calendars, as well as extraordinary weather conditions.

For our Construction segment, sales levels for heavy construction equipment are particularly dependent on the expected level of major infrastructure construction and repair projects, which is a function of expected economic growth and government spending. For light construction equipment, the principal factor influencing demand is the level of residential and commercial construction, remodeling and renovation, which is influenced in turn by interest rates and availability of financing, as well as, in the residential sector, levels of disposable income and, in the commercial sector, the broader economic cycle.

Demand for services and service-related products, including parts, is a function of the nature and extent of the use of the related agricultural and construction equipment. The after-sales market is historically less volatile than the wholegoods market and, therefore, helps reduce the impact on operating results of fluctuations in new sales.

Our cost base principally comprises the cost of raw materials and personnel costs.

Raw material costs are closely linked to commodity markets and largely outside of our control, although we are making a targeted effort to increase procurement and production efficiencies. Historically, we have been able to pass on to our customers most of the increase in the cost of raw materials through increases in product pricing. Nevertheless, even when we are able to do so, there is usually a time lag between an increase in materials cost and a realized increase in product prices and, accordingly, our results are typically adversely affected at least in the short-term until price increases are accepted in the market.

Personnel costs change over time and are impacted by the terms of collective bargaining agreements, inflation and average number of employees. A significant proportion of our employees are based in countries where labor laws impose significant protection of employees’ rights and, accordingly, we have limited ability to downsize our personnel in response to a decrease in production during periods of market downturn.

Our results are also affected by changes in foreign exchange rates from period to period, mainly due to the difference in geographic distribution between our manufacturing activities and our commercial activities, resulting in cash flows from exports denominated in currencies that differ from those associated with production costs. In addition, our Consolidated Financial Statements are expressed in

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U.S. dollars and are therefore subject to movements in exchange rates upon translation of the financial statements of subsidiaries whose functional currency is not the U.S. dollar.

Finally, our results may be materially affected, directly or indirectly, by governmental policies, including monetary and fiscal policies and policies on international trade and investment.

Global Business Conditions

The global economy is experiencing volatile disruptions due to a combination of factors, including geopolitical events, shifts in trade and economic policies from the new U.S. presidential administration, change in commodity prices, as well as change in climate conditions. These disruptions have affected the price and availability of certain products and services used in the Company's operations in 2024, and are expected to persist in 2025. These factors also affect our customers' profitability, impacting their ability to achieve higher returns on their output, and reducing their purchasing power and demand for our products. The Company is closely monitoring global economic conditions and the impact that macroeconomic pressures, such as new and retaliatory tariffs, fluctuating currency exchange rates, interest rates and inflation, have on its business, customers, and suppliers.

For a discussion of the Company’s risks and uncertainties, see Part 1, Item 1A: Risk Factors.

Non-GAAP Financial Measures

CNH monitors its operations through the use of several non-GAAP financial measures. CNH’s management believes that these non-GAAP financial measures provide useful and relevant information regarding its operating results and enhance the readers’ ability to assess CNH’s financial performance and financial position. Management uses these non-GAAP measures to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions as they provide additional transparency with respect to our core operations. These non-GAAP financial measures have no standardized meaning under U.S. GAAP and are unlikely to be comparable to other similarly titled measures used by other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with U.S. GAAP.

As of December 31, 2024, CNH’s non-GAAP financial measures are defined as follows:

Adjusted EBIT of Industrial Activities

Adjusted EBIT of Industrial Activities is defined as net income (loss) before: income taxes, Financial Services' results, Industrial Activities' interest expenses, net, foreign exchange gains/losses, finance and non-service component of pension and other post-confirm this term is employment benefit costs, restructuring expenses, and certain non-recurring items. Such non-recurring items are specifically disclosed items that management considers rare or discrete events that are infrequent in nature and not reflective of ongoing operational activities.

Net Cash (Debt) and Net Cash (Debt) of Industrial Activities

Net Cash (Debt) is defined as total debt less: intersegment notes receivable, cash and cash equivalents, restricted cash, other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties) and derivative hedging debt. CNH provides the reconciliation of Net Cash (Debt) to Total (Debt), which is the most directly comparable measure included in the consolidated balance sheets. Due to different sources of cash flows used for the repayment of the debt between Industrial Activities and Financial Services (by cash from operations for Industrial Activities and by collection of financing receivables for Financial Services), management separately evaluates the cash flow performance of Industrial Activities using Net Cash (Debt) of Industrial Activities.

Revenues on a Constant Currency Basis

CNH discusses the fluctuations in revenues on a constant currency basis by applying the prior year average exchange rates to current year’s revenues expressed in local currency in order to eliminate the impact of foreign exchange rate fluctuations from year to year.

Free Cash Flow of Industrial Activities

Free Cash Flow of Industrial Activities (or Industrial Free Cash Flow) refers to Industrial Activities, only, and is computed as consolidated cash flow from operating activities less: cash flow from operating activities of Financial Services; investments of Industrial Activities in property, plant and equipment, intangible assets, and assets sold under operating leases; change in derivatives hedging debt of Industrial Activities; as well as other changes and intersegment eliminations.

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Operating Results

The operations, key financial measures, and financial analysis differ significantly for manufacturing and distribution businesses (Industrial Activities) and financial services businesses; therefore, management believes that certain supplemental disclosures are important in understanding our consolidated operations and financial results. For further information, see “Supplemental Information” within this section, where we present supplemental consolidating data split by Industrial Activities and Financial Services. Transactions between Industrial Activities and Financial Services have been eliminated to arrive at the consolidated data.

2024 Compared to 2023

Consolidated Results of Operations

[[GREPCENT_TABLE]]
[["(in millions of dollars)","","2024","","2023(1)"],["Revenues"],["Net sales","","$","17,060","","","$","22,080"],["Finance, interest and other income","","2,776","","","2,607"],["Total Revenues","","19,836","","","24,687"],["Costs and Expenses"],["Cost of goods sold","","13,350","","","16,838"],["Selling, general and administrative expenses","","1,712","","","1,863"],["Research and development expenses","","924","","","1,041"],["Restructuring expenses","","118","","","67"],["Interest expense","","1,611","","","1,345"],["Other, net","","664","","","830"],["Total Costs and Expenses","","18,379","","","21,984"],["Income (loss) of Consolidated Group before Income Taxes","","1,457","","","2,703"],["Income tax expense","","(336)","","","(594)"],["Equity in income of unconsolidated subsidiaries and affiliates","","138","","","178"],["Net income (loss)","","1,259","","","2,287"],["Net income attributable to noncontrolling interests","","13","","","12"],["Net income (loss) attributable to CNH Industrial N.V.","","$","1,246","","","$","2,275"]]
[[/GREPCENT_TABLE]]

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

Revenues

We recorded revenues of $19,836 million in 2024, a decline of 19.6% (down 18.7% on a constant currency basis) compared to 2023. This decline was mainly due to lower shipment volumes on decreased industry demand and dealer destocking.

Cost of Goods Sold

Cost of goods sold were $13,350 million in 2024 compared to $16,838 million in 2023, a decrease of 20.7% year over year. As a percentage of net sales, cost of goods sold was 78.3% in 2024 (76.3% in 2023), the increase in the percentage from 2023 reflects lower production volumes and unfavorable mix, partially offset by improved purchasing and manufacturing costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased to $1,712 million in 2024 (8.6% of revenues) from $1,863 million in 2023 (7.5% of revenues). The year over year decrease is primarily due to lower labor costs, driven by the Company's restructuring program and lower variable compensation, partially offset by higher credit risk provisions in the Financial Services segment.

Research and Development

In 2024, R&D expenses were $924 million compared to $1,041 million in 2023. The expense in both years was primarily attributable to continued investment in new products, technologies and digital solutions.

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Restructuring Expenses

The Company incurred restructuring costs of $118 million and $67 million in 2024 and 2023, respectively. The Company’s restructuring program announced in November 2023 targeted both labor and non-labor SG&A expenses. This program was completed in 2024, and the Company has incurred a total of $128 million from launch to December 31, 2024, under it.

Interest Expense

Interest expense increased to $1,611 million in 2024 from $1,345 million in 2023 primarily due to higher average interest rates and higher external borrowings. The interest expense attributable to Industrial Activities, net of interest income and eliminations, was $152 million in 2024 compared to $76 million in 2023 primarily due to higher external borrowings to support working capital requirements and higher average interest rates.

Other, net

Other, net expenses were $664 million in 2024 and included a pre-tax gain of $24 million ($18 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 U.S. healthcare plan modification and a gain of $14 million for investment fair value adjustments, partially offset by a loss of $17 million on the sale of certain non-core product lines.

Other, net expenses were $830 million in 2023 and included a pre-tax gain of $24 million ($18 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 U.S. healthcare plan modification and a gain of $13 million in relation to the fair value remeasurement of previously held investments in Augmenta and Bennamann, offset by a loss of $23 million on the sale of CNH Industrial Russia.

Income Taxes

[[GREPCENT_TABLE]]
[["(in millions of dollars, except percentages)","","2024","","2023(1)"],["Income (loss) of Consolidated Group before Income Taxes","","$","1,457","","","$","2,703"],["Income tax expense","","$","336","","","$","594"],["Effective tax rate","","23.1","%","","22.0","%"]]
[[/GREPCENT_TABLE]]

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

In 2024, income taxes were an expense of $336 million, compared to a tax expense of $594 million in 2023. The effective tax rates for 2024 and 2023 were 23.1% and 22.0%, respectively. The decreased tax expense in 2024, as compared to 2023, was largely attributable to lower profit-before tax and the tax impact from Argentina’s highly inflationary economy. The 2024 tax expense was also reduced by the recognition of $29 million of previously unrecognized deferred tax assets in China, offset by the derecognition of $35 million deferred tax assets in Argentina, increases in withholding tax on dividends, and lower benefit from U.S. exports.

The 2023 effective tax rate was reduced by the recognition of $99 million of previously unrecognized deferred tax assets in the United Kingdom, lower profitability in high-tax jurisdictions as a percent of total profit, higher credits and incentives, and the tax benefits related to the sale of CNH Industrial Russia; offset the tax impact from the Argentina highly inflationary economy and discrete tax expense associated with prior periods.

The Organization for Economic Cooperation and Development (the "OECD") has proposed a global minimum tax of 15% of reported profits ("Pillar Two") that has been agreed upon in principle by over 140 countries. Pillar Two legislation has been enacted in one or more jurisdictions in which the Company operates and the Company has determined that it falls within the scope of the legislation. The Company has assessed the impact of the Pillar Two legislation and related transitional safe harbor provisions and does not expect the tax impacts of the legislation to have a material impact on the Company’s financial results during 2024.

Equity in Income of Unconsolidated Subsidiaries and Affiliates

Equity in income of unconsolidated subsidiaries and affiliates was $138 million in 2024 compared to $178 million in 2023 primarily due to lower sales in our joint venture TürkTraktör ve Ziraat Makineleri A.S.

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Industrial Activities and Business Segments

The following tables include Revenues and Adjusted EBIT of Industrial Activities by segment. We have also included a discussion of our results of Industrial Activities and of each of our segments.

[[GREPCENT_TABLE]]
[["(in millions of dollars, except percentages)","","2024","","2023","","% Change","","% Change excl. FX"],["Revenues:"],["Agriculture","","$","14,007","","","$","18,148","","","(22.8)","%","","(22.1)","%"],["Construction","","3,053","","","3,932","","","(22.4)","%","","(21.4)","%"],["Total Net sales of Industrial Activities","","17,060","","","22,080","","","(22.7)","%","","(21.9)","%"],["Financial Services","","2,774","","","2,573","","","7.8","%","","10.1","%"],["Eliminations and other","","2","","","34"],["Total Revenues","","$","19,836","","","$","24,687","","","(19.7)","%","","(18.7)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(in millions of dollars, except percentages)","","2024","","2023(1)","","$ Change","","2024 Adj EBIT Margin(1)","","2023 Adj EBIT Margin"],["Adjusted EBIT by Segment:(2)"],["Agriculture","","$","1,470","","","$","2,636","","","$","(1,166)","","","10.5","%","","14.5","%"],["Construction","","169","","","238","","","(69)","","","5.5","%","","6.1","%"],["Eliminations and other","","(235)","","","(240)","","","5"],["Adjusted EBIT of Industrial Activities","","$","1,404","","","$","2,634","","","$","(1,230)","","","8.2","%","","11.9","%"]]
[[/GREPCENT_TABLE]]

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

(2) A reconciliation from the most closely related U.S. GAAP measure to this non-GAAP measure is included on page 53.

Net sales of Industrial Activities were $17,060 million in 2024, down 22.7% compared to the prior year (down 21.9% on a constant currency basis) primarily due to lower shipment volumes on decreased industry demand and dealer destocking.

Adjusted EBIT of Industrial Activities was $1,404 million in 2024 ($2,634 million in 2023), with an Adjusted EBIT margin of 8.2%. The decline was primarily due to lower shipment volumes on decreased industry demand and unfavorable mix in the Agriculture segment; partially offset by improved purchasing and manufacturing costs, along with a reduction in SG&A expenses.

Business Segment Performance

Agriculture

Net Sales

The following table includes Agriculture net sales by geographic region in 2024 compared to 2023:

Agriculture Sales – by geographic region:

[[GREPCENT_TABLE]]
[["(in millions of dollars)","","2024","","2023","","% Change"],["North America","","$","5,839","","","$","7,157","","","(18.4)","%"],["Europe, Middle East and Africa","","4,267","","","5,878","","","(27.4)","%"],["South America","","2,280","","","3,178","","","(28.3)","%"],["Asia Pacific","","1,621","","","1,935","","","(16.2)","%"],["Total","","$","14,007","","","$","18,148","","","(22.8)","%"]]
[[/GREPCENT_TABLE]]

Net sales for Agriculture were $14,007 million in 2024, a 22.8% decline (down 22.1% on a constant currency basis) compared to 2023. This decline is mainly due to lower shipment volumes on decreased industry demand across all regions and dealer inventory unit requirements across all regions.

In North America, industry volume was down 16% year over year in 2024 for tractors over 140 hp and was down 13% for tractors under 140 hp; combines were down 22%. In Europe, Middle East and Africa (EMEA), tractor and combine demand was down 13% and 43%, respectively, of which Europe tractor and combine demand was down 12% and 35%, respectively. South America tractor demand was down 9% and combine demand was down 31%. Asia Pacific tractor demand was down 1% and combine demand was up 11%.

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Adjusted EBIT

Adjusted EBIT was $1,470 million in 2024, compared to $2,636 million in 2023. The decline was mostly driven by lower shipment volumes and unfavorable mix, partially offset by improved purchasing and manufacturing costs, along with a reduction in SG&A expenses. R&D investments accounted for 5.9% of sales (5.2% in 2023). Adjusted EBIT margin was 10.5%.

Construction

Net Sales

The following table includes Construction net sales by geographic region in 2024 compared to 2023:

Construction Sales – by geographic region:

[[GREPCENT_TABLE]]
[["(in millions of dollars)","","2024","","2023","","% Change"],["North America","","$","1,633","","","$","2,253","","","(27.5)","%"],["Europe, Middle East and Africa","","660","","","851","","","(22.4)","%"],["South America","","540","","","559","","","(3.4)","%"],["Asia Pacific","","220","","","269","","","(18.2)","%"],["Total","","$","3,053","","","$","3,932","","","(22.4)","%"]]
[[/GREPCENT_TABLE]]

Net sales for Construction were $3,053 million in 2024, a decline of 22.4% (down 21.4% on a constant currency basis) compared to 2023, due to lower shipment volumes across all regions driven mainly by lower market demand and dealer destocking.

Global industry volume for construction equipment increased 1% year over year in 2024 for Heavy construction equipment; Light construction equipment was down 7%. Aggregated demand decreased 5% in North America and 12% in EMEA, respectively, and increased 13% in South America and 3% for Asia Pacific, particularly in China.

Adjusted EBIT

Adjusted EBIT was $169 million in 2024, compared to $238 million in 2023. The decline was primarily due to lower volumes, partially offset by improved purchasing and manufacturing costs, along with lower SG&A expenses. Adjusted EBIT margin was 5.5%.

Financial Services Performance

Finance, Interest and Other Income

Financial Services reported revenues of $2,774 million in 2024, up 7.8% compared to 2023 (up 10.1% on a constant currency basis) due to favorable volumes in all regions except EMEA and higher yields in all regions, except South America; partially offset by lower used equipment sales due to decreased operating lease maturities.

Net Income

Net income for Financial Services was $379 million in 2024, an $8 million increase compared to 2023, primarily due to favorable volumes in all regions except EMEA, margin improvement in all regions except Asia Pacific, and a favorable effective tax rate due to Argentina inflation adjustment in the current year; partially offset by increased risk costs due to higher delinquencies in South America, increased specific reserve needs in North America, the derecognition of previously recognized deferred tax assets in Argentina, and lower used equipment sales from less operating lease maturities.

In 2024, retail originations (including unconsolidated joint ventures) were $11.4 billion, down $0.1 billion compared to 2023 (flat on a constant currency basis). The managed portfolio (including unconsolidated joint ventures) was $27.8 billion as of December 31, 2024 (of which retail was 68% and wholesale 32%), down $1.1 billion compared to December 31, 2023 (up $1.0 billion on a constant currency basis).

At December 31, 2024, the receivable balance greater than 30 days past due as a percentage of receivables was 1.9% (1.4% as of December 31, 2023) due to economic and environmental factors impacting farmers, specifically in South America.

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2023 Compared to 2022

Please refer to the “Management’s Discussion and Analysis” section of our 2023 Form 10-K.

Reconciliation of Adjusted EBIT to Net Income (Loss)

The following table includes the reconciliation of Adjusted EBIT for Industrial Activities to net income, the most comparable U.S.

GAAP financial measure.

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in millions of dollars)","","2024","","2023(1)","","2022"],["Agriculture","","$","1,470","","","$","2,636","","","$","2,456"],["Construction","","169","","","238","","","124"],["Unallocated items, eliminations and other(2)","","(235)","","","(240)","","","(147)"],["Total Adjusted EBIT of Industrial Activities","","1,404","","","2,634","","","2,433"],["Financial Services Net Income","","379","","","371","","","338"],["Financial Services Income Taxes","","110","","","136","","","125"],["Interest expense of Industrial Activities, net of interest income and eliminations","","(152)","","","(76)","","","(119)"],["Foreign exchange gains (losses), net of Industrial Activities","","(15)","","","(105)","","","(59)"],["Finance and non-service component of Pension and other post-employment benefit cost of Industrial Activities(3)","","(10)","","","(4)","","","124"],["Restructuring expense of Industrial Activities","","(117)","","","(65)","","","(31)"],["Other discrete items of Industrial Activities(4)","","(4)","","","(10)","","","(25)"],["Income (loss) before taxes","","1,595","","","2,881","","","2,786"],["Income tax benefit (expense)","","(336)","","","(594)","","","(747)"],["Net income (loss)","","$","1,259","","","$","2,287","","","$","2,039"]]
[[/GREPCENT_TABLE]]

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

(2) Unallocated items, eliminations and other primarily includes certain corporate costs and other operating expenses and incomes not allocated to segments' results.

(3) In the years ended December 31, 2024, 2023, and 2022, this item includes a pre-tax gain of $24 million, $24 million, and $24 million, respectively as a result of the amortization over 4 years of the $101 million positive impact from the 2021 modifications of a healthcare plan in the U.S. In the years ended December 31, 2022 this item includes the pre-tax gain of $90 million respectively as a result of the amortization over approximately 4.5 years of the $527 million positive impact from 2018 modification of a healthcare plan in the U.S.

(4) In the year ended December 31, 2024, this item includes a loss of $17 million on the sale of certain non-core product lines and a gain of $14 million for investment fair value adjustments. In the year ended December 31, 2023, this item includes a loss of $23 million on the sale of the CNH Industrial Russia and CNH Capital Russia businesses, partially offset by a gain of $13 million for the fair value remeasurement of Augmenta and Bennamann. In the year ended December 31, 2022, this item included $43 million of asset write-downs, $25 million of separation costs incurred in a connection with our spin-off of the Iveco Group Business and $22 million of costs related to the activity of the Raven segments held for sale, including the loss on the sale of the Engineered Films and Aerostar divisions, partially offset by a $65 million dollar gain on the sale of our Canada parts depot.

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