CNH Industrial N.V. Q2 FY2021 Earnings Call

Thank you, Sandra. Good morning, and good afternoon, everyone. We would like to welcome you to the Webcast and Conference Call for CNH Industrial Second Quarter 2021 Results for the period ending June 30. This call is being broadcast live on our website and is copyrighted by CNH Industrial. Any other use, recording or transmission of any portion of this broadcast without the expressed written consent of CNH Industrial is strictly forbidden. We are pleased to have here with us today our CEO, Scott Wine; and our CFO, Oddone Rocchetta, who will be hosting today’s call. They will use the material available for download from the CNH Industrial website. After their presentation, we will be holding a Q&A session in which Gerrit Marx, President, Commercial and Specialty Vehicles of the soon-to-be-created on-highway company, will be available to respond to questions alongside our CEO and CFO. Please note that any forward-looking statements we might be making during today’s call are subject to the risks and uncertainties mentioned in the Safe Harbor statement including the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company’s most recent Form 20-F and EU Annual Report, as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and the equivalent authorities in the Netherlands and Italy. The company presentation may include certain non-GAAP financial measures. Additional information, including the reconciliation to the most directly comparable GAAP financial measures, is included in the presentation material. One final remark, once again, our team is connecting from different countries. So please forgive us if there are moments of silence during the call while we manage the transition between speakers. I will now turn the call over to Scott.

Thanks, Federico. And welcome to all of those joining the call. I recently equated our tireless efforts to manage this crazy supply chain situation to a game of whack-a-mole. If they ever make that an Olympic sport, I put odds on CNH Industrial to win a gold medal. Our entire team performed admirably in the second quarter, adroitly navigating supply chain constraints, rising commodity costs and ongoing COVID concerns to deliver robust financial results. Solid operational execution and healthy demand from our end markets drove strong net sales across all segments, which in combination with positive pricing and margin improvement activity helped us establish second quarter records for earnings per share and free cash flow. Impressively, Derek Neilson and his Agriculture team delivered record EBIT margins of 14.7%. I’m extremely proud of the outstanding execution of our CNH Industrial team in the second quarter for keeping our employees safe, delivering for our customers and dealers around the world and making CNH Industrial a little bit better every day. Our industries are clearly in a cyclical upturn and our team’s tireless and innovative efforts enable us to capture much of the benefit. This very healthy demand environment along with the excellent second quarter performance of each of our businesses contributed to growth in both shipments and order books. With the acquisition of Raven Industries, we’re adding significantly to our precision agriculture capabilities and establishing the foundation for sustainable competitive advantage. We also continue to make progress toward the spin, defining leadership structures and roles for each company with an emphasis on agility and customer centricity. Both SpinCo and RemainCo are laser focused on delivering for our customers throughout these activities, with market demand and customer sentiment rising, our production facilities moving mountains to satisfy customer needs, and a comprehensive plan being nimbly executed by our dedicated team, CNH Industrial is poised for a robust second half. We do anticipate more cost pressure than the first half, but we are ready to start 2022 strong with two independent businesses. While it is customary to discuss industry volumes in year-over-year format, comparing our Q2 results with last year’s pandemic-depressed numbers is not exactly insightful. Of note, however, is that in most industry segments, we outperformed pre-pandemic levels. The agriculture machinery industry remains strong, extending the themes we saw last quarter, including rising commodity prices, growing trade with China and the replacement of aging agricultural machinery fleets. High-horsepower tractor sales were impressive across all regions, up almost 50% in North America and nearly 25% worldwide. In combines, demand continues to improve with all markets growing over 10% versus 2020. Compared to 2019, both tractor and combine industry volumes were up across all regions except combines in Europe, which were relatively flat. We are confident that the Agriculture segment will continue to outperform through 2021 given our existing order backlog, which now extends well into 2022. For Construction Equipment, we see persistent growth in both the light and heavy segments. The former is largely driven by continued strength in residential construction while the latter is due to increased contractor demand as well as preparations for the probable U.S. infrastructure bill. Construction Equipment demand in South America is particularly high, driven by overall segment demand in Brazil. Versus the same quarter in 2019, the construction industry grew double-digits on a worldwide basis and was up across all regions aside from heavy in North America and Europe. The European truck market was up 45% year-over-year in the second quarter. Light trucks were up 40% driven by a combination of surging e-commerce sales, continuing camper growth, and an upswing in construction. Medium and heavy duty trucks were up 60% due to vaccine progress, accelerating industrial activities and government-funded truck replacement schemes. Compared to Q2 2019, the European market was down 11% with light duty trucks up 5% and medium and heavy duty down 12%. The overall South American truck market increased by 78% compared to Q2 2020. This market also grew 22% versus Q1 2021 and 24% versus Q2 2019 with solid demand increases across all segments. Buses saw a slight uptake in the quarter driven by post-pandemic community increases and transportation authorities adding capacity. Despite the minor improvement, we still see bus registrations a bit negative for the year. The overall situation for production and dealer inventories did not improve much throughout the quarter, but I’m still pleased with our teams’ deft handling of the ongoing supply chain issues. Looking at sequential quarters, retail trends improved with trucks and agriculture up, while construction equipment was flat. Retail trends depend on production and dealer inventory and improving those continues to be challenging. Dealer inventories remain at historically low levels and between supplier constraint production on one hand and exceptional retail demand on the other, we were unable to fully meet consumer demand or replenish dealer inventories. Fleets continue to age and indications are this cycle will retain positive momentum for the next several quarters. Our Agriculture order books more than doubled year-over-year for both tractors and combines, driven by strong demand across all regions, with the North American high-horsepower order book almost up six times for tractors and five times for combines. Although somewhat inflated by anticipated production constraints, the backlog for products now extends well into next year with farmers booking fiscal year 2022 combines before even starting to harvest this year’s crops. As expected AG production slightly trailed retail in the quarter. For construction, we under-produced retail worldwide by 6% with company inventory down 40% versus Q2 levels last year. Our order books are up 2.8 times year-over-year for the segment with growth in all regions. For trucks, we over-produced retail sales worldwide by 10% in the second quarter in preparation for the planned August break. Light trucks over-produced retail by 11% while medium and heavy duty over-produced retail by 7% for the second quarter. Company inventory was up 22% in light, down 18% for medium and heavy. The truck book-to-bill in the EU was at 1.22 with light duty trucks at 1.07 and medium and heavy at 1.74 and heavy duty trucks at 1.89. Market share for trucks in Continental Europe was up overall for the second quarter versus last year with light up 350 basis points to 13.4% and medium and heavy up 80 basis points to 9.1%. Liquefied natural gas market share for IVECO was at 57% and market penetration for LNG trucks overall remains steady at about 4%. Order intake in Europe was up 150% compared to the second quarter of 2020 with light duty trucks up 140% and medium and heavy duty trucks up 170%. We also saw continued strong demand and results from our parts and service businesses, supporting the efforts of our whole goods businesses, as well as providing a boost to our margins. I’ll now turn the call over to Oddone to take you through some of our key financial details.

Thank you, Scott, and good morning, good afternoon to everyone. On Slide 6 with our Q2 results highlights: for the top line, second quarter net sales increased 65% due to higher volumes, mix and price realization across almost all segments. These drivers also accounted for an 800 basis point increase in our gross margin. On the bottom line, Q2 adjusted EBIT increased by $757 million. We delivered an adjusted EBIT margin of 8.2% driven by strong performance across segments. Free cash flow in the quarter was a cash inflow of $1 billion due to the strong operating performance and positive working capital contribution. Industrial Activities net cash is $1.4 billion, an increase of $800 million from March 31, 2021. Q2 adjusted net income was $583 million or $0.42 adjusted earnings per share. The adjusted effective tax rate for the quarter was 25%. At the end of Q2 2021, our available liquidity stood at $14.4 billion, up $542 million sequentially. Turning to Slide 7, Industrial Activities net sales were $8.5 billion, up 55% on a constant currency basis. As you can see at the bottom of the slides, sales by region and product in the quarter-over-quarter comparison were up across the board on relatively easy comps. On a constant currency basis, net sales were almost 19% higher compared to the second quarter of 2019 with agriculture 30% higher. Foreign exchange translation had an impact of approximately 10% in the first quarter. Agriculture net sales totaled $4 billion, up 49% on a constant currency basis versus prior year, mainly due to higher industry demand, better mix in the regions and favorable price realization. Looking at performance by region, North America and Europe were driven by a better mix of high-horsepower tractors and South America was fairly strong across all product categories. Construction net sales were $808 million in the quarter, up 86% on a constant currency basis as a result of higher volumes driven by industry demand, channel inventory destocking actions in 2020 and higher price realization. Commercial and Specialty Vehicles net sales reached $3.2 billion in the quarter, up 71% on a constant currency basis year-over-year, and 16% higher than 2019, primarily driven by higher truck volumes. Powertrain net sales totaled $1.3 billion in the quarter, up 55% on a constant currency basis. Sales to external customers accounted for 42% of total net sales, compared to 63% last year. It is worth noting that the comps on FPT are difficult on external sales as those sales remained strong to Chinese customers after the first quarter of 2020 and appear lower in 2021 in proportion to the recovery that is happening now in the other geographies. Additionally, in the back half of the year, we will start to notice the effect of the continuation of a large third-party contract for non-rolled engines. Turning to Slide 8 with a look at Industrial Activities adjusted EBIT by segment and driver: volume and net pricing were the clear drivers for the increase across all segments in the quarter. Pricing alone was higher than the combination of surge in production costs in 2021 and more normalized SG&A spend, when considering the exceptional circumstances of Q2 2020. Q2 2021 adjusted EBIT for Agriculture was $582 million, with an adjusted EBIT margin of 14.7%, driven by higher volumes, favorable mix, positive price realization of almost 6% for the quarter, partially offset by higher raw material and freight costs and higher SG&A and R&D spend, as well as higher variable compensation. For Construction, adjusted EBIT was $24 million, an increase of $111 million with an adjusted EBIT margin at 3% due to better volume and mix, positive price realization and favorable quality performance, partially offset by higher material cost and freight cost. Last year, profitability was significantly impacted by COVID-19 and exacerbated by necessary destocking and pricing actions. Commercial and Specialty Vehicles adjusted EBIT was $100 million, with an adjusted EBIT margin at 3.1%. The $256 million increase was driven by favorable volume and mix and positive price realization, partially offset by higher material costs and higher SG&A and R&D spend from low levels of prior year, as well as higher variable compensation. Powertrain adjusted EBIT was $74 million, an increase of $42 million, with adjusted EBIT margin at 5.7%. We increased volumes partially offset by exceptionally high freight costs of $25 million in the quarter and higher spending for regulatory and new programs. In summary, gross margin was up across segments with price realization and increased fixed costs absorption more than offsetting higher input and transportation costs. Moving now to Slide 9 and our Financial Services business: net income was $99 million, up $46 million compared to Q2 2020, primarily due to lower risk costs and improved pricing on used equipment sales. In the quarter, retail originations were $2.9 billion and the managed portfolio including JVs at the end of the period was $27 billion. Delinquency was down sequentially by 10 basis points and remains at historically low levels. On Slide 10, net financial position and free cash flow performance of our Industrial Activities: free cash flow of Industrial Activities was positive $1 billion due to the strong operating performance. While working capital did contribute to the overall result, it was not as notable this quarter as these were more of a balance of inventories and payables growth. Total debt was $24.5 billion at June 30, 2021 and Industrial Activities net cash position was $1.4 billion. In May 2021, the company paid $180 million in dividends to shareholders. And in the same month, CNH Industrial Capital LLC issued $600 million in aggregate principal amount of 1.45% per annum notes due 2026. Liquidity remains strong at $14.4 billion and as a reminder, the consideration for the acquisition of Raven Industries will be fully paid out of available cash at the closing of the transaction expected in Q4 this year. On Slide 12 we have our full year 2021 outlook. We have again increased our industry expectations across most of our regions and segments. The combination of global reopening, escalating industrial production and increased movement of people and goods continue to drive demand for our products. We expect the Agriculture industry recovery to continue; at this point, we see notable strength in North America and South America for combines and tractors with generally strong demand across all Agriculture regions. Farmer sentiment, established recently, is still at a high level due to commodity prices and income both rising, as well as continued Chinese soy and corn demand. The sentiment has been slightly muted by higher input cost inflation, though, and constrained availability of machinery in some pockets. For Construction Equipment, we see industry demand continued to recover with heavy equipment significantly increasing its contribution to the upcycle. Optimism from tractors alongside a strong housing market continues to drive sales and order books. Demand for trucks continues to show substantial industry upside for 2021, and while we have slightly lower outlook for Europe, medium and heavy trucks still show significant year-over-year increases due to the combination of consumer spending, vaccination rates and initial grants from the recovery fund. We expect this positive momentum to continue contingent upon the cadence of the main European economies and the ability of the supply chain to keep up with demand. Buses are the only segment expected not to grow, mainly due to still substantially depressed public transit ridership. Considering our strong Q2 financial results and our robust order books for the remainder of the year, we have chosen to update our guidance as follows. For 2021, we now expect net sales of Industrial Activities to be up between 24% and 28% year-over-year. Our expectation for SG&A is confirmed at lower than or equal to 7.5% of net sales. We anticipate positive free cash flow of Industrial Activities to exceed the $1 billion mark. R&D and CapEx will be up slightly from the projected $2 billion combined spend for the year. Lastly, we now estimate the impact of raw material cost increases, freight cost and other supply chain constraints to be around $1 billion for full year 2021, when compared to 2020, offsetting a large portion of the price realization we continue to pursue. Finally, as mentioned earlier, in the back half of the year, we expect FPT’s margin to be pressured by both constrained engine component supplies and discontinuation of a meaningful third-party engine contract. FPT is developing new customers to replace these volumes, but these would start in 2022. So for modeling purposes, I wanted to point this out. This concludes my prepared remarks on the financials, and I will now turn it back to Scott for his final remarks.

Thanks, Oddone. In the five weeks since the announcement of the Raven acquisition, our teams have made good progress, both towards confirming our initial assessment and defining a path towards realizing the synergies and strategic objectives we outlined on the call announcing the deal. Those are summarized on the slide, but I will focus on developments. As we continue to actively plan for integration of Raven, we are both solidifying our plans for building out previously identified value drivers and identifying new areas of opportunity. Integration teams from both CNH Industrial and Raven are defined and engaged. Together, we are working towards obtaining the requisite regulatory approvals and we foresee no impediments to doing so in a timely fashion. We have seen firsthand how important Raven is to the Sioux Falls community, how deeply rooted they are in the local culture and closely tied to the residents, and we are committed to upholding and extending this heritage and quality. Since the announcement, we and our dealers have become even more excited about the opportunities that this acquisition will create for our shareholders, employees and farmers alike. I am confident that the combination will cement CNH Industrial as a leader in the precision agricultural space. IVECO launched several new products during the quarter, starting with the IVECO Driver Pal, a pioneering onboard voice-activated driver companion built on Amazon Web Services and Amazon Alexa features. This innovative system increases driver efficiency and safety by replacing numerous manual operations. The new IVECO S-WAY heavy duty truck is a 100% connected vehicle, reducing total cost of ownership via a new engine lineup and other advanced features that increase fuel efficiency. The new Daily and Daily minibus launch with state-of-the-art engine and aftertreatment system technology ensures full Euro 6d final and Euro 6e compliance ahead of regulations. The minibus version also includes AirPro, an industry-first adaptive, electronically controlled pneumatic suspension system that enhances both comfort and safety. Finally, the IVECO heavy range is completed with the new off-road IVECO T-WAY truck designed and engineered for the toughest missions in the most extreme conditions. We recently announced the management team for the post-spin on-highway company. Gerrit Marx will lead as CEO and Annalisa Stupenengo will become the Head of Industrial Operations, following her six years of successfully heading the FPT business. Additionally, Sylvain Blaise will assume responsibility for the Powertrain business unit within the new company. Sylvain ran IVECO BUS since 2014 and prior to that, he ran a long stint at Case IH here in the United States. Succeeding Sylvain at buses will be Domenico Nucera, who has 20 years of experience in the auto industry and many years with us. CNH Industrial has appointed Scott Moran as Chief CNH Industrial Business System Officer, and Kelly Tolbert as Chief Diversity & Inclusion, Sustainability and Transformation Officer. These executive appointments form part of CNH Industrial’s revitalized emphasis on customer centricity by evolving both our culture and our processes to engender this focus and further our commitment to diversity and inclusion and sustainability. We have designed and will soon announce the first two levels of the new off- and on-highway companies. Our new organizations will involve fewer layers of management to strengthen communications, simplify processes and streamline decision-making. We expect to develop clear accountability, functional excellence and a leaner, more efficient business. While this reorganization is a tremendous first step toward a more agile and accountable organization, it is just the beginning of our journey. There’s an enormous amount of work to do, both to put the new structure into practice and to capitalize on the potential that will be unlocked. Our spend timeline has been enriched, as we are now planning an on-highway event followed by a virtual road show in the second part of November. Preparation for the spin remains on schedule and is certainly supported by strong momentum across the on-highway portfolio. I’m pleased with the way our businesses are evolving and the substantial progress the team has made over the past six months. Their efforts are even more impressive considering how hard they’re working to serve customers during these extraordinary circumstances: unprecedented supply chain challenges, continuing COVID-19 issues, the Raven acquisition, the spinoff of the on-highway business, and even these incredibly strong markets. Based on macro-indicators and the strength of our order books, we expect to maintain most of our momentum in the second half. As global pandemic recovery continues, there’ll be some costs that reenter the company, but we are determined to keep those to a minimum. There is much talk and more excitement about the U.S. infrastructure bill, but it is unclear what final form it will take and how impactful it will be for us directly. We are ramping up investments in both R&D and SG&A to support our products and brands and designing our organization to better serve our dealers and customers. The potential of our businesses is quite bright and not just because of our strong end markets. Going into the second half of the year, we will continue to rely upon the diligence and ingenuity of our tireless supply chain and logistics teams. We were one of the very few OEMs in our peer group who has not had to take any significant downtime in production, considering the complexity of our global manufacturing system. This accomplishment is one all of our production and support teams should be very proud of, as I am of them. That concludes our prepared remarks. And we can now open it up for questions. Gerrit Marx will be joining Oddone and me for the Q&A section. Sandra, please go ahead and open the line for questions.

Thank you. We will now begin the question-and-answer session. We’ll take the first question from the line of Steven Fisher from UBS. Please go ahead.

Great, thanks. Good morning. Good afternoon. The price versus cost was much better than I was expecting for the quarter. When were the pricing actions taken that flowed through the results this quarter? Were those fairly recent or was that sort of last year in preparation for this? And how should we think about the differential in the second half? Does it actually go negative on price versus cost or is it sort of just neutralizing? Is it more in Q3 or Q4? Thanks.

Steven, the commodity markets, as you know, are incredibly dynamic. Across our global footprint, Brazil was very aggressive with pricing early. Agriculture has also been active and we’ve really just, step-by-step, taken the necessary increases in prices that enabled us to get ahead of some of the cost increases in the first half. In the second half, pricing is still going to be quite strong. I think we’re expecting more cost to come in as we see what’s happening and you will probably see a more balanced price versus cost dynamic in the second half than we experienced in the first half. But particularly in North America for Agriculture, the pricing has been very good and the team’s been on it every step of the way.

Okay. And then just as a follow-up, I noticed that it looks like you have trimmed your expectations for industry sales for North American tractors under 140 horsepower. Can you just talk about what’s behind that change?

I think it’s the performance in the second quarter. That part of the market is much less relevant for us than the over 140 horsepower market. And remember last year that lower-powered segment in North America was already affected despite COVID-19, so our updated expectation reflects where the market has shown demand.

Okay. Thanks very much.

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

Good morning. Good afternoon. Thank you for taking the question. You talked about an inability to meet Agriculture equipment demand in the quarter. Can you provide us a sense of how much volume was moved into the back half? And if you could comment on how much of that was the supply chain versus your own production capacity constraints?

Yes. Almost all of it is related to supply chain. I’ve said consistently it’s the worst supply chain situation I’ve seen in my career. But the teams did a great job. The big issue for us is what we call our field inventory—units that have been built but don’t yet have all the parts to complete. That’s several thousand units. I traveled to Grand Island, where we have combines, and Wichita where we have construction equipment, and it’s just the case that teams have to continue to produce because demand is so high; we can’t simply stop the lines. But we’re producing units that still require parts to be finished and that is several thousand units needing to be completed and shipped.

Great. And then my follow-up is related to precision agriculture uptake. Can you provide some additional color on what the uptake was in the quarter, maybe areas where you’re seeing outsized growth? And to level set, what is the contribution of Raven going forward—can you provide a baseline view on what precision AG revenue is today? Thank you so much.

We don’t provide specific precision AG revenue. We’ve looked at what our peer groups have reported and we think we’re slightly ahead of that. We are seeing very strong demand with the new CH26 tractors and the Magnum series. The engagement we’ve had with Raven has shown they’ve been a great supplier to us for many years. When we integrate them more fully into our products, we expect to offer better solutions for farmers and for these capabilities to grow. We’re pleased with where we are on precision capability; we have more work to do, which is part of the reason for the acquisition, but overall demand is high and we believe as we move forward with integration of Raven we’ll be able to meet increasing demand going forward.

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

Thank you. Good morning. Good afternoon, everybody. The first question refers to the incremental margin. In your previous call, you indicated a 20%–25% range for incremental margin for the group. Should that be revised upwards considering the higher revenue expectations? And on the incremental margin in the Agriculture business, with such strong top-line growth, I would have expected higher operating leverage. Why wasn’t operating leverage higher in Q2?

Martino, on the quarter, the operating leverage was higher than what we indicated last time for the full year. We do not expect that level of operating leverage to be sustained for the remainder of the year. In other words, Q2 results benefited from particular dynamics and we expect lower operating leverage in the second part of the year. The operating performance at 14.7% margin for the quarter in Agriculture is well above many expectations. As we said, we did not fully fulfill demand, so we could have been even better had all units been completed and shipped.

Okay. So for the rest of the year the group operating leverage will be lower than what we saw in the first half?

I think Oddone covered it well in his prepared remarks. With ongoing supply constraints and higher costs coming through, we expect to see somewhat lower operating leverage in the back half. Nonetheless, we expect to deliver very solid results in the second half given demand and the strength of our order books.

Okay. Thank you. The second question on the Nikola trucks: how are testing activities progressing and what’s the updated timetable for the launch both in the U.S. and in Europe?

Sure, Martino. The testing activities and also prototyping and pre-series are all on track. We have produced five alpha prototypes, nine beta prototypes, and we have now produced another two gamma prototypes, which means they are entering into trial production. We have also started the first two fuel cell electric versions of the Tre prototype in Germany. We are on track with the manufacturing infrastructure and all elements being commissioned. We are getting ready for production readiness in Q4 for the battery electric U.S. version of the Nikola Tre as initially announced in 2019. We are on track with the European versions, eventually leading to the launch of the fuel cell electric European version by the end of 2023. So all is confirmed and we are progressing well.

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

Thanks. Good morning. Good afternoon, everybody. I wanted to ask about where Raven fits in. It seems geared towards autonomy. Is that the technology CNH needs to own for the future, or does this propel you further into machine learning and field adjustment businesses that third parties have been developing? Do you expect to develop that internally with Raven or still rely on outside solutions? Thanks.

We’re very excited about bringing the Raven team into CNH Industrial. They have proven their ability to take software solutions and make them beneficial to farmers. That capability can take many forms. Today, their precision sprayers are unmatched, and their autonomy programs have strong potential. With our capabilities matched with theirs, we can do a lot to facilitate and bring autonomy and advanced precision solutions to market. The culture and the team at Raven give us confidence that there’s not much we can’t do in precision and digital spaces together. It won’t happen overnight, but we’re encouraged. Their current capabilities are almost plug-and-play with our equipment, and as we co-develop further there are tremendous opportunities.

Okay. Thanks. And maybe secondly, could you give a little more color on the order book in Agriculture into next year? Obviously that’s partially related to supply chain, but also strong demand. How far into next year does the order book extend and how should we think about the setup for the first half of next year?

North and South America are showing incredible demand and, right now, the backlog extends into the second half of 2022. We continue to see solid pricing. The important point is can we execute and get product to our dealers and customers, and that is the hard work we’re doing. Early signs are strong and orders continue to come in, so the backlog extends well into 2022.

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

Good morning. Thank you. Scott, there were some public filing disclosures made recently about the background of the Raven buyout. I’m wondering how much confidence you have in closing this deal without interference from another bidder. And on the revenue synergy targets, can you say what portion of the revenue synergies are simply leveraging CNH’s existing distribution network to sell more Raven products to your dealer base?

The proxy filing provided color about how the bidding proceeded and I think it showed how well our team executed. It was an attractive asset and we believe we are the right owner. We are very confident that we will close the deal. Our teams are working through the necessary regulatory filings and approvals and as Oddone said, we expect to close likely in the fourth quarter. Regarding revenue synergies, the very first and near-term opportunity is exactly what you described: how to take our strong global distribution network for both New Holland and Case IH and facilitate greater sales of Raven’s existing products through that channel. Titan is already a great Raven partner and provides a good example of what can be done. We will respect existing Raven channels while leveraging our global reach to expand distribution.

That makes sense. On a related topic, what portion of Fiat Powertrain’s production volume is actually going to the Agriculture market today? I’m trying to understand whether the on-highway spin will retain meaningful Agriculture exposure via powertrain supply. Any color on when we should expect an announcement on the mechanics of that supply agreement?

FPT has been a great partner for us over the last decade. We’ve known about the spin for a long time and we spent considerable time drafting and finalizing the engine services agreement that will manage the supplier relationship post-spin. We need each other: we are an important part of FPT’s business, and they are for us. We have an engine services agreement that both sides have agreed to and we feel very comfortable that it will manage these businesses for both of us successfully for the next five to ten years. The details will be made public in due course.

Just to be clear: the spin will leave the on-highway company with some meaningful Agriculture exposure via FPT supply. Do you have an estimate—10%, 20%, 40% of FPT volume?

It’s roughly 20% of the volume.

And to validate Ross’s point, it’s not just us; FPT sells to other agricultural customers as well, so the exposure is shared across multiple customers.

Next question comes from the line of Marta Bruska from Berenberg. Please go ahead.

Hello, and thank you for taking my questions. I have to admit that I’m relatively new to this story, so please forgive a potentially naive question. Looking at your revenue development, Q1 was up 37% and Q2 up 60%. Mathematically, the outlook for the full year of 24%–28% seems lower for the second half. Can you help me understand which parts of the business you expect to moderate in the second half and why? I have a follow-up about orders as well. Thank you.

The major reason is comparables. The first half of 2020 was severely impacted by pandemic shutdowns, less so in the second half. We had improving results and revenue throughout the second half of 2020, so the easy-year-over-year comps are in the first half of this year. All of our businesses, with the exception of Powertrain where we discussed the loss of a third-party customer, are seeing significant growth. Again, it’s more about what we can produce because demand is ahead of our ability to supply.

Okay, clear. For my follow-up: what is the dynamic in order intake in Agriculture in Q2 versus Q1 sequentially? Was there a pre-buy in Q1 because of price increases? How do you see sequential development compared to the previous cycle?

We were up in orders last quarter and we are up this quarter. We continue to see orders coming in at a very good pace.

Our final question comes from the line of Daniela Costa from Goldman Sachs. Daniela, your line is open. Can you please check your line is unmuted on your side? Daniela, please check your line. The line for Daniela Costa is open. In that case, that will conclude the question-and-answer session. I will now turn the call back over to Federico Donati for any additional closing remarks.

Thank you, everybody, and have a nice day. Thank you.

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