Good morning, and welcome to the CNH 2026 First Quarter Results Conference Call. Operator instructions were provided. I will now hand the call over to Jason Omerza, Vice President of Investor Relations. Please go ahead.

Thank you, Warren, and good morning, everyone. We would like to welcome you to CNH's first quarter earnings call for the period ending March 31, 2026. This slide webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website. Please note that any forward-looking statements that we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our 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 Gerrit.

Thank you, Jason, and welcome to everyone joining the meeting. We are calling from Sioux Falls, South Dakota, where we just hosted our Board meeting. Sioux Falls is one of our CNH tech hubs, which we acquired through Raven. In Sioux Falls, we have about 300 colleagues who, jointly with other sites, not only code and validate our on- and off-board software, but also design the architecture of the next evolution of our digital machine hardware. I'm very proud of the advancements that we will be launching over the next couple of years. First quarter results were as expected and guided. Given that Q1 is seasonally our lowest quarter, we are at historically low industry demand in North America, and farmers in Brazil have ongoing financial challenges. During the quarter, additional complications emerged, including changing tariff rules and an escalated conflict in the Middle East. I'm very proud of the way the CNH team responded to all the challenges we faced, those we knew about going in and those that emerged during the quarter. We are now passing through what we expect to be the lowest period of the current ag industry cycle, supported by some replacement demand. As we have said before, we also expect Q1 2026 to be the lowest quarter of the year, during which we diligently continued the disciplined management of all levers in our control. Despite the challenging quarter, we have many things to proudly share here. We kept production levels low in order to manage and contain channel inventory. Ag dealer inventory levels remained unchanged since the beginning of the year by design. Normally, dealers build inventory in Q1 in preparation for Q2, but the flat levels are in line with our overall plan to have the dealers reduce their inventories by about $500 million this year. We have been quite disciplined to produce and ship only presold orders or fast-moving stock orders. The net of price and product cost was positive in agriculture as we focus on our operational efficiencies and quality improvements. And we do expect that some of price and product cost to be positive in agriculture for the full year as well. We are making solid progress on our efforts to take cost out and improve our overall product quality, countering the negative impact from tariffs and global supply chain disruptions. We also continue supporting our dealer and service network optimization with several new consolidations completed and our tech assist tool rolled out at about 70% of our dealer locations. As a reminder, our AI tech assist delivers near-instant diagnostic support while our visual parts search enables rapid and accurate parts identification. These capabilities enhance decision quality and deepen the value we deliver to customers and dealers, and there is much more to come, powered by the rapidly evolving power of artificial intelligence from generative to agentic capabilities. We, along with other industry participants, have had productive discussions with members of the U.S. administration on how we can support farmers and builders during these times. We are optimistic about how some developments, such as the recently announced increase in renewable fuel standards, will help farmers through increased crop prices and demand. There's a new equilibrium of supply and demand of agriculture commodities emerging in all major regions, as upcoming elections, trade deals, including and excluding the U.S., and rerouting of food and nonfood supply chains are settled over the next couple of years. So while market conditions are very dynamic, we are focused on solutions today and in the future that support our farmers and builders and that will deliver returns to our shareholders. Turning to the results, which reflect the expected and guided market headwinds and our decision to keep production very low. Consolidated revenues were $3.8 billion, flat year-over-year, including about 4% positive currency impacts. Our Ag segment sales were up 1% with EMEA up 20%, North America down 3%, and South America down 28%. With farm incomes depressed and macroeconomic uncertainty, we saw continued softness in equipment demand. Industrial adjusted EBIT was a loss of $45 million, driven primarily by tariffs and high SG&A and R&D expenses, only partially offset by positive pricing and cost savings actions. For the quarter, adjusted net income was $21 million, with adjusted EPS at $0.01. Free cash flow from Industrial Activities was a $569 million outflow in line with Q1 2025 and consistent with the working capital seasonality of the first quarter, where we usually build up some company inventory in preparation for Q2 sales. We remain more committed than ever to strengthen the company and prioritizing long-term value creation. Our company strategy is centered around five key strategic pillars: expanding product leadership; advancing our iron and tech integration; driving commercial excellence; operational excellence; and quality as a mindset. These pillars remain front and center to ensure we stay aligned with our long-term strategic objectives and our team remains focused and united in our shared purpose to serve and advance those who feed and build the world we all live in. From all the great steps forward we took in the last quarter, I would like to focus today on our operational excellence and specifically our manufacturing plant efficiencies. We use a wide range of tools and latest technologies to unlock cost efficiencies at our manufacturing plants. Last year, we conducted about 1,400 projects, which led to $45 million in savings as we reported to you already last quarter. Individually, these projects may seem modest, but the results are profound when we add them all up. In addition, many of the projects include quality improvements to the product shipped out from our factories. An example of one of those projects was a fiber laser installed last year at our Fargo, North Dakota plant where we make our 4-wheel drive tractors. This machine is used to cut sheet steel and replace an old plasma punch machine. The new process is 52% faster than before, while also reducing other consumables such as oil and lubricants, minimizing secondary operations and, my favorite, improving quality. More efficient operations paired with better quality are a win for both CNH and our customers. With that, I will now turn the call over to Jim to take us through the details of our financials and guidance.

Thank you, Gerrit. Agriculture Q1 net sales were about $2.6 billion, up 1% year-over-year, including 4% positive currency translation. Sales volumes were lower in North and South America and favorable pricing came mainly from North America. Sales volumes and pricing were up in EMEA, mostly in Europe for both tractors and combines, fueled by moderately favorable industry demand and some market share gain. Gross margin was 19.1% from 20% a year ago. Agriculture adjusted EBIT margin was 1% from 5.4% in Q1 2025. The positive pricing and the cost saving contribution only partially offset negative original mix and tariff impacts. The higher year-over-year R&D and SG&A expenses were consistent with our indications with both affected by lower variable compensation in 2025 and labor inflation in 2026. Construction net sales in the quarter were lower, down 3% year-over-year to $574 million, as higher sales in EMEA were more than offset by lower sales in North and South America. We were initially expecting sales to be a bit higher in North America but we held back sales while working out a supplier quality issue to protect the customer. That issue is now resolved and those sales will be made up in Q2. Q1 gross margin was 11.8% from 14.9% a year ago, largely due to tariff impacts. Construction SG&A was unfavorable due to trade show marketing costs, lower variable compensation in 2025 and labor inflation in 2026. Q1 adjusted EBIT margin was negative 4.9%. In Financial Services, segment net income in the quarter was $74 million, down versus 2025, mainly due to higher risk costs in Brazil. Retail originations in the first quarter were $2.2 billion, and the managed portfolio ended the quarter at $28 billion. Sequential delinquency rates increased slightly to 3.5%, primarily driven by persistent economic difficulties in South America. Our capital allocation priorities remain the same: reinvesting in our business while maintaining a healthy balance sheet and then returning cash to shareholders. During the first three months of 2026, we repurchased $26 million worth of CNH stock at an average price of about $10.70 per share. Before we dive into our guidance, let's take a look at the expected tariff impact on our margins, as we had a meaningful change recently in the way they will be applied to our products. First, we need to acknowledge that we did enjoy a brief period of relief when earlier tariffs were replaced by Section 122 tariffs at 10%, which lasted for about 1.5 months. Just something to keep in mind when we eventually think about run rates in 2027. At the beginning of April, there was a change in the way Section 232 tariffs on steel and aluminum are applied. At a very simple level, it means we went from paying 50% on the value of only the metal to now paying anywhere from 0% to 50% on the total value of the component or machine, depending on what it is. For whole machine imports, we are now paying 25% on the total value of the unit, which overall is higher than what we paid before. However, for some component imports, the tariffs can actually be lower. In our Agriculture business, the impact of this change is net neutral for calendar year 2026. So we still forecast the tariff cost impact to be about 210 to 220 basis points of impact on ag margins, or no change from our view last quarter. For construction, we're not expecting to get as much of that component benefit as in ag. And so now we expect about a 600 basis point impact on our construction margins compared to our original expectations of roughly 500 basis points. It's important to note that Section 301 investigations are ongoing for products coming from China, the EU, India and Mexico. We have not included any factors for that in this forecast, but we will provide an update if there are material changes. Let's first look together at our agriculture industry outlook for 2026. We have slightly improved our outlook for small tractors and combines in North America. In EMEA, we have lowered the tractor outlook, but we are more optimistic for combines. And in South America, we have lowered the outlook for combines. Market risk in South America is elevated due to tighter credit and delays in government-backed financing in Brazil. As a result, we are watching the situation there closely. In total, we still see the industry at about 80% of mid-cycle. When we balance all those changes, along with our unchanged assumptions for favorable currency translation of 2% and positive pricing of 1.5% to 2%, we are comfortable reaffirming our net sales guidance of flat to down 5%. As mentioned earlier, our tariff assumptions for agriculture are net unchanged. While we are seeing increased freight and transportation costs, we are optimistic that our ongoing cost reduction programs and updated geographic mix will be able to offset those impacts. As a result, we are reaffirming our EBIT margin guidance of 4.5% to 5.5%. In construction, we have fine-tuned our industry forecasts across the regions based on Q1 trends and market conditions. And overall, we are slightly lower than our previous expectations. However, we still forecast our own net sales to be about flat year-over-year, including about 1% of favorable currency translation and 2% of pricing. EBIT margin is forecasted to be between 1% and 2% as we focus on cost reductions to offset the increased impact of the tariffs discussed earlier. Putting all those elements together, then we reaffirm our forecast for 2026 industrial net sales to be flat to down 4% year-over-year and industrial EBIT margin to be between 2.5% and 3.5%. Industrial free cash flow is still forecasted to be between $150 million and $350 million. Adjusted EPS is reaffirmed at between $0.35 and $0.45, assuming an average share count of about 1.25 billion shares. To help you with remodeling, I'll provide some additional considerations for our second quarter. Our order books are full for the second quarter, and we're expecting agriculture net sales to be about flat on a year-over-year basis. We're keeping a close eye on conditions in South America as conditions for farmers there remain very difficult. Construction net sales will be higher in the mid-teens, and that includes some of those sales originally expected in Q1. The construction increase is most pronounced in North America. Transportation costs and the tariff payments are another watch point. The team has done a great job working through these rapid changes and will continue to be vigilant. I'll note, too, that grain prices ticked up a little along with oil prices; they remain below what many consider breakeven levels for farmers, which continue to challenge their economics. Although both agriculture and construction Q2 EBIT margins are forecasted to fall into the full year guidance ranges. Taken together with the lower Q1, this implies that we expect margins in the second half of the year to be sequentially better than the first half, as is typical. Furthermore, we also expect that both the ag and construction margins will be better on a year-over-year basis in the second half of the year. Financial Services net income in Q2 will be lower year-over-year by $20 million to $25 million. With that, I will turn it back to Gerrit.

Thank you, Jim. Let me finish up with some thoughts about the rest of the year. Against the backdrop of heightened global uncertainty, we remain focused on our purpose to serve and advance the world's farmers and builders. That means closely monitoring developments while continuing to deliver for our dealers and end customers through disciplined production planning and a clear path to lean channel inventories by year-end. We continue working on our iron and our tech developments and product launches and delivering on our long-term margin improvement efforts. We continue to work with our dealer partners on finding the right network configuration in each of the markets that we serve. In another step to support our dealers and farmers, we have recently entered into a strategic relationship with Abilene Machine through a minority equity stake. The relationship will allow CNH to offer our dealer network a comprehensive aftermarket parts portfolio with upcoming access to the Abilene Machine portfolio of all-makes parts. This further enables our aim to provide our dealers and customers good, better and best options to service their equipment fleets regardless of age or brand affinity. In North America and Europe, the average age of ag equipment in the field has been trending older. This should build up a modest demand for new machines in the coming quarters. Significant equipment demand increases usually only happen when there is a good increase in commodity prices that support farm incomes. As Jim mentioned, farmers in South America are a little more cautious and will probably continue to be so at least through the end of the year, and so will we. Selling a machine is one thing; collecting its monthly installments is another, and we have been thoughtfully managing that jointly with our network partners during this difficult period. As we expect to evolve from the industry trough, we look forward to capitalizing on all the improvements that we have made during serving and advancing those who feed and build the world, always breaking new ground. This concludes our prepared remarks, and we can now start the Q&A session.

Operator instructions were provided. We will take our first question from the line of Tim Thein with Raymond James.

I just had my question on ag. As we look at the production slots for the coming quarters, can you maybe give some context there in terms of, a, I'm curious if you've seen any significant changes in terms of the actual build rates implied within, maybe by region or if there's been any changes there? And then just any comments in terms of regional order commentary. You stressed the softness and the concern around South America. Maybe a little bit more context of what you're seeing within that order board, maybe in your largest region in North America?

Thank you, Tim. So as Jim alluded to, we are fully booked in Q2, and we have a pretty healthy coverage already for Q3, while being very disciplined in actually loading orders to production because, as I said, we focus on real dealer customer orders and orders from dealers referring to machines that have a very high probability to liquidate in due course as we continue to manage our general inventory. Usually, when we see the market picking up again, which we do not yet see at this point, we would obviously load production more with what we call company orders, where we hold inventory on our side to quickly react to a changing market environment. So when we talk about already a Q2 fully booked and Q3 in good shape, this happens on the basis of very disciplined order loading to the factories. As per the regional differences, we're pretty happy with the way things go in Europe. The team makes great progress in building the foundation for gaining share as we do. We are accelerating our dealer multi-brand consolidation across the region. You will hear us talk about that almost every quarter from now on. For the full year 2026, this dealer network consolidation is going to drive order momentum in the region as we not only break new ground, but actually gain ground. Similarly, for the United States, where the market is going backwards as we projected and guided, we see on the low levels very good momentum with our dealers when it comes to interacting with our customers. That is also in a good place. The region where we have extra efforts and extra attention is Latin America, particularly Brazil, although Argentina is not that different in its current dynamics where the farmers are still in a wait-and-see situation in light of upcoming elections in Brazil. The consequences of trade deals still need to show in actual trades of commodities and pricing of those commodities. So in Latin America, we apply extra discipline to taking orders, making sure that we preserve margins despite significant price pressure in the market given that all the industry participants had expected a better evolution of market demand, which isn't the case. Extra discipline is required for LatAm in the order take, and that is also seen in our Q3 order take. But overall, we are in good shape going through Q2 as we look at Q3.

If I could add to that, in Latin America, Brazil in particular, given the tight conditions, we, along with others, have tightened underwriting standards, and I think that's also acting on industry demand. So it's not a CNH concern alone. It's an industry-wide, country-wide concern.

Yes. And maybe last commentary on Asia Pacific, although small but growing quite a bit. Our teams in India have hit new record highs in terms of production and market share, and we really built momentum there with our newly launched compact tractor lineup, and the to-be-launched new utility-light small tractor lineup, not only for India, but for export, which will mean a step change in small and compact machines that we will ship around the world from India. We see stable and good progress in China and a rather flattish development in Australia and New Zealand, where the market is basically running on replacement demand only at this point in time.

Our next question comes from the line of Angel Castillo with Morgan Stanley.

This is Esther on for Angel Castillo. Just on tariffs and the broader trade backdrop, can you just give us a little bit more color on how you're sizing the impact you're seeing today versus the original tariff impact guide? And how much of that do you think is being offset by pricing versus operational actions? So just more color on how you see that dynamic through the year?

Sure. Yes, Esther. It's Jim. As we indicated, the ag business really has no net change versus prior guidance. So you should think about a full-year 210 to 220 basis points of a drag versus if there weren't tariffs—call it, full-year cost of roughly $120 million on the ag business. That is in line with where we were last quarter. There were some puts and takes; lower steel prices gave us some relief, offset by higher impact and higher cost from Section 232 changes. So that's really the broad situation for the ag business. On the construction business, it's a bit of a headwind moving from 500 basis points of a headwind to 600 basis points of headwind, again as opposed to no tariffs. So that's really where it ends up. We took our lumps when they were first launched. Since then, the changes thus far have been relatively minor for us overall. The one area that we haven't quantified and are waiting to see where it lands are the Section 301 tariffs, which are related to investigations the U.S. government is conducting with various counterparties in trade: the EU, India, Brazil, et cetera. So that one is unknown at this point, but I think that covers the landscape of tariffs.

Our next question comes from the line of Kristen Owen with Oppenheimer & Co.

I wanted to talk through how you're thinking about back-half scenarios, just given the context of now we're looking at higher fertilizer prices, higher transportation cost, some of these acute challenges that you've called out in Brazil versus maybe a little bit stronger forward commodity curve. How is that influencing the range of scenarios that we could see in the back half of the year?

Yes, Kristen. The range of probable outcomes is still pretty wide in keeping with the recent macroeconomic uncertainty. Higher fertilizer costs are less of a global concern for 2026, though they are more relevant in Brazil given multiple harvests and planting seasons, so there's some risk there on top of credit conditions. Transportation costs are growing in most places. We are viewing this as something we can offset today. If elevated transportation costs due to the Iran conflict persist throughout the year, the gross net increase in cost could be around $70 million. That $70 million is a gross estimate and assumes no countermeasures from us in terms of transportation surcharges or lower discounting; we would take action at some point if this elevated cost environment persists on the revenue side. We don't think that's needed just yet, but we're monitoring it very closely. At the back half, we think we've got things balanced out given our levers. But right now, the unknown is the persistently higher transportation cost—logistics from shipping and trucking due to higher diesel and fuel costs. That's the primary factor we are watching closely. If it persists for a longer period, we'll need to take countermeasures on the revenue side.

Our next question comes from the line of Jamie Cook with Truist Securities.

I have two questions. Encouraging to see we kept guidance the same and everything seems on track. Gerrit, if you could comment on, one, understanding it's early, how you're thinking about the setup for 2027, particularly for ag—where you would be most constructive or more worried, I guess Brazil would probably be that area. And then from a company-specific perspective, with a lot of the company-specific initiatives—streamlining of cost structure, supply chain, quality improvements—assuming a flat market in 2027, how do we think about earnings for CNH or potential positives that CNH could realize even in a flat market?

Jamie, we're getting ready for whatever comes our way in 2027. We do see momentum in Europe. We expect the North American market to hit the trough this year. In South America, despite the very low levels, Brazil is probably still looking for grounding in this trough. We will enter 2027 with a far greater level of certainty around several factors: elections in Brazil and South America will be behind us, we'll have the U.S. midterms behind us, and we'll have clarity around tariff matters most notably the Section 301. We'll see how the administration positions itself on various trade deals around the world. From my interactions in Washington, I expect more detail on bilateral trade deals, particularly with a focus on commodity trade and flows out of the U.S. This will give us better footing. The aging machine park is a factor: acres are planted and harvested this year and next year, which means hours on machines accumulate. So despite slow markets, machines are aging and that supports replacement demand across the world as we enter 2027. We will enter 2027 with some support from replacement demand and potentially commodity price momentum, but we do not assume a market bounce in our actions. We remain disciplined on cost. We're making good progress in taking cost out of our supply chain and procurement area. We slightly overdelivered our internal expectations on quality costs last year, and we will continue to do so this year. We are looking at structural costs and have identified pockets for AI deployment which will help drive productivity in our operations, such as software development work at sites like Sioux Falls. I have seen impressive acceleration from AI advancements over the last six months in what can be done in this area. All these elements will help us go faster with tech while reducing our cost base in relative terms. Against the backdrop of global uncertainty, those points causing uncertainty among our farmers will become clearer. We stay focused. I feel good about the progress we are making against all the commitments we put out. We act while we wait for market improvement—it's a see-and-act phase for us. Improving things now should position us well, and 2027 will probably be a better year than 2026.

If I could just add one point: we're also underproducing versus retail in 2026 by about 4%. So assuming we produce at retail levels next year, that should be a natural tailwind to revenues and profits.

Our next question comes from the line of Kyle Menges with Citigroup.

I was hoping you could talk about any changes you're seeing in industry competition, specifically pricing across any of the major regions, as well as how you think your inventory position is versus the industry. And then just a quick tariff question: you mentioned tariffs could be 0% to 50%—could you provide examples of cases where it would be 0% versus 50% now?

Thanks, Kyle. I will defer the tariff point to Jim. We do see continued positive price-cost development for us, though I can't speak to every competitor. This is building on our advancing technologies and product launches throughout 2026 and into early 2027. We have launched our new short wheelbase and standard wheelbase tractor in Europe, along with a long wheelbase tractor—entering, for the first time, a segment of 350 to 450 horsepower in the European-style tractor that CNH has not previously played in. With these launches, we are sold out on the production slots we've allocated. We also sold out on our next-gen combines this year. We see great momentum in our products and demand. With that demand and further launches, including off-board systems connecting to onboard systems, we have a good base to advance our farmers and to achieve good net price realization over the next couple of quarters and into 2027. On the inventory side, I mentioned a $500 million further reduction target in global channel dealer inventory. We will closely monitor this because if markets swing more positive or negative, we will adjust inventory targets and destocking activities accordingly. For now, we feel good about our position and receive strong feedback from dealers. We have cleared aged inventory and hard-to-sell stock and are approaching desired levels, which should lighten the financial burden on dealers' floor planning and exposure. We delivered what we said we would, and overall we are on track through 2026, which we view as the trough year. We have never seen unit sales this low in our industry in many decades, and we are building further strength for future years. Jim, on tariffs?

Kyle, it depends on the Harmonized Tariff Schedule (HTS) codes. There's a bunch of those and different rules apply. I don't have the detailed HTS breakdown to discuss on the call, but we can take that offline.

Our next question comes from the line of David Raso with Evercore ISI.

Two questions. One, can you give us an update on where you stand strategically with the construction business? And second, the production below retail of 4%: can you give us a little color—by geography or by large versus small tractors and combines—what combination gets you to that below-retail level globally?

David, I'll take the first question. As I mentioned during the last quarterly earnings call and the full-year 2025 financials, we have restarted discussions with several partners for our construction business. These discussions are advancing at a good pace. We don't rush anything. There are very constructive conversations that should build a stronger construction equipment lineup and further enhance machines that we expect to ship under the New Holland construction brand back to our ag dealers. Progress is being made; we are taking the time it needs. We will update you when we have concluded. I believe over the course of the remainder of 2026 or the first half of 2027 we should be clear on the path forward for our construction business. It's a very relevant product for our dealers, but it doesn't necessarily have to be in our ownership to deliver product and service to them. That is what I can tell you on timing: we are moving toward a solution.

On the underproduction question, the underproduction is a rough estimate of about 4% under retail for 2026. More underproduction is happening in combines and less underproduction in tractors, although both are underproduced in 2026. By geography, it's balanced but probably a little more underproduction occurring in Brazil this year given the challenges there that we discussed earlier.

Our next question comes from the line of Joel Jackson with BMO Capital Markets.

It's Evan on for Joel Jackson. I just wanted to circle back on the credit dynamic. You pointed out for Q2 and Q3 considerations of higher risk reserves—wonder if you can give any extra color on that. Is that all Brazil? Are you seeing delinquencies currently higher and bad debt?

Yes. It's slightly up in more mature markets but nothing notable. The real increases are in Brazil primarily and secondarily Argentina to a lesser degree. In Brazil, May is a big payment month and every year in May we see an uptick in delinquencies—that's typical seasonality. I would expect to see it again this year. It remains elevated, and it's something that bears watching. We're actively managing it. It is not getting worse, but it's not getting better at the same time, so it requires customer-by-customer discussions to ensure they stay current. So I would expect an uptick in delinquencies in Q2 of this year, as we always see, and it's mostly focused in Latin America.

Our next question comes from the line of Tami Zakaria with JPMorgan.

Regarding South America, I see you tweaked lower your expectation for combines. Stepping back, should we view this year's decline in South America more like a temporary blip that reverses next year? Or are you seeing indications this could be a weak market for a couple more years before demand starts moving up again?

Tami, looking at Brazil over many cycles, Brazil has tended to have a quick ramp to a peak year, then a sharp drop and a few years in a trough before it comes back. This cycle has a few different elements that could make the trough deeper and a bit longer: tariffs, global trade dynamics, China's position in global commodity purchases, and North-South American frictions. That is contributing to a deeper and slightly longer trough in 2026 which could drag into 2027. However, given acreage in South America and the fact that many areas have multiple harvests, machines there accumulate hours faster, which points to replacement demand as we enter 2027 and 2028. Replacement demand should provide a floor. We expect the trough to be reached over the course of this year according to our expectations. With the election outcome in Brazil and greater certainty, confidence in farming and machinery purchases should improve. So while this could be a deeper and somewhat longer trough, we do expect replacement demand to help provide a base going into 2027.

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

I wanted to follow up on Construction Equipment. You talked about the net pricing expectations for ag. Could you elaborate similar comments for construction equipment—do you think that can turn net positive at some point in the year? And on Construction Equipment, for Q2 given the volumes you guide for mid-teens, should we expect to already start breaking even in Q2?

Daniela, for the full year we are not forecasting positive net pricing on the construction business because of the tariffs—the product cost increases driven by tariffs more than offset pricing. So net, price and product cost is negative for the year. There will be positive EBIT for the full year, but price-cost is negative. As it relates to Q2, yes, construction should be above breakeven in Q2. They were penalized from a supplier quality issue at the Wichita plant in Q1, and the sales that were held back will be realized in Q2, so Q1 was a bit of a negative and Q2 a bit of a positive; overall for the full year it's a wash.

Our next question comes from the line of Ted Jackson with Northland.

My question is on U.S. legislation and regulation. Can you give an update and your thoughts on the farm bill, which is locked up inside Congress, and also the efforts around EPA and E15 fuel? If the farm bill remains delayed and E15 becomes full year, does that change anything for you? And on the EPA side, any thoughts on likelihood and impacts?

Ted, the farm bill has been long awaited and is still locked up. It will be helpful, but it is not going to suddenly boost equipment demand on its own. Farmers need to see operating profit on their bottom line excluding subsidies; only if commodity prices and input costs allow sustainable profitability will equipment purchases follow. So the farm bill is needed and helpful for confidence, but it won't immediately drive equipment demand. On E15 fuel, making temporary E15 permanent has a positive impact on corn demand. Back-of-the-envelope, if the U.S. shifted more consumption from E10 to E15, the amount of corn required is meaningful and can affect crop balances. However, soybeans are often more profitable than corn on the margin for many farmers, so while E15 supports corn demand it is not a singular transformational item; it helps and builds confidence but won't alone turn the market. On EPA and emissions, staying focused on sustainability and lower emissions is important. Making fuel standards simpler and less disruptive is beneficial for farmers to avoid engine derate or operational issues in the field. Rolling back emission standards could create complexity if the U.S. deviated from the rest of the world, as we would then need region-specific machines. So EPA changes that simplify and make operations more reliable are helpful, but they have limitations as a direct cost-reduction lever for machines. Overall, higher commodity prices and managed input costs are the primary drivers of healthier farm economics and will be the main enablers of equipment demand.

Our final question comes from the line of Judah Arnovitz with UBS.

Two quick questions on price-cost. In Ag, do you expect positive price-cost each quarter for the rest of the year? And on transportation costs, you mentioned if the conflict persists, what's your confidence in your ability to pass these costs on to customers in both ag and construction? Relative to the $70 million growth impact you mentioned, what is that number year-to-date?

Yes. Price-cost for ag by quarter: yes, we expect it to remain positive. On construction, as discussed, net price-cost will be negative for the year given the tariff burden. On the ability to pass on higher logistics costs, there may be a lag effect, but the ag business has historically shown the ability to obtain pricing over time, so I have a high degree of confidence that pricing can be recovered in ag, though it may not happen in the same quarter. On construction, confidence is medium: it's a more fragmented and competitive market and not all players are impacted equally, so passing on costs is more challenging. Year-to-date the impact from elevated logistics costs tied to the Iran conflict has been relatively small; the $70 million estimate is a potential gross impact if elevated costs persist through the end of the year, and we do not assume that is the base case.

That concludes today's conference call. You may now disconnect.