David Raso: Okay. So the drag of 70 bps for the year, a little more than that in the first half and a little less than that in the second half is a fair generalization. And I apologize, maybe I missed it in the beginning of the call. The total savings for the year baked in from the two programs, right, the $550 million total COGS program in the 10% to 15% SG&A. What’s in for ’24 in total? I heard the SG&A number. What do you have in for the COGS reduction number for the year? Around 300?
Oddone Incisa: We have — Yes, roughly. Yes, a little bit more than that. Of course, that will be compensated. That will be offset by some labor cost inflation and other cost inflation, right? You won’t say in the bucket of product cost, you will see all of that. You will see the net impact.
David Raso: So basically, the total programs combined about $460 million of savings. So it’s sort of like a down 10% revenue, down 40% decrementals, but then we get the cost savings to get the decrementals back to about 18%, 19%. Real quick, the share count to start the year. I’m having a hard time getting down to the 1250 share count for the full year?
A –Oddone Incisa: So as we said, I mean I don’t have the starting point in front of me, but what we said is the $1.250 billion reflects the current share buyback program that we have. So basically, the completion of the $1 billion that we announced back in November, which we plan to complete by basically at the end of this month because we – as of Friday last week, we had both about $935 million worth of shares on the existing share buyback program.
Operator: The next question coming from Angel Castillo calling from Morgan Stanley.
Q – Unidentified Analyst: This is [Grace] on for Angela. I think in the last quarter, you mentioned you have the order books opening in the first half 2024. So could you give us some updates and more color on your order book trends and how these are filling up across the various ag and construction products?
Scott Wine: Yes. we said on the prepared remarks that we’ve got orders through Q3 in North America, less so in other regions. But we’re really less focused on order — I mean we’ve got — the demand for our cash products are extremely high, but we’re less focused on how far out the order book. I mean I looked at the chart yesterday, it’s filling up nicely. We’re very comfortable with where it is. But it’s — even if an order is out there from a dealer, we’re managing that dealer inventory level, ensuring that our shipments were — as you heard from our prepared remarks, most of our comments are related to the retail execution. We’re really striving to ensure that we support our dealers in driving retail to the end customers so they can get the benefits of these products much more so than we are about collecting a bunch of orders that we’re not sure that they’re going to need.
So the demand is high. And again, I highlighted the CR11 and what that product is going to be. And it’s interesting, I literally think it will be years before we meet demand for that product when it’s launching. And we’re seeing the same thing from our new Steyr stagger 4-wheel drive tractors. Just these things, these high-end extremely productive products or just in high demand. But overall, I think our order book is in good shape. Demand for most of our core cash crop products are in good shape, and we’re pleased with how that’s setting up in an industry that’s going to be down year-over-year.
Operator: The next question comes from the line of Seth Weber calling from Wells Fargo.
Q – Unidentified Analyst: Scott, I wanted to just follow up on your comment about European ag market, where it sounds like there’s a little bit of extra inventory there. I was wondering if you could just give us a little bit more color there, whether it’s by country or by product type that you specifically call out and whether that’s crops versus dairy livestock, anything like that?
Scott Wine: I’d say it’s overall sentiment is really driving it. And that — I mean you look at the news and I think farmers are expressing their dissatisfaction with some of the government actions. And when they’re driving and protesting, they’re not planting and harvesting. So it’s just — the overall sentiment is not great in Europe. And that’s what we’re seeing. Again, we’re seeing improvements in our penetration of our precision offerings, and I think the team is doing a really good job of executing that. We’re setting up new dealers in certain regions, and we’re just proud of the way they’re handling managing the brands there, but just the overall sentiment in Europe is down a little bit, and that’s reflected in how we’re looking at the region.
And that’s what’s driving us to put a little more focus on dealer inventories there so we can get that to a more healthy level as we were in an environment, interest rates are presumably coming down, but they’re still a little bit high. So we feel like if we can help our dealers get that inventory down, we’re both in better shape. But that — Europe, it’s not a crisis situation. It’s just an overall sentiment is not ideal right now.
Q –Unidentified Analyst: And then maybe just on the Precision platform. I think you called out north of $1 billion in revenue in 2023. Would you expect that to grow in 2024? And any sort of order of magnitude of growth that we’re looking at this year?
A –Scott Wine: Well, the magnitude is – I’m not going to comment on because as our overall volume comes down, it’s – that’s less precision offerings we’re selling in those solutions. But we are switching from [Tremble] to in-house solutions, which is going to be a nice benefit both on the sales and margin side. For the year. And overall, I think we’ll be back over $1 billion this year. Just not sure how much.
Operator: The next question comes from Michael Feniger calling from Bank of America.
Michael Feniger : Scott, I wanted to ask, obviously, you guys talked about pricing this year, getting some of those inventories out. And you kind of talked about how there’s likely not another big step down in this market, maybe flattish for a while. So just trying to get a sense, Scott, does that mean we could see a return to normal on the pricing front as we turn the page to 2025? And should we be thinking that price versus cost spread for you in 2025 really starts to widen as the price actions get your inventories more in line and some of the cost savings that you have in these two programs, we start to build. So I’m just trying to get a sense of how we think about that as we get to 2025.
Scott Wine: Yes. No, that’s — the way we’re looking at it is, remember, and depending on the region because, obviously, Brazil had much higher inflation, so they got hit with more price early. But overall, we — the prices are up many, many tens of percent, I mean on — overall, so prices have come up somewhat dramatically. But also, our costs have gone up rather dramatically. So we’re keeping that in line. What we started to see in the fourth quarter is us bend that cost curve down and the pricing maintains level. We’ve said it’s going to be moderate price next year, but we believe that we are back to a normal. You get that 2% to 3% price when products come out. It’s going to be a little bit less this year just because we think managing through the dealer inventory.
But we think that environment of us getting regular 2% to 3% price is really coming back especially as we get through the back half of the year is that’s what we’ll just continue to see. But matched with that is just this benefit of getting aggressively after costs, which should keep that differential between price cost in a very positive way for us for quite some time.
Michael Feniger : And obviously, the decrementals are more resilient than normal given these cost reduction efforts I’m curious, Scott, maybe this will be touched on at the Investor Day. Like when we finally get to the other side of this, does this mean we should be seeing better incrementals as volumes at some point do you recover? Just curious how we should kind of think about that as we kind of go through this downturn in the cycle and come out the other end?
Scott Wine: Well, that is 100% what we are striving to do. And a lot of this cost work I mean, I’m really proud of the team and the work that they’ve done, but most of the benefit is years out, not here. And we get — we spent a good bit of money on our tech investments, but the work that Marc Kermisch and his team are doing to accelerate that penetration is just a gift that keeps getting in the future. The strategic sourcing is beneficial this year, but incrementally, significantly more beneficial in the out years. So we certainly expect — and quite honestly, we need to, right? If you look at the industry leaders, our margins are notably lower and we’ve got to close that gap.
Michael Feniger : And Scott, just last one. Obviously, I think your industrial net debt was zero because the guidance of free cash flow of [$1.2 billion to $1.4 billion]. I’m just curious, you guys are trying to execute these two big cost reduction programs. How are you kind of thinking about the free cash flow, where your balance sheet is? And obviously, where stock is trading now? Or are you starting to lean a little bit more towards potentially some M&A as you guys are trying to accelerate some of those other initiatives on the growth side? Just curious if you could touch on that.
Scott Wine: Yes. No, I think Oddone clearly listed that out if you go back and read the transcript about how we’re prioritizing that. We’re putting a lot of focus on cash flow and want to make sure that we continue to drive that as a higher percent of net income. But we are leaning in much more heavily than we have historically on the share buybacks. And I think that was necessary as we went through the transition last year, but really encouraged by the Board’s support to put out another $0.5 million there. But it’s really investing in the company to bring products and technologies to our customers. That is our first priority. But when the stock is trading below intrinsic value, and we believe it is now, we’re not going to hesitate to continue to buy shares. So I think that seeing that – the support from the Board for this capital allocation process, which I believe is beneficial to our customers and to our shareholders is a positive.
Operator: We’ll take the next question from Timothy Thein calling from Citi.
