Timothy Thein : Maybe, Scott, the first one just on the outlook for high horsepower tractor industry sales in North America down 10% to 15%. How are you — what do you have in terms of your production plans? I know the output from Racing and Fargo has kind of been a little spotty there. So what are you thinking in terms of just, I guess, overall company dealer inventory and your production plans in that important product category?
Scott Wine: Yes. We did — and again, really proud of what the team in Racing did to get that production back up and getting the quality right as we came out of the strength. But really, it’s not overall one category of high horsepower tractors. I think the Magnums coming out of Racing, we’re probably where we want to be on dealer inventory now. So it’s about driving retail demand, and I think that’s where our focus will be. On the staggers coming out at Fargo, that product, the technology, the unbelievable horsepower is really something that will be struggling, I think, for all of ’24 and probably into 2025 to meet global demand for that product. So I think it’s really innovation sells, technology sells, and that’s where we’re seeing it. But I think overall, North American high horsepower tractors are going to be down a little bit less than the industry, but certainly not robust.
Timothy Thein : And then this is a bit just kind of nitpicky. But on the bridge.
Scott Wine: Then don’t ask.
Timothy Thein : All right. I’ll use the different – a profound question. For the ag EBIT bridge here in the fourth quarter on, call it, 8-ish percent volume decline, you had the $255 million headwind. So upward to 60%. Obviously, mix is a component in that. What do you think – and again, not to the nearest decimal place, but what’s an appropriate range as we think about just kind of volume leverage through ‘24, I presumably stopped 60%. But any help on that just in terms of what that kind of what we should think about if assuming mix or maybe mix has continued to be a headwind and just any help on that.
A –Oddone Incisa: I will say much closer to the 30% than the 60% in terms of the volume impact. On the volume and mix impact.
Operator: The next question comes from the line of Daniela Costa calling from Goldman Sachs.
Daniela Costa : I have two questions as well. One more — sort of to understand a bit better like your production set up at the moment in the U.S., you mentioned the election recently and there’s lots of question marks about what happened to potential tariffs from any inputs coming from outside the U.S. How are you set up now, you’re pretty much self-sufficient within the U.S.? Or do you import much inputs and just understanding what the implications baked in potentially for that in your margin? And then I’ll ask the second one more on the bridge for ’24.
Scott Wine: Yes. You know as a very global company, we strive to keep production in region. We just don’t do that everywhere. Low horsepower tractors, for example, predominantly come from Asia. But we are — we do — we ship — some of our tractors come from Europe and some come from India. But generally speaking, most of our volume is in region.
Daniela Costa : Okay. So no big impact from that.
Scott Wine: And please just — and I know — don’t read too much in what’s said in the run-up to a U.S. election. There’s a lot of stuff that is thrown out that is not going to be followed through. And I think some of the tariff thing comments that have come out, the tariffs are ultimately a tax on U.S. consumers. So what sounds right politically and a campaign probably isn’t something that they’re going to do no matter what happens in the election cycle. So that — I just wouldn’t put too much weight on that.
Daniela Costa : Just on the guidance on the margins, the 14% to 15% and the 5% to 6% in 2024. I guess given what you’ve said at the beginning regarding dealer inventories and that $1 billion that you still needed to get through that you’re probably going to underproduce this year. So is there an impact on the margin from underproduction? And is sort of trying to get to what would have been the real margin if you weren’t underproducing this year?
Scott Wine: There’s absolutely absorption issues when you produce last. Now again, we were not – none of this decline surprised us. We were early on identifying that we needed to take cost out, and that includes in our plants. So we adjusted production, we’ve gotten that down. And that’s part of the reason our decrementals are as good as they are, is because we’ve taken a lot of that cost out. So I don’t know that it’s fair to say that we would be – I mean, it’s obviously, we have better margins if volume was flat, but I think we did a lot of the work to offset that already.
Operator: The next question comes from the line of Kristen Owen calling from Oppenheimer.
Kristen Owen : My question was really a function of what Tim asked about your ability to continue to outperform the market. You mentioned, Scott, in your prepared remarks that, that was something that happened in 2023. You talked a little bit about getting ahead on the production, just how you continue to view your outlook relative to industry in 2024. You’ve touched on that; I’ll just ask you to expand. And while I’m here, I’ll ask you my next question, which is about the streamlined senior leadership team announcement. I understand that, that wasn’t really so much of a cost effort, more of a focused one. So if you could expand on that decision as well.
Scott Wine: My core belief is this game is about product brand and distribution. And if you look at the portfolio and how Derek and Stefano are running their respective businesses, we are seeing the benefits of improvements in each of those areas. We tend to focus mostly on products. We talked about the 73 new products introduced across the company last year. And with the significant increase in R&D investments, not only on the iron side but also on tech, the continued improvement and integration of advanced technologies and our products ultimately benefits our customers, and I think that’s real. But that’s the product side. On the brand side, remember, the Case IH and New Holland and case construction brands are just really, really strong.
And we’re trying to leverage those as best we can. I think the teams and the regions do a really, really good job with that. And then distribution, we’re trying to be good partners with managing dealer inventory, but we’re also raising the expectations for dealer execution. We’ve got enhanced control rooms going in, so they can better manage. We think overall, that combination gives us the ability. We demonstrated that we can do it in ‘23 and we’re just going to get better and better in those three categories over time, which gives us the ability to continue to outperform. And again it’s hard work, it’s a very competitive industry, but I like how we’re positioned to compete. Now the follow-on to that is what we did with the organization.
We’re going through a difficult and fairly aggressive restructuring overall. And as we did that, we just thought it would be important to align how we were structured with the senior team. And one of the moves that was the regions that we’re dual reporting to both Derek and I are now solely reporting into ag. And that’s really just about execution, just allowing them to be narrowly very, very focused on driving execution in a difficult ag market. And I think we’re seeing the benefits from that. So just a couple of – I would – I just believe being a smaller team, making faster, better decisions is going to be the benefit for us going forward.
Operator: The next question comes from the line of Tami Zakaria calling from JP Morgan.
Tami Zakaria : I have one question, but two parts. So the pricing outlook of 1%. I just wanted to clarify, is that net of dealer discounts or not including dealer discount? So that’s part one. And then part two.
Scott Wine: Yes, it is. Next.
Tami Zakaria : Okay. And so you said you expect 0% to 2% pricing depending on production and geography. So that means you don’t expect any negative pricing in any of the regions. The reason I focus on that, we’ve heard some of the other OEMs talk about pricing turning negative mid- to high single digit in the fourth quarter and may continue for another quarter or two in South America. So just wondering how you’re thinking about your pricing expectation versus some of these comments from your competitors, especially for South America?
Scott Wine: Yes. Tami, I don’t want to tell you to go back and read the prepared remarks. But I will just remind you that Rafael Miotto and the team in South America, very early on last year, raise the warning signs for us about what was happening. And I still think it was with a poor decision by the farmers not to sell their harvest. But we got on top of dealer inventories faster, and therefore, we have less to deal with. Therefore, we have less pricing pressure. Now as our competitors bribed at, we’re really focused on managing share when our competitors have more inventory than we do. So we’ll — we’ve got I mean, again, South America is interesting for us. It’s our highest Net Promoter Scores with our customers, our highest dealer satisfaction scores our best proliferation of technology.
So we feel really good about the team we have there and the ability to offset some of the dynamics. But I think just the net-net is our dealer inventory is in a better position, and that’s helping us have less impact on price.
Tami Zakaria : Got it. So no negative pricing in South America is the bottom line?
Scott Wine: I don’t understand the term negative pricing.
Tami Zakaria : Like pricing down less than zero —
