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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and good afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2021 Fourth Quarter and Full Year Results Conference Call and Webcast. [Operator Instructions] At this time, I would like to turn the call over to Noah Weiss, Head of Investor Relations. Please go ahead, sir.
Thank you, Sandra. Good morning and good afternoon to everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's full year and fourth quarter results for the period ending December 31, 2021. 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 the broadcast without the express or written consent of CNH Industrial is strictly prohibited.
Hosting today's call are CNH Industrial's CEO, Scott Wine; and CFO, Oddone Rocchetta, and they will use the material available for download from the CNH Industrial website. Our company completed a significant transformation on January 1, 2022. Today, we will illustrate full year and fourth quarter results for CNH Industrial prior to the spin-off or demerger of IVECO Group as reported under U.S. GAAP. In light of the successful spin-off of the IVECO Group entities, effective January 1, 2022, we will also discuss unaudited pro forma results for CNH Industrial after the demerger.
We are providing both reported and pro forma information in the materials we are distributing today. The newly listed company, IVECO Group, will host a conference call shortly after the conclusion of this call to illustrate the full year carve-out of their combined financial results. Therefore, we kindly ask you to save questions related to IVECO Group for their analyst call.
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 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 report 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 reconciliation to the most directly comparable U.S. GAAP financial measures is included in the presentation material. Once again, our team is connecting from various locations. 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.
Thank you, Noah, and welcome to everyone joining our call. I would like to sincerely thank our CNH Industrial team for their hard work in executing a clean and efficient demerger, which they accomplished while very effectively managing the lingering tail of COVID and ongoing, but slightly improving supply chain disruptions.
Our record financial results testify to the efficacy of the team's efforts. And today, we will discuss how we delivered an excellent 2020, '21 while also building a solid foundation for the company's future. We marketed the demerger internally as twice as strong and as we advance our own prospects as a pure-play AG & CE company. We are also excited to see and cheer on the success of Gerrit and the IVECO Group.
Conversely, I'm extremely pleased to welcome the Raven and Sampierana teams to our company, and I look forward to detailing their potential and much more at our Capital Markets Day on February 22, 2022. Last year, we not only grew sales by double digits versus 2019, but our AG revenue accelerated faster than the overall industry.
2021 was also another great year for free cash flow as our operational excellence execution improved. Market-driven volume, disciplined pricing and the team's outstanding execution were all key contributors to our record earnings.
In 2021, we also devoted considerable effort toward making the company more innovative, sustainable and efficient. Our AG brands won numerous design awards, including sustainable Tractor of the Year 2022 for New Holland's T6 Methane Power, the world's first 100% methane-powered production tractor. When fueled with biomethane, this tractor is an integral part of the energy independent farm concept. Case IH also stood out by receiving a total of 3 American Society of Agriculture and Biological Engineers 2022 Innovation awards.
Concerning sustainability, we recently received a gold medal from Standard & Poor's for this year's Global Sustainability Yearbook. Additionally, for the 11th consecutive year, we were awarded a top score in the prestigious Dow Jones Sustainability Index.
We're also 1 of only 57 companies globally to achieve the [ ILUSTRA ] AA score for CDP water change. These recognitions confirm our dedication to reaching our ESG targets and maintaining our position as an industry leader in sustainability.
In terms of efficiency, we have completed the spin-off the IVECO Group entities, closed Raven, Sampierana and several other acquisitions and accelerated the evolution of a leaner, more customer-focused corporate structure. Over the next few years, we will drive increased value for our global supply base, apply lean methodologies holistically across our business and continuously improve to drive world-class safety, quality and delivery.
I will now turn the call over to Oddone to take you through some of our key financial details.
Thank you, Scott. Good morning and good afternoon. I will do a quick run through the whole company's pre-demerger full year financials. And then later in the presentation, spend some time in the pro forma material that will help us ground us on historical figures for CNH Industrial as a focus agriculture and construction equipment entity by providing the numbers for 2019, 2020 and 2021, for our business as it we play from now on.
Full year net sales of Industrial Activities pre the merger of $31.6 billion were up 28% for the year, and at $8.6 billion were up 9% for the fourth quarter at constant currency. Full year demand rebounded from COVID-19 to the price 2020 and solid price realization contributed to strong growth across segments. For gross profit, we achieved $5.7 billion, up $2.2 billion versus full year 2020 and up $1.2 billion versus 2019 as higher production levels and positive pricing offset significant raw material and supply chain cost increases.
In percentage terms, gross margin grew 350 basis points versus 2020. With our Agricultural segment delivering 22.4% gross margin, 330 basis points better than 2020 and up 160 basis points versus 2019. Full year adjusted EBIT of $2.1 billion, up $1.6 billion from 2020 was driven by profitability improvements across agriculture, construction and commercial vehicle segments.
Adjusted EBIT margin at 6.7% was up 440 basis points versus 2020 and up 140 basis points versus 2019. In the last quarter of the year, EBITDA margin were down against strong Q4 comparable because of the adverse mix in agriculture as production was constrained for medium tractors in Europe and reduced sales in powertrain.
I will comment on the year-end quarterly performance for agriculture and construction equipment, the 2 industrial segments that we made with CNH Industrial later in the presentation. For the entire group, free cash flow from Industrial Activities was positive $1.8 billion for the year and for the quarter due to the strong operating performance throughout 2021 and working capital improvements in the fourth quarter.
Industrial Activity net cash ended at $288 million, a decrease of $455 million from September 30, 2021, after disbursing more than $2.3 billion for M&A activities. Full year adjusted net income was $1.9 billion or $1.35 adjusted EPS, the highest full year performance in the company's history with an adjusted effective tax rate for the full year of 23% as a consequence of better jurisdictional mix of pretax earnings.
Adjusted net income was $347 million for the quarter, resulting in adjusted earnings of $0.24 per share for the fourth quarter 2021. At the end of the year, our available liquidity stood at $12.1 billion, down $3.7 billion from December 31, 2020 and down $1.3 billion from the end of September.
A strong cash generation in the quarter was countered by the M&A outlays. Ahead of the 2022 Annual General Meeting, the Board of CNH Industrial intends to recommend to the company's shareholders and annual cash dividends of EUR 0.28 per common share, totaling approximately EUR 380 million or around $430 million.
Moving now to Slide 6 and our Financial Service business, again, for the entire company pre-demerger. Net income was $420 million, up $171 million compared to the full year 2020 primarily driven by lower risk cost due to improved market outlook, improved pricing in North America, higher recoveries on used equipment sales and a higher average portfolio balance.
For the year, retail originations were $11.4 billion, and the managed portfolio including JVs at the end of the period was $26.7 billion. Delinquencies were again down sequentially and year-over-year to 1.7% and remain at historically low levels. As a reminder, Financial Services was separated with the demerger and the portfolio remaining in CNH Industrial Financial Services is $17.4 billion, excluding JVs.
Next to Slide 7, we have the net financial position and free cash flow performance for our industrial activities pre-demerger. CNH Industrial started the year with $786 million in net industrial cash and closed its operation as we have known them prior to the merger with $288 million in cash after having acquired Raven and Sampierana as well as other smaller investments throughout the year.
Free cash flow in Industrial Activities was positive $1.8 billion due to the strong operating performance and stable working capital in the year, with finished goods inventories remain at low levels, but higher manufacturing inventories and a higher trade payables outstanding due to the elevated production volumes and constrained supply chain.
Capital expenditure went in excess of $700 million in the year, a 47% increase versus 2020. Despite the user's seasonal fluctuation of free cash flow in our business, Industrial Activities remain cash positive throughout the year, as you can see in the bottom right corner of the slide.
Now from the slide forward, we will present a summary of the pro forma financials for CNH Industrial after the demerger of the IVECO Group activities. The following slides are consistent with the pro forma pages that we posted on the website back in December. I will not cover them in detail today, but this page is on Page 34 to 41 in the appendix have been designed to assist you in modeling process going forward.
What I would like to highlight on Page 9 is that even though we have split the company, CNH Industrial is an almost $20 billion revenue entity with industrial net sales of $17.8 billion globally in 2021 and growing almost 30% from 2019. With pro forma adjusted EBIT of almost $1.8 billion for 2021. The adjusted EBIT margin of the new CNH Industrial was just shy of 10% for the year.
Adjusted net income doubled from the pro forma of 2019, so these adjusted earnings per share of $1.28 in 2021. As anticipated, with the demerger net industrial debt at the beginning of 2022 was $1.1 billion after having funded the largest acquisition in company history. Let me now go more in detail on the performance of our Industrial segments for the year and for the quarter with a use look at Industrial Activities adjusted EBIT by driver and segment.
Agriculture achieved adjusted EBIT of $1.8 billion and adjusted EBIT margin of 12.3%. Construction reported adjusted EBIT of $90 million, an increase of $274 million from 2020. Volumes and net pricing drove profitability growth for the full year, increased production costs, including raw material price increases, expedited freight and components of components and additional works at the end of our production lines were more than offset by price realization also in the fourth quarter of 2021.
SG&A variances reflect increased activity levels and higher variable compensation, while R&D expenses grew around 30% in the year as we invested more in developing our technology. Looking at the individual segments, Agriculture's full year 2021 adjusted EBIT increased $930 million due to the positive price realization and favorable volume and mix partially offset by higher product costs related to raw material and freight costs and higher variable compensation.
Adjusted EBIT margin for the segment was 12.3% and adjusted gross margin was 22.4%. Construction adjusted EBIT reached $90 million for the full year 2021, with essentially the identical case also affecting the AG segments and had an adjusted EBIT margin of 2.9%, a strong recovery from a difficult 2020, but also 110 basis points increase in margin from 2019.
For the quarter, adjusted EBIT of industrial activity was $378 million, and the margin was 7.6%. As we anticipated, the quarter was affected by numerous interruption to our production cycle due to missing components, mainly semiconductors. Price realization in both segments was once again higher than increase in overall product cost a bit on a reduced manner compared to the previous quarters.
Product mix played unfavorable on our AG lines as we were able to ship less medium and heavy tractors than needed due to semiconductor shortages. Raw materials and freight costs continue to weigh on our production expenses, and we expect this to continue in the first part of 2022.
On SG&A, the impact of variable compensation was stronger in the fourth quarter than in previous period. On a pro forma basis, the CNH Industrial business started 2021 with $900 million net debt position. On the back of a strong operating performance, free cash flow for Industrial Activities was positive $1.9 billion for the year, with working capital further improving despite higher manufacturing inventories.
Net debt ended at $1.1 billion, primarily due to the cash out for the acquisition of 100% Raven industry and 90% interest in Sampierana, as discussed when talking about the reported figures. You will see in the appendix on Slide 40, the total third-party debt for the company after the merger was $20.9 billion at December 31, 2021, and was $22.9 billion at December 31, 2020 with $15.6 billion and $15.7 billion, respectively, belonging to our Financial Services operations.
With the spin-off, CNH Industrial is retaining the entirety of the former CNH Industrial third-party debt and the entirety of the undrawn revolving credit facility, giving an available liquidity position above $10 billion at the end of 2021. We will give you a better idea of the long-term trajectory of these figures in 2 weeks at our Capital Market Day, but let's just say for now that we feel we are well positioned with strong liquidity and visible path to a net industrial cash position in the near term.
Last but not least, on January 4, 2022, free tradings raised its long-term issues, [indiscernible] to BBB+ from BBB-. Fitch also upgraded CNH Industrial Finance Europe a senior unsecured rating to BBB+ from BBB- and stable outlook. The upgrade follows at the merger of IVECO Group N.V. With this, I will turn back to Scott, who will take us through the remainder of the prepared remarks.
Thanks, Oddone. At the end of November, we completed our purchase of Raven Industries. Our teams are diligently performing the vital tasks necessary to make this reverse integration as productive as possible. We will very soon demonstrate how CNH Industrial's strong engineering heritage will leverage Raven's technology to introduce best-in-class products and solutions, delivering enhanced productivity and yields for farmers and growers.
Furthermore, just prior to year-end, we completed the purchase of 90% of the capital of Sampierana, a construction equipment company specializing in developing and manufacturing earthmoving machines, particularly with mini and mini excavators. Their Eurocomach product range will significantly enhance our construction equipment portfolio and will lead to notable improvements in our products and technologies.
We enter 2022 as a simpler and stronger CNH Industrial with a laser focus on our customers and dealers. The AG machinery industry was strong throughout 2021. Farm income levels remained high, benefiting from favorable commodity prices, which drove mini to replace aging fleets with more advanced precision equipment.
From a demand perspective, it was a particularly strong year for combined harvesters with year-over-year industry deliveries up 25% in North America and slightly less in other regions. High horsepower tractor deliveries notably increased in North America and in most regions, 2021 tractor demand exceeded 15%.
Backlogs remain high as order books across OEMs increased with Case IH and New Holland order books up year-over-year more than 2x for tractors and 1.5x for combines. Worldwide both light and heavy construction equipment grew versus 2020. Light demand was largely driven by strength in residential construction, while heavy benefited from increased contractor demand and preparations for the U.S. infrastructure bill.
South America demand was particularly high, up 87%, led by Brazil, while North America and Europe increased 23% and 19%, respectively. Construction equipment retail cadence was also quite strong with light equipment up approximately 10% in most geographies, aside from South America, which was up 25%. For heavy retail in North America was up approximately 20%, trailing Europe and South America, which were up 37% and 25%, respectively.
Given our existing order backlog, which now extends far into 2022, our agriculture segment should continue to perform well. Some of our equipment is essentially sold out for the year at current production rates. Almost the same can be said for our construction order book, which more than doubled year-over-year, driven by strong increases in North America and Europe.
While we expect these businesses to return to more normal seasonality during 2022, it may be a bit concealed in the first half by supplier-related production constraints. The team reacted quickly to very late deliveries of semiconductors at the end of the fourth quarter to ship a sizable portion of our accumulated fleet inventory.
Overall, channel inventory remains low across product lines. We expect global AG industry demand to remain solid with limited grain and oilseed stocks, unfavorable weather conditions in South America and geopolitical upward pressures, particularly on wheat. As a result, farmer sentiment, although down slightly from last year remains positive, driven by elevated commodity prices and supported farm incomes.
In addition, new end used equipment inventories are at historically low levels and average fleet age in North America is at a 2-decade high. There are, of course, plenty of headwinds to these positive trends with input cost inflation and limited equipment availability leading away. However, we believe that high prices for nitrogen, seed and other inputs should be a catalyst to accelerate precision AG adoption as farmers expect to turn more efficient and sustainable methodologies.
If you compare 2022 industry demand with the same slide from a year ago, some of these increases look small. While the main AG markets continue to be very healthy, the comps get slightly more difficult as capacity constrained industry production is outstripped by demand.
For construction equipment, we anticipate some of the same supplier constrained production in the first half of 2022. Thus, the year should be a bit more back-end loaded than usual. Some of the typical seasonality gets distorted by demand from contractors starting projects funded by the North American infrastructure bill. While demand is high, significant upside to our North American estimates, which represent nearly 50% of the construction business, will likely be constrained by labor availability.
With solid end market demand continuing to butt up against difficult supply chain constraints, especially for semiconductors and specifically for the first half, our 2022 guidance for industrial activities is as follows: We expect full year net sales of industrial activities to grow between 10% and 14%, including currency translation. We will continue to invest to improve our business but still expect to keep SG&A at or below 7.5% of net sales.
We anticipate free cash flow for industrial activities to exceed $1 billion and combined R&D and CapEx will be approximately $1.4 billion for the year versus $1 billion in 2021. While we were pleased with the performance of the team, and the healthy momentum from 2021, we expect continued supply chain challenges primarily through the first 2 quarters of 2022, but likely diminishing in the back half of the year.
As these subside, we expect production and retail sales to increase above normal seasonality in some cases, as production ramped up to partially replenish channel inventory and satisfy strong customer demand. Pricing remains healthy and accretive. As we wrap up the call, I would like to preview our Capital Markets Day, which we are holding 2 weeks from now in Miami Beach. In addition to the weather being much nicer than what most of us are currently enduring, the event will highlight our updated pure-play AG and construction strategic business plan.
Several members of our leadership team will join, Oddone and me in detailing CNH Industrial's long-term priorities, technology road map, financial outlook, segment blueprints and sustainability targets. The venue is the historic Fillmore theater, and I encourage you to join us in person as we will be displaying several pieces of our AG and Construction portfolio which will not only be a unique experience, but also an historical first for the Miami Beach community.
I hope to see you there on February 22. That concludes our prepared remarks, and we can now open it up for questions. Sandra, please open the line.
We will take our first question. It comes from the line of David Raso from Evercore ISI Group.
I was curious how you thought about the fourth quarter 3 months ago seemed to imply revenues for the stand-alone off-highway company as well to be down. Obviously, you did a lot better than that. I just wanted to get some color on what changed as the quarter went along? And then if you can give us any perspective of how you're thinking about margins for '22 beyond just the SG&A comment.
David, I would like to just give a shout out to Derek Neilson and Tom Verbaeten and our entire AG and operations team because what happened in the fourth quarter really, the first 2.5 months played out more or less like we expected, but very strong negotiations and coordination with one of our key suppliers, as I mentioned in my prepared remarks, gave us a large delivery of semiconductors the last week of the year. So we were able to actually fulfill the final completion of a large number of our fleet units across the portfolio and get those units out to customers and dealers that really needed them.
So that really was how we were able to outperform, but it's kind of what happened all year. The team just did a really nice job of managing a very difficult supply chain situation. And as we talked about, it was mostly in the fourth quarter related to semiconductors. We're not going to get into too much margin discussion. I think we do see good momentum carrying through into 2022. But we're also, as we were quite clear, I think we do see some pressures in the first half of the year. But overall, we've got confidence that the team is going to continue to see year-over-year improvements.
Can I just clarify 1 thing though, if at the end of the quarter, you got the chip delivery, and I assume those went into a lot of red tagged pieces of equipment, right, equipment that was only missing a couple of parts. Is that correct?
That's correct. A part, yes.
This was a chip. That said, though, that means that wave of revenue at the end of the quarter probably came in with low incremental margins, right? They're already absorbed having been built partially before the fourth quarter. Is there any way to quantify that revenue impact from those red tagged shipments? Just I'm just trying to get a sense of run rate margins because, obviously, those revenues at the end of the quarter, obviously drove absolute levels of EBIT higher, but probably dampened the incrementals a bit.
Yes. I don't think many of them were built prior to the fourth quarter. I mean it's -- but -- and also remember, it was -- it wasn't just the off-highway segment that we were having this issue with. It was a lot of trucks and buses as well. So really probably not -- Oddone, you can comment if you want, but I don't think that you can back into that margin impact, pretty easily.
Yes. I mean we have -- we definitely had higher cost because of managing these units at the end of the line and rework in the plants, as we said. And therefore, we had lower margin in the fourth quarter, as you can also see on our numbers. I mean, that was a good contributor of the lower margin was the fact that we really had to run in the plants behind the production schedule to repair and rework on these units. And I would say that's the driver for the lower margins.
Next question comes from the line of Daniela Costa from Goldman Sachs. Okay. Sorry, Daniela. We will go for the next question. It comes from the line of Tami Zakaria from JPMorgan. Daniela, if you can hear me, press star 1 again so that we can put you back on the queue.
My question is around the strong order book. How are you thinking about the risk to price cost in 2022? Or are these mostly dealer orders where pricing can be adjusted if raw material prices continue to go up?
I'd like to, again, give a tremendous shout out to Derek and his global team because they've managed pricing very, very well in 2021. And part of that was just making sure that the dealer units were able to have price flexibility. We feel very confident in what's in the order book that we are protected from price throughout for most of the year.
Next question comes from the line of Steven Fisher from UBS.
Just to follow up on that. And I know you don't want to talk about margins specifically, but maybe just the thoughts on pricing in both AG and construction and how you see the cadence of that price versus cost over the course of the year, the fact that it was still positive in Q4, I thought it was pretty impressive. So -- just curious what we should be expecting as kind of cadence of that over the course of 2022.
Oddone, do you want to not answer that?
Yes. I mean look, we have carried over pricing on the order book that will still has to flow to the P&L. We commented about the fact that we expect the first half of the year still to be complicated from a supply chain standpoint. So still have these headwinds, higher freight costs, some reworks in the plants. And then we expect that to ease in the second part of the year.
Okay. And then maybe thoughts on the broader AG cycle. And Scott, you made reference to some of the factors that are supporting the AG prices today, the geopolitics and the Brazil growing conditions. So maybe could you just talk about how that commodity strength is influencing your thoughts perhaps on 2023 and where the cycle could go? I think previously, you were kind of thinking about 2022 as if it might be the peak -- are you thinking that maybe it could have more legs from now and then how that would influence your thoughts about kind of overproduction versus retail?
Well, obviously, we're getting ready for our Capital Markets Day, we spent a lot of time thinking about and analyzing what we expect from the cycle. And that means having a lot of conversations with people that are much smarter than I am on that concept. And as we've done those deep dives, it does give us a little more confidence. Some of the factors we talked about with the greater adoption of precision, the 2-decade old fleet age here in North America.
So I do think 2023 is looking better now than I had originally thought maybe even 3 months ago as we get a little more into it. But that said, we're being very, very disciplined. I mean, obviously, our supply constraints are causing it in our production. But our dealers do appreciate, they desperately want more inventory now. But I think they appreciate what can happen with pricing specifically as they maintain a tighter inventory.
And we'll continue to try to do that as we go forward and not let things get ahead of ourselves. And that does take discipline, but I would -- you should expect us to have that discipline. So when the cycle does slow, we don't find ourselves in a big problem of oversupply. But no, at this point, what I've learned is that 2023 has probably got a little bit more legs to it than I would have expected a while ago.
Next question comes from the line of Daniela Costa from Goldman Sachs.
I hope you can hear me now. I have 3 questions. The first 1 is regarding precision AG and Raven. And now that you have the assets, so how shall we think about the growth path from here on precision AG to close the gap with peers between organic -- increasing organic investments versus continuing to sort of a bolt-on or even not bolt-on M&A strategy? That's question number one. And then 2 others are more focused on the near term. I wanted to check first on your comment that you've been able to order a bit more maybe than you would have originally expected on Q4.
And can you comment then in terms of like the margin performance on Q4 specifically, did you end up overproducing? Or actually, you still had some disruption impact and if you could help quantify basically how much that was versus what would have been a normal margin, that would be helpful. And the third one, just on the growth target, the 10% to 14%, which seems to be mainly pricing. But anyways, how much visibility on that you have already in the backlog? You mentioned you were fully booked on some lines, so I'm curious on that.
All right. Well, I'll take the first 1 and give Oddone the second 2. But we're thrilled to get the acquisition of Raven closed in November and the really exciting work of driving that integration and understanding what our combined companies can do together. They have an incredibly strong team, and steadily strong engineering, customer focus, a lot of stuff. That's why we talk about a reverse integration is because we're so pleased with basically that overall business.
But we've been working with them for more than a decade where their largest customers, so we know them reasonably well. But the synergies that we have to accelerate what we can deliver for our customers and dealers is really exciting. Parag Garg, who joined us in the spring really is leading that integration. And where we help be speaking at Capital Markets Day in Miami and really provide a clear road map, but -- what we're most excited about is being able to deliver better automation and ultimately, autonomy to our customers.
And I think as we give them those tools, I mean, really, it's -- we're seeing a desperate desire almost for productivity yield from our farm customers, and that's exactly what Raven delivers for us. And because we have such a close working historical relationship, we're going to be able to bring new products to market much faster than I think some people were able to expect, and that will be exciting for Parag to talk about next month.
As far as continuing to do bolt-on M&A, I think you'll still see that Raven did it for many years before we acquired them. We've continued to do it. We just had the augmented team in here partner for us in precision spraying and we're just excited about what our overall portfolio can do, but we'll certainly add to that as necessary. And not only with acquisitions, but sometimes with partnerships and just good overall relationships. So we feel good about that in Parag, we'll go into more details. Oddone, you want to cover the other 2?
Yes. So in Q4, I mean, we underproduced retail, but that's pretty normal for Q4, but also we produced less than what we wanted to produce because of this general lack of components and including the semiconductors. There was an impact in the margin, as we said before, mainly because of reworks and additional work at the plants to get these unfinished goods out of the plants and to our customers with -- when the semiconductors and the parts arrived.
In terms of growth for next year, I will split between a pricing component that is definitely there, but also increased capacity in our production facilities and so ability to produce more and therefore sell more. And this is a combination of having improved our capacity and also having work with our suppliers to get more components next year compared to this year.
Next question from the line of Ross Gilardi from Bank of America.
I just want to clarify. So of the 10% to 14% revenue guide, roughly how much of that is price? And what are you embedding for FX? Because I would assume with the price increases that are -- that are announced out there, it doesn't seem like you're assuming all that much in terms of volume growth. And then are we -- are we at that full year guide in the first half? Or is the revenue growth going to be below that in the first half and above that in the second half?
Well, I mean, let's -- I'll let Oddone give you the specifics. But remember, our backlog is incredibly high. So what you're seeing from a growth standpoint is what we can manage through our supply chain. And again, we'll be better in the second half than we are in the first half. But we're coming off of a really strong year of growth.
So I think with moderate price and in moderate single-digit organic growth, we think, will be okay. But really, we're limited by what we can get from the supply chain more than anything else. Oddone, do you want to cover the rest?
Yes. I mean as I said, pricing will be a component of it. Mix will be another component, right? We said that in the fourth quarter, we were disadvantage mix because we didn't produce some of the medium and heavy tractors that we -- that our customers and were waiting for. So we will have more of that. So we'll have a better mix in the overall production. FX is not significant in the growth there. We -- our guidance is calculated with a 120 euro-dollar exchange rate. But the component there is minimal.
Okay. And then, Scott, I mean, you did say at the end of David's -- your response to David's question that, that overall confidence in year-on-year margin improvement. Was that a full year operating margin comment? And is it in a year like this where you've still got a lot of supply chain constraints? Is a 25% incremental margin framework, which has been sort of your historic norm, at least for the AG business. Is that appropriate to think about for this year?
Well, I mean, I was somewhat vague in my comment because I intended to be. I mean we do expect overall -- I mean actually, in most years, there's going to be obviously times when another happens. Productivity is incredibly important to us, and we will seek to drive margin expansion.
This year is just tricky because of the supply chain constraints. And it's hard to call what the incremental margins are going to be because we've got higher labor costs. I mentioned it in my prepared remarks, specifically around construction, where we're having just difficulty having enough labor to meet demand. And obviously, with the material inflation, we do expect inflation to lag in the second half of the year, not just supply chain can get better, but we do expect downturn there.
So overall, I think our -- again, and the team does a really good job of managing margins. I mean it's kind of impressive to see the focus that they get to whether it's disciplined pricing, with good supplier negotiations. And we see a better opportunity over the long term. But certainly, in the short term, I think I feel comfortable that just giving year-over-year improvement in margins will be a struggle, but the team will certainly probably deliver that.
Okay. Great. And then just on some of the below-the-line items and I don't know if you could just clarify what the tax rate should be for RemainCo, but just the run rate on corporate expense and interest expense from 2021 that you're showing in your results? Are those broadly appropriate for 2022? And any reason why in [ co ] earnings wouldn't be up in 2022 versus '21, given that it's a growth year?
So let me start from the -- from Sofinco or earnings we will expect to be moderately up in the year because of the growth of the portfolio this year, right, which will reflect in growth next year. Of course, you need to consider that part of [ Sofinco ] would be with on either, right? So to start with the spin-off -- spun-off I mean with what remains in CNH Industrial, which is the majority of it.
It's North America, South America and the trunk of Europe. In terms of interest expenses, I would expect something similar to what you have with the carve-out in 2022 as we'll have most of our -- most of our bonds will still be there. Then you had a question about the holding cost. I will reckon with. Yes. Sorry.
Corporate expense?
Yes. I will think corporate expenses between around $35 million to $40 million per quarter. And the tax rate, we have a lot of benefits from having more profit in jurisdictions where we didn't have tax assets. We expect that to normalize over the years. So to come to a more normal 20 -- mid-20 tax rate.
Next question comes from the line of François Robillard, Intermonte.
Just 1 question on labor costs. You mentioned it as a potential headwind for your construction equipment activities. And if I'm not mistaken, you will have as well some renegotiations with unions in some of your U.S. agricultural production facilities. Can you just give us a bit more color on what to expect this year in terms of first labor availability and on wage cost pressures?
Yes. We feel reasonably comfortable with our ability to manage. Labor is a small portion of our COGS, but certainly providing a good work environment is the most important thing we can do because retaining talent and retaining our workers is really as important as anything right now.
But the overall, we're -- the union negotiation represents only a small portion of our North American labor force. So we think that will be able to -- we've got a good relationship there. We'll seek to manage and maintain that going forward. But we feel like comfortable with our ability to -- I mean, we talked about the ability to expand margins, and that assumes the fact that we are going to see rising labor costs, but nothing on an overall basis and the complete -- the cost of goods sold, not a dramatic impact.
Next question comes from the line of Courtney Yakavonis from Morgan Stanley.
Maybe -- I know you don't want to comment on margins too specifically, but can you just kind of frame from the supply chain perspective, do you see it getting worse in the first quarter, staying the same or a slight improvement? I was just a little confused by the moving parts. And then maybe if we can just go back to the comment on dealer inventory. I think you had mentioned, obviously, dealers want more inventory. But when you look at the dealer inventory levels today, whether it's a month of sales or whatever. Can you just comment on how big of a restocking you could see? Or do you feel like they are potentially should be at a lower level than they have historically been. If you can just comment on how you're thinking about dealer inventory levels over the long term?
Believe it or not, those are 2 relatively easy questions. First of all, Q4 and Q1 are going to likely be quite similar in that we're still constrained by semiconductors. It might switch suppliers that are shorting us at the time, but that literally is the key driver. And really, the overall supply chain is not yet getting better. And we've talked about it, we expect the second is improvement throughout the year, really a better second half than first half.
But so I think in terms of how to think about the first quarter, it's much more like the fourth quarter than we would expect the rest of the year or some of last year to me. And as far as dealer inventory, obviously, it's going to go up from here. I mean we are not -- we just don't have the inventory that they need to properly serve their customers.
And so it will go up from here. And I think getting back to a relatively normal level is good. I think what has happened typically in the past, and it happens across the industries, is that in good times, you just overproduce and then you end up having too much and we're just going to try to be very disciplined, shorten our lead times to make sure that we can maintain the proper levels with our dealers because they're going to continue to order and order and order to try to maintain demand and get their allocation. And we've just got to be disciplined as we manage through that, and we will be.
Okay. Great. That's helpful. And then just on -- I think you have historically given adjusted EPS guidance. Should we be interpreting that as it's just because of the supply chain right now. And at some point, we will have adjusted EPS guidance resumed or -- and if you can just par for us any commentary. Obviously, you've given us the sales guidance. It sounds like we can't anticipate some margin improvement over the course of the full year. But how that would pare back to EPS, I think you had given Ross, some of the other below-the-line items?
The last couple of years, because of the situation, we've just kind of framed up the key components that frame into it. And I kind of suspect that's where I don't want to say never, but I think that's a better way of looking at it than providing specific EPS guidance. So Oddone make convince me otherwise at some point, but I think that's probably the way we're likely to do it for the future. Oddone, do you want to provide more color on the below-the-line stuff?
Yes. I think the main 1 is probably tax where we have a 19% tax rate in 2021. And I would expect that to normalize a little bit in 2022 for the visibility we have right now. So we will move the guidance. I mean we have been updated guidance last year quarter-by-quarter. And I think we will likely do the same this year.
Next question comes from the line of Larry De Maria from William Blair.
Obviously, you've talked a lot about this, but in terms of the supply chain issues to tilt have, I guess, -- my first question is what gives you the confidence that these issues will ease? I mean, are you getting that visibility for semiconductor suppliers that they are going to ease following that fourth quarter drop that they gave you?
And related to that and just to clarify, based on the comments you just made, is it fair to say that all quarters will have year-over-year sales growth? Obviously, you have more challenges in the first half, so that would be more of the concern.
Yes. I mean what gives us confidence, again, is just watching and participating and how the teams managed through the situation. And it's not just the suppliers getting better. A lot of times, it's adapting and adopting different methodologies for ourselves to be able to manage through things. Obviously, you can read anywhere the supply, overall supply for semiconductors is going to be below demand for most or all of 2022. It does get better in the second half, but we're still probably 9 to 12 months away from having -- being able to meet demand, if not further for overall chip demand.
But I think our team is we've just developed a really good process for managing through that, and that gives us confidence. The overall I think coming out of COVID, there were so many things that impacted suppliers' ability to produce. Now lately, we've had energy issues in Europe, and we've had labor issues and there's so many different issues. But we are seeing everybody start to get a little better at managing these things.
COVID is decreasing a bit and overall. So I think just the overall supply chain remains challenging, but we are seeing improvement, and I think that will ultimately lead to lower inflation in the second half as well.
And then so year-over-year growth in every quarter, is that fair to say?
I didn't answer that question on purpose.
Next question comes from the line of Gabriele Gambarova from Banca Akros.
A couple -- just a couple. The first 1 is on the free cash flow guidance. I was wondering if you could go through the moving parts and specifically on the role of working capital for 2022? And the second question is on the top line growth guidance, plus 10% -- plus 14%. There is also, I guess, Raven, the consolidation. So am I right in thinking that the lower end of the guidance implies almost no organic growth because you have, let's say, strong price improvement. We saw a 10% more or less in Q4, and then you have Raven waiting for a couple of percentage points to 0.5.
So the free cash flow for the year, I would say we have higher CapEx in the plan than we had this year. And working capital, there may be some inventory buildup that we are considering in company inventory. So we are, I would say, we consider conservative on that in considering it higher, but I will focus on the higher CapEx. The second question was on -- sorry, I lost you.
It was on the top line growth.
Yes, sorry. Yes. I mean, well, the Raven contribution to the top line in the first year is not that big. It's consistent with revenues of Raven last year. Then we have pricing. And then, as I said, most of the top line growth will come from our capacity to produce more.
Okay. Just a follow-up. Do you think price increase will be, let's say, the contribution will be higher vis-a-vis volume increase. I mean it seems that you are assuming very little volume increase.
No, I would say no, I would share equally between the 2 that we had considered a price increase this year as well, right?
We now take a final question from the line of Kristen Owen from Oppenheimer.
Great. One question related to the Raven transaction. I wanted to ask if you have any updated thoughts on the Aerostar and Engineered Films businesses and how you're thinking about those moving into 2022? And then I have a follow-up.
Okay. No. We learned a lot about those businesses we got through it. And now that we own them, we feel better about what those businesses are. But probably not the best -- we're not the best owner for those. And so we've got the process underway to find the best owner. And we're encouraged by the engagement we're seeing in that process, but that's where we are in the middle of it.
Okay. Great. And then I did want to ask about the industry outlook for tractor and combine in South America. It just seems a little bit relative to some of the peers. So I was wondering if you could provide just some additional commentary on what you're seeing in that region? How much of that is commodity serving versus what we're seeing now as harvest? Just any commentary you can provide on that guidance?
Yes. Well, I mean, certainly, we've got strong leaders across the globe, but [indiscernible] who runs the South American region for us really has done an outstanding job and being #1 AG player in all of Brazil last year was just a testament of what they do, and it shows up in Net Promoter Scores. All they do. Really, the limitation in Brazil, and I mentioned it in my prepared remarks, is we're just seeing a lot of issues with incremental bad weather.
And we just cannot provide better guidance until we understand what that impact is going to be there on the overall demand. Is there getting into the growing season there? It just -- we really need to make sure we understand what happens with weather before we commit to any higher growth rates there.
That will conclude the question-and-answer session. I would now like to turn the call back over to Noah Weiss for any additional or closing remarks.
Thank you very much for joining us today. That concludes our call.
That does conclude our conference for today. Thank you for participating. You may all disconnect.