CNH Industrial (CNH): Profit Fell 35% And The Stock ROSE 8%. Is CNH a Buy?

CNH Industrial N.V. (CNH) Q2 2026 — Reported before the open (three months ended June 30, 2026). Consolidated revenues $4,803M, +2% (FLAT at constant currency); Industrial net sales $4,143M, +3%. Net income $141M vs $217M — DOWN 35%. Diluted EPS $0.11 vs $0.17. Adjusted EPS $0.13 vs a ~$0.10 Street number — a 3-cent BEAT. FY guide narrowed UP to $0.41-$0.46. The stock rose anyway: from a $10.25 close it opened $11.22, hit $12.02 (+17.2%), and sat at $11.08 — UP 8.1%. The arithmetic nobody ran: Agriculture net sales GREW $29M (to $3,277M) while Agriculture adjusted EBIT FELL $93M (to $170M). That is a decremental margin of MINUS 321% — and it happened with favorable price realization. THE CALL: HOLD (3/5, THE RECOVERY IS REAL, AND IT IS ALREADY IN THE PRICE) — base-case value ~$12.0 vs ~$11.08 today. KEY METRICS: - CALL: HOLD 3/5 — fair value ~$12.00 vs $11.08 (+8.3%), valued in two SEPARATE parts, because a manufacturer with a $28B captive bank cannot take one multiple. (a) INDUSTRIAL Activities on a DCF of INDUSTRIAL free cash flow: $300M/$700M/$1,000M/$1,200M/$1,300M through 2030, 2.0% terminal, 9.5% discount = $14,511M operating EV, less $2,520M of INDUSTRIAL net debt. (b) Financial Services SEPARATELY at 0.85x its $2,923M segment equity = $2,485M; its $22,055M of debt is NOT subtracted. Over 1,241M diluted shares: base $11.66, grid $8.53 (bear) to $15.16 (bull), weighted $11.75. Mid-cycle sum-of-the-parts cross-check: $12.99. - AGRICULTURE GREW REVENUE AND LOST A THIRD OF ITS PROFIT: net sales $3,248M to $3,277M (+$29M) while adjusted EBIT went $263M to $170M (-$93M). A decremental margin of MINUS 321% — three dollars of operating profit destroyed per extra dollar of revenue — and it happened WITH favorable price realization. Margin fell 290bps to 5.2% from 8.1%, on South America volumes, unfavorable North America/EMEA mix, tariffs, higher SG&A and R&D (6.1% of sales) and weaker JV results. Industry volumes: NA tractors under 140HP -16%, over 140HP -17%, combines -7%; SA combines -29%. - THE CASH FLOW NOBODY PRICED: first-half free cash flow of INDUSTRIAL Activities was NEGATIVE $439M against -$116M a year ago, versus a full-year guide of PLUS $200-400M — so the back half must produce $639-839M. Last year's back half did $629M, off a first half that was $323M better. Operating cash flow fell from $772M to $145M in the quarter. Inventories ROSE $520M to $5,171M in a destocking year. And dividends declared per share went $0.470 (2024) to $0.250 (2025) to $0.100 (2026) — cut 79% in two years, the second cut made going INTO the recovery management says starts in 2027. - THE DOMINO THAT FALLS LAST: Financial Services earned $71M of the quarter's $141M of consolidated net income — HALF the profit on 14% of revenue — while its own credit deteriorated. Receivables 30+ days past due 4.4% vs 3.9%, which CNH attributes to farmer economics in South America. Retail originations $2,740M to $2,531M; managed portfolio down $0.7B to $28.0B; segment net income -18% on higher Brazil risk costs. Mind the basis trap: consolidated revenue of $4,803M contains $656M of lender income — INDUSTRIAL net sales were $4,143M. Consolidated net debt is $23.35B; INDUSTRIAL net debt is $2.52B. - THE OTHER SIDE, AND THE STREET: the bull case is real. Construction net sales +12% into a global industry +17%, with demand up in EVERY region; the guidance floor raised from $0.35 to $0.41; dealer destocking nearly done, fleets aging, used-vs-new pricing rebalancing. Agriculture earned a 14.5% margin as recently as 2023 against ~5.25% guided now, so mid-cycle EPS is ~$1.11 against $0.44 — about 10x. Street: Buy (9 buy / 4 hold / 1 sell, 14 analysts), target $13.29 average, $12.63 median, range $10.50-$16.00 (+20.0%). We AGREE on direction and are more CAUTIOUS on size: $13.29 reads as an UNDISCOUNTED mid-cycle number. Reverse the DCF and $11.08 already assumes a 12.0% mid-cycle Agriculture margin against 5.2% today. What to watch: Bullish: Agriculture adjusted EBIT margin above 7% in any quarter of 2027 (the recovery arriving in the P&L, not the order book); North American large-tractor industry volume turning POSITIVE (it was -17%); full-year Industrial free cash flow above $400M. Bearish: Financial Services 30-day delinquencies above 5.0% (4.4% now vs 3.9%); another dividend cut or the $0.10 not restored in 2027; Agriculture margin guidance cut below 5.0%. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.