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 written consent of CNH Industrial is strictly prohibited. Hosting today's call are Scott Wine [CEO] (CNH Industrial) and CFO, Oddone Incisa. 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 Form 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 reconciliations 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 transitions 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. Today, we will discuss how we delivered an excellent 2021 while also building a solid foundation for the company's future. We marketed the demerger internally as twice as strong. As we advance our own prospects as a pure play ag and CE company, we're also excited to see and cheer on the success of Garrett and the Iveco Group.
Conversely, I am 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 three American Society of Agricultural and Biological Engineers 2022 Innovation Awards. Concerning sustainability, we recently received a gold medal from S&P Global for this year's Sustainability Yearbook. Additionally, for the eleventh consecutive year, we were awarded a top score in the prestigious Dow Jones Sustainability Indices. We're also one of only 57 companies globally to achieve the illustrious double A score for CDP Climate 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 of 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, 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 on the pro forma material that will help us run out on the historical figures for CNH Industrial as a focused agricultural and construction equipment entity by providing the numbers for 2019, 2020, and 2021 for our business as it will play from now on. Full year net sales of industrial activities pre the merger at $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 depressed 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 at 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 at 140 basis points versus 2019.
In the last quarter of the year, EBIT and 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 yearly and quarterly performance for agriculture and construction equipment, the two industrial segments that remained 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 history, with an adjusted effective tax rate for the full year of 23% as a consequence of better jurisdictional mix of pre-tax 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 shareholders an annual cash dividend of EUR 0.28 per common share, totaling approximately EUR 380 million and/or around $430 million. Moving now on to slide six in our financial service business, again, for the entire company pre the merger. Net income was $420 million, up $171 million compared to the full year 2020, primarily driven by lower risk costs due to improved market outlook, improved pricing in North America, higher recoveries on used equipment sales and 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 Capital is $17.4 billion, excluding JVs. Next, on slide seven, we have the net financial position and free cash flow performance for our industrial activities pre the demerger. CNH Industrial started the year with $786 million in net industrial cash and closed its operations as we have known them prior to the demerger with $288 million in cash after having acquired Raven and Sampierana, as well as other smaller investments throughout the year.
Free cash flow with 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 were in excess of $700 million in the year, a 47% increase versus 2020. Despite the usual seasonal fluctuation of free cash flow in our business, industrial activities remained cash positive throughout the year, as you can see in the bottom right corner of the slide. Now from this slide forward, we'll 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 these pages 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 nine 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, growing almost 30% from 2019. We perform 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 for all of 2019, so did adjusted earnings per share at $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 the usual 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 and additional works at the end of our production lines were more than offset by price realization also in the fourth quarter of 2021.
The G&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 EUR 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 EUR 90 million for the full year 2021, with essentially the identical causes 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 interruptions to our production cycle due to missing components, mainly semiconductors. Price realization in both segments was once again higher than the increase in overall product costs, a bit in 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 continued 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 periods.
On a pro forma basis, the CNH Industrial business started 2021 with EUR 900 million net debt position. On the back of a strong operating performance, free cash flow for Industrial activity was positive EUR 1.9 billion for the year, with working capital further improving despite higher manufacturing inventories. Net debt ended at EUR 1.1 billion, primarily due to the cash out for the acquisition of 100% in Raven Industries 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 EUR 20.9 billion on December 31, 2021, and was EUR 22.9 billion on December 31, 2020. With EUR 15.6 billion and EUR 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, leaving an available liquidity position above $10 billion at the end of 2021. We will give you another idea of the long-term trajectory of these figures in two weeks at our Capital Markets Day. 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, Fitch Ratings raised its long-term issuer default rating on CNH Industrial N.V. to BBB+ from BBB-. Fitch also upgraded CNH Industrial Finance Europe S.A. senior unsecured and secured rating from BBB to BBB+ from BBB- and stable outlook. The upgrade follows with the merger of Iveco Group N.V.
With this, I will turn back to Scott, who'll 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 earth-moving machines, particularly mini and midi 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 many to replace aging fleets with more advanced precision equipment. From a demand perspective, it was a particularly strong year for combine 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 oil seed 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 and used equipment inventories are at historically low levels, and average fleet age in North America is at a two-decade high.
There are, of course, plenty of headwinds to these positive trends, with input cost inflation and limited equipment availability leading the way. 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 Infrastructure Investment and Jobs Act.
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 H1 , our 2022 guidance for industrial activities is as follows. We expect full-year net sales of industrial activities to grow 10%-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 two 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 ramps 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're holding two 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 Incisa and me in detailing CNH Industrial's long-term priorities, technology roadmap, 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.
Thank you. We will take our first question. It comes from the line of David Raso from Evercore ISI. Please go ahead.
Hi. Thank you for the time. I was curious how you thought about the fourth quarter three months ago seemed to imply revenues for the standalone, off-highway company as well to be down. Obviously, you did a lot better than that. I just wanna 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 2022 beyond just the SG&A comment. Thank you.
Hey, 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. You know, 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. We were able to actually you know, 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. 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. As we talked about, it was mostly in the fourth quarter related to semiconductors. You know, we're not gonna get into too much margin discussion. I think we do see good momentum, you know, carrying through into 2022, but you know, we're also as we were quite consistent, clear, I think we do see some pressures in the H1 of the year. Overall, we've got you know, confidence that the team is gonna continue to see year-over-year improvements.
Can I just clarify one 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 or equipment that was only missing a couple parts. Is that correct?
That's correct. Well, a part, yes.
I think this was a blip. 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 so 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 it probably dampened the incrementals a bit.
Yeah. I don't think many of them were built prior to the fourth quarter. I mean. Also remember, 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. Really, probably not. Oddone Incisa, you can comment if you want, but I don't think that you can back into that margin impact very easily.
Yeah. I mean, we had, we definitely had higher cost because of, you know, managing these units at the end of the line and reworking the plans, as we say. 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. I would say that's the driver for the lower margins.
Okay. Thank you very much. I appreciate it.
Thank you. Next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead. Daniela? Daniela Costa from Goldman Sachs, are you on mute? Okay. Sorry, Daniela. We will go for the next question. It comes from the line of Tami Zakaria from J.P. Morgan. Please go ahead. Daniela, if you can hear me, press star one again so that we can put you back on the queue. Thank you.
Hi. Thank you so much for taking my question. My question is around the strong order books. How are you thinking about the risk to price cost in 2022? Are these mostly dealer orders where pricing can be adjusted if raw material prices continue to go up?
You know, 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. You know, 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.
Got it. Understood. Thank you so much.
Thank you. Next question comes from the line of Steven Fisher from UBS. Please go ahead.
Thanks. Good morning. Just to follow- up on that, and I know you don't wanna 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. You know, the fact that it was still positive in Q4 I thought was pretty impressive. Just curious what we should be expecting as kind of cadence of that over the course of 2022.
Oddone, do you wanna not answer that?
Yes. I mean, look, we have carryover pricing on the order book that will still has to flow through 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. We expect that to ease in the second part of the year.
Okay. Thank you for indulging that. Maybe thoughts on the broader ag cycle. I know, Scott, you made reference to some of the factors that are supporting the ag prices today, the geopolitics and then Brazil growing conditions. 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 on, and how that would influence your thoughts about kind of overproduction versus retail?
Yeah. Well, you know, obviously, you know, with getting ready for our Capital Markets Day, we've spent a lot of time thinking about and analyzing, you know, 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. You know, as we've done those deep dives, it does give us a little more confidence. You know, some of the factors we talked about with the, you know, the greater adoption of precision, the two-decade-old fleet age here in North America. I do think 2023 is looking better now than I'd originally thought, maybe even three 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. You know, our dealers do appreciate that they desperately want more inventory now, but I think they appreciate what can happen with pricing specifically as they maintain a tighter inventory. We'll continue to try to do that as we go forward and not let, you know, things get ahead of ourselves. You know, that does take discipline, but 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. No, at this point, what I've learned is that 2023's probably got a little bit more legs to it than I would have expected a while ago.
Terrific. Thanks very much.
Thank you. Next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.
Hi, good afternoon. I hope you can hear me now, or hopefully as well. I have three questions. The first one was, is regarding Precision Ag and Raven, and then now that you have the assets, sort of how shall we think about the growth path from here on Precision Ag to close the gap with peers between organic of increasing organic investments versus continuing to sort of a bolt-on or even not bolt-on M&A strategy. That's question number one. The two 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 semis than maybe you would have originally expected on Q4.
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 impacts? If you could help quantify basically how much that was versus what would have been a normal margin, that would be helpful. The third one, just on the growth targets, the 10%-14%, which seems to be mainly pricing. Anyways, how much visibility on that do you have already in the backlog? You mentioned you were fully booked on some lines, so I'm curious on that. Thank you.
All right. Well, I'll take the first one and give Oddone the second two. You know, we're thrilled to get the acquisition of Raven closed in November. You know, the really exciting work of driving that integration and understanding what our combined companies can do together. You know, they have an incredibly strong team, incredibly 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. You know, we've been working with them for you know, more than a decade. We're their largest customer, so we know them reasonably well. The synergies that we have to accelerate what we can deliver for our customers and dealers is really exciting.
You know, Parag Garg, who joined us in the spring, really is leading that integration. You know, he'll be speaking at Capital Markets Day in Miami and really provide a clear roadmap. You know, what we're most excited about is being able to deliver better automation and ultimately autonomy to our customers. I think as we give them those tools, I mean, really, we're seeing a desperate desire almost for productivity and yield from our farm customers, and that's exactly what Raven delivers for us. You know, because we have such a close working historical relationship, we're gonna be able to bring new products to market much faster than I think some people were able to expect, and that'll be exciting for Parag to talk about next month.
You know, as far as, you know, 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, you know, continued to do it. We just had the Augmenta team in here, you know, a partner for us in precision spraying, and we're just excited about, you know, what our overall portfolio can do, but we'll certainly add to that as necessary. Not only with acquisitions, but sometimes with partnerships and just good overall relationships. So, we feel good about that, and Prag will go into more details. Oddone, you wanna cover the other two?
Yeah. In Q4, I mean, we underproduced retail, but that's pretty normal for Q4. 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 in the plants to get these unfinished goods out of the plants and to our customers, when the semiconductors and the parts arrived. In terms of growth for next year, I would split between a pricing component that is definitely there, but also increased capacity in our production facilities, and ability to produce more and therefore sell more.
This is a combination of having improved our capacity and also having worked with our suppliers to get more components next year compared to this year.
Thank you.
Thank you. Next question from the line of Ross Gilardi from Bank of America. Please go ahead.
Hey, good morning, guys.
Morning.
Yeah, I just wanted to clarify, so of the 10%-14% revenue guide, roughly how much of that is price and what are you embedding for FX? 'Cause, you know, I would assume with the price increases that are, you know, that are announced out there, it doesn't seem like you're assuming all that much in terms of volume growth. You know, are we at that full year guide in the H1 , or is the revenue growth gonna be below that in the first half and above that in the H2 ?
Well, I mean, I'll let Oddone give you the specifics. Remember, our backlog is incredibly high. 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 H1 . We're, you know, coming off of a really strong year of growth. I think, you know, with moderate price and moderate single digit organic growth, we think we'll be okay. Really, we're limited by what we can get from the supply chain more than anything else. Oddone, you wanna cover the rest?
Yeah. 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 disadvantaged in mix because we didn't produce some of the medium and heavy tractors that our customers in the year were waiting for. We will have more of that, so we'll have a better mix in the overall production. FX effects is not significant in the growth there. Our guidance is calculated with a 1.20 euro dollar exchange rate, but the component there is minimal.
Okay. Scott, I mean, you did say at the end of your response to David's question that you had overall confidence in year-on-year margin improvement. Was that a full year operating margin comment? Is it, you know, in a year like this where you still got a lot of supply chain constraints, is a 25%, you know, incremental, you know, margin framework, which has been sort of your historic norm, at least for the Ag business, 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 gonna be obviously times when it does happen. You know, 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. It's hard to call what the incremental margins are gonna be because, you know, we've got higher labor costs. You know, I mentioned in my prepared remarks, specifically around construction, where we're having just difficulty having enough labor to meet demand. You know, and obviously with the material inflation. We do expect inflation to lag in the H2 of the year, not just supply chain getting better, but we do expect a downturn there.
You know, overall, I think our 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, you know, 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. Just on some of the below the line items, and then if you could just clarify what the tax rate should be for, you know, RemainCo. Just, you know, the run rate on corporate expense and interest expense from 2021 that you're showing in your results, are those broadly appropriate for 2022? Any reason why FinCO earnings wouldn't be up in 2022 versus 2021, given that it's a growth year?
Let me start from FinCo earnings. We will expect to be moderately up in the year because of the growth of the portfolio this year, right? Which we're reflecting growth next year. Of course, you need to consider that part of the FinCo will be with On-Highway, right? To start with the spin-off, I mean, with what remains in CNH Industrial, which is the majority of it. It's North America, South America, and a chunk of Europe. In terms of interest expenses, I would expect something similar to what you have in the carve out in 2022, as we'll have most of our bonds will still be there. Then you had a question about the holding cost.
I will reckon with.
Cor-
Yeah. Sorry.
Corporate-
Corporate expense.
The tax rate.
Yes. I think corporate expense is between around $35 million-$40 million per quarter. The tax rate we have a lot of benefit from having more profit in jurisdictions where we didn't have tax assets. We expect that to normalize over the years to come to a more normal 20, mid-20% tax rate.
Okay. Thank you.
Thank you. Next question comes from the line of Francois Robillard, Intermonte. Please go ahead.
Hi. Good morning and good afternoon, everyone. Just one question on labor costs. You mentioned it as a potential headwind for your construction equipment activities. If I'm not mistaken, you will have as well some renegotiations with union 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? Thank you very much.
Yeah, we feel reasonably comfortable with our ability to manage. Yeah, 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. The overall, we're, you know, the union negotiation represents a relatively small portion of our North American labor force. We think that, you know, we'll be able to. We've got a good relationship there. We'll seek to manage and maintain that going forward.
We feel like comfortable with our ability, 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 in the total cost of goods sold, not a dramatic impact.
Thank you.
Thank you. Next question comes in the line of Courtney Yakavonis from Morgan Stanley. Please go ahead.
Hi. Good morning, guys. Maybe, you know, I know you don't wanna 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, you know, a slight improvement? I was just a little confused by the moving parts. You know, maybe if we can just go back to the comment on dealer inventory. I think you'd mentioned, you know, obviously dealers want more inventory.
When you look at, you know, the dealer inventory levels today, whether it's those months of sales or, you know, whatever, can you just comment on, you know, how big of a restocking you could see or do you feel like they are, you know, potentially, you know, 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. Thanks.
Believe it or not, those are two relatively easy questions. First of all, Q4 and Q1 are going to likely be quite similar in that, you know, we're still constrained by semiconductors. You know, it might switch suppliers that are shorting us at the time, but that literally is the key driver. Really the overall supply chain is not yet getting better. We've talked about it. We expect the second is improvement throughout the year, really a better H2 than H1 . 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 be.
As far as dealer inventory, you know, obviously it's gonna go up from here. I mean, we just don't have the inventory that they need to properly serve their customers. It will go up from here. I think getting back to, you know, a relatively normal level is good. I think what has happened typically in the past, you know, it happens across industries, is that in good times you just overproduce and then you end up having too much. We're just gonna try to be very disciplined, shorten our lead times to make sure that we can maintain the proper levels with our dealers. Because, you know, they're gonna continue to order and order and order to try to maintain demand and get their allocation.
We've just got to be disciplined as we manage through that, and we will be.
Okay, great. That's helpful. Just on, you know, I think you've historically given adjusted EPS guidance. You know, should we be interpreting that as, you know, it's just, you know, because of the supply chain right now and at some point we will have adjusted EPS guidance resumed? Or, you know, and if you can just pair for us any commentary. You know, obviously you've given us the sales guidance. It sounds like, you know, we can anticipate some margin improvement over the course of the full year, but how that would, you know, pair back to EPS. I think you had given Ross some of the, you know, other below the line items.
You know, you know, the last couple of years because of the situation, we've just kind of framed up the key components that frame into it. 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. Oddone may 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 any more color on the below the line stuff?
Yes, I mean, the main one 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 updating guidance last year quarter by quarter, and I think we will likely do the same this year.
Okay, thank you.
Next question comes from the line of Larry DeMaria from William Blair. Please go ahead.
Thanks. Good morning, everybody. Obviously, you've talked a lot about this, but in terms of the supply chain issues, sort of tale of two halves, I guess my first question is, what gives you the confidence that these issues will ease? I mean, are you getting that visibility from your semiconductor suppliers that they are gonna 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're more challenged in the H1 , so that would be more the concern. Thanks.
Yeah. I mean, what gives us confidence, again, is just watching and, you know, participating in and how the teams manage through the situation. 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. You know, 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 H2 , but, you know, we're still probably, you know, nine-12 months away from having, you know, being able to meet demand, if not further for overall chip demand.
I think our team has 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. You know, now lately we've had, you know, energy issues in Europe and we've had, you know, labor issues and there's so many different issues. We are seeing everybody start to get a little better at managing these things. COVID's, you know, decreasing a bit, and overall, 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 H2 as well.
Thanks. Year-over-year growth in every quarter? Is that fair to say?
I didn't answer that question on purpose.
Okay.
Next question comes from the line of Gabriele Gambarova from Banca Akros. Please go ahead.
Yes, good morning, and thanks for taking my questions. A couple, just a couple. The first one 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. The second question is on the top line growth guidance +10% to +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 it 10% more or less in Q4, and then you have Raven waiting for a couple of percentage points, 0.5. Thanks.
The free cash flow for the year, I would say, we have higher CapEx in the plan than we had this year. Working capital, there may be some inventory build-up that we are considering in company inventory. 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.
Top line growth. Yeah, sorry. Yeah. I mean, well, the Raven contribution to the top line in the first year is not that big. It's consistent with the 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, thanks. Just to follow- up, do you think a price increase will be, let's say, the contribution will be higher vis-à-vis volume increase? I mean, it seems that you are assuming a very little volume increase.
No, it's, I would share equally between the two.
Okay. Thank you.
You know, that we have considered a price increase this year as well, right?
Mm-hmm. Okay, thanks.
Thank you. We now take a final question from the line of Kristen Owen from Oppenheimer. Please go ahead.
Great. Thank you. One question related to the Raven transaction. I wanted to ask if you have any updated thoughts on the AeroStar and Raven Engineered Films businesses and how you're thinking about those moving into 2022. Then I have a follow-up.
Okay. No, we, you know, we learned a lot about those businesses. We got through it, and now that we own them, we feel better about, you know, what those businesses are. You know, probably not the best. We're not the best owner for those. We've, you know, got the process underway to find the best owner and, you know, we're encouraged by the engagement we're seeing in that process. That's where we are, in the middle of it.
Okay, great. Then I did wanna ask about the industry outlook for tractor and combine in South America. It just seems a little bit light relative to some of the peers. I was wondering if you could provide just some additional commentary on what you're seeing in that region, how much of that is money-driven versus what we're seeing out of harvest. Just any commentary you can provide on that guide. Thank you.
Yeah. Well, I mean, certainly, you know, we've got strong leaders across the globe. Vilmar Fistaroll, who runs the South American region for us, really has done an outstanding job and, you know, being number one ag player in all of Brazil last year was just a testament of what they do, and, you know, 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. We just cannot provide better guidance until we understand what that impact's gonna be there on the overall demand.
As they're getting into the growing season, we really need to make sure we understand what happens with weather before we commit to, you know, any higher growth rates there.
That will conclude the question- and- answer session. I would now like to turn the call back to Noah Weiss for any additional or closing remarks.
Thank you very much for joining us today. That concludes our call.