The operator welcomes listeners to the Deere & Company First Quarter Earnings Conference Call and introduces the speakers, including the Chairman and CEO, CFO, and other executives. The call will discuss the company's first quarter earnings, market outlook, and plans for fiscal 2024. The call is being recorded and any unauthorized use is prohibited. The speakers may make forward-looking statements and may use non-GAAP financial measures.

In the first quarter, John Deere had solid execution and financial results, with an 18.5% margin for equipment operations. Demand for equipment replacement remains strong, and the company's order books are at healthy levels. The company's net sales and revenues were down 4%, with net sales for equipment operations down 8%. Net income attributable to Deere & Company was $1.751 billion. The Production and Precision ag business had net sales of $4.849 billion, down 7% from the previous year, primarily due to lower shipment volumes. However, price realization and currency translation were positive factors. Operating profit was $1.045 billion, resulting in a 21.6% operating margin for the segment.

In the first quarter, the net sales for Small Ag and Turf decreased by 19% due to lower shipment volumes and higher expenses. However, price realization and lower production costs partially offset these factors. The industry outlook for Ag and Turf markets globally predicts a decline in large ag equipment sales in the U.S. and Canada, while Small Ag and Turf demand is expected to decrease by 5% to 10%. In Europe, the industry is forecasted to decline by 10% to 15%, with Central and Eastern Europe being the most affected due to ongoing conflicts and disruptions in commodity markets. Western Europe is faring better, but uncertainty surrounding ag policies and high interest rates is causing caution among customers.

The article discusses the current state and forecast for the agricultural and construction equipment industry in various regions. Sales in South America are expected to decrease due to adverse weather conditions and economic challenges, while sales in Asia are predicted to moderately decline. The Production and Precision ag segment is forecasted to have a 20% decrease in net sales, with a slight positive impact from price realization and minimal currency impact. The Small Ag and Turf segment is expected to see a 10-15% decrease in net sales, with a positive impact from price realization and flat currency translation. The Construction and Forestry segment had flat net sales, but a decrease in operating profit due to various factors. The industry outlook for the Construction and Forestry segment in 2024 is also discussed.

The industry sales for earthmoving equipment and compact construction equipment in the U.S. and Canada are expected to be flat or slightly down, but there is optimism for improvement in the remainder of the year as dealer inventories normalize. End markets, such as single-family housing starts and infrastructure spending, remain strong, but there are challenges in global forestry markets. Net sales for the Construction & Forestry segment are projected to decrease between 5% and 10%, with a 17-18% operating margin. Financial services net income for the first quarter increased due to a higher average portfolio balance, and the outlook for fiscal year 2024 remains at $770 million. Net income for fiscal year 2024 is expected to be between $7.5 billion and $7.75 billion.

The guidance for 2024 includes an effective tax rate of 24-26% and a projected cash flow of $7-7.5 billion from equipment operations. The CEO, John May, is pleased with the progress of the company's smart industrial journey and the structural improvement in financial performance. The 2024 forecast shows a 15% reduction in net sales compared to 2022, but a potential improvement in net income.

The paragraph discusses the growth in EPS for Deere due to their Smart Industrial strategy and their plans for the future. It also mentions the recent update on net cash farm income and global supply and demand estimates, which are expected to have a slight decline but still remain in line with historical averages that support equipment demand.

Farmers continue to be profitable at current levels and there are other supportive factors such as fleet age, manageable used inventory, and strong farm balance sheets. Similar trends are seen in Europe and South America. There is some caution in the market due to high interest rates, but replacement demand is still expected. In conversations with customers and dealers, a similar sentiment is observed with a shift towards a more typical replacement pattern and proactive inventory management.

Customers are looking for ways to improve their productivity and efficiency through the use of technology. Josh Beal provides an update on field inventory levels, stating that they are well-positioned and consistent with previous years. They have significant visibility into the balance of the year for sprayers and planters, and tractors are managed on a rolling order book. They expect to end the year in the U.S. and Canada with the ability to produce in line with retail demand. Outside of these regions, they will under produce in Europe and have made efforts to reduce field inventory in Brazil due to market conditions.

The combined inventory for the quarter is down 25%, as expected, and the company is on track to reach target levels by the end of the fiscal year. The company plans to position inventory for 2024 year-end to meet retail demand in 2025. The company's representative, Aaron Wetzel, recently visited Brazil and reported that sugarcane and soybean customers are seeing strong prices and making investments in equipment. The company is also investing in a technology development center in Brazil to focus on solutions for tropical agriculture. Overall, there is optimism for the future of Brazil's agriculture industry.

The paragraph discusses the used inventory levels in North America for combines and tractors, which have seen year-over-year increases, particularly in the high horsepower segment. Despite this increase, the levels are still in line with historical averages and used prices have remained flat to up. Dealers are comfortable with current inventory levels and have been able to proactively reduce inventory. This, along with the strong performance in the first quarter, points to a structural improvement and a positive outlook for the company.

Josh Beal discusses the strong price realization and favorable production costs in the Production and Precision ag and Small Ag and Turf businesses for the quarter. However, they expect price realization to moderate throughout the year and had some unfavorable impacts in the SA&G segment. They are also seeing demand shifts in production of precision ag, but remain stable in Small Ag and Turf. The company's approach to inventory and cycle management should position them well for 2025. Aaron Wetzel adds a quick comment.

The Construction & Forestry sector has seen stable demand and increased competition in the market. Deere's inventory levels have recovered and they expect stronger sales in the second half of the year. The order books are full through the second quarter and compact construction equipment is full through the end of the third quarter. There is still a significant amount of government infrastructure projects that have yet to be spent, providing a potential runway for growth.

The company expects infrastructure spending to continue to benefit their construction and road building segments in the coming years. They are also focused on managing demand changes and maintaining price discipline through inventory management and cost reduction strategies. This will help improve their decremental margins.

Deere is facing challenges in certain regions and unfavorable mix in high margin products, but they are still investing in future value unlock opportunities. Aaron provides an update on Deere's LEAP ambitions and precision ag journey, including their goal to engage 500 million acres by 2026 and their three pillars of product, system, and go-to-market leadership. They are committed to R&D and continue to prioritize customer needs and value.

Aaron Wetzel discusses the company's focus on product leadership and its upcoming product launch. He also mentions the importance of system leadership, which involves integrating technology solutions into machines to help customers make better decisions and improve their farm operations. This is achieved through machine connectivity, which has been a key focus for the company for years.

The third pillar of the company's strategy is focused on their dealer channel and go-to-market capabilities. They are working with dealers to provide solutions that improve operations for customers and are providing them with tools to drive greater adoption and utilization of technology. They have also launched a Solutions-as-a-Service approach, lowering upfront costs and shifting to a pay-as-you-go model.

The company has had positive experiences with their technology and is expanding their precision upgrade offerings. They have seen strong demand for their See & Spray premium product and have had success with their Precision ag Essentials upgrade kit. The company has returned cash to shareholders and invested in R&D. They are confident in their ability to manage through economic cycles.

The company expects to perform well across all points of the cycle and is focused on building a more resilient business while delivering value to customers. They are adapting their business model to meet customers' needs, particularly in industries where fewer people are going to work. The company's integrated hardware, software, data, financing, and service and support make them well-positioned to meet these needs. The Q&A portion of the call begins, with the first question addressing a revision to Precision ag EBIT, which has decreased by $500 million due to a $700 million sales reduction. Despite this, the company has had a strong start to the year.

Aaron Wetzel is responding to a question about the company's costs and performance. He explains that their PPA guide has been revised down to the lower end of the range due to softening in Europe and a pull back in sentiment. They are also seeing some softening in North America, which has caused them to adjust their production levels. This will have an impact on decrementals, and they are also pulling back on high margin products.

The speaker discusses the impact of underproduction in Europe and Brazil on the company's financial guidance. They mention that this, along with changes in North America mix, will have a negative effect on the company's earnings. The company is taking proactive measures to address these issues, but there may be a timing delay in seeing the results. They also mention that their order fulfillment model gives them good visibility and allows them to make adjustments quickly. The speaker estimates that a significant portion of the difference in their financial guidance is due to the underproduction in Europe and Brazil.

The company has faced challenges with underproduction in Brazil and Europe, resulting in a 1 point drag on operating margin for Production Precision ag. However, the company is still seeing strong performance in its South American business and has made structural improvements to achieve mid-teens margins. The company has also reduced production costs and is exploring further cost reduction opportunities.

The speaker discusses the company's efforts to negotiate and partner with suppliers to reduce component costs and design cost reduction into products. They also mention pulling levers in other areas of the business and managing overhead costs. The CEO adds that they will remain focused on managing the fundamentals of the business and tackling costs. The speaker also mentions a significant restructuring in 2020 that positioned the company for higher performance. A question is asked about the net operating cash flow and the speaker provides more details on the matter.

David Raso asks about the impact of replacement demand on John Deere's retail sales and market fundamentals. John May explains that the company has adjusted its cash flow forecast due to changes in working capital and higher balance in their portfolio at John Deere Financial. Josh Jepsen then provides an answer to David's question, stating that they are seeing supportive market fundamentals for purchasing at replacement demand and expects inventory to be favorable to cash in 2024, but at a slightly lower rate. He also mentions that they are considering replacement demand in their future projections, but does not provide specific numbers.

The speaker explains that the current fleet age is relatively aged and has not significantly improved despite strong demand in recent years. However, the company's ability to drive technology and improve customers' bottom line through precision upgrades and retrofits is expected to continue supporting sales. The speaker also mentions that the desire to reduce costs and improve profitability will remain important for customers. The sales outlook for large ag was reduced due to a combination of factors, including current order book visibility and market sentiment and grain prices. The company remains confident in the second half outlook.

The speaker, Josh Beal, responds to a question about the company's performance and explains that their order book is their best indicator of demand. They have seen some softening in the European market and are being cautious with their inventory levels. They also mentioned their partnership with SpaceX and how it will be integrated into their products, potentially as a technological enhancement.

The speaker is excited about the partnership with SpaceX and the potential for it to be monetized in the long-term through share and price mix gains or subscriptions. They see connectivity as the foundation of Precision ag and believe the partnership will provide solutions for gaps in connectivity, leading to increased interest from growers. It will also provide immediate benefits such as data access and sharing, and serve as a foundation for future technologies like autonomy. The other speaker adds that customers in Brazil are already excited about the opportunities this partnership presents.

The company is planning to introduce a retrofit solution in 2024 and make it widely available in 2025 to improve the efficiency of farms. They plan to monetize this technology through a solution-as-a-service model and by offering additional technologies that rely on telematics. Customers are increasingly interested in higher levels of technology and the company is excited about the future potential of this technology.

During the recent earnings call, John May and Josh Jepsen addressed questions about the company's performance and future plans. They mentioned that in markets like North America, they are able to quickly adapt products and solutions due to the connectivity they have in Brazil. They also provided insight into the quarterly cadence of revenue and margins, stating that the second quarter will likely see a greater decline in equipment operations, while the back half of the year will see more reduction in the Precision Ag segment. When asked about decremental margins, Jepsen stated that the company is prioritizing reduced volatility and that the current decrementals are in line with normal seasonal splits.

The speaker is discussing the company's current forecast for total equipment operations and the impact of underproduction on the production precision ag side. They are focused on managing this range and driving it down lower through execution and strategies such as life cycle solutions and Solutions as a Service. They feel good about the opportunity to build a less volatile revenue and profitability base. The call is almost over and there is time for one more question.

The speaker expects to hear feedback on the Crop Care EOP in the next quarter's call. The commodity price backdrop for the upcoming planting season in North America is expected to be less supportive than last year. The speaker asks for Aaron's thoughts on how this will play out and if it will be a useful signal for large ag demand in '25. Early order programs for planters and sprayers will be rolled out in June, and the speaker believes this will be a good opportunity to gauge customers' thoughts on upgrading their equipment. The dealers are investing in capabilities to facilitate trade-ins and upgrades for customers.

The speaker agrees with Josh's statement and adds that they are expecting customers to utilize new technologies in planters and sprayers. They will closely monitor the EOP activity and make adjustments accordingly. The Q&A session ends with the speaker thanking participants for joining.

This summary was generated with AI and may contain some inaccuracies.