The operator introduces the Deere & Company Second Quarter Earnings Conference Call and turns it over to Josh Beal, who is joined by other company executives. They will discuss the company's second quarter earnings, market outlook, and respond to questions. The call is available on the company's website and participants agree to have their remarks used. The call includes forward-looking statements and information about potential risks.

The second quarter financial results for John Deere included a 21.2% margin for equipment operations. Ag fundamentals continue to decline, while construction and forestry remain stable. The company has adjusted its production schedules to match retail demand and expects better results across the business cycle. Net sales and revenues were down 12% to $15.235 billion, with net sales for equipment operations down 15% to $13.61 billion. Net income was $2.37 billion or $8.53 per diluted share. The production and precision ag business saw a 16% decrease in net sales due to lower shipment volumes, partially offset by price realization. Currency translation had minimal impact.

In the second quarter, the operating profit for the small ag and turf segment decreased due to lower shipment volumes and higher production costs, but was partially offset by price realization. The industry outlook for ag and turf markets globally shows a continued softening in grower sentiment and a decline in large ag equipment industry sales in the U.S. and Canada. This is attributed to factors such as rising global stocks, lower commodity prices, high interest rates, weather volatility, and increased used inventory levels. However, there are also some positive factors, such as fleet age, stable farmland values, and strong pharma balance sheets.

The article discusses the recent decline in the turf segment, particularly in the riding lawn equipment market due to high interest rates. In Europe, there is a 15% decrease in sales and concerns about winter crop yields and input costs. However, cash flows remain steady and livestock fundamentals are expected to improve. In South America, sales of tractors and combines are expected to decrease by 15-20% due to global yield and commodity price pressures. In Asia, moderate sales decline is forecasted. The production and precision ag segment is expected to have a 20-25% decrease in net sales and a 20.5-21.5% operating margin. The small ag and turf segment is also expected to have a 20-25% decrease in net sales and a 13.5-14.5% operating margin. The construction and forestry segment is not discussed in detail.

In the second quarter, Deere & Company saw a 7% decline in net sales due to lower shipment volumes. Operating profit also decreased, resulting in a 17.4% operating margin. The company expects the construction and forestry industry to remain flat or decline slightly in the coming years, with some positive factors such as government infrastructure spending being offset by declines in other areas. The financial services segment saw a decrease in net income due to higher credit losses and financing spreads.

Deere & Company's net income in the second quarter of 2023 was impacted by a nonrepeating accounting correction. The company's outlook for fiscal year 2024 remains at $770 million, with a higher average portfolio balance offsetting a higher provision for credit losses and less favorable financing spreads. Deere's guidance for net income, effective tax rate, and operating cash flow for fiscal year 2024 is now at approximately $7 billion, 23-25%, and $7-7.25 billion, respectively. Despite a 15% decline in net sales, Deere's operating margin was over 21%, thanks to strong executional discipline and better-than-expected performance across all business segments, particularly in the resilient earthmoving and road building market. The company remains focused on executing their plan in the remaining two quarters.

In this paragraph, Josh Beal and Josh Jepsen discuss the changes in the company's forecast for the fiscal year. They attribute the revision to a decline in demand, particularly in the ag and turf segments, due to a tough global ag market and uncertainty among farmers. Despite this, the company experienced strong demand in the first half of the year and is taking proactive steps to reduce field inventories. Jepsen also praises the employees for their efforts in maintaining strong operating margins despite the challenging market conditions.

The speaker discusses the company's efforts to manage costs and invest in the future while facing challenges due to unfavorable product mix and declining demand. They highlight the proactive approach taken this year, citing the decision to underproduce large tractor inventory as an example. This is a departure from past cycles and shows that the company has learned from previous experiences. The speaker also emphasizes the importance of staying ahead of demand changes and maintaining flexibility in response to market movements. They acknowledge that it is too early to predict 2025 demand.

The focus of the company is on proactive management to ensure balanced inventories and better profitability. They are also looking towards technology and market share in terms of acres covered by Deere products. Brazil is seeing faster growth in engaged and highly engaged acres. The company is also seeing cost savings as a result of proactive cycle management.

Cory Reed explains that the positive differential is driven by structural cost reductions and managing to their structure lines. They are pulling levers to bring in costs as production and sales come in, and the timing of these actions is a top priority. The production cost bar in their quarterly earnings bridge reflects the outcomes of these efforts. They are seeing benefits in freight and material costs due to ongoing cost reduction efforts and strategic partnerships with their supply base. They have also enhanced supply chain resiliency and savings through dual sourcing strategies. However, managing costs amidst lower demand has resulted in some manufacturing overhead inefficiencies. They are actively taking steps to manage costs and adjust their cost structure for the current production level.

The headwind in production costs is offsetting gains in other areas, but the company is managing assets and reducing inventory to generate cash. There is a planned decline in new inventory levels by year-end, and used inventory is increasing but remains below previous highs.

The paragraph discusses the state of the business in Brazil, including first crop harvest, agri show, and recent flooding. The speaker extends sympathies to those affected by the flooding, including employees, customers, and suppliers. The company has been disciplined in managing inventory and has focused on dealer pool funds to help move used equipment.

The company is focused on the safety and security of its employees in the aftermath of an event. There may be some short-term impacts to the business, but overall the company expects to see positive results in the Brazilian ag environment. Retail demand for ag equipment is declining, but there is still excitement for the company's latest tech offerings, as seen at Agrishow where they were oversubscribed for preorders.

The company is focused on bringing its full range of solutions to the Brazilian market, where customers are strategic in their investments. The payback for technology and equipment is faster due to the frequent crop rotations. The company is optimistic about the future of agriculture in Brazil and confident in its ability to provide value through integrated solutions and a strong dealer network. The construction and forestry sector remains stable, with slight changes in demand for road building in North America.

In this paragraph, Josh Beal discusses the performance of the earthmoving and road building segments for the quarter. He notes that demand has remained stable and there has been minimal change. He also mentions that there has been strong competition in the market, but the company remains committed to a disciplined approach. Josh Jepsen adds that the company has had a good second quarter and has performed well despite challenges in the global ag market and competitive construction environment. They expect to end the year below mid-cycle levels due to a decline in ag markets.

During the quarter, the company returned $1.5 billion to shareholders through dividends and share repurchases while also investing in the business through CapEx and R&D spending. The company has learned from past market cycles and is now a more resilient and well-prepared business. Despite a challenging global environment, the company's equipment margins are forecasted to be just above 18%. The company remains committed to its customers and their needs, providing value through its integrated offering of equipment, technology, and digital tools. The company's progress in technology adoption and utilization, particularly with its ACRE program, demonstrates the value of its offerings. The company is focused on helping its customers do more with less and is excited about future opportunities. The call is now open for questions from investors.

In the paragraph, Josh Rohleder from the company is responding to a question from Grace about their updated guidance for production and precision agriculture. He explains that the softening of markets globally has led to adjustments in production to align with retail demand. The North American market saw a pullback in large tractors, leading to a decision to underproduce in that category to reduce inventory levels. This decision is aimed at positioning the company well for 2025.

The speaker discusses the decline in production levels and decrementals in the first half of the year, which is related to a pullback in demand. The company expects PPA to do around 44% for the full year, with similar numbers in the second half. The structural profitability of the business has improved compared to 2020, despite less favorable mix and regional shifts. The speaker also addresses the underproduction in PPA and SAP, which accounts for a high single digit percentage of revenue globally. The two-wheel drive tractor number is not specified.

The paragraph discusses the current state of inventory and production for John Deere's tractors and combines in different regions. It mentions that inventory levels are higher in North America and Brazil, but will be reduced in the second half of the year. The company is also significantly below the industry average in terms of inventory on a unit basis and plans to further reduce inventory to better respond to retail demand in the future.

The company is taking proactive measures to ensure inventories are in the right place and not prolonging demand, which is a lesson learned from the past. This will impact the duration of the cyclical impact. In April, the industry peaked in row crop tractors and the company is proactively pulling back before the decline comes. In the small ag segment, there has been high inventory in compact utility tractors and significant underproduction. The mid tractor space is in line with comments around tractors. The company has taken actions to protect the decremental margin and offset the underproduction, including focusing on high-value large form factors and cost benefits.

The company is expecting underproduction in 2024 due to adjustments in rates and changes in the cost structure. This is offsetting the benefits from material and freight. However, the company is taking steps to reduce costs and prepare for a large new product launch in 2025. The production rates will be reset and the cost structure aligned, which will benefit the company in the long term.

In response to a question about the early order program for Crop Care, the executives stated that it is still early and there is not enough information to comment on its progress. They also addressed the higher than expected C&F decrementals for the quarter, attributing it to lower price realization due to a discount accrual on field inventory.

The speaker explains that the company is expecting a 1.5 point price realization for the full year, with strong pricing in North America and Europe, negative pricing in South America due to inventory build-up, and a competitive environment in construction and forestry. They expect to maintain this level of price realization throughout the year.

Cory Reed from the company responds to a question about the trade down cycle in North America, specifically regarding the size and cost of their machines. He explains that they closely monitor the used inventory and have seen growth in late model tractors above 300 horsepower. This is due to the structural improvement in planting methods, such as the adoption of Exact Emerge and electric drives. He believes that these high-end tractors will continue to be in demand as customers strive for better planting capabilities, especially in a shortened planting window. Overall, he feels confident about their position in the market.

The speaker expresses confidence in the company's ability to navigate the current market environment, citing the age of their fleet and their precision upgrades as factors. Another speaker adds that there is a strong demand for technology upgrades among customers, with many new customers being brought into the system. The company's dealers are also working hard to ensure machines are properly spec'd and placed with the right customers. The last question from an analyst is about the company's focus on managing used inventories.

The speaker discusses the company's proactive management of new inventory and their decision to underproduce watery row-crop tractors in North America. They believe that there is a pull for the equipment and see value in it, especially in the current environment with high rates and a slow market. They also mention the importance of high-speed planting and harvesting, which drives confidence that the inventory will be consumed, along with the fleet age.

The speaker discusses the company's ability to adapt to market changes and the adoption of new technologies by customers. They mention that the business is still profitable and expects used units to enter the market. They thank the audience for their time and end the conference.

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