The paragraph is an introduction to Deere & Company's First Quarter Earnings Conference Call. Josh Beal, the Director of Investor Relations, along with other company executives, will discuss the company's first-quarter earnings, market outlook, and fiscal plans for 2025, followed by a Q&A session. The earnings call is live-streamed, recorded, and includes forward-looking statements that may involve risks and uncertainties. The call also mentions that slides are available online to complement the discussion and that the content is protected by copyright, limiting its use without Deere's consent.

In the second paragraph of the article, Josh Rohleder discusses Deere & Company's first-quarter performance, highlighting a 7.7% margin in their equipment segment. Despite improved global agriculture fundamentals, demand is constrained by market uncertainty, affecting order velocities, especially in North America. The fiscal 2025 ag outlook remains unchanged, excluding currency impacts. Shipping volumes were lower than expected as production schedules were adjusted, but recovery is anticipated throughout the year. In construction and forestry, replacement demand is supported despite challenges like high interest rates and macroeconomic uncertainty. The earthmoving segment reduced field inventory, enhancing production flexibility. The first-quarter net sales and revenues decreased by 30% to $8.508 billion, while net equipment sales dropped 35% to $6.809 billion. Net income was $869 million, or $3.19 per share, benefiting from $163 million in discrete tax benefits. The paragraph concludes with a transition to the production and precision ag business results.

The paragraph reports a significant decline in net sales and operating profit for the company's recent financial quarter due to lower shipment volumes and negative currency translation. Net sales were $3.067 billion, down 37% year-over-year, with a positive price realization slightly offsetting these factors. Operating profit was $338 million, with an 11% operating margin per segment. The small agriculture and turf segment saw a 28% decrease in net sales to $1.748 billion, resulting in a 7.1% operating margin. The company's global industry outlook anticipates a 30% decline in large ag equipment sales in the US and Canada due to high interest rates and macroeconomic uncertainties, and a 10% decrease in small ag and turf demand. The dairy and livestock segment is profitable, yet this hasn't translated into equipment purchases, while European industry sales are projected to decline by about 5%.

The paragraph discusses the stabilization of farm fundamentals, with less volatile commodity prices and stronger dairy margins. In Central and Eastern Europe, reduced pressure from Ukrainian grain imports is benefiting farm incomes. In South America, the industry sales of tractors and combines are expected to stabilize after declines, with Brazil seeing improved sentiment due to higher local commodity prices and better yields. Coffee bean production profits boost small and midsize tractor demand. In Argentina, decreased currency risks and export tax reductions help farm margins despite early-year dryness. However, industry sales in Asia are projected to decline slightly. For production precision agriculture, net sales are anticipated to drop 15-20% due to strong U.S. dollar impacts, though operating margins are expected between 16% and 17%. Meanwhile, net sales for the small agriculture and turf segment are expected to decrease by around 10%.

The article discusses the construction and forestry segment's financial performance and industry outlook. Net sales for the quarter dropped by about 38% year over year, primarily due to lower shipment volumes and negative price and currency impacts, resulting in an operating margin of 3.3%. Planned underproduction aimed at reducing field inventory in the earthmoving segment significantly contributed to the lower shipment volumes. Looking ahead, industry sales for earthmoving and compact construction equipment in the US and Canada are expected to decline by 10% and 5%, respectively. Despite high US government infrastructure spending and increasing single-family housing starts, multifamily housing and commercial real estate markets are subdued due to high interest rates. The global forestry market is expected to remain flat or decline by up to 5%, and global road building markets are predicted to be stable with strong demand amid a return to normal seasonality.

The paragraph provides an outlook for 2025, starting with net sales expected to decrease by 10% to 15%, with an operating margin between 11.5% and 12.5%. In financial services, Deere & Company's first-quarter net income was $230 million, influenced by a transaction involving 50% ownership sale in Banco John Deere. Without this transaction, net income fell due to higher credit loss provisions but benefited from lower SG&A expenses. For 2025, financial services net income is projected at $750 million, with credit loss provisions offsetting unfavorable financing spreads. Overall net income for 2025 is forecasted between $5 billion and $5.5 billion, with an effective tax rate of 20% to 22%. Cash flow from equipment operations is expected to be $4.5 billion to $5.5 billion, despite a $520 million contribution to a post-retirement healthcare plan. Guidance remains unchanged, and the discussion will now focus on Deere's quarterly performance.

In the paragraph, net sales declined by approximately 35% year-over-year, with margins just below 8%, but the company maintained most of its full-year projections, including net income. Josh Jepsen explains that in North America, the focus was on reducing used inventory in large agriculture while managing lower production volumes due to industry decline. In Brazil, further reductions in field inventory were targeted, and in North American construction and forestry, earthmoving production was paused for part of the first quarter to better align inventories with demand. This strategy contributed to the sales decline, along with shipment timing and currency translation issues, with some deliveries being shifted to later quarters to optimize yearly schedules.

The paragraph discusses sales expectations across three divisions for the remainder of the year, highlighting the impact of a stronger US dollar, which affected top-line results due to currency translation, particularly in production and precision agriculture. Despite currency impacts, operating profit was relatively unaffected due to hedges. Full-year projections for large agriculture were adjusted mainly due to currency changes affecting unhedged exposures. The ag and turf segments benefited from reduced material costs and lower SG&A expenses, reflecting operational efficiency. The full-year market demand remains stable, aside from FX impacts. The quarter also saw a favorable tax rate due to two discrete items totaling $163 million, keeping the full-year net income forecast unchanged. Josh Beal notes that the quarter was quiet aside from timing, FX, and tax elements, and mentions the USDA's updated 2025 forecast for net cash farm income.

The paragraph discusses the forecasted increase in US net cash farm income by 22% year over year, though crop cash receipts are expected to drop by 2% due to lower commodity prices, contrasted with significant government support for farmers. The positive outlook is attributed to rising commodity prices due to lower US yield forecasts and dryness in South America, along with a decline in global ending stocks of major crops. Additionally, farmers benefit from reduced input costs and $10 billion in US government assistance. Despite these positive factors, immediate demand for equipment is not expected to rise due to ongoing uncertainty and cautious decision-making by customers.

The paragraph discusses the agricultural industry's global outlook, highlighting positive signs in various regions. In Brazil, farmer sentiment is improving due to favorable currency movements, though market shifts are not yet evident. In Europe, improved dairy, livestock, wheat prices, and lower input costs are stabilizing order books despite overall market pressures. The discussion then shifts to how the business is managing inventories and order books globally, emphasizing that strategic underproduction last year has helped the company enter 2025 well-prepared for expected challenges in market demand, starting with a focus on North America.

The paragraph discusses the challenges and actions taken by a company, likely Deere, in managing its large agricultural equipment inventory as it ends the calendar year. New inventory, particularly 220 horsepower tractors, has significantly decreased compared to industry averages, reflecting efforts to align production with declining demand in North America. The combine early order program saw lower participation than the previous year, while the tractor order books provide visibility into production through late fiscal third quarter. Used equipment inventory management shows progress, with reductions in high horsepower tractor inventories and improved quality of late-model equipment. While used combine inventory increased due to seasonal factors, it has decreased from recent peaks, highlighting continued efforts to normalize inventory levels.

The paragraph discusses John Deere's recent activities and strategies regarding inventory management and technological adoption across different regions. It highlights strong alignment with dealers in the US, Canada, Australia, and New Zealand to manage used inventories effectively as they anticipate a market shift in 2024. In Brazil, after efforts to reduce inventory levels, production aligns with industry demand, except for combines, though significant improvements have been made. The successful adoption of technology solutions, like Precision Ag Essentials kits and the JDLink Boost connectivity solution, has driven customer interest, with expectations for further tech adoption as connectivity improves in the region. John Deere is also committed to investing in Brazil to support local needs.

In the past quarter, the company opened a technology development center in Brazil to create solutions for the local agriculture environment and enhance support for farmers integrating advanced technology. The focus on equipment, technology, and connectivity aims to improve agricultural outcomes and support growth in South America's engaged acres. In construction and forestry, the company planned a 50% production shutdown to manage inventories and order banks. In the first quarter, they reduced earthmoving inventory by 15% due to underproducing retail demand by 35%, driven by unexpected demand in compact construction. This inventory management offers flexibility for future earthmoving demand.

The paragraph discusses the current state of the North American construction equipment market, highlighting the strong demand in the road building sector and the effect of the Infrastructure Investment and Jobs Act (IIJA) funds. Despite strong employment and market activity, equipment purchases are limited due to macroeconomic uncertainty and high interest rates. The company has successfully used selective incentive programs to boost sales, particularly in its road building business. Additionally, the firm faces challenges from price competition and currency impacts, affecting sales forecasts. However, strong cost management is expected to produce better-than-expected production costs, despite an unusual quarterly revenue pattern due to timing of price actions. Lastly, the paragraph touches on the fluid situation of tariffs and their potential impact.

The paragraph discusses how the organization is analyzing potential scenarios to assess risks and opportunities related to tariffs, particularly their impact on customers in the agricultural commodities sector. They emphasize their commitment to supporting customers by providing necessary products and solutions. The company, a net exporter of agricultural and turf equipment in the US, assembles over 75% of US domestic sales domestically, with only a small percentage sourced from Mexico and other countries. Their exports mainly go to Canada, Europe, Brazil, and Australia. The organization's supply management team has focused on supplier resiliency and cost management, employing strategies like dual sourcing to strengthen their operations and manage global trade flows effectively. The company does not currently factor direct costs or benefits of potential future tariffs into their guidance due to the rapidly changing nature of these tariffs.

In the paragraph, Josh Jepsen reflects on the company's performance in the first quarter, highlighting their ability to navigate challenges like weak market demand and increased competition while maintaining discipline in executing their plan. Despite the noise, they successfully reduced inventories, managed costs, and continued investments, evidenced by achievements in Brazil, recent autonomous solution announcements, and upcoming product launches. The company returned over $800 million to shareholders through dividends and share repurchases, showing structural improvements. Jepsen expresses gratitude to the entire Deere team and reaffirms their commitment to customer value, expanding precision offerings, and prioritizing quality, uptime, and productivity.

In the paragraph, Josh Jepsen and Tim Thein are participating in a Q&A session during an investor call. Tim Thein, from Raymond James, asks about the production and shipping schedule for large agricultural equipment, given some delays into the first quarter. He inquires whether the usual ramp-up in production will be more concentrated in the third quarter. Josh Jepsen responds that despite some shipments being postponed, the business's seasonality will remain mostly typical, with the second quarter expected to be the highest in sales. However, he notes that the year's total large agricultural sales are forecasted to decrease by 15% to 20%, with the second quarter experiencing a larger decline compared to the previous year.

The paragraph discusses the outlook for production precision agriculture and other business areas, expecting growth in the fourth quarter due to year-over-year comparisons and strategic actions. Stephen Volkmann from Jefferies inquires about the early order program's performance, which fell short of industry forecasts amid weak numbers from AEM. Josh Jepsen responds by explaining the guidance for North America, noting that some product lines, like sprayers and tractors, align with or deviate slightly from the industry's projected 30% decline. Combines, in particular, are expected to underperform the guide. Jepsen outlines varied expectations across different product lines to achieve the overall goal.

In the paragraph, the speaker discusses issues related to the timing of combine shipments, noting that shipments were slower in Q1 due to delayed timing, which affected inventory levels by resulting in an 11% inventory-to-sales ratio for combines, lower than usual. However, the speaker expresses confidence for the full year since most combines are pre-ordered annually through the early order program. Josh Jepsen adds that combine inventories peaked in July 2024 and have since decreased due to earlier actions taken. Jerry Revich from Goldman Sachs then asks for an update on the progress of Precision Ag in Brazil, global expectations for Ag Essentials and Sense Sprayer kits, and engagement metrics.

In the paragraph, Josh Jepsen discusses the success and expansion of Deere's Precision Ag Essentials tech stack. This includes core technologies like guidance, connectivity, and onboard computing available through a cost-effective annual subscription. After a successful introduction in North America in 2024, the package saw strong adoption in Brazil, with over 1,500 orders year to date. Additionally, their Starlink-enabled JDLink Boost, launched in Brazil to address connectivity challenges on agricultural lands lacking sufficient cell coverage, received over 1,200 orders shortly after becoming available, indicating high demand and potential for enhancing connectivity and Precision Ag Solutions.

The paragraph discusses the growth and impact of Deere's technology on engaged acres, which have increased to over 455 million globally, with highly engaged acres making up nearly 30% of that total. The technology is seen as a competitive advantage, illustrated by the conversion of non-competitive machines to Deere machines using Precision Ag Essentials, enhancing connectivity and operational efficiency. A significant aspect of this technology is remote display access, allowing dealers to assist customers remotely, highlighting both major and minor technological advancements that enhance customer value.

The paragraph is part of a discussion about the impact and growth of technology, specifically focusing on John Deere's remote display sessions in the Operations Center, which saw a significant increase in 2024. Josh Jepsen highlights this growth as an important factor in better serving customers through connectivity. Rob Wertheimer then shifts the conversation to farmer profitability and demand, asking about how current crop prices affect the purchasing behavior of both large-scale farmers and those purchasing used equipment. Josh Jepsen responds by noting the difficulty in providing specific profitability numbers due to varying factors like land ownership.

The paragraph discusses factors affecting profitability in farming, including ownership versus renting land and the use of technology, specifically Deere solutions, which can improve profitability by nearly fifty cents per bushel for corn and soy in the Midwest. It highlights an improvement in agricultural fundamentals over the quarter, with a rebound in commodity prices and government support. Global consumption of grains and oilseeds is surpassing supply for the first time in four years, leading to the lowest grain stocks-to-use levels in twenty years, excluding China's stocks, indicating tight stock conditions.

The paragraph involves a discussion about the agricultural sector, specifically highlighting favorable conditions for crops like corn and wheat, boosted by increased net income expectations from the USDA. It acknowledges lingering uncertainties related to macroeconomic factors and trade policy, but notes that dairy and livestock are performing well. Jamie Cook from Truist Securities questions Deere's margin performance and their strategy for recovery by 2026, including potential restructuring. Josh Jepsen emphasizes focusing on controllable factors like inventory, production, and operating costs while maintaining strategic funding, expressing confidence in their current position.

The paragraph discusses the company's control over certain operational aspects and their progress towards a long-term goal of achieving a 20% mid-cycle operating margin. Currently, they have a 14.5% operating margin in equipment operations, which is considered strong compared to previous cycles, specifically better than in 2013. The company is focused on managing costs and investing effectively. During a call, Josh Jepsen responds to Steven Fisher's question about used inventory, expressing confidence in the reduction of used inventory, particularly combines, while acknowledging more work is needed for high horsepower tractors. Overall, they feel positive about recent progress.

The paragraph discusses challenges in the used equipment market, particularly with higher horsepower machinery, noting a modest decline in unit sales since a peak in November. It highlights the issue of an imbalanced mix, with an overabundance of one- and two-year-old equipment compared to usual expectations. Some progress has been made in recent quarters, but further improvement is needed over the coming quarters to address this imbalance. Josh Beal and Josh Jepsen emphasize efforts to expedite this process and mention that the fleet's age is increasing as less new equipment was introduced into the market from 2021 to 2023.

The paragraph discusses the inventory management strategy for large agricultural equipment in North America. By the end of the calendar year, the field inventory had decreased by 25% compared to the previous year. However, by the end of the fiscal year, they aim to keep year-over-year inventory levels unchanged. The strategy involves aligning production with retail demand, resulting in inventory levels at the end of fiscal 2025 being similar to those at the end of fiscal 2024. Seasonal fluctuations will lead to inventory build-up in the first half of the year, followed by a reduction in the second half, mainly due to in-transit inventory for equipment already sold at retail.

In the paragraph, David Raso raises a concern about the high inventory levels of row crop tractors in the first quarter compared to historical averages, while acknowledging the influence of seasonal factors. Josh Jepsen responds by explaining that the 100 horsepower and above category encompasses a wide range of tractors, including large, high horsepower ones, which are below average inventory levels. However, for mid-sized tractors like the 6000 series, inventory is higher than desired. As a result, their production in North America is being reduced to manage inventory levels. Jepsen emphasizes that the 8R series large ag tractors are well-positioned inventory-wise, but work is needed to reduce the 6000 series inventory over the year.

In the Q&A session, Kristen Owen from Oppenheimer asked about expectations for volume and price recovery in Brazil. Josh Jepsen responded, noting positive developments in the region, with improved profitability expected in 2025, increased technology adoption, and strength in the small to mid-tractor and coffee sectors. He mentioned that while visibility is limited due to Brazil's typical three-month order book, there is optimism about price recovery, with positive low single-digit price realization observed in the quarter and expected for the full year, a noted improvement from last year's negative pricing. Overall, there are positive signs in the Brazilian market regarding both volume and pricing.

The paragraph discusses the pricing strategies and confidence levels of PPA's agricultural and construction segments. Josh Jepsen addresses a question about maintaining a 1% price realization for the agricultural segment, reflecting incentives to manage used inventories. He mentions that in North America, price increases and early order programs for tractors are set at 2% to 3% for the year, with the 1% price realization accounting for incentives. He expresses confidence in managing used markets and balancing inventory. In the construction segment, Jepsen notes increased price pressure, resulting in negative pricing for the quarter, and adjusts expectations to flat pricing for the full year.

In the paragraph, the speaker discusses the company's financial outlook, noting that they have adjusted their full-year guidance to be flat due to market dynamics and price pressures, particularly in the early part of the year. They mention that financing incentives helped boost sales in December, especially in compact construction. Looking forward, they expect continued price pressure in the second quarter, which should moderate as the year progresses, due in part to easier comparisons from past pricing actions. Josh Beal adds that there might be underproduction in the earthmoving segment in Q2, affecting margins initially, but expects improvements as the year continues. The operator then introduces a question from Megan Durkin of Wolfe Research, who inquires about how the company plans to achieve their full-year margin guidance given the slow start in Q1.

In the paragraph, Josh Jepsen discusses the outlook for different business segments, noting some atypical trends due to recent underproduction. Construction and forestry are expected to see gradual margin improvements over the year, whereas large agriculture (ag) sales will follow typical seasonal patterns, peaking in the second quarter with the strongest margins. Josh Beal adds that both the second and third quarters will be robust in terms of margins, while the fourth quarter, although usually weaker in revenue, should see a positive turnaround compared to the previous year. The discussion concludes with a transition to a final question from Tami Zakaria of JPMorgan.

In the discussed paragraph, Josh Jepsen addresses a query from Tami regarding the impact of a farmer aid package from December on equipment demand. Based on past experiences, Jepsen indicates that similar payments in late 2019 were primarily used by farmers to improve their financial stability by managing debt and purchasing inputs rather than immediately driving new equipment demand. Consequently, for the current aid package, it is expected that while it might help improve financial standings and facilitate the movement of used inventory, it is unlikely to generate significant new equipment orders in 2025.

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