The paragraph is an introduction to Deere & Company's Second Quarter Earnings Conference Call. The call involves key company figures such as John May, CEO, Josh Jepsen, CFO, and others discussing the company's second quarter earnings and outlook for fiscal 2025, followed by a Q&A session. Slides accompanying the call are available on their website. The call is live-streamed, recorded, and participants agree to be recorded. It includes forward-looking statements about future plans subject to uncertainties and risks, with more details available in the company’s SEC filings. It may also cover non-GAAP financial measures.

John May, in his opening remarks, highlighted the challenges faced by John Deere due to global trade volatility and uncertainty. He emphasized the company's dedication to its core values and priorities, particularly focusing on customer needs and maintaining strong relationships. Despite market uncertainties, John Deere remains committed to its strategic plans, delivering reliable products, and continuing investments in value-enhancing solutions. The company's ongoing commitment to its smart industrial strategy and honoring customer commitments remains steadfast.

The paragraph emphasizes John Deere's commitment to enhancing customer productivity, profitability, and sustainability, highlighting their proactive management of costs, production, inventory, and quality to maintain margins for future investments. Despite a challenging macro environment, the company's recent performance reflects the success of this approach. John Deere values its American manufacturing heritage, with a significant portion of its sales originating from U.S. facilities. The company plans to invest $20 billion in the U.S. over the next decade to drive innovation through smart industrial strategies, combining advanced technology with manufacturing excellence. This includes leveraging its extensive U.S. assets and skilled workforce to develop new products, technologies, and manufacturing processes, reinforcing its global competitiveness.

In the second quarter, John Deere achieved better-than-expected performance with an 18.8% margin for equipment operations, thanks to efficient production and material sourcing despite market challenges. However, global uncertainty and a changing tariff environment have led to a broader fiscal 2025 guidance range. Net sales and revenues declined by 16% to $12.763 billion, with equipment operations down 18%. Net income was $1.804 billion. The production and precision Ag segment saw a 21% decrease in net sales due to lower shipment volumes, achieving an operating profit of $1.148 billion and a 22% margin.

The paragraph reports a year-over-year decline in sales mainly due to lower shipment volumes, an unfavorable sales mix, and negative foreign currency impacts, although these were somewhat mitigated by lower production costs and price realization. Small Ag and Turf sales dropped by 6% in the second quarter to $2.994 billion, despite positive price realization and reduced production costs, with the operating profit remaining flat at $574 million. The outlook for the Ag and turf markets indicates that large Ag equipment sales in the U.S. and Canada are expected to fall by about 30% due to high interest rates, used inventory levels, and trade issues, though stable crop prices and stronger farm balance sheets offer some relief. Small Ag and turf demand is predicted to decline by 10% to 15% due to uncertainties and high costs. In Europe, the market is anticipated to decrease by approximately 5%.

Sentiment in the agricultural sector is improving due to strong margins in dairy and livestock and a better arable outlook, despite low yields in key markets. Stabilized commodity prices and input costs, along with a favorable interest rate environment, offer more planning certainty. In South America, tractor and combine sales are stable, with improving sentiment in Brazil due to recovering crop yields and profitability. High margins in coffee production are boosting demand for smaller tractors, but record crop production may limit profitability due to pressure on commodity prices and high interest rates. In Asia, flat industry sales are expected with an improved outlook for tractor sales in India, aided by favorable conditions and agricultural credit availability. Net sales forecast for production and precision agriculture is down 15%-20% due to tariff impacts, while small agriculture and turf segment sales are down 10%-15% due to softer U.S. demand, with some offset from improved European and Indian tractor sales.

The paragraph outlines the decline in net sales and operating profit for the construction and forestry segment, attributing this to reduced shipment volumes, an unfavorable sales mix, and negative price realization. It highlights a 10% expected decline in U.S. and Canadian construction equipment sales and a 5% drop in compact construction equipment sales, despite stable construction backlogs and high employment levels. Trade uncertainty and high interest rates are affecting order activity, though government infrastructure spending offers some industry support. Single-family housing projections are weakening due to economic uncertainties and rising mortgage rates, while rental sales and the multifamily/commercial real estate markets are also under pressure. Global forestry markets are expected to remain flat or decline, while global road-building markets are expected to stay stable with strong demand, bolstered by positive sentiment and demand in Europe, as seen at a recent trade show in Alabama.

The paragraph provides an outlook and recent financial performance for Deere & Company. The Construction and Forestry segment's 2025 net sales are expected to decrease by 10-15%, with an operating margin projection of 8.5-11.5% due to tariffs and pricing challenges. The financial services segment reported $161 million in net income for the second quarter, flat due to mixed factors including less favorable financing spreads. The 2025 financial services outlook is $750 million. Overall, Deere's 2025 net income guidance is $4.75-$5.5 billion, with an effective tax rate of 20-22% and equipment operations cash flow between $4.5-$5.5 billion. The quarter showed a sequential increase in net sales, though down year-over-year, and margins improved sequentially, reflecting strong operational performance despite macroeconomic challenges.

In the article paragraph, Josh Beal discusses the company's strong performance in the quarter despite macroeconomic volatility. The company exceeded expectations in all three equipment operation segments, with better-than-expected sales volumes, particularly in North American large agriculture. Cost management and a focus on reducing material costs and overheads contributed to favorable production costs. The construction and forestry segment returned to seasonal production levels, though margin improvements were partly offset by negative price realization. The road-building business continued to deliver strong margins. Despite facing approximately $100 million in tariff-related challenges, Josh Beal expresses confidence in the overall achievements across all divisions in the second quarter.

The paragraph discusses Deere's response to the evolving trade environment and how it might impact their business. It outlines that Deere has a significant portion of its products built and sourced in the U.S., but also relies on components from Mexico and Europe. The potential pre-tax impact of tariffs in fiscal year 2025 is expected to be over $500 million if current tariffs persist. The company has expanded its guidance range to account for changing scenarios, with the tariff costs affecting different business units to varying degrees: 40% to construction forestry, 35% to small agriculture and turf, and 25% to production and precision agriculture. Mitigation strategies are being planned to minimize tariff impacts on customers, dealers, and Deere itself.

The paragraph discusses the organization's efforts to understand and mitigate risks, particularly through certifying products for USMCA and agricultural exemptions in Mexico and Canada, in response to new tariff requirements. These certifications were achieved quickly, optimizing global trade flows and reducing potential exposure. Despite these efforts, there's limited opportunity for price adjustments in fiscal 2025 due to full order books. The organization is aware of tariff impacts on costs and is considering it for future pricing while being mindful of customer pressures. A significant impact on costs, especially for their C&F business unit, is attributed to forecasted tariff impacts.

The paragraph discusses various aspects of a company's operations and market conditions. Sales from the road-building business face exposure to 10% global tariffs due to production in Germany. The company has a supply agreement with a former JV partner for excavators, but plans to reduce this exposure by rolling out U.S. manufactured excavators. The earthmoving market relies significantly on Chinese components, impacting the company's strategy. The C&F industry shows healthy equipment utilization, but demand for new equipment replacements is low, leading to increased price competition. Material favorability is helping mitigate margin impacts from pricing actions. Additionally, at the Bauma machinery show, the company showcased technological advancements and received strong orders, highlighting integration efforts of John Deere systems into their equipment.

The paragraph discusses the integration of John Deere's technology with Wirtgen equipment to enhance digitalization and automation, aligning with John Deere's smart industrial strategy launched in 2020. This strategy focuses on addressing customer needs by using a centralized tech stack to deliver efficient and impactful solutions. Josh Jepsen notes the expansion of this tech approach beyond the agricultural sector. Josh Beal provides insights into current farm fundamentals, highlighting trade uncertainty affecting customer sentiment. Despite stabilized crop prices, lower profitability levels persist, with global grain and oilseed stocks reaching low levels. Input costs have decreased but remain above historical averages, and U.S. government payments have provided liquidity to farmers after a challenging crop year.

The paragraph discusses the agricultural market dynamics in North America and globally. It highlights stabilization in the North American market and increased demand for U.S. agricultural commodities due to recent trade deals, which may positively affect prices. There are signs of improved profitability for Brazilian farmers and stability in European wheat prices, although European markets remain relatively weak overall. Order books for agricultural machinery in North America, Europe, and Brazil are mostly full, except for turf equipment and compact utility tractors, where demand is declining due to weakened consumer confidence. Deere is focusing on managing used inventory levels in North America, following efforts to adjust new inventory levels over the past 18 months.

The paragraph discusses the decline in inventory levels for new tractors and combines in North America, with new tractor inventory down over 40% and new combines nearly 25% year-over-year. While used inventory, particularly late-model tractors, remains higher than normal, there has been a slight increase in high horsepower used tractors. Despite a seasonal increase due to pre-planting deliveries and trade-ins, efforts are being made to reduce used tractor inventories, similar to the successful reduction in combine inventory, particularly for late-model equipment. The paragraph highlights the company's strategy, including dealer development, new financing options, and dealer collaboration, to align with market needs and reduce inventory levels. John May and Josh Beal express confidence in these efforts, emphasizing dealer alignment and actions being taken to address inventory challenges in the secondary market.

In the paragraph, Josh Rohleder discusses the progress of John Deere's Precision Ag Solutions, focusing on three main areas: capabilities, adoption, and utilization. He emphasizes the importance of foundational capabilities, such as an integrated license management system and a customer success function, which enhance the customer experience and maximize the value of their technology. Dealers are also investing in support roles to assist with new solutions. These capabilities are essential for the company's ongoing smart industrial journey.

The paragraph discusses the growth and expansion of Precision Tech's offerings, highlighting its Solutions as a Service business model, which has made technologies like Precision Essentials more accessible. In 2025, the company has received nearly 10,000 global orders, surpassing the previous year's total, with significant demand in Brazil, North America, and Europe. Renewal of subscriptions is crucial for continued success, with a year one renewal goal of 70% for the 2024 cohort, and nearly two-thirds of eligible machines have renewed so far. The paragraph also emphasizes the importance of increased utilization of technology, citing an increase in See & Spray units, which in 2024 covered 1 million acres in North America and have over 1,000 new orders for 2025.

The paragraph discusses the increasing adoption and utilization of John Deere's See & Spray technology, with customers using more units and increasing engagement globally, especially through the John Deere Operations Center. There is significant growth in engaged and highly engaged acres. The company is expanding its reach in Brazil, launching new products at Agrishow and planning a Brazil Investor Day to showcase opportunities and celebrate its 25th anniversary there. The event will focus on leveraging a strong foundation for sustainable growth and providing value to customers. Additional details are available in the quarterly presentation and on Deere's website.

The paragraph discusses John Deere's capital allocation strategy amidst market volatility. Josh Jepsen emphasizes the importance of maintaining a strong credit rating to provide cost-effective financing to customers, especially as other financial institutions reduce participation in the agriculture sector. The company's priorities include investing in value-accretive projects, managing cash prudently, and ensuring a robust balance sheet to drive value for customers and shareholders through dividends and share repurchases. Despite market uncertainties, John Deere is confident in its ability to strategically execute its plans and navigate economic cycles effectively. Jepsen commends the team's strong execution and resiliency during challenging times.

The paragraph discusses Deere's positive results from their strategic actions, which have positioned them well for the future. It highlights customer value generated by their long-term strategy and the preference for Deere's production system offerings. Deere is excited about expanding technology across various business units and product lines and is committed to both organic and inorganic growth opportunities that benefit customers and the company. The paragraph emphasizes Deere's commitment to delivering high-quality machines, value-enhancing technologies, and excellent customer service, aiming to support customers amid operational disruptions and volatility. Josh Beal concludes by inviting questions from investors, with Rob Wertheimer from Melius Research asking about Deere's current SaaS models, their precision essential cohort product line, and the future pipeline for these offerings.

The paragraph discusses the progress in getting farmers to recognize the value of SaaS offerings, categorizing them into three main areas. The first category includes precision digital technologies, such as Precision Ag essentials and G5 licenses, offered at lower upfront costs with annual licenses. The second category involves technologies like See & Spray, which are usage-based. The third category anticipates upcoming autonomous solutions, targeting fleet autonomous corn production by 2030. Additionally, Josh Jepsen mentions the potential for integrating these solutions into bundles, enhancing customer convenience and showcasing the value of an integrated production system.

The paragraph discusses the expansion of foundational agricultural platforms like See & Spray, which currently operate in North American corn, soy, and cotton, to include more crop types and geographies over time. Additionally, the development of autonomous technology is highlighted, extending its applications beyond large agriculture to commercial operations such as orchards and construction, with a focus on digital expansion and integrating platforms like the operations center into new areas such as road building. The paragraph also mentions a financial query from Tim Thein regarding the PPA segment's implied profitability for the second half of the year, considering the impact of tariffs and expected revenue growth in the fourth quarter.

In the paragraph, Josh Jepsen discusses the elements affecting implied profitability in the second half of the year, such as the impact of tariffs, the decline in North American large agriculture, and changes in pricing favorability compared to the previous year. These factors combined contribute to the overall decrease in profitability. Jamie Cook from Truist Securities then asks about Deere's strategy for the early order program and its potential impact on earnings growth in the face of tariffs and flat sales entering 2026. Josh responds that the early order programs have just begun and will be structured similarly to past programs, with launches happening over several months.

The paragraph discusses a company's strategic approach to managing price flexibility amidst a changing tariff environment. They've structured optionality in their programs to adjust prices and discounts in response to evolving tariffs. The company has also worked to reduce inventory levels significantly in select geographies, aligning with retail demands. In the U.S., inventory levels are now aligned with retail, while in South America, underproduction has been adjusted, and Brazil is set to build some seasonal inventory for the spring selling season. In Europe, they plan to align tractor production with retail demand due to increasing sales. The operator then introduces a question from David Raso of Evercore ISI, inquiring about the weak implied decremental margins for the second half of the year, focusing on price protection of backlog with retail invoices as a potential issue.

The paragraph discusses financial considerations related to tariffs impacting margins in the second half of the year. Josh Jepsen explains that while the full-year impact of tariffs on equipment operations is around $500 million, most of this occurs in the second half, significantly affecting margins by 2 to 2.5 points. He notes that with relatively small year-over-year sales changes, these tariff impacts have an outsized effect on financial calculations. Additionally, there's less price increase and material favorability in the latter half of the year, but production costs, excluding tariffs, remain positive. The overall approach seems conservative regarding future margin projections.

The paragraph discusses the company's pricing strategy amid ongoing cost pressures and inflation, as addressed by Josh Jepsen in response to Jerry Revich's question. Jepsen emphasizes the importance of being mindful of the significant inflation that has occurred over the past 4-5 years and how much pricing has already been increased. He states that the company remains committed to achieving price increases, highlighting a point of price achieved in a challenging market this year. For early-order programs in production precision agriculture, price increases are currently in the 2-4% range, and the company will continue to evaluate these figures. The focus is on balancing customer needs with maintaining margins as they move forward.

The paragraph discusses the company's strategy in dealing with tariff costs and production expenses amid a dynamic economic environment. While focusing on mitigation efforts and controlling costs like materials, logistics, and overheads, the company aims to cautiously manage pricing for customers. They acknowledge the unpredictability of future market conditions and emphasize a measured approach. The company has undertaken price adjustments in their early order programs, ranging from 2% to 4%, and retains flexibility to adapt these as conditions evolve. The overall goal is to balance cost distribution among vendors, dealers, and customers while remaining responsive to rapid changes in the market.

The paragraph discusses the company's approach to sourcing and supplier collaboration, emphasizing efforts to find the best cost options in both tariff and non-tariff environments. They have focused on dual sourcing and supplier resiliency to adapt to changing circumstances. The conversation then shifts to the used equipment market, where progress has been observed with combines, but there is still stabilization needed for high horsepower tractors in North America. Despite some recent market volatility, there is some stability in agricultural fundamentals, but the exact pace of improvement remains uncertain.

The paragraph discusses strategies and considerations for managing the agricultural market cycle in North America. The speaker highlights the importance of handling used inventories and suggests that a new farm bill could offer stability for customers. Additionally, factors such as trade deals and ethanol demand could positively influence the market, while weather impacts remain a variable. In response to a question about tariffs, Josh Jepsen explains that the company aims to protect margins and manage the financial impact of tariffs and inflationary pressures that have been prevalent in recent years.

The paragraph discusses the goal of protecting profit margins through both cost management and price strategies. It acknowledges that achieving this involves multiple components with varying timelines. The conversation then concludes with Josh Beal thanking participants and ending the call.

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