DE - Earnings call transcript Q2 2018

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Operator

Good morning, and welcome to John Deere & Company Second Quarter Earnings Conference Call.

Your lines have been placed on a listen-only until the question-and-answer session of today’s conference. I would now like to turn the call over to Mr. Josh Jepsen, Director of Investor Relations. Thank you.

begin. may You

Josh Jepsen

Comptroller; Please Also are earnings, Deere’s spend our Hello. the call some are a President we’ll today and and Communications. Manager, to Thanks, for we’ll outlook current After Today, call then Financial on Officer; They Kalathur, take time and Vice Campbell, that, Chief Division; markets, look this slides at of Brent quarter can on Max fiscal Raj to respond note Norwood, Forestry complement the Investor at Angela. closer questions. Ryan be the and second your our Guinn, Construction available our talking about that www.johndeere.com/earnings. XXXX. morning. our website accessed President

on First, by a without consent transmission copyrighted in the is and future the & recorded Deere of this strictly written prohibited. reminder. use, use transmission for any This and call recording live broadcast Any the part express broadcast projections Internet, other remarks Company. as of or are in Company’s Deere comments portion and call, is may of Participants the their future likeness the risks call. used media and session, and Q&A concerning be stored subject the call including to includes all earnings plans This uncertainties. forward-looking that that important and for of agree the being

America, the principles Company’s of United Additional measures conformance with Exchange information and financial the X-K in not materially generally GAAP. recent in most concerning may filed Securities accepted the in factors call that contained Form with could periodic cause are differ actual results accounting Commission. States is to that include and This reports

is our Events. to the www.johndeere.com/earnings reconciliations Quarterly website included in on & and information Additional release these concerning including Earnings comparable under at posted GAAP measures measures

Brent Norwood

customer gains markets strong Today, John to favorable world for improvement throughout making conditions solid while products. construction sales in was Deere sharply market higher continue second helped in equipment and another the a higher. to Farm earnings machinery response our are sales a It by performance, broad-based innovative quarter. reported the move

our beginning closer results to a Deere were million. results share. or favorable net three. take income detail, up quarter adjustment of $X.XXX second Net look for in Net taxes was the let’s per Company billion. billion slide to Now, $XXX attributable $XX.XX at The quarter included $X.XX & sales and provisional XX% revenues to on income a

item, $X.XXX billion. X income On four, this Excluding $X.XXX XX% sales net up was acquisitions the Currency by points. of was billion. adjusted was equipment worldwide impact total were slide positive XX translation net operations to points;

note and driven of effect volumes the of businesses, from review Turning our individual higher impact last Net SiteOne. the quarter-over-quarter profit currency turf the Operating in XX% $X.XXX to from the Operating translation. a that with billion, in by the five. comparison, a higher up quarter starting were comprised reach was sales and quarter, quarter partially also the material progress year, addressing important from offset made supplier over freight higher higher for has costs, the as and costs. products shipment logistics to margins our R&D as largely challenges production benefited well by increases ensuring in timely of of shipment primarily up agriculture excluding on XX%. It’s customers that same were slide Results and XX% favorable manner. Deere sale volumes,

business. the have increasing corn ag respectively. and in are to response let’s lowered to decline stocks-to-use and outlook, XX%, Argentina, sales industry the expected review look roughly demand On and soybean fundamentals corn slide soybean we ratios production by country’s six, and which at drought XX% Before affecting global the conditions in

billion, receipts receipts from are an projected modestly seven receipts. are Receipts offset farm flat prices forecast with are partially almost cash be are decades, be to outlines stocks XXXX. highest its growing prices. supply by farm in due XXXX. $XXX in production. also two offset cash XXXX U.S. close While wheat projected Crop extent last flat stocks-to-use ratio decline to by roughly lower cash estimated lower Slide to to commodity demand remains and with livestock to export increased and on-par as to year are strong level domestic

concerns sentiment global on equipment trade While shows weigh holding as prices broad-based and overall demand move farmers, commodity is upward improvement.

now above is XXXX. production, XXXX. value the pressure the remain crops signs Despite The below eight. although for long-term slide of showing be on as to long-term offset the are with record business health about outlook averages, harvest on and such season, crop in Brazil. the the economic slide is in Northwest ag later year to value last improvement differ may the as is areas year. soft on Overall, production though to arable expected good fair Europe of for of expected increase slightly soybean being the The agricultural partially for late a remain rising in Brazil in chart prices agro same in Margins by displays Shifting farm left averages of some ag are a start margins prices. conditions value by crop the Our to segment EU proxy region of a nine. production dairy production sugar the condition XX in

June interest less sponsored slide, ag-related finance policy government On rates Moderfrota Rates you prevailing below the than shown of rate favorable will through for the the for see the region. and for are right side programs. eligible are

book, a shifting anticipating up customers of July strong sales therefore lower year. in year. which from into the the in are However, is evident This shift half and second last order rates purchases is in

has soft production, dramatically have prices, XXXX half margins and fundamentals, the increased with the second from of soybean confidence movements. XXXX season as the rising corn FX season farmer and commodity for benefited favorable industry began While record

whole period. year. continued year. primarily extends sight drought and experienced for guidance. tractor previous up previous Similarly, equipment double year. in in XXXX, excellent productivity, operating Deere Replacement Asia, its strong India industry about are drive our and Our be fundamentals in and strong flat which achieves as U.S. need for industry demand of strong to Canada to for This updated XXXX sales into ag tractors as performance. outlooks forecast up projected Industry offsetting is warranty technology to In be deliver Replacement improved America, slide results in on region. by book the up large customer within for position XX market-leading extends sales the summarized financial sales its be XX. a October. from XX% relatively industry by Argentina the be to Brazil, X% XXXX is half first region the now driven increased Order year. driving to weakness turf demand approximately are from which sales X% though are are results conditions reflected the industry the and increased continues program, industry EU The as to digits unchanged the unchanged XXXX, South Combine tractors and to in our demand to is forecast caused combines from in is of Early is outlook Shifting by for The expected results order in the of

points of on sales are of equipment slide to sales XXXX, now one year, turf operating The forecast positive Turning turf XXXX, XXXX. to about Canada industry ag for flat Fiscal ag of roughly be to the Deere point currency projected after retail be and from XX%, up up division’s are up the U.S. all forecast is the be XX. the on year including to product about X to category, turf in worldwide gains SiteOne. Putting and excluding translation. of XX.X% equipment margin and together another sale about and in X% utility this

continued cost higher being reductions and addressed freight costs through impact the structural actions. future material Importantly, of is and pricing

on compared by the were forestry Net XXXX. construction forestry on closed X slide focus demand strong let’s acquisition on by and Wirtgen, construction sales driven XX. equipment, the with as Now, for of as XX% last which December and up well quarter of for year,

was quarter of benefiting $XXX profit million, well inclusion shipment as from Second higher Wirtgen. as the operating volumes,

due like quarter, business provide comments to unfavorable update the President C&F XX% will call. conditions profit and of Wirtgen. would Max? the in margins to been the Guinn, for welcome operating I Wirtgen’s first-year but He C&F At Max effects on an purchase this and the contribution However, transaction. were X.X% associated accounting the point, overall limited with acquisition. excluding Forestry Construction of Deere’s on Wirtgen to has the

Max Guinn

everybody. you, morning, Thank Good Brent.

on slide We’re XX.

the continues to me Let forestry demand saying road-building for used looks equipment. support start economic off It and good. increased new environment the industries and by for construction,

new and provides investment to to than prices, U.S. X.X% for being be a production year; construction. the above X.X%, economics we have for For is home at continued homes and demand oil a to construction. average. drilling at that’s activity are X.X had further with grow by that’s that comfortably new led above in housing year, XX-year grow foundation lows Oil barrel it in and GDP growth. units Obviously, we for expected. increased residential $XX continued solidly U.S. that inventories XXXX, Meanwhile, is the a of result In of the XX-year XXXX; housing starts expected to forecast remains million available-for-sale construction existing that’s by shale breakeven supports faster prices and that’s be gas, and a forecast forecast and price oil for progressed producers growth

That’s good news update to going likely we’re forecast. though. So, that

rental and is economic XXXX. significant being machinery order gaining and addition, pricing In improving in also placed resulting positive that factors continue book traction. in are positive utilization rental reflected are a already strong These for rates orders

machines, Group. asphalt as transportation the greatly broader Those Wirtgen and is global exposure XX for grow and than such to equipment view Wirtgen road Deere’s to maintains forecast that’s position, market-leading products faster segment move a infrastructure; all in The slide and a update which construction increased Let’s to is are this equipment. on investment newly global driving cyclical the leader as Global year rollers growing X%, road Wirtgen milling globally. demand we enhances transportation construction less the acquired in an acquisition market. construction pavers.

core such see double-digit of and to Wirtgen India. growth continues spending due and Both market-leading solid position. in is transportation in and markets Importantly, are the for U.S. regions key those as to China growth Europe, a

we continue. to Turning towards integration impact on exceed to share margins target with current are pleased million value-enhancing €XXX and seek market and through as joint opportunities focus that that of And Integration we’ll level path to meet say I’m savings our is timing. operating by to its Wirtgen strong, obviously, Deere-Wirtgen other the accounting. expected company very excluding excellence. XXXX. operating expectations working out order activities of is team of underway synergy see that XX% a clear book relentless well the the to continue purchase when to performance. high The achieving continues

increasingly finding two distribution to we’re business, learn Wirtgen’s we opportunities leverage As more about channels. the

Just to territory. the for while anticipate channel two integration examples. fill Deere’s true able the coverage Mexico was to the U.S., leverage We West further opposite City opportunities Virginia a In in in gap two progresses. the channels as Wirtgen was

XXXX, ownership. For that is billion Wirtgen in revenue. year to represents of fiscal produce Remember, months forecast XX $X.X

project contribute now accounting. that profit with in the of purchase the and for we will unfavorable costs Additionally, Wirtgen even year, million $XXX acquisition operating impact

year. is fiscal current Wirtgen positive strong Importantly, generating cash in the flow

Beyond XXXX, estimated to be range margins accounting XX% to XX% Wirtgen operating purchase includes and in are adjustments. that the

XX% to equipment for want the result I Deere’s to be shed forestry moving of construction as of the rest on XXXX for and about the demand light sales like we're what look forecast XX. finally, as to stronger for year overall of up business a C&F acquisition as the slide a are well things So, in now little Wirtgen.

global attributed now strong about up XX%, Canada, markets Wirtgen. the as cost we sales of includes improvement revenue forestry earlier, be The C&F’s cut-to-length in full $X.X That forecast about negative in for impact As acquisition. the from X.X%. Europe is forecast operating the projected margin of purchase a includes and U.S. accounting and is of in result and products to for Russia. acquisition year and to billion demand the said sales

taking by pricing Wirtgen, margins to Excluding profit second is the that operating we’re partially guidance now in half XX%. effect actions the operating and driven about will take projects year. be That of C&F

expect back We for and offset margin Brent. allow to to growth inflation it in continued material I’ll turn future over cost quarters.

Brent Norwood

of the reflecting losses forecast. Let’s to forecast on end provision XX the This the portfolios. excellent our for financial lower X X will April, loss loss for of of XXXX, losses XX-year year previous annualized average services XX-year credit continued slide, points. Slide XX below shows a for XX shown the of points the the about a operations. quality average provision provisions put the financial for our portfolio. move just basis The contemplates owned percentage basis points, our XX, was basis of credit average At provision as now than point basis of and the the points,

XX. slide of results income a $XX for second & to attributable deferred year. The million repatriation. roughly Moving quarter, net $XXX Worldwide million was net from Company in Deere tax the charges, deemed of last financial earnings re-measurement flat tax included reformulated and quarter the to the assets services arising with

year full to forecast the million. XXXX, about For and income is net $XXX be

Excluding the mentioned is to be income impact items, million. net the for reform-related tax previously adjusted forecast $XXX

rates and Deere and be inventories. to forecast John XX%. Beyond are for outlines XXXX, receivables between Financial tax XX XX% effective Slide

In to attributable $X.X the billion. By XXXX, Company. the the a inventories percentage Wirtgen, inclusion receivables fiscal largely million the due from sales. and as year are XX About largely Company the $XXX second levels, to ag, sales net quarter for is relates translation. was shows a sales division, XX.X%. of the Wirtgen, Slide of sales increase $X end C&F is increase to as change of Cost for the expected of the For cost whole, receivables higher by and XXXX driven to as across currency ended of quarter sales. the while increase the the inventories higher of as billion about well up

costs of higher sales, these is as costs, costs. from up and compensation higher XX% guidance. keep incentive material cost sales XXXX, XXXX Our and impacts freight of modeling When in guidance mind, previous production X% unfavorable net about such

the side, X expect product more mix. favorable point a positive realization On price about of and we

of quarter. let’s some is up points impact to an With respect translation was Now, R&D Currency Technology. to points, unfavorable XX look details. at River on Blue another second had acquisitions XX, and related X of in slide additional R&D the expense the XX% Wirtgen while

X activity be of about for with precision and key balance increase translation to relates Our and R&D the investments XX%, XXXX R&D forecast help point. for that increase calls in currency up ag these growth points for ag the for X acquisition-related accounting drive of strategic areas. to The large

activities, accounting up slide the operations with to XX. equipment most for expense SA&G of acquisition-related incentive second in the quarter translation and now the XX% Moving change. for compensation, was currency

forecast for XXXX about SA&G XX%. is Our expense up

in XXXX. Excluding about acquisition-related expenses, is SA&G forecast up to be X%

of quarter, the rate earnings net to slide in to related the from XX. and asset was $XXX tax The tax arising million, equipment Turning deferred tax reform X% due repatriation. operations re-measurement second primarily favorable adjustment deemed

XX%, be For the remainder the of XX% the year, the effective tax rate full-year range of is expected to in rate effective to a XX%. implies which tax of about

outlook in XX. $X Company’s billion in financial guidance of of XXXX forecast operations The XXXX, of liability, on forecast rate effective is our to compared flow. and net about to projected XX%. equipment shows $X.X is decrease cash is $X.X the of payment Flow XX fiscal Beyond billion. anticipated from to year previous billion between be pension The Slide tax and operations OPEB equipment an be towards history Deere’s taxes. now to relates slide XX% strong

equipment sales XX% be year. approximately compared forecast the quarter same last are quarter up Third with to

XX%, sales Our up outlook about be X point positive point price now currency includes to full-year translation. calls realization which net of for for X about and

deferred Finally, tax net deemed about million, net resulting forecast reform-related $X.X our and is full-year earnings charges asset full-year income includes now from repatriation. net tax GAAP billion. income XXXX of re-measurement $XXX forecast The

excluded our XXXX. these in net $X.XX to of the opening $X.X the to compare be in items, adjusted lower of adjusted November note, It is tax Excluding income important given rate the guidance billion. order impact to guidance about of budget net benefit previous of the is forecast to income billion

only deemed for guidance assets benefit excludes and to deferred earnings call but over quarter’s tax re-measurement comments. of the the repatriation Raj? ongoing of Kalathur lower the the turn tax rate. includes now This closing Raj I’ll

Raj Kalathur

we of the to quarter me the a rest and Before share few let respond the on for questions, year. your thoughts expectations our second

need increased geographical both productivity as are we and demand C&F to turf, and note, latest to drive across sales and important strong express equipment precision ag regions continues in their by technologies. Replacement our First, for enabled demand customers divisions. seeing large ag from

as are stretching strong healthy growth, in rising GDP of the for reflected indicators heard oil from book which a economic such into C&F, generating XXXX. prices is Max, XXXX, For you and equipment robust as order remainder starts demand, housing

Second, the to largely although year demand, the prices U.S. side positive steel logistics economic environment for is some for headwinds in costs inflation largely Material our forecast there to supply market overcome. are exceeded for freight providers. and have a tight due and

the are the for we year. actions over indicated, remainder will pricing the effect Max of As take C&F that business executing

projected these inflation actions division. for material Importantly, should the C&F cover

turf, and customers. large book for early utilize order an For by our backed retail products. advanced tractor Orders generally equipment and seasonal typically we programs ag for are order

we history an over result, a an and annual have of increases implement As utilization typically on basis strong price a extended price period.

the model customers more bring take inflation additional overall inflationary set we not including will confident prices next model actions, that will time, At that in in also structural As year, value our into year are cost in and this than our reductions consideration the but only prices ‘XX to both we we offset pressures. market XXXX. conditions, we making for

strong that excellent divisions generation second equipment of in will in quarter. we our share across demand repurchases year. two cash we experiencing result Lastly, Note levels have for flow the are resumed the

the and tax of We $X in advantage XX%. the of third liabilities previous quarter, also over take anticipate billion to up pension our funding to the OPEB order course of rate

the performance in further targets a the to cycle. improving the Overall, Josh? Wirtgen, demand consideration to for and will outlook dividend dividend by during of the be continue through the ratio, work inclusion for it XX% and year. sustained payout this previous to and in Based cycle our mid-cycle will results of it’s can are remainder we remainder earnings and XX% Additionally, desire of under our delivering strong the XXXX increases encouraged the of on year. maintain be

Josh Jepsen

ready the hope participate yourself polling Q&A we’re the procedure. of others to more begin limit on of you and In our the one will question. to please The the to you operator Now, portion in call, of to instruct call. consideration allow

we you the rejoin you queue. additional ask have questions, If that

with reminder, as a of Operator? is Guinn, available President As well. questions here for C&F Max us

Operator

Our Instructions] Jamie Credit Suisse. [Operator question first from with comes Cook

Your line is now open.

Jamie Cook

the Raj, margins in the could in One, assuming inflation levels? question saying, of, quarter the like I quarter the longer we going what’s action, on is I still still two normalized you’re hold you next they after on below versus supply back pricing we’re ag for it sounds should markets guess, as the -- guide given the to then, second last the term for my I more terms and issues above thinking about morning. generate And look questions. was based a the in same business, incrementals pass chain that hoping little well the of two remaining Good able mean, Thanks. were embedded given sort business. quarters, elaborate we ag in and average what year? you’re up, issues still be should we for half

Raj Kalathur

None Hey, Jamie, second the changed. going margins will do first. strong into in I We ag. take one anticipate think, we that has of future

constraints facing we're So, short-term. are more the

it improved a couple As nicely. supply was are just issues, less we months Availability to now inflation. and of on actually purely question respect steel described, issues very back. of a than also it’s concern With it’s your inflation logistics

Josh Jepsen

time dealers significant The execute product there since we the there February customers. to experienced to saw really and in as and add continue we’ve and improvements most we is only thing I we seen out would get frame issues

Jamie Cook

at That’s figure chain for is issues the But guess your half constrain XXXX? to supply trying question top I line what out. my of I’m do all back the

Josh Jepsen

No.

the think, I you you we from our you saw that actually previous at of both actually, look when think volume divisions, improve guidance. about slightly

Operator

Jerry Our from Goldman comes Sachs. with next Revich

Jerry Revich

of you what’s of back driver you full-year versus expected I’m out in business. standard of see accounting, give just more annual you raw margins can ag back material assuming what play in QX could quarter can big about because I’m rough sense and the can how accounting talk much the morning cost the good proportion the a us of in incremental a of half? that the inflation the cost Hi, everyone, inflation turf recognized if expand for in but maybe And half? wondering is second we we better a the bit cost on flush drivers you the just standard that out the

Josh Jepsen

Thanks, Jerry.

in more of think, about think you quarter, second impact turf, and when freight. I of was it an ag the

were products out were And supply as working the make sure expedited of to we’re some more of half when material dealers the those come freight definitely So, through start freight, the as back had pivot and customers, trying to of we so. we through to getting higher we levels year, you you our see premium to issues.

second quarter the freight; So, it’s material a was back combination. the say you see side. more I’d year, the on more half of

does As for the and ag a we have year than usual have or in a typically about margins second turf typical you large would that for year. think the half more ag of the business, year

of a the result that, and see see result in a better margins half. as large you also ag more improved you of second pricing As

So, favorable. that is

Jerry Revich

XQ, down there flush Have no just seen that significantly is just a back on please? rate Can assuming since you premium the the freight premium why in half? premium out And clarification quarter-end. we Josh, you are sorry, already in freight

Josh Jepsen

demand and We moving up. rates do really expect a to see it’s of as result freight, and allocated

to that to got So, the move on I next we freight material you back said question. have there than Thanks. weighted the well. though. as half, in in more We’ll

Operator

question from Mig with Next Baird. comes Dobre

line Your open. is

Mig Dobre

Wirtgen? a of increased I’m to activities? SG&A, can, for does wanted guidance little good is this your if how to reduction understanding trying cost to And, relate couple acquisition-related exactly, what things. in within a Yes, from morning. about this Wirtgen I profitability we bit talk

Josh Jepsen

Yes.

those you business, So, are of where when into you incorporating think those little classified. about really, have SA&G, bit our amongst costs a movement as it we’re

really our as making process. adjusting and we them that’s incorporate forecast into their to largely changes So,

a and to think about a XXX, about about profit improvement from it’s to zero the operating and really the purchase performance. changes you two-thirds adjustment operational about accounting As third related

some the is but majority purchase accounting. to underlying So, improvement there business, is in the adjustment

Operator

question Next Cleveland with Uhlman comes Adam Research. from

Adam Uhlman

commentary large lead if tractors circle out to -- the Hi. is Good wondering could It for we and morning. time are ag back I turf. to already like was sounds pricing October.

you’d just in higher that like that price next how talk to soon. So, this be also considering you putting savings flush some pretty maybe maybe to the through that of year? you increases material offset, Could out point. cost think increases magnitude steel the would And you’re have here at much costs incremental productivity, you

Josh Jepsen

Yes.

in So, on few start XXXX, the -- we for about early we year pricing have here as think seasonal do products. weeks order side, programs we’ll model a

planters, those of will out. sprayers, types things come So,

pretty pricing, general. that’s we product early to think talk going about product. In think to be about to we As in varied it’s total,

for Given in be XXXX we seeing are where we’re to the expect XXXX. at mentioned, in and offsetting we’re do, than pricing inflationary that take to we going XXXX more the year, the Raj pressures as

Adam Uhlman

Do you that X% think to for the than you the half guiding you’re of XXXX? second need more

Josh Jepsen

assume What result last of going than we’ve the that, fair years, done it’s think that. be to as I a to we’re higher that. few

Operator

O’Dea Vertical Research. Next with question comes from Joe

Joe O’Dea

stepping now Good consideration front? what cash dividend do comfort the gain bit little repurchase the increases on to need Hi. how Raj, commented the on up and respect is balance you there. more to morning. strength, strong on just under you and With a

Raj Kalathur

same. changed, So, they’re our have priorities the use cash not

taking is advantage last are of XX% things tax fiscal will One not rate, XXXX earlier said of we filing. tax we which after the

mid-single the we priority order So, share we that’s and the finally have dividends with pension otherwise, and that repurchases. it’s towards. growth and A [ph] organic And articulated a OPEB. and investments, work That’s inorganic

you dividends, are earnings. we the XX% said, like at mid-cycle of XX% looking to On

Share think -- and that’s consideration. seen in consideration, given future, the seen have dividends the term use growth back we we’ve anticipate your We investors. recent and investors question, minded considering repurchases, is which we this increasing in start is value notice it long-term minded under downturn is performance strong longer generally, the about to that under did shares. And the residual you’ll we brings And cash. of buying

back larger a you So, is term longer buy there the short-term shares when versus value minded us a minded intrinsic of see a will between more gap investor. investor

So, firepower cash course do all have, the going as have our year this in and of cash of you to mentioned, that of terms ample generation we’re we going justice. forward

Operator

Rob with Melius Wertheimer comes question Research. from Next

Your line open. is

Rob Wertheimer

a otherwise? seems what took explains Wirtgen. up question the else in for you Is products heavy on any Is for or that you’re sales not you’re there shouldn’t Wirtgen. and doing construction any that It outlook construction, industry? reason follow anything destock doing Just quick those there it

Max Guinn

quite be There is is nothing to in I does business executing read We growth It reflect provided that. initial and forecast solid. they’re into we don’t believe. think well. Wirtgen’s the considerable

Josh Jepsen

of what a XXXX The double only again, thing would off too up was Rob is backlog digits strong. strong very look And I add there, that’s as we is when well. at the backlog,

Operator

Gilardi Merrill comes America Next Bank Lynch. question with of Ross from

Ross Gilardi

from as higher partly to billion to take would I of I next you about did I year? $X.X the billion. advantage first contribution wanted mean, to ops $X imagine flow we So, cash XXX as given about the tax ask should horsepower that assume that bump bit high rate, the the I guys pension can of horsepower XXX large. weakness wouldn’t above. persistent And in be talk a then, contribution you above. little for just and tractors the classify know we’ve you tractors AEM seen and data of

of driver segment, I’m midsize is less you. which more So, data seeing that the is keep a the we for really Thanks. wondering in in weakness

Raj Kalathur

take the I one. Yes. will first

the In rate. that yes, XX% $X OPEB, billion terms of tax advantage pension it’s of in clearly opportunistic taking and

of -- and plans We some And this requirements. is well-funded. of are into our not said our have mandatory have of do pension advantage take pension forward contribution is year We this can this pulling XX%. contributions any you think

the this So, things see capital into Those another cash flow, it’s opportunity we high from types going growth. sales requirements advantage impact giving should of year and are take to that next continue be unless know. you on, so the that see working Otherwise, some you to of as not will perspective, and you returns.

Ryan Campbell

add this the cash is impact tax, This on year’s to that’s operating and to Maybe just that $X billion, Ryan. net $XXX million. flow of the to so

$X that that. the will on minus get a it’s So, deduction XX% billion rate

Josh Jepsen

Yes. think, Related you’re plus category. a I to AEM, very right. is XXX large

are then tractors large midsize row-crop tractors, you talking tractors. So, utility and

wide you We’ve portion I’d is timing lumpy. is certainly horsepower. there mix say, and high when be seen what month-to-month adjusted. think can about this be weather So,

to we order at strong look particularly of our see As at the believe our position. really is we the going very -- we book full, to retail confident year, in this, we ability are and execute look rest are retails as

As large the books out Brent October our order mentioned are retail earlier, tractor timeframe. into

really feel the we and in to good retail So, come book maybe we that the shifted seasonality going normal of continue expectation terms but through. that to versus are see slightly order will about

Operator

question comes Duignan JPMC. with from Ann Next

line is open. Your

Ann Duignan

do you about pressing versus you getting used the that risk back into have used again? back in leased you balance talk of back it's the of more great off equipment sheet? we new balance, sales, How can in And fact particular, Can little under dealers bit have guys demand, of but into you the to new equipment great replacement the equipment address their a how getting slot how a take slot? you are balance evolve to equipment to do your it equipment sales light

Josh Jepsen

if we about throughout of been downturn. focused Yes. when for years, this think on we’ve there used, a think think, the number Ann, you I about

about down used That’s ago. from much were down; peak. where a equipment quarter XX% is the pretty are we We

levels, feel And like since great in you made seen XXXX the And at before. we product have used are we we good [ph] across we shape. we're look So, great, or strides. equipment haven’t categories,

sales dealers is great manage we’d a Row-crop work of and tractors, our little still in our say, work do, to bit we’ve we shape better in done teams got of that inventory. there than So, the lot by a past. but to been

not X% think, I And balance we we used returns about and used universe make sure managing think about continuing are levels lease of as returns, you the as you whole that, that that we the to when to it’s only of seeing think are equate and rise. about grow inventory, lease that total. inventory

amount. huge a not So, it’s

certainly work make managing focused it returns. on in with want they’re those sure are and And dealers are it. to We our working engaged to we

hasn’t as inventories at. leases And are changed, But, are customers those. where good as our to maturing we through prices strengthen, come So, which work stabilize and with I proactively use well. down, to definitely, seeing there we about know that start think dealers use focus as working we’re we helps feel and strengthen,

Operator

from with comes Wells Casey question Andy Fargo Securities. Next

line Your open. now is

Andy Casey

Couple on of Wirtgen. questions

revenue $XXX implied pretty operating X% much You the is now year, half about about unchanged expect the for margin. second profit and million

expectations guess, the the outside to question for accounting First, should amortization ongoing expect contribution? increased for of this second, XX what help complete you XX. profit end understand that longer think the about implied prior outlook the core how of I us And outlook margin adjustments from And second term neutral bridge can to be is, I drove operating to the the half of purchase the we fiscal by X% year?

Josh Jepsen

thirds adjustments, two XXX, as to from continue margin zero a we the side. to on So, that about really accounting through operating purchase of integration on work that’s the

third operational The is other really improvement.

now full-year, margin about operating we’re X% to talking about think you X% the for the so As full-year.

would at throughout the we’ve at what XXX negative expect rest be improvements end the of operating to terms about in building of the obviously where see to You first to started, year go we year. from the of in profit of now, the kind from done quarter

Ryan Campbell

through will this this is and your to balance come over the biggest the is -- up, year the it of through will This purchase the Ryan, on over P&L inventories ongoing come step component the as the and through year. question of P&L accounting that date come

at margin bridges from Next that. or looking X% minus of intangibles. you XX% just the amortization plus range. the should clean That or to the with year, X% XX% this to be you’re up And it year, that

Operator

with Next question comes Seaport Global. Mike from Shlisky

Mike Shlisky

QX that that you quarters, this actually start But morning, very to spring on business? wanted of quarter you the have seeing mention any Deere the business here quarter, Good in And share comments. of kind some some of outlets to I about did companies March you slow turf. ask the want think, to ask, last wholesale, comments reversed also in season have retail to recently? in I’m last I couple language kind Do April. your turf weather not that due experienced expects to if the and what I the here turf guys. gain of the I could. in even in has on of was

wondering if So, I’m there. Thank what you could has changed tell us you.

Josh Jepsen

I that spring impacted the in think, had when has the late that you think about turf, the quarter. weather, we

turn in weather. think, I the seen a we’ve

catch that are the is and improvements that seeing. I you belief given turn there we think up, in still can weather the So,

that is there think achieved. can that I So, be confidence still

no Deere I that. outperforming, our terms the in terms of of no, expectations on think, in commentary change

that. So, read I into wouldn’t

Operator

question Next Fisher with comes Steven UBS. from

is line now open. Your

Steven Fisher

year revenue In the a revenue currency. help X% in terms the bit is from half of implied the second about with of the little guidance, of growth ag

So, some Because approach conservative that be weaker assume half? that actually to are you you the it have sounds first will X% commentary a did like since ag on positive. pieces fairly in how slowdown guidance there? from or there a overall Is is your

Josh Jepsen

we the I of as up XX%. the you division, think, took year kind When been ago I now we the Steve, look a Yeah. and up the year. for XX% organic full at year, for up at look quarter we’ve mean,

there weakness very is I So, that mean an and or I embedded our say, there. seeing -- order is our strong wouldn’t demand we’re book. in conservatism

North year. and customer the South think demand year, in good the I seeing So, we whether about that as or it’s look America, demand, good feel we’re feel we full Europe; demand, at America about the

Steven Fisher

slowdown, so, the is just is And comps that or…

Josh Jepsen

Yes.

I think, really it’s just seasonal.

Steven Fisher

follow I’ll up. a Thanks Okay. lot.

Josh Jepsen

Thanks.

Next question?

Operator

Tiss BMO. from comes Joel question Next with

open. is Your line

Joel Tiss

it is How Hi. going?

Josh Jepsen

Joel. Hey,

Joel Tiss

warranty about if a bit can in little wonder business. talk you the the issue C&F I

what it You see and just to just about. was mentioned all it I wanted

Max Guinn

anything Joel? don’t on I did we think mention warranty,

Josh Jepsen

What were to, referring you Joel?

Joel Tiss

was bit the right. of All warranties little in Just I profitability. that later. a in were slides the follow-up can negative factor the

Max Guinn

Yes.

we’re offline. follow-up sure not I’m tracking. that Let’s

Joel Tiss

stocks, as year. And of the your And out towards some we to on the stocks out dropping decaying? the you that’s end that. of global is Chinese the then, underneath been slide corn use bit a what’s go corn use, the taking Are quite on I the wondered just

Josh Jepsen

Yes.

favorable. So, warranty that is just quick, actually

QX what’s going favorable production item, slightly with a So, quarter-over-quarter, on QX XXXX of that XXXX is a lower Stocks story negative. is the demand for really year. warranty and for use, not the C&F, versus

no exclusion tightness lower production just for year. is stocks, as and terms bit the we’re is in there seeing strong you’re there there demand of So, projecting little of the a

Joel Tiss

All Thank you. right.

Josh Jepsen

Thanks.

question? Next

Operator

comes question Emily from McLaughlin RBC. with Next

Your line is open.

Emily McLaughlin

guys. Hey,

couple a of Just questions.

U.S. the a bit soft. little were So, the for your sales Canada versus retail April and March and industry

on the color secondly, little surprised you America the you given more didn’t And are half. mentioned maybe favorable in books back then South do we you any wondering order Just and have that? little just forecast, your raise strong a now

Josh Jepsen

Yes.

there on retail mentioned, sales, there. we be the So, could month-to-month, the as movement

we very and our confident those position -- we’ve orders. in is view of retail book the Our feel order

about good see expect in second what feel half the of retail. terms year we’d So, then to the year full and of

think you we basically, and a of a had bit up little to about strength in in As A ago, a quarter little bit said South shift. Brazil. America, Argentina flat we

weakness the Brazil. a Argentina, with so shift little bit of in there, seeing improved sentiment We’re in now drought that but

for the but half so, this be take we about haven’t seeing the margin and in of weakened, July. announcement in reals business what mean, that FINANE, side the effect FX you result, next their of good year demand, had first still wanting for helps expect a I that of are to seen. as we the and And the August, kind farmers. to attractive program Brazil see are perspective, half strong customers to takes. a So, year, economics from second more puts your Expectations that of as and July the the point, confidence; X for you which has of are will And we relates those will do feel the margin rates. those farmer deliveries that then, the But were program the it remains

Operator

Next question Courtney Stanley. comes Yakavonis with from Morgan

open. line Your is

Courtney Yakavonis

question Just on another quick Wirtgen.

I quarter kept XX% about came and the XX, to in this at know adding I think, only you had it for to the guided and guidance year. ops you’ve equipment

into some want in just next year XXXX? related and that we should timing the understand, other I there to supply Was wise discrepancy about to chain is So, think seasonality issues? modeling how

Josh Jepsen

Yes.

think And keep So, what full-year, here their I in maintaining have own a mind is they lot of -- bit a we of that distribution. timing. there little

are trying from just perspective. to sales but not to We also dealers a retail forecast,

seasonality, So, on no as but it’s taking year. through bit little concern I work the a full we think that time of

Max Guinn

different bit not had done lot It And for they There of involved. entities ours. process. forecast. just reflects are quite maturing a than the processes Wirtgen’s forecasting were monthly a a of traditionally

full issue transition a it’s at issue. the an for not So, all It’s year.

Courtney Yakavonis

that say to So, as Europe as to to the safe the was is that well related in of it U.S.? distribution majority their

Max Guinn

of the kind forecasting just It’s process.

Josh Jepsen

No Yes. geography. specific

Max Guinn

geography. No

Operator

question Stanley Next from comes with Stifel. Elliott

open. is line Your

Stanley Elliott

you You or production Is that the book give XXXX. all expectations? you or there? sitting is C&F kind mentioned class order Wirtgen, on order really with commentary, that of what’s to been driving that focusing book more have shift out more out that Could a normal equipment

Max Guinn

customers and be sure prepared to purchasing It’s for they both of to a are say the make And their for see dealers plans largest customers to XXXX have that our that I’d upper execute that they able definitely their accelerating end. some books. are on towards shift hungry We equipment. work

the if your and end, really is strong demand answers on big strong question. it’s really, So, very that

Stanley Elliott

and you you are either a you. the of Europe, the It things couple lines together, mentioned the in does. anything businesses? coming on is Thank side synergies share of in Asia, there anything distribution Mexico, could those how Wirtgen along Virginia and in And between Deere West terms

Max Guinn

in from we -- not from we and are be are but of. we going questions Yes, those where some can those you care taking it’s C&F equipment, excited about but that the on daily basis take are customers we we a we I opportunities there. but just geographies place of are the answering and about when take matter to present Wirtgen customers to expect really to that It’s time, are going tell And and in have mechanisms be shipping of taken way orders support not we a also they know care making sure can it’s geographies realistic.

of of time. It’s take lots a of bit little to is front going there in So, us. opportunity

Operator

question? Next

Operator

Sachs. Goldman with Revich Jerry from comes question Next

is open. line Your

Jerry Revich

to couple years X.X% the at about upgrades. over Yes. the next should you couple five if talk realized also I’m annual of years, be pricing that next past on line you’re product from about price was for taking on and increase cadence the the up, differently features front turf average, I on due could this year based you based if wondering any you Thank different Raj, product wondering think I’m of follow-up. ag expecting years, in the line. Obviously, of thinking pipeline, And we all.

comments any helpful. be would So,

Raj Kalathur

these value ‘XX Jerry, able then a X to are as June, But, about we in like mentioned that be much we think terms of that for for Those inflationary year almost will with but we will exactly I addition you of appreciate, not the the be pricing, of are model model at as start provided come points the we and when. be exactly, we’ll orders tell also you ‘XX, said, how model you ‘XX. for, or August, bring year course, we some we’ll thinking taking some X you will around in of not the year the times the looking only price aspects. producing increases, products

a model regard; ‘XX ‘XX it’s year is the to ‘XX, do healthy there. So, going going to we from like be have that

If expect you investments our that see and adding, get better. innovation R&D we’re you can should you

research innovative to going out importance be still is in especially ideas sector. place development pricing positive, precision coming get and in to ag the the opportunity we our and and pretty So, on

Josh Jepsen

It’s there. we’ve made, didn’t I add ag, R&D as downturn. think I’d precision during pull important, significantly about you we think investments down that the

we’re in So, products in, product River investments be making automation those well. portfolio, will those coming out the and like and Blue that technologies, be will you coming. think our as machine learning, are about And into now, the that incorporating future things when

Operator

from Larry comes question William De with Blair. Maria Next

open. is now Your line

Larry De Maria

are. noted Your principal more they their competitor price, on a might bit given margins be aggressive where

you kind playing just Europe, you secondly, up bigger levels? this give in to [ph] curious price you. of to willing sentiment at seeing motors? into Europe, we’re you’re or And cycle? kind the seeing of you mixed you to some just and what Thank if back Just this bounces if And take is some there. where curious share then, for picture, is on indicators We’re curious where and think start think out around over certain how level peak some are normal which XXXX a

Josh Jepsen

been, we as we’ve historically look Europe, say below on we’re starting levels. where demand still at Maybe replacement we Yes.

So, -- had as it’s market that doesn’t wide a a see fluctuation.

high But we So, we tractors, consider at didn’t but -- we’re we look would we say of or where lows. for also seen demand. low industry when highs combines below haven’t still normal for the particularly replacement kind

Raj Kalathur

why the about earn pricing there, the on We customers. ability we pricing longer with more we more or pricing us loyalty think in gives more that’s the pricing, general, longer-term And customers value gain our think expected mentality. pricing about in add don’t also a think from term. and This short-term

think we how pricing. about philosophically it’s So,

Larry De Maria

just stretching book -- pricing increased, I to has the year, new and to order is be that. or prices clear next want on So,

Max Guinn

pricing. I was about that right? think C&F Is your question

Larry De Maria

correct. that’s Yes,

Max Guinn

not reduction. net didn’t cost at in guess, the really beginning. a I’d saying, on by year I first some off based the on we Okay. that several focus years be this internally generated We start have cost strong will reduction when hear

I due think the believe. earlier. reason give don’t don’t actions the to to as share half appropriate our second be in I we we’re take So, feel to going pricing -- improving, we any don’t I margins to keep said are to up able price, have

I pricing good manage think, earn well. we our share and can a

Larry De Maria

very Perfect. much. Thank you

Josh Jepsen

for the out that the running side margin when The on point thing too look we’re there about incremental you C&F to year. business, at XX% ex-Wirtgen,

So, about that. good feel

Operator

with from comes Raso Evercore David ISI. question Next

David Raso

the morning. pull Wirtgen, core the Give think to cadence you I for similar low expect second Hi. do quarter so where third follow-up. sense. a have your then, slows do Max, quarter growth, comps? were up you a growth, XX%, it the And I C&F or the after of Hey, ex-Wirtgen understand kind be out just sales Good on for business

Max Guinn

slowdown there. No, it’s So, David. see don’t any similar, we

David Raso

That’s what I thought.

almost sales organic, we That’s for quarter. Wirtgen have for guidance be of do the the hit it sales call is And hit idea understand, the forth, the it want of full figure, quarter trying math. the growth quarter, XX% full that we third is rough third so A&T color quarter. a That or order that are sales how all you make that revenue the third get sure you A&T then is your guide A&T you quarter to for the guide? just in to company -- growth I’m But, you about, and if zero on the have year right. that’s sales just that, third conservatism XX%, for is fourth So, Is giving means quarter just the to has fourth to A&T sales to guide for we just trying imply that C&F it nil book implies the call the growth to the given XX. company your the I -- almost full

Josh Jepsen

I mean, I think reasonable. your math

really we about planters sprayers, as build in for you there when seasonal and think about spring our we started the do thing you’re haven’t spring those for the think, and quarter quarter, come yet. I the delivery. those we fourth will the think those know products be building as in, that not to would EOP the start reflected is And seasonal fourth you

that’s visibility think tractors, where seasonal -- don’t spring So, that we -- think that we And a I there. products, see don’t I where that’s we do have yet. you large do visibility piece Combines, we those have what yet.

David Raso

field make on but flat I of we’ve the suggesting on are quarter, us Those things sort the fourth fourth summary? raise just fair book from is based book work on your the is fourth is hands and not order try not on really the leave to the quarter call a done. a trying should mean, quarter you’ve So, not to that flat. now sales, thinking A&T be right just the order said, clearly you’re ag,

Josh Jepsen

October. that’s fair. to large the -- programs. the quarter, what Like have those I order combines more said, see early into when we’ll strong, we’ll we reiterate third think I’d get year, we obviously I But visibility tractors into out again,

that So, firm. remains

David Raso

appreciate Thank right. All you. it. I

Josh Jepsen

thanks. Okay. Well,

hour. the the are of We top at

ahead call we’ll And rest of be day. Thank backs go call. you. the will the we end available So, and the for

Operator

in participation at you your for conference. Thank this time. disconnect today’s Please

Deere & Company (DE) 18 May 182018 Q2 Earnings call transcript