DE - Earnings call transcript Q3 2018

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Operator

Good morning and welcome to John Deere & Company Third 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 over the call to Mr. Josh Jepsen, Director Investor Relations. Thank you.

begin. may You

Josh Jepsen

Controller; the at your Financial slides quarter on then and are Kalathur, take spend and Raj Information that, Communications. Manager, markets Hello. we available Today, outlooks John current our XXXX. call this earnings, May, Chief will can Corporate President some Vice Officer; Ryan After closer Solutions our Brent call. note www.johndeere.com/earnings. President our third be our Norwood, for Officer; will we questions. Investor look to complement Also a Campbell, today to and accessed Deere’s of Chief respond and are website time talking Please fiscal They about Agricultural at on

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

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

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

Brent Norwood

demand our John to a a and in another replacement activity contributions market agricultural reported The while group. quarter product global sales of higher investment and and Deere large both result equipment, our operations and positive housing advanced equipment earnings from In continues response construction oil were solid financial for sales gas, equipment to increased innovative and markets, lineup. transportation. drive favorable services with from had conditions benefited

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

Slide total item, of was net quarter Excluding Wirtgen X was this On X, was Price realization operations to billion. was The point. worldwide by positive $X.XXX sales X million. were equipment up negative adjusted the $XXX XX% points. in translation net income by point. XX impact Currency

quarter sale profit lower expenses. warranty Operating on from agriculture margins turf XX.X%. quarter Slide shipment price to the of starting $XXX same Turning Net our the XX% excluding Operating businesses, primarily for were when realization SiteOne. individual impact up the XX% review with and year up the last or from the of were X. by in higher volumes, and million, XX% comparison was sales quarter-over-quarter a driven

and projected crop ratio the decline conditions region. response XXXX conditions ratio roughly expected stocks-to-use we experienced Slide than global country’s lowered Sea production Conversely, Wheat in Before in On ratio XX%. response the the X, business. in higher to corn Black intensifying let’s in the Europe, sales stocks-to-use in to the is U.S. affecting soybean is to increasing in decline which look corn expected build drought by ag yields forecast is to Australia and drought the at demand Argentina, the review fundamentals industry to stocks-to-use response outlook, during in first to

on U.S. outlines increasing cash receipts export seeing Slide Crop be roughly are X As XXXX XXXX. cash estimated with by livestock par export also are to are strong as farm in result, U.S. in to with last market. billion, balanced about receipts. a prices. year offset softness and demand are flat favorable be to for from are year. growing Receipts soybean $XXX flat the farm projected due wheat commodity domestic lower farmers cash demand receipts supply corn prices and the and by partially

the X. for on outlook economic Slide ag is Our EU XX

the production strong export about industry negatively the benefiting sales are Slide the to demand displays Western began production and this health still left production The regional while value markets. of value results conditions, in last slightly chart Southern production, the wheat in the prices Europe, have across recent key a below increase droughts contributing regional to X, slow in long-term in droughts. start profitability in good crops for likely arable prices While on proxy due XXXX. Profitability margins above though in is EU recent earlier agricultural to expected for year. the input favorable as is the to impacted fair costs remains expected Furthermore, after half Nonetheless, more to the Shifting the on will business increased Northeast agro a segment Brazil. Brazil more value be ag overall be dairy averages. year drought also varied positive Those averages of impacting Overall, crop the farm long-term second conditions. season of Central conditions. same and of remains the year of with and by severe report regions are crop

On exchange the market us of would and continued like Information and share update provide soybeans, precision in Deere’s to finance for and M&A These announced Interest cost while lower reflected pricing market. were in our region. financing review well the Officer. as He June, right Agricultural such John increases positioned solid eligible Solutions for the Overall outlook Deere’s recent favorable quarter’s as supports in period program positively on the an XXX May, offset decreased for crop equipment the results ag-related points, of Chief Higher features enthusiasm grace strategy with basis the to Moderfrota popular for welcome XX-month on and X-year repayment will program. XXXX-XX received farmers conditions a in regional this ag and I a in were during confidence demand strong prices. call growth slide, transactions At turf, care. President point, farm the shows operating gains term sponsored strong along were place. large freight help farmer the rates for the Brazil comments In premium and kept of you recent see factors, of rates will details side rates in for trend for programs. and government John? very ag

John May

Brent. you, Thank

sales Our XXXX be in summarized U.S. are ag on forecast to XX. the year. Slide are and approximately turf Industry and up XX% for Canada industry outlooks the

need fleets as For XXXX, cite their replacement strong technology. by the show largely to results latest update productivity aged demand customers preference the have a for greater and been driven enabled to

firm supports trade still as which than overall sentiment have in XXXX X have regarding results we demand on programs, it results. weighed recently, and it’s too higher year’s replacement XXXX early ended reflected still farmer more Phase order while improves economic from the coming Even conclusions rates that sprayer planter precision invest noteworthy strong ag programs, both seen issues With to slightly to X of draw last early demand, growth is to over our And Phase technology likely benefits to precision features, in continued farmers fluid highlight solutions the show and of our the both clearly to remain ag of the willingness outcomes. demonstrates sentiment take of the advanced early and which economic higher order strategy. our a productivity months,

outlook X%. primarily industry on the This the combines of which by to Moving be to deliver In solid XXXX, XXXX to South up America, first guidance year. be weakness by driven in forecast unchanged X% in sales tractors industry EU year. are of drought sales to though and and approximately Asia, Shifting relatively is in between projected XX, for is results industry XX% India to previous strong Argentina offset region. of from a result are in the the from up is to conditions industry flat as to be continues of the Brazil, in experienced X% expected half fundamentals

to from of Putting of worldwide the XXXX up sales sales roughly are up operating flat and are SiteOne the year, to in now turf division’s U.S. projected year. be and XXXX is the forecast Canada turf and sale this gains about be up points equipment the XX.X% utility of altogether approximately XXXX. on retail The Deere industry year excluding Lastly, in ag be Slide turf XX%. ag X X% after to to last and equipment fiscal forecast on for margin XX,

insights into leading our industry machine the current group Deere’s execution I farmer. mobile on collaboration XX, Moving management is Deere’s ag elaborate In precision ag journey solutions the provide like would job product on to the and and and optimization, strategy Slide for precision with strategy. platforms, intelligent advancing in to our

and aggressively two advanced extending leading have to is Over in more are our the decades, position last we smarter than introductions of support. already telematics, Recent achieving some ISG’s and operations excess demonstrated of tools, customer hardware precision take precision to XX%. any invested available Today’s other to solution economic equipment digital the in precise easier, ensure farming rates portfolio include hardware, in we and committed significant our solution cases and future. value industry

multiple optimize Advisor settings sensors and Combine in combine quality For minimizing better example, feature the while resulting released losses. to automatically recently grain algorithms utilizes

are increase in by With telematics, Additionally, reduce there spraying field input the ExactApply nozzle XXX,XXX and the ag currently provides today. control individual machines introduction X%. X% to regards over of technology yields to to our costs

enables making recent the critical operations operations. the record sub-inch it is technology. noting production countries manages to Our decision this John in is farming on farm. as And products is increasingly delivers the of in have adoption a automatic data Slide become In available guidance XXXX shown year better And that center and system Deere worth years AutoTrack and seamlessly XXX accuracy digital XX. on

connect our to the engaged excellent to and XX the support Worldwide, farmers. impacting Deere at over costly to has Additionally and rate are system, progress On to our alone collaborate both in These the expert significant farmers data industry and optimization, to enabling an provide service. to we our rolling trusted are of digital partnering advisors. the collaborative seeing a allows uploading enhance alerts allowing XXX technology maintenance engaged XX million into that is provide their U.S. accelerated customer customer we acres capabilities avoid Canada in are innovation dealers acres with feature companies example better tools. and predictive in nearly recent most actively basis adoption. the the now dealer, times alerts an to enabling notifications Related farmers of using machine down

enable years as the capability decision adjust. the that our computer basis few drive Blue optimistic River’s of of away about value. dollars last product view state advance machines the the These first thousands in will we to individual future four, level. for Given as billions field, sense further currently today and Deere weeds See the of chemical and chain. commercialization, the our jobs from in artificial acquisition this potential & to testing The product just improves food identifies machine enabled artificial sprays To instead Slide ag This of of through usage iceberg, field & but acquired we technologies amount viewed will the spraying economics to River but product tip XX, Ultimately, machine learning, enable recently use one, integrated strategy. eventually inclusion capability portfolio Last holds have we portfolio, action pleasure Blue few the to; our leading inclusion The of the entire the month, our be learning increasingly completed robotics intelligence to shift Texas unlock the learn company this competency Spray for farming are care that the increasingly know equipment. acquisitions agricultural current plant field. making over let’s on used operation core of level of precision ag from many harvesting demonstrations and journey, farmer, the the in the appropriate firsthand, automate precision season. decisions, other this XX Spray care in impact vision we and three, year to of where right in a This while discuss in vastly acres still selectively further of our and on in to The in is in decreases Blue and a enhanced is the of two, a feedback down intelligence solution reducing the as which industry. let we herbicide make the which execute Customer product the global River and Technology. competition ag product us planting then will steps the Turing the Deere see ag conditions automation was ability customers in machine a a provides highly are from we of encouraging See equipment. could precision I the technology. attending Day the are supported crop development crop had path.

monism planters planter few, Deere market market-leading Over the Deere most capable recently their last an our Monosem, create region. the and Agro in four PLA positions or leading either enable combination provided the utilized of transactions abovementioned King crop market effectively to completing Each very geographies. strategy to years, provided execute X and the acquisitions will acquisitions Hagie Deere and Deere product provided a highlight a Europe has capability. forms industry-leading care and Deere position leading tractor Hagie, in the including the acquisition. Similarly, with and for help position PLA of M&A announced in Mazzotti the To respective

Deere Importantly, most will and and in the and R&D a further the critical ag. for products Perhaps lead advance call precision I transactions enabler these with investments. Norwood. right with Deere components. Brent? is to globally increasing to technologies a key both pace keeping technology, our manufactured as technologies and the precision back Brent served to rapidly complement have Deere combine supply transactions enhance to turn over to importantly, foundational precision our rates adoption With extend organic inorganically other

Brent Norwood

Net improvement. equipment well up of and as for strong $X.XX acquisition on year Wirtgen, the sales by XX% compared as of focus well XX. contributed let’s the up Now, for construction forestry were quarter, XXX% with demand positive forestry billion, Slide and driven on which as last by construction the

incentive from profit Wirtgen for XX.X% partially higher quarter, expense $XXX was sales lower production offset benefiting C&F margins and acquisition operating expenses. million operating cost the X.X% quarter Wirtgen. warranty Third excluding shipment by were higher and but higher volumes,

and for Slide strong XX, the used road-building industries economic forestry look to continue for and demand support and construction, the Moving equipment. new to environment increased

continued Correspondingly, For about at X.X for of X%, with U.S. as and to is the to to about demand is XX-year for forecast new remains solid and levels grow XX-year current housing year, housing serve starts the construction U.S. segment. GDP existing available-for-sale housing important lows. which Residential as units at continues remain XXXX inventories the expected be above homes average. in indicator suggest an sales earthmoving growth equipment demand million

demand. about now is further activity backlogs extending the in average in many which led are investment supported barrel for oilfield and for to construction oil is forecast to X.X% the contractors With increased through year equipment grow year, Additionally, U.S. the largely oil prices by $XX XXXX, gas. for a forecast for

year rollers is Wirtgen. demand asphalt this equipment, indicators all a economic reflected construction to important and lines extending such These order now machines, for road strong which driving as transportation product increased forecast X% into is are Lastly, milling positive investment in well book, XXXX. for global pavers, which grow about are

equipment to and Canada negative X.X%, the on XX, a result Moving stronger as Russia. in forestry about FX. sales global downward in to $X.XX be XX% net improvement and acquisition the due attributable to acquisition full demand projected of Wirtgen, in market up C&F’s in Wirtgen. and XXXX is for The result outlook was up a and cut-to-length as includes as the are U.S. demand products operating which construction now The adjusted strong of includes XX% C&F forecast about Wirtgen. forecast Europe sales for entirely be margin which accounting forestry year costs billion about and of as about to is sales for to the Deere’s purchase of impact from forecast Slide well

Wirtgen, expected X% perform operating the to X% backlogs to XX.X%. as our to Excluding be operating with margins guidance. and strong margins projects forecast of to high-end continues now about Wirtgen C&F achieve

basis year X our will XX-year of basis than XX shown financial slide forecast XX the our on of lower loss forecast. a contemplates to now XX losses operations. average provisions as below put the points basis services percentage the points, portfolio. move the owned provision for average This provision the about Let’s the for of Financial a XX previous Slide and loss XXXX average of XX-year points shows credit for points.

Slide services $XXX financial tax charges re-measurement of deferred to million the arising attributable net about $X the and reform tax worldwide Company earnings quarter. third The results & quarter net million deemed Moving in from to the income XX, for included repatriation. in asset related Deere was

income related up compared third same to Excluding reform net million, quarter last the $XXX was adjusted year. in XX% tax items, about the quarter

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

of impacts the net mentioned the income be adjusted reform forecast is million. items to $XXX Excluding tax previously related

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

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

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

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

at third of XX% let’s Approximately respect increase Technology. on acquisitions the additional XX% expense XX, to With about Slide Now, the quarter. R&D of look the and River some up R&D Blue details. Wirtgen to in was relates

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

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

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

acquisition the forecast for be Excluding related SA&G is flat expenses, to year.

Turning deemed tax to Slide of quarter, a XX, third which in from the deferred rate XX% approximately year of XX%, and expected approximately range effective tax rate XX% full asset re-measurement equipment was to operations adjustment rate tax in arising which $XX the is XX%. effective included the million net a reform earnings related quarter, tax the Fourth implies repatriation. to be tax of favorable

XX%. – history equipment $X.X last flow. in capital. year. with XX. forecast are the on the an forecast quarter For compared outlook is to XXXX, Slide Cash of to to sales strong largely anticipated in XX% shows effective working billion now same increase be quarter be guidance flow cash previous $X.X The of company’s operations billion. rate for projected The about equipment our about Fourth financial decrease decrease up forecast the XX be is relates is full between tax in equipment year Deere’s compared from is to Slide operations XX% to and XXXX

calls outlook points the of which one sales of to includes XX for Wirtgen. now net Our full up acquisition realization about point and be for year price about XX%

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

net is the Excluding turn items, about forecast to Kalathur $X.X the call impact adjusted Raj? of over I these Raj closing to be comments. billion. income now will for

Raj Kalathur

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

equipment First, it’s as even for ag trade. around the continued the faces uncertainty important to demand note industry

that remember to take farmers invest in a from been have sentiment the economic precision for rates initial farmer is shown are enhance While to willingness has produce and market and features. tangible programs, operational advanced environment, that it still evident remains continued in produced high our our which in critical we early in results. results order dynamic efficiencies this replacement This technologies

form outlook strategy. ag demand continued in both still XXXX, our a our affirms overall believe the it’s for precision investment complete While ag current to too early equipment significant and we

our Second, produced two the solid have levels excellent equipment flow cash of demand we are across divisions year-to-date. generation experiencing

a As last quarter year’s X towards rate. advantage higher our contributed of third take the billion order to we during corporate in tax pension result,

on Additionally, mid-cycle order dividend XX% share we XX% earnings. in fluctuating of dividend confidence our desired to our to to week, XX ability in actions worth ratio during we per our XX% announced results a that shares. the market towards conditions. May million $XXX last increase in quarterly to quarter repurchased even These build of In $X.XX payout deliver targets reflect to

demand we navigate model as on agricultural flow for for tailwinds delivering as beyond. the unchanged. uncertainty, even technology our to policy remainder early by grains remain the Overall, the work for year to we interest global strong year our the ‘XX latest fundamentals and and readjust changes. for the accommodate to in patterns to encouraged Global results continue of to trade consistently Lastly, various are come of markets will grow underlying and continues outlook XXXX and model business this rest

Josh Jepsen

Raj. Thanks,

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

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

As be and Angela? John a will reminder, for with questions. us available May

Operator

Thank you.

[Operator question-and-answer Instructions] with our Goldman comes Our Sachs. begin from first Revich now question We Jerry will session.

is open. line Your

Jerry Revich

Good hi. morning, everyone. Yes,

Raj Kalathur

morning. Good

Jerry Revich

your categories, year you you crates based ‘XX? enter technology we in to this as the are the major take the remarks, rates prepared advanced past precision folks and that technology, of John, that do wondering you for like saw if results I for look about expect what alluded you the take am what equipment on over to could the talk course

John May

would first Jerry is to is technology you all, So, are Number to I of take going it’s the the based see machine there such a base optimize screen sensor in included think our software rates, and one, performance that those and that where of areas touch vehicle’s things about the within cost be machine think getting. on that way our our significant three of displays data equipment. this have feedback as amount is

subscriptions in listed be on We options add area, you also and Maybe that to that the see me rates think And I Advisor where guidance couple the equipment. adoption. RTK of you make our Combine fine-tune fidelity have based take strong machines technology for a premium third precision an choice higher systems. across areas to your example report options facts you premium take monetization would give moving or and ag These is example in rates of to be see you would let find we we if are across those in of couple the will one a yield. our to seen the And required systems customers active will. agricultural then all their of Overall, interesting.

systems sold and was the which If at than you XXXX for we you we did AutoTrack more the in in equipment. of XXXX. production agricultural compare AutoTrack year XXXX, To AutoTrack XXXX in look peak alone

across regions the you we last of increase the at overall technologies. and rate years X adoption you take see and four the the every If year all globe, over in region, each an look look individual

value structure going forward. that continue customers business and profitable that makes and excited So going are number benefit ultimately is their significant greater making cost the productivity, to the seeing the really of cross us improving the technology their more them to that one, have to business,

So can we have the excited been seen in take it’s for more what in are years rates. I few we significant past. seeing the than in are we you tell last

Jerry Revich

I – am yes, sorry just please.

Ryan Campbell

XX%. Ryan. Maybe ‘XX rates is our are this perspective productive, And the units. an most they to ‘XX row just is up from most ExactEmerge advanced an expense, take

that machines. you kind of based give what just lot to So of crop we high and an the of technology we delivering care are order a on magnitude our a are productivity and of the seeing

Jerry Revich

Okay, perfect. Thanks.

Operator

Fargo Next question with Wells comes Andy Securities. from Casey

open. is line Your

Andy Casey

morning of wanted implied more to and right be and and somewhere improvement seeing math I that have looks expecting trying that, of I kind thanks. that I in year full doing am like is seen will these or XX% you Good QX back into I if less be around update temporary cost guidance are gross assess on get if am margin, the if the take now? to you I you the that wondering than seeing are step-up, productivity headwinds, and it the year-to-year of a the each am quarters kind are curve what sequential bigger three flat just really first driving a is you better or could cost an

Josh Jepsen

about turf about see coming that look the of ag in. the actually for we on when perspective as Andy, think year-over-year we if those costs at higher XQ. XQ in from looking impact example impact would are and materials you I side, do be kind think a we

see way impact that We do XQ. you lagging, in about have the are contracts so talked our

and seen of light have when in the think margins year that well the quarter. think fact same in turf ag higher FX the full importantly the about as headwind you our an I material we stayed have as

Andy Casey

would as the you productivity, in neutral Okay. actions you gap the go to you doing ongoing price-cost expect or maybe that are narrow fiscal the And or ‘XX positive? into pricing with between

Josh Jepsen

Yes.

and same. remain in from ‘XX The commentary actions about to are we have we taking the price that ‘XX, we would ‘XX. last our quarter, think you expect we seen offset from year As that inflation material

remains that unchanged, you. so that. feel Thank So we in confident

Andy Casey

Thanks.

Josh Jepsen

question. Next

Operator

Cook with Jamie question next from comes Our Suisse. Credit

Your line is open.

Jamie Cook

to Raj then I should just relative this am so ag have the year, you your Hi, last level down ‘XX order as give and guys on a it to there. sorry normal, where cash of on balance last as strong, question, could is we terms seems has stock Thank versus for good you visibility color you. of if very color you can another the more sat to flow grow think think – book, good side a buying we like earnings? in well come what’s morning, quarter, construction the stock lever if visibility back quarter fair in you the there another little obviously as you we is sheet so more you start repurchase that give just any And are significantly, given could color as

Raj Kalathur

you want us do answer? one to Which

Jamie Cook

of All them.

Josh Jepsen

side, as book, Jamie, order so I Brent book see on the order extend. will on the noted construction to continue start we

XXXX. really are driven into seeing well from That’s backlog are customer demand, extending. that with by We are contractors we what

will would there I we have traditionally visibility So as about XXXX. more think we good than say

for would most working into part we QX think of be through I ‘XX. the –

ag the of June, slightly about EOP in first we it in you ended order that higher. that John so early of those mid-July, phase. think at phase the when more seeing that first As the mentioned about ended are Even in uncertainty up saw see we we the activity you end that tend phase even think began that timing to program the some, side, of phases the first

drive seeing through about replacement feel are So, technology that good demand I the that continued think the we adoption, business. come we

time order tractor ahead about think on you of higher this a year ago as were slightly year-on-year we book, production where think I at were a schedule. tractors

positive would that be So, as well.

Raj Kalathur

the have always see investors we it appropriate an think them room to we for on that mid-cycle opportunity and dividends earnings. is long-term said add always as that repurchases, there repurchased might A growth. past strong demonstrated important cash most continue And priorities not John have cycle explained and to and and will actually Jamie, there. XX% are we growth we shares. we throughout rating investments as opportunity and delivering And of dividends, when we is flows the for generate results flows we the What XX% our when mid more about as there we I you have use, good very and know, And our have value will priority. And to to adding as cash see and be our the again in changed generating share expect on the growing strong cash second minded have to

think the us back share We – set expect be values you shares. prices, have also higher, our given current to some intrinsic so are should buying we much

Jamie Cook

Great. Thank I in get back will you. queue.

Raj Kalathur

question? Next

Operator

question with Adam from Cleveland next comes Research. Uhlman Our

open. line is Your

Adam Uhlman

Europe everyone. your you sales wondering lot with standard view morning out? what’s over plays guess, was And you emission if the that could XXXX half there happening with full pricing positioning changes, on dairy calendar there how in outlook, well? and are then you if your – good year talk Hi, any as I is crosscurrents is could Thanks. on inventory of doing we through I what’s that pricing. of raised second expand wheat

Josh Jepsen

for I Adam, livestock in long-term when you Europe, this held think we we there average, what think seen have margins have the dairy margins, have about have supportive. seen is year, been which

the by year, stronger seen been not have it’s in to I’d side, be places the places are think say improvements impacted have some see the arable on very impacts I though. important you also And that margins. tend we that Deere. starting have markets where regional This for drought are seen to drought. from we

think fiscal about I year. for our been as we impactful So us think that’s

fiscal difference you but in the have think some is a think with when that about fiscal of not year. year year, I calendar the occurred versus registrations that our with calendar things

We prices have say have seen that the are benefited the of helping you are that by in places downside European as that offset seen some that are wheat farmers affected drought. well also strong to

John May

particularly goes, line inventories we with inventories, at field in ag America are think retail we I when feel As in a inventories, we where mean far think about large demand. global manage well I North good producing about as think basis, we our continue to on the overall inventory managing I

difference we have major or inventory I’d is our think think we buying as So, no patterns significant your inventory the built of as the ag line each there got small individual really because little say have bit we market. of world don’t the there about, in inventory have talked field, strategically we to of terms to in shift ensure I that those I a rest of product of customers. about or view any And think of change

Josh Jepsen

thanks. Alright,

will question. We go next to

Operator

next comes UBS. Our Steven from with question Fisher

is line open. Your now

Steven Fisher

morning. Good Thanks.

headwinds going is cost think should tailwinds costs impact, comp? wondering that goods the organically, next net or be on more, R&D, the XX%, X% of I and you what abate just as other if a focusing SG&A bit to other sold cost about about cost year. than Just incentive we and thinking other mentioned little

Josh Jepsen

Yes.

even is of you benefit adoption somewhere when and seeing throughout we technology. R&D, technologies. we think ability as John strategically are about in R&D think I continue in a take in invest tend downturn at pride today the where mentioned to the the that look investment of a in as one of that to lot to R&D, And we and the and more strategic business of the

I think high off take invest on not sales think that things costs, some continued the things of about SA&G, think as you Wirtgen. of deal the will are basis that’s to teens. some acquisition are flat in with sorts So organic when probably roll you on we those SA&G significant And we of I and up side, changes. an out that an area

where think have costs have I that’s we So we taken there. have an area adjust to able as and out been we leveraged

Steven Fisher

I we next this And thinking for a a reset should incentive tailwind point? comp, as at mean that be year as

Josh Jepsen

are up Yes. I million this year higher $XX slightly. It’s I year would this mean we year-over-year. about

change, a in, come it As depends our we there. goals expect shifted have on of would I amount difference really so and where significant

Steven Fisher

Okay. Thank you.

Josh Jepsen

question. Next

Operator

Melius from Our with Research. comes question next Rob Wertheimer

line is open. Your

Rob Wertheimer

up? but inventories bump operationally second thought in I for both on work in you than different don’t I and briefly, in but a not generally what’s caused know up touched a and Hi, to question it on row, there anything the divisions ton, maybe which just you were is think so receivables quarter a

Josh Jepsen

Thanks Rob. Yes.

the you that. think Wirtgen piece total at is big the when a I change look of is

own I of retail forecast their through just the their part business. think They that’s kind there. and in the world large of a working

I portion think large that. that’s of the So

this on slightly ag really side and if and higher extending C&F. you on last slightly to XXXX. sales order as forecast line the on quarter, earlier mentioned think into I C&F look at quarter in up I seeing compared up our book with what are we

ag think seeing small on a And driven is are The be on of where would the inventory as that’s business more some is increase. on we is other piece growth. side really that overall you ag GDP that about

to see continuing there. demand are strong We

major driver that’s there. So say I would the

Rob Wertheimer

was And dealer fixed little areas the the is Perfect. of else bit, on? or plus, XXX the on a like up inventory anything XXX is going that that kind

Josh Jepsen

I XXX bit ag. category tractors as more talked supply our we wide really about those year utility we issues I constraints will the a really have different in would large shifted XXXX, a we across on of we little through some got we as as of the year talked from but plus say large think categories kind have that’s is half of second ramp-up of seasonality and about this the – production

seasonality year. expect maybe – we are from and we in half bit will that of we So that do produce a latter through sell that little atypical normal the and the

Rob Wertheimer

Great. you. Thank

Josh Jepsen

We next will question. move on to the

Operator

Our next Shlisky comes with from Mike Global. Seaport question

open. is line Your

Mike Shlisky

know it you a from here, – quarters sense on it’s share in Good growth the outlook I Wirtgen we about earlier also morning, as what I few starting so wanted the year, as organic in if Wirtgen the a there, any us more share can has has early changed give far questions maybe is are ask to to gains U.S. the gotten you ago? could

Josh Jepsen

it as performing Mike, order just up margins when over by at stepped we be really have to have we not if really guide FX. look the impacted at Wirtgen, couple about, The expected, we last strong. their business And was revenue of we there, the when quarters. better as we backlog seen look continues has actually talked is

kind transportation road higher slides So – our up the look X% think building, we year-over-year we of continued double-digits, in to me have about up sector is I in excuse some their little emerging as noted single and global growth, low we key markets. of think that

think would perform have hoped. I continuing to that’s So as we

Mike Shlisky

as And so have far concerned, as you share think? this you if anything gotten the gains year far are

Josh Jepsen

additional performing Yes. of lot and We comments think I as hope would don’t we continue to a detail expect. there have or

Mike Shlisky

Josh. Thanks,

Josh Jepsen

Thanks Mike.

the question. to We will go next

Operator

Capital comes question from Seth next Weber Markets. RBC Our with

Your line is open.

Seth Weber

think margin is mid I margins, incremental Josh is kind of a point couple morning it and this guys. said Steve a the just for Wanted questions, your good quarter, and for high of of prior Hey, go and on fourth XX% but looks about costs back Andy to implied this about thinking the the headwind. that you range ag kind turf cost asking to like

range? you turf ag in does better are So next comfortable us should sort about Thanks. with of than XX% be and – mid that year that thinking I mean incrementals

Josh Jepsen

as the material quarter. some the we talked we headwinds think when fourth you headwind the is think got there in FX freight Seth, I quarter, of about about and and

quarter. is So in that particularly impactful the

a you discussed, the price offsets think inflation forecast about I ‘XX the we we that as in yet, forward, we think cost the have as seen don’t expect and that XXXX but will we we going seen. that that And we ‘XX. impacts have have in material for obviously, that have comes have inflation

and margins impact, year, beneficial be below that the XX% material our up you you at you excluded at – impactful be today XX%. say to around XX% will that So too full about I if just look our margins. freight mean, if would

Ryan Campbell

right to are Ryan. clarify just we year. we full correcting Fourth is And what exchange, had mid foreign XXs quarter, that consistent range, for which with this have for is in the

Seth Weber

Okay.

that mid kind of that saying, it’s FX because So, to low XXs, skewing what it’s are kind is number, of not Ryan? you was

Ryan Campbell

Yes.

about the of Some obviously hitting material us. respect with talked that things to Josh are

the we We step have got talked R&D have up that about.

entering us about announced is then going have Josh we feel comfort marketplace with margin from that into give what actions comfort incremental for is which implied And pricing the mid-XXs, that get we the we to should the if perspective. next the everybody give good an as and the years you in you consistent adjust been said FX, have So number teens saying.

Seth Weber

Okay.

follow-up offline. it. will guys. Appreciate Thanks, We

Josh Jepsen

Thanks.

Next question?

Operator

Our next Ann from comes question JPMorgan. Duignan with

line is open. Your

Ann Duignan

good morning. Hi,

Josh Jepsen

morning. Good

Ann Duignan

the with fact in reduce with square you your replacement quarter. both a ask do your now the to would those and to warranty of warranty enabled like about to having farmers technology in pieces the how costs their those wanted question square you a is square And of first cost because at where replacing, we I cycle are you discussion I that just of predictive of and lower accruals your maintenance you. telematics help their high to together coming warranty costs? are cost, out expense, warranty? fear of need feeling that farmers Do lower are Thank lower versus equipment equipment, their like with they all because a of their higher replace the lower farmers warranty warranty, afraid

Josh Jepsen

continuing I as good to think we warranty to and we of which lot us the and downtime to of is products concerning. experience reducing warranty been get the there has you making reducing a particularly rightly, are noted are sure are a and they on cost focus and having customers

bit let our in As John I will what pop help bit let offerings, more are that. perspective reducing little on are certainly care predictive a we it to they taking doing maybe the it, up, you because relates I issues expand about John little maintenance a a does before will – talk warranty, but but of on

John May

the for Yes, Ann. thanks question,

and that to take as today data in are us ag, are in the look you streaming we are the that a large connected the at they If XXX,XXX fact they that field to field. are we large machines production have

with a We set potential dealer failure that within be the on then they alert. of the on and with the we the phone receive to advanced happen, could a the and failures data dealer. customer customer, part ability of that’s expert minutes, have algorithms the to based predict And the the before to the communicate solution of

put customers. over big machine on before impact impact had and it you you, launched machines in a our alerts predicting if in has just streaming technology. We they quality to uptime had that Just the were big year last for actually failed, a for we on perspective that XX,XXX look

Josh Jepsen

you. Thank

Ann Duignan

lengthen will replacement that think lengthen the the you and lifecycle of equipment the So cycle?

Josh Jepsen

Yes. take you. that And Thank we will offline.

Next question.

Operator

Partners. Vertical Our comes Research Joe O’Dea with next question from

Your open. line is

Joe O’Dea

good morning. Hi,

sound that of but construction of things, given and you increases sense the on have price some implementing I inflation, the some effect flow see that the for Anyway, strength that year, are we think the just to through of increases given book middle I full ag of you P&L year. which start order on the makes price a side really when terms the do this book ask think size year construction next as on pricing well? won’t to cost see to order the mean wanted I of Just it until in in side like response on we take

Josh Jepsen

construction Thanks a side I market. on Joe. This continued is the a good mean to see think have we I question. competitive pretty

price As you see realization those a quarter, into effect did X. were year. the in we we actually July actions pointed out – half planning some about put talked and the we as And price benefit discount reduction actions last that in of of that We second the effect July. took

also continue model but So your our see continue moving other on, market year going – to things that at will you ‘XX, what’s material and look have cognizant the we expectation about we prices to fact be based, think got we is the in benefit to started quarter. that to up. fourth as then And

Joe O’Dea

Got it. you. Thank

Josh Jepsen

Thanks.

Next question.

Operator

next from Volkmann Jefferies. question with Our comes Steve

line Your open. is

Steve Volkmann

or all year I similar other etcetera, we picture and farm are be here, major sort and changes to our am a in you or trying sense that replacement do of of you get Great. but income, the and up good of just the just sort tariffs think would guess – all would to next we maybe demand expect sales question, that is? like what kind things think sort ag I I less, figure Thanks morning. amount tariffs out more of you the guys given of try stuff, cycle would big can absent had starting replacement

Josh Jepsen

I I is fair. the are we replacement seeing what that’s Yes, continuing. demand think mean is

that productivity, I continuing of looking down with not some some tech, through be think buyer I are the think equipment. and really demand is of a some sentiment seeing is working trade months latest but just these that trade obviously we new updated ladder. for the this see weighed technology of And concerns, the but what’s over important upon to for

seeing. upgrading important fourth second as think terms that’s the we they it’s or what technology whether really are third buyer, are I in of So well. And

are back they terms ago, we really from necessarily grow we step when at. flat think changed quarter cash and I relatively receipts the we globally drive for where where and at are haven’t were and are in to to grains of continues demand where fundamentals, look

Raj Kalathur

Steve, Raj. Hey is this

total to situation farm between indicator Let okay. which is a corn, But a fundamentals you it think economic strengthen ‘XX about more as large the dynamic we the what add ag cash now result situation, And soy me can change. Josh cotton like actually wheat, for for said. forecast receipts like see few now double right and our crop right sales. conditions we farmers this The would comments crops outweigh leading the for as

noises to be demand that for absent be XXXX, would of will higher than For say up. XXXX the other that these all

in commodity anticipated XXXX. prices anticipate the costs, major farmers, input large ag we would crop higher Given for customers be acre metric XXXX tons and per than to

for Now, some stronger, tons rented an perhaps say half to even beans, is up metric illicit year. land we XX% see have of indicating Midwestern economics acre be farm, per above corn, the half to this

the change costs. conditions that is of if overall economics high North too stronger is the equilibrium, conditions market an okay? metric it little realized worldwide point and trailer cost years American opportunity And were to may farm And back if than up, few come up highest the farm cost in that this to market availability Now, fundamentals the of past things were the but now today. the would may Uncertainty farm over acre on X more say farmers have actually tons picture the being or some improving year remember be may down the changes, would seeing next commodity with this something beneficial, because be for go be if in surrounding from show made cost for distracted is so economics so. that side love you can per there

So thank you.

Steve Volkmann

something than I just let’s we a Okay, similar great. had quick if call get Can follow-up, Raj, it….

Raj Kalathur

take We it offline. will

Josh Jepsen

offline, Yes, follow-up we will you. Steve. Thank

question. Next

Operator

Bank next Our Ross from comes America. question of Gilardi with

is Your open. line

Ross Gilardi

the some of a some any would of that? both these could towards thoughts influence lot mean these take itself, to these revenue the ask drop-through drop-through how of And Yes, good for wanted basis think bit, points actually growth and this billion advanced features growth could equipment you on high XXX it I would add would for into And morning margins, than guys. advanced I year? how rates going I couple a of potentially any farmer and of just it on $XX is of that equipment? comment much how be be on higher a would features then work just sense subsidy, it next

Josh Jepsen

Ross. Thanks

the on think the I with of aid. $XX maybe billion start to farm latter

have think address really resolution solution issue, viewed you a to the doesn’t getting the some positively concerns. bigger trade a short-term but as been is of long-term which I

three I that think terms components. is uncertainty there of the in will bit how of work still different a in program fair

of the be You of to soybeans, the it purchase the vast market try which on food have got the promotion. as as big to piece, facilitation dollars majority particularly some and I expect that’s cover assumed of trade impact trade, is then those think to the well

I’d the clarity So a my early due to being around is know think more those I there that for still calculus today. and those later necessarily come there those how don’t right now, but how programs much together questions, lot September, I I is will of August think in farmers and be will factored are transact, into payments understanding say

your talked XX% terms in our the year. by what mean technology active you we to past think we ExactApply take about what rates margins, of this talked on I about seeing are very, some XX% kind double we those As encouraged nearly question think does were of we are on about, Advisor of that as and ExactEmerge, very expectations as Combine take yields rate growth higher, higher

acres So that the in I of and growth adoption some engaged are promising. pieces think with combined these other

with this from about contribute in that along investment we think growth of to will like think and value unlocked we means economic we but do in customers these carve will able that be there it Today, is with lot perspective in we but be margins, a there to not our future. features, and As margin is share obviously, that. or the we will out, lot what dialed to feel have of going margin is exactly contribute

John May

customers. you these is perspective I look John look I May. The I you when this from is strong less which is show payback that has only their fact than recent perspective there at payback some months, within a generates for add big year strong to the which out Yes, think and that that cases think technologies, reports some at a and from productivity, there thing has our been customer’s our acquire the they would customers, is if profitability benefit would the a in

Josh Jepsen

Yes.

I think improving about These to our are it’s way it. and significantly mean I that us a improving for customers. margin margin offerings are for think

Ross Gilardi

Thanks very much.

Josh Jepsen

of Alright. Well, top at we the are hour. the

So, we and and available be callbacks. participation do appreciate everyone’s will we

Thank good everyone very So we soon. will a you Have to talk much. weekend.

Operator

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

Deere & Company (DE) 17 Aug 182018 Q3 Earnings call transcript