DE - Earnings call transcript Q4 2018

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Operator

Good morning and welcome to Deere & Company Fourth 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 to Mr. Josh Jepsen, Director of Investor Relations. Thank you.

begin. may You

Josh Jepsen

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

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

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

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

Brent Norwood

to activity both a construction with technologies and performance another a book. buybacks. return dividends equipment had from order as quarter benefited while services as In drive in replacement investment enabled Deere group. and share strong our significant has sales agricultural solid order billion The operations new for financial sales products, well through and programs; both markets, to services increased healthy of our equipment $X.X shareholders investment early from and demand contributions continues construction John

look Now results year let's Slide take a on our XXXX beginning end closer at for X.

Deere net net year while to billion. and results net to For billion item for equipment $XXX attributable net sales billion, the X attributable favorable revenues was operations for $X.X revenues the to full or shows to included $XX.XXX billion. the was $XX provisional & up to results per XX%, quarter. of diluted included $XX.XXX share. taxes taxes year, The was $XXX million to Company Net quarter adjustment this Company income Slide $X.XXX or $X.XX income fourth were million. unfavorable adjusted XX% Net a sales to & excluding XX% results sales up diluted an income net million; $X.XXX the income the share. The up for $X.XX for in Net were adjustment billion. were income of Deere per provisional

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

XX.X%. and shipment on businesses offset currency. sales & driven Operating quarter-over-quarter realization to volumes the and margins with X. currency starting by our as the price in the production impact R&D Turf up were same higher balanced Slide increased the cost, benefit were of volumes million headwinds Agriculture profit and comparison by price individual $XXX was quarter negative partially higher quarter realization Operating down were of expense. Turning year of increased review a primarily from by Net for X% X% the last

fundamentals receipts important business. at the demand, outlook, look let's for the affecting billion Record through cash sales ag an roughly $XXX to estimated soybean indicator receipts, we XXXX, offset Slide cash industry equipment with U.S. to higher be X forecasted Before review some principal and for up are yields softness principle are outlines crop crop that prices. about XXXX. corn in prices flat

the Argentina, region, in XX%. U.S. as for dispute to in is higher export corn about result, XXXX wheat decline response XXXX. Additionally trade To-date stocks-to-use country's supportive U.S. improved and seeing the to as a farmers. be ratio during in to cash to response under Sea important the conditions farmers to the the prices Slide the to demand expected for forecast It's drought response is roughly increasing distributed receipts to been representing U.S., China. X, year. by increasing continue between note conditions stocks-to-use first production in out well. crop paid USDA is demand experienced to also in lowered stock-to-use the yields aid On in tranche Europe, the receipts and in ratio ongoing which a in the and crop include cotton Australia of build corn just $X that expected billion already to in decline soybean Black Wheat first billion are ratio Conversely the has projected drought than and intensifying and global

U.S. six would there's go. last China soybeans been displaced where Over source much uncertainty as the exports how and would months to

to of soybean China, possible of the that America are process in result Argentina to partners still down trading in in U.S. draw of flow that majority and exports Paraguay protein trade former Chinese and stocks scenario, some In could While of is of we addition exports ship the Brazil, see increase of likely XXXX. building South substitutions. it a rerouting, patterns stocks their would to in and use

environment John? provide the current North President South will call, the & farmer Ag continue point, the XXXX as in and to division. to trade Lagemann, Ag Marketing I'd Turf patterns Senior industry At welcome sentiment the Americas. for be as for John and adjust. Vice Sales to fluid We America expect outlook to & as continue well flow Ag the for this Turf, comments like the on He of

John Lagemann

Brent. Thanks

Moving to and the sentiment, backdrop the current large X, on including early focus order of American Slide North farmer status XXXX our replacement for ag demand on let's program.

overall Over next several dealer to for farmers with conditions the farmer past months, sentiment In and a extensively general had their remains the traveled both and cautiously chance dealers business and meeting I've I've outlook and U.S., optimistic. both year. discuss

uncertainty markets. fundamentals in the is the just improved referenced is around Brent optimism there that While corn, in market, soybean and cotton there wheat

dealers positively the customers in excitement issues. Midwest regarding core from are despite both In where our believe industry record faces the unresolved trade there XXXX. soybeans. demand uncertainty acknowledge important the in XXXX markets and concerning equipment this for ongoing addition, notable and influence will But corn this we're crop to it Dealers crop global optimism, is seeing yields also

While issues there's many will sentiment concerns harvest no on over next trade had farmers believe impact the these an farmer before last doubt be have resolved months. year's several

our the demand reflect a talk this is of approach for one, number our been Now four in let's augmented and XXXX and replacement finally, on aspects: are order our delivering seamlessly by uniquely is specifics supportive precision XXXX, reasons has our today's three, early technology two, market; which constructive view. ag response in for following replacement number And the the number we view being integrated. technology; programs the industry to initial

a at take drivers. let's closer Now look these

amplified across being our as evident onboard on citing is investment. precision the our guidance, critical our increasingly entire by efficiencies the with since Ag still to course center of operations the XX up and fleet this Deere’s telematics, technologies combination need the evidence precision marketplace. we a First, driving customers represent XXXX. values. is These of are equipment our to in my differentiated as machines. proprietary age advanced years And computing their because creates dealer last advanced advantage months, most growth the newer advanced these and solution organization that's see through key is it highest foundational its latest to portfolio. of for delivering a area in And market the the that hours technologies due with foundational which clear is economic second such replacement technologies demand the capabilities latest all customers in Also the of point many replacement Further enhanced is the and and age further the serve elements has technologies are tangible and Deere's the reached being examples operational the point, few and integrated large by unmatched role these digital it our technology solutions. enablers provided conversations of for by

of service a precision the but allows get dealers in our to dealers in help our our most the and their beginning we the expedite through and which predictive large investments. they also in ag Deere large equipment John their so expertise decisions. now equipment dealer. feature to support Overall, dealers certified We intent customers. astronomic of prevent integrated equipment. package general failure we product John because customers with could capabilities ensures Connected dealerships example full two Through Many Connected strategy deploy contact now of the to one best start us and customer's Deere maximize customers years adoption self-propelled is alerts to monitor centralizing repair. systems their employ before is proactively from we local to helping uptime perhaps our play included mainstream plan our which advantage expert our critical equipment This just allows all occurs the are in our and agronomists order customers are ag route across precision the Support, the and to our customers telematics. the through it with for their dealers ag execute is a bring by call it predicted strategy technology which deploy downtime of is fundamental to role performance equipment remotely Let's this the base and example, Deere maintenance ago Support, alerts of their take This Ag

continuing replacement and and dealer results system the critical orders production which to strong of we both economic harvesting, two as and ability significant our a seen precision all seamless with month dealer capabilities. planting, has and to highlights technology across order so just our entire into visiting been data between his example digits across the was will ag a local converting last in in parties. our phase And up green. and customer are this and are from fleet farmer, important that. program green 'XX industry. from of Midwestern spraying in strategy this successful multicolored from fleet now. fleet. large and well XXXX advantage product technologies planter very all order He who same a a support demand distinguishes early September, programs, requires Furthermore, channel integrated Importantly with why for supply over ag both an equally utilizing platform cited was the network collaboration leveraging In how in investments significant process this in I of fact the our advantages also dealers speak the sprayer in committed early with making believe firmly these an investment is of this channel came the Deere's facilitating the advanced XXXX. OEM in and concluded of the final mid-single important I the to of as dealers substantial support as This all latest doing the to just we example entire is precision the area

healthy ExactEmerge materially in higher price last In year. increase year-over-year, precision for and rates like planters addition included which up advanced higher resulted significantly to sprayers and features were a the volume ExactApply take from program

mixed through are harvest Moving to but volume the in up in U.S. ending with some program due a down weather-related early in results to issues. combine our order largely phase delayed Canada other two

and activity readjustments with were programs. is active the than quarter. progress of demand America, both premium Advisor some running book the of mid-cycle. recovery to our in Key continues our equipment have trough which to-date flow in order last seen either are drive the the than XXXX year. which is to gradual supports demand recovery is features like into closer the gradual China. or expectations North this continued ag higher Overall large and Importantly, trade adoption and order volumes early yield Customer Combine second we rates to we for to continuation replacement trade initial large between building and response resolution a still tractor U.S. a already Furthermore, pleased order for currently

the in the elaborate Turning SLC journey operation and to environment. Brazilian country's Slide operations XX, XXXXs, insights Launched dealer established XXXX XX% the foresaw in channel. began I'd the and production in like By preeminent of a heavily provide its and potential acquisition Deere's with the of we investing combines only. Deere and enormous our began the current region. ag into financial Brazil to on region's

customers our is now share We've Brazil best-in-class prospects XXXX on Ag environment by sales recent on some sentiment are latest localized XX. further Turf the modest forecast soybean and our we portfolio with we'll Over in & strategy. the results last input Further industry U.S. outlooks month Deere's continue offerings, tripled visiting the and precision and freight report recently flat our I position. portfolio margins. also to this region's has acreage. advantage. Slide which channel be product its long-term very enjoys both system while By traveling up Deere and Brazil on system are also distribution execute technology the and brand leading production complete widened and for ag Industry quite can is the and dealers combines, lead and very to to with expanding our sprayers competitive boosted the achieving optimistic for farmer After this augmenting the tractor planters, to decade, and near-term region, production prices, tractors, including and market X% the XXXX. election complete attractive channel outlook in positive summarized Despite pressure remain industry

Deere has Further and good are As year XXXX, with I to driven new equipment demand need by from technologies. largely mentioned stable in supporting fleets as customers their quickly age inventories expectations for replacement upgrade and pricing the selling already more low strong their down machines peak demand used over bringing update while to hour are one-third remained efficient prices.

the crop a particularly are reporting demand As high yields on fall's positive mentioned, of their reviewing this equipment begin scenarios. customers Midwest dealers impact should have as tax

segment, offset customers, ag for dairy is our GDP although tractor been and strong small very compact healthy for helping a driven solid. our growth. softness XXXX and bank bailers the tractors a utility For for has This show order livestock by economy and book round to order

in primarily combines XXXX; and which America, offsetting the a for is is our election, in price forecast Brazil up on are to industry projected industry expanding solid driven to be sales flat in Moving to flat positive tractors and northern the to to the Germany the premiums Scandinavia. acreage and by South commodity fundamentals X% benefiting and from the be of year. EU U.K. XX, is outlook reaction strength France in In This weather-related is industry opportunities. political challenges

remain Shifting cool. are to the begin in high to near-term key markets challenged as growth sales inflation political down to to expected is However, be Argentina slightly uncertainty. in as and likely Asia, country industry flat the growth battles to

retail Brent. Division as approximately XXXX. we to in turn up in points. currency XX, forecast up be to factors U.S. Putting the seasonality now sales Lastly, be mirror Canada X% we economic & equipment and Turf are it quarterly to impact sales Slide based together a Deere to two saw Ag earlier. sales flat Turf of over Furthermore, industry utility this on of anticipate to equipment be a negative operating approximately worldwide general similar year X%, forecast & the is fiscal on now of of are projected The XX.X%. up 'XX, which all in to turf XXXX mentioned and back Ag 'XX includes I'll about in margin

Brent Norwood

Thanks.

for XX, realization and $X.X construction XX% margins partially of operating up sales net were about net $XXX of the of on volumes acquisition quarter quarter, largely was the improvement. XX.X% price contributed the higher higher year Wirtgen costs. operating Fourth the with for profit were focus shipment quarter on Slide by production acquisition, Wirtgen. excluding compared XX% billion well by C&F strong demand for and Wirtgen, positive as offset as by equipment XX.X% last from driven million which construction forestry Let's the forestry and benefiting

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

total U.S. are while oil levels supportive remain investment activity at equipment in For to housing XXXX, GDP demand. grow, and construction forecast starts for

customer Importantly, our next U.S. of extending prospects through the base remains year's optimistic year. quite citing on backlogs much

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

C&F be equipment as Slide performing our to With planned months Wirtgen. an regards backlogs about market Canada Deere's margin sales and C&F's the about [cutter about strong forecast be two XX.X%. to in a now XXXX the for additional year to sales operating of for stronger XX% to continues about net forecast XX% global as [ph] as be Europe to Moving of on margins are demand healthy forecast includes in Wirtgen as for Operating margins integration to is and of excluding linked] projects Wirtgen is the high-end XX% enjoying Russia. expectations. XXXX. projected go and in C&F as U.S. a about construction to outlook to operating business and full $X.X up to products about and and result XX, forecast up now the improvement attributable of be are The forestry sales for well XX% Wirtgen. of result is ownership forestry demand in billion The

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

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

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

year Slide income forecast receivables is about outlines XXXX, net full the be in inventories. to For and $XXX million. XX

company as the the the For In to billion. up the increase the is Wirtgen schedule majority for a and receivables a year higher XXXX. inventories ended attributable whole as well as and book production of order C&F $X.X division,

is due inventory and ag supply positioning increase ratio. base the demand require continued sales small products ag, For which inventory our to with to adequate for better

quarter basis. fourth mostly excluding Slide and XXXX primarily as in is equipment for well net SA&G precision attributable to in be the as ag strategic on to increase new the up XX% R&D a of is programs and Moving generation and large or the the fourth up X% the product points XXXX sales about The product X% year was down full from XX% in up ag in impact cost X% XXXX quarter XX% of development the acquisitions. of results. quarter operations guidance Wirtgen reported year-over-year forecast increase for was lines. XX% for was investments when relates to next XX, two in sales The for XXXX. to our about from the expense

X% Wirtgen. about SA&G is Our forecast excluding year XXXX up full or X% expense

tax the XX% adjustment Turning equipment quarter, unfavorable arising reform. an rate million operation which to of tax $XX was included Slide XX, in from fourth

from be voluntary to is on about to XX XXXX history between XXXX. tax XXXX $X.X For outlook year included flow. Keep in effective equipment be about pension of operations now XXXX, Slide forecast full to and in operations $X.X from financial equipment flow XX%. Deere's projected contributions shows flow mind Slide $X.X rate XX% our OPEB. up Company's billion in strong is billion cash cash Cash the in XX. and is that year billion

for ownership. calls related price Our full two and Guidance X%. net year about of outlook Wirtgen to to up of months be includes three about points two points an sales realization now additional

we On both XXXX realization inflation, experienced expect about forecast side, increases to year. and headwind costs as additional be material XXXX. next the forecasted in currency we respect in two negative any in cost price inflation With anticipate offset a well freight to XXXX the point as will

about Finally, the $X.X Kalathur our net now year GAAP full Raj? call Raj XXXX for income will I is closing now forecast billion. comments. to over turn

Raj Kalathur

capital respond the we questions, to Deere's your I'd strategy tailwinds ongoing on and thoughts business allocation, long-term share like to underpinning our some Before outlook.

will ag returned capital excellent in us can fiscal that previous prospects reflect shareholders. to continued for on mid-cycle to increase return increased earnings are company book our an resulted maintain in has in flow $X.X it's to the strong almost future Based of increases of repurchase dividend and on know stock. regard our XXX from the $X.X year First that in aim the These a XX% Wirtgen, to our the measures the forecasting targets and construction we payout demand performance flow be to million we important we equipment approximately allowed the XXXX. further through generation cycle and and through In consider of for and In a the cycle. XXXX, dividend, markets cash we XX% the cash inclusion ratio to dividend serve. million operations. XXXX, in sustained With end optimism billion

recent our Second, in higher review strategy, for business. to our reflect expectations John we aspirations our revised Deere of financial the the XXXX

will of these on focused integration. assets keep headwinds the Also on potential are currency our of raised result, contribution achieving such good continued incorporate from new reflect aspirations. margin mid-cycle our so has and Deere our we the to Wirtgen's further make track new These quickly company drive will focused towards improvements target our record successful performance, managing operating a inflation. XX% to higher drive and or goals to XX% and keep operating turn we goals confident us modified asset aspiration Furthermore, as a effectively. As levels us overcome

is compensation you in higher goals our proxy. to incentive last already as these Importantly, noticed aligned may have

Lastly, agricultural as global to trade that to remain adjust continue accommodate in continue keep changes although and supply to fundamentals It's show underlying 'XX/'XX trade, grains demand to intact. for for flows uncertainty government the policy face demand in over even and the mind seasons. markets tailwinds important grow forecasts outpacing global

We business and demand are the by rapid present adoption sales will at our from replacement technologies. encouraged of large the of believe level to driving the benefit continue the in market Northern time and a American ag gradual precision recovery

look in a delivering strong beyond. results As result, we forward to and XXXX

Josh Jepsen

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

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

Operator

Instructions] Thank with Tim question you. [Operator Citigroup. First Thein comes from

ask may your question. You

Tim Thein

Good morning. Great. Thank you.

was that John color helpful. really the First, thanks for to

specifically the confidence of just terms target ever XX% Wirtgen cost just Raj in maybe just the the back the in company any you of in in hit you finished color -- mid-cycle what that a give et on target. don't is had operating and the terms mid in inclusion what to has historically. The goals, past in ability think profit if can us maybe so cycle of more just obviously just a adds give -- the to cetera. helps maybe with year component mix hit company's what different coming little kind you've that you margin terms structure the sales at that to changes the to some Just of But from updated of I margin

So that's you. my question. Thank

Raj Kalathur

talked to the last and example. the in we of out an that years products products technologies the only to higher the about come Sure, Tim. and the generate These customer. value this these been such we've much That's should for investments higher given is also One, ag but will of value solutions the kind not generate of have customers making few significant precision and and revenues, share, higher margins one. technology types us allow

talked about John the we Support; of be have and to will okay. much This now work channel is would these us heard are help aftermarket higher you second we incorporating to of forward, the making share the that making with about are a that. type going technologies you the business enable investments The develop and channel Connected

And to example finally, technologies Wirtgen, other work cost use mentioned many digitalization that will robotic some the margins. the from reduction both margins. you of and example, also that synergies shared material to example improve an in and the effectiveness terms one improve additional continue yield and the Four, would reduction, on operations sales opportunity cost to there I our can automation. and Wirtgen and are digitalization accounting internally efficiency be intend do all There in just side efficiency. direct effectiveness side indirect allow improving we growth we'll on us a for just be, so to cost our on of the the process and of think us be thought journey material the we services leveraging prospects such for so places Third, will okay, small would would we also to improve use actually

things So those are are a the types we that. like envisioning. of There'll lot be more

So thank you.

Josh Jepsen

Thanks.

question. Next

Operator

Thank you.

Our Suisse. from comes Jamie Cook with next question Credit

ask your may question. You

Jamie Cook

high can for on year on lighter were little also some for think I X%, the us light could than ag -- get what you guys margins to full provide full you I XXs, it's is should understand that. Hi. clarity I question the the to just -- on versus what and can guided comment of think one follow-up for so XXXX, the the my are which color pricing we you. for relative front mid you Good quarter. a at we if little help questions, ag a but ag Thank think thinking how And the were then, better is you had construction? about on, margins the XX.X% They I think 'XX on just morning. incrementals Couple in implied

Brent Norwood

really as in Yes. ag a and that Jamie saw was of We're well the fourth similar when story quarter. headwind carry XXXX. I significant it's guide look what we FX think we kind seeing margins as the XXXX the at in a XXXX. through into for

So about when of that's about FX XX.X%, year full ex you the kind about think of XX.X%. XXXX

So we there. look a Similarly at on about margins. we XXXX, drag X.X our drag some FX as saw is ag

significant pretty a where been ago. that's So over we forecasting a were impact quarter

of about the SA&G, piece, achieve precision FX impact well and ag is as other that next over and the long-term that 'XX, goals as well John Raj ambition those biggest as things margins really ag the think have think growing do you R&D of we us As the R&D terms help some of generation large of as on terms in in components we the mentioned focused products share.

are noted think we've you and talked puts I the the those that takes guide in is embedded about. price that major as realization

participating, order We've So we're we've our next now. year in to about since on equipment available are for programs, the Both talked X% ag really total. in early divisions order operations alluded John that that on our large it. lot seen a books pricing

we've ability seen So material freight we feel good inflation to the 'XX. in about cost 'XX and that and offset our and

get price additional on some took of seeing think price side. get inflation that we we the going action through I went are that the expect to there offsets On to And and side, reductions discount we note that put effect the construction side that important cost material on November to into in there it's also business. the we're we so realization construction

look So overall margin at I Thank and think probably perspective. we you. 'XX price from that's how a

Josh Jepsen

Thank you.

caller. next will ahead We go the to

Operator

Thank you.

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

question. You may ask your

Seth Weber

good Hey, morning.

you fourth you year. in capital noted the rate thinking did going Thanks. is guess a buyback allocation, this do cash that us For up the like run back going is increase just Raj, quarter as in you through is be from feel for about forward I -- decent the that's to XX% XXXX? so or for be mean maybe going to ops I

Raj Kalathur

use Seth, rating I think priorities throughout past. a first, we maintain used A mid-single that used And the the we've cycle. the cash we in same

growth, in as inorganic. organic both support We second, it. have right a balance to strong and invest And sheet now we'll

You've precision in seen as ag. promising very like invest technologies in

Care, [indiscernible] new and in the position adding importantly areas or type Crop We of really invested to market selectively also gain company like capabilities.

XXXX you per us do plan XX% of to then, We that we've also at keep XX% to dividends those. see of May to you'll the by notice in XX% quarter. increased some earnings. And to continue dividend $X.XX So mid-cycle

go mid-cycle earnings Our up, continue to increases. we'll consider

purchases in appropriately long-term it our there's said opportunistic And benefit we'll also to As And lot 'XX. tend cycle that the you billion shares. at cash. time increases we'll finally, of and and we consider a $X.X considering further repurchases, and fiscal with cash should the look mentioned we'll in now earlier, definitely if be very left see shareholders we But, about it. leave share when be repurchase

current Now, year share we of terms next will very of with shareholder for level and value forecast repurchase billion, share from prices, be a a the the $X.X longer consideration think it perspective. in good term

right Seth. that I now, think will limit it I to

Seth Weber

Okay.

last fairly two materially had the where over up I from mean, quarters, been. obviously, picked the it cadence Just has

it forward. So, going run this thinking how natural it the Yes. all seems a you about That's kind like rate maybe of are I'm like progression, seems asking.

Raj Kalathur

you it's think statement I good a its made, worth.

Josh Jepsen

Seth. Thanks

please. question Next

Operator

Thank you.

next comes Ann JPMorgan. Our with Duignan from question

question. You may your ask

Ann Duignan

guess Is North I What by you Good John, question. morning. outlook CMH crop? curious planted cash for South question in of kind Dakota, with export no with your just Dakota planted XX And just terms for ask thoughts in guys, year, by crop. major beans I'm Hi. that are there frankly this major of my completely the your acres the and they Midwest by other you've soybean crops. conceivable terms into in I'm is what what are of out of year acres and John of out I take same curious you're acres commodity. receipts contemplating got the hearing it will next million program.

Josh Jepsen

this mean forecast, harvest major think of Ann, this I'll I will is lot add I on. what happens we certainly the Josh. is a to eyes America. like South going and think start in John then as this look on crops, what I about mean

to we all crop shift And certainly some cash seeing in some not this out as America. wheat think acreage and wheat. by the of probably receipts, to does year seeing that drive in think of about, probably but corn, North soybeans, cotton in to one I we're the some large the and improvements -- corn, commodity, benefit

planning America a so our their as how we're you go economics see we and corn into from make you importantly to specific decisions is, and start for out this at lot going -- of next this what what least think you to about puts and year. of cotton, their now South there's takes be as expectations globally I as we think -- are shift I think about farmers think

John Lagemann

This for thanks John. the question. And is Yes.

it highly it's upon think is. I dependent where

Brazilian those that in increased leaning and there on I because to to which corn -- and estimates the think somewhat about up million to here going significant important shift But million corn conditions the cotton areas can second a of Josh in the of that's point probably X that heavily corn is a provide crop successfully, U.S. towards South plant ag a because piece acres my that they're corn. the early successfully grown maybe the I of made the any think buffer is down corn seeing U.S. grow America X that you'll and that have business, think conversations in folks current we're see we

answer my I'll So that. limit to

Josh Jepsen

Thank to on go move you. We'll and the next ahead question.

Operator

Andy question next Our from Securities. comes Wells Casey Fargo with

ask your question. You may

Andy Casey

question back a Thanks. Good go bit. to Wanted little Jamie's morning. to

costs XXXX, ag looking really back as that And & come incur that development market partially dissipate in production XXXX? SA&G in the future payback? precision those dealing higher during elevated should Ag with been XXXX view that you're then R&D, terms first, of You've do we in should Turf to in

Brent Norwood

Yes.

working as the products. And of solutions. of well and SA&G, were R&D higher there mean 'XX, that then, those 'XX, think to support technology is versus there ag as as 'XX. R&D precision at I component right. in look seen And production you're to ag focused 'XX capabilities of is on and certainly is portion dealer with 'XX components exactly seamlessly we foreseen in significant product I a you costs than customer when the large related the our a really our next we've and deliver in and right. we SA&G, material and generation impact about then, think Couple freight that you're we bigger saw large

that's piece. So a

things would You've comp, also got items. some like smaller in like some but incentive those the down that be marketing things type that of biggest

Andy Casey

much. very Thanks Okay.

Josh Jepsen

Thanks.

question. Next

Operator

Our comes Sachs. next with Revich from question Goldman Jerry

You may question. ask your

Jerry Revich

inventories level the you hearing your Hi. line to equipment prepared the comfort Can just off so starting talk can inventories certainly but for rising your the used Thanksgiving on strong expand on and Happy in the excavator context about we're inventories a channel construction what you're remarks, used everyone. about production of or comments growth year morning off within specifically? level you So seeing Good rise the and and starting product combines of low base on next in of to outlook, rise. low

Brent Norwood

Thanks Yes. we're used of large the ag business Starting peak from the down of sides on on a third the Jerry. maybe think, both I used market.

prices we've inventory about and stabilize. think we levels good seen I feel importantly

our because actually to able on fleets drive those tightness a positive that's to number come We've So We've machines used putting be also their used construction I into they the supply. the see inventory leverage seen rental to of terms down to in of of dealers some continued that. think side. have

on concerning there. the issue So John side… on an any side, the construction we've product don't I think or seen particularly category be used

John Lagemann

nailed on you it think ag I the side.

It's I you And as a it's zone. the lowest we're comfortable four been third point last off are think the years. said. in really We over

If so add. you inventory really ratio, the have to I at nothing look else

Jerry Revich

on And that [corn] [ph] includes John?

John Lagemann

Correct.

Jerry Revich

Yes. All right. you. Thank

Josh Jepsen

Thanks Eric.

Next question please.

Operator

you. Thank

Raso Evercore. David from comes question Next with

ask question. your may You

David Raso

any of clarification Thank in the that revenues Was John analysis? you. the first margins. the up view there change quick mid-cycle A strategy, operating Deere though, bumping to your

Raj Kalathur

'XX we through in at And numbers well average of would expand our as we look the to David sales. approximate are through forecasted and business expect you 'XX expands for So this, terms future. these think X-year as as

'XX So would growth okay? in in our not So the mid-cycle. or changed mid-cycle some this you expect process, has 'XX modeling

David Raso

be even your was EPS bump that as may the lower mid-cycle powerful, If for $X and you by bumped mid-cycle didn't for less so change clear Wirtgen the revenues. be bump of is implied understand margin, your making saying revenue sort but up view the margin up you to just the just assumption, you you you're I account of sure almost

Raj Kalathur

basis. change think revenues what The change post okay? -- didn't based to process We mid-cycle yearly we our will calculate change I a didn't our revenue, we on mid-cycle on

David Raso

down Raj. Did guess, I they go

is margin up were margin appear where core bps your the XXX them adding held so while because improvement, almost business. of it's lower I Wirtgen that higher bumped It you no, the not If did mid-cycle implied sure make much. does again dollars. you assumption the a benefit you XXX exclude about we they benefit to understand to quite as raising or two the margin, the EPS by just idea want so revenue

Raj Kalathur

This we process this we not But about in is talk are answer we kind the endless a your year-by-year question, like exactly here of -- what it in going but said. revenues are an on not to what EPS basis. any change to might is be lower answer assuming

David Raso

That's clarification. the think all I

Raj Kalathur

to like Like side. bring aftermarket ag. going to growth the talked that more bring additional They're our new that about. Wirtgen about products as not technologies we've things brings is precision this brings But growth. piece going support we customer on talked growth the additional

opportunities. looks this So opportunities additional at and growth margin thereby additional

David Raso

for Thanks that.

question guide quick, real my Turf & is the on for Ag the year. So for

pricing, almost sales sure benefits the You're all ability the implying outgrow given market all. you sounded obviously you when out have. to at are saying technology given X, organic but your outlook up your And you not and are almost up end confident volumes back it's market

business in barely globally we question. are Thank volumes trying assuming Just your why for this final up all to the guidance? That's at understand you.

Brent Norwood

David. Yes,

and that there. if uncertainty I I across the guidance John up think to there X, And largely think recognition we giving ahead out, are its of not too is to as just early those look of you But, ag, and ourselves I pointed sure think make wouldn't much I top flat there. that. flat, on that in has I read we into think, want

David Raso

Thank it. I you. appreciate

Brent Norwood

headwind significant top-line. that talked the Then we FX on about have we that's the

Josh Jepsen

question. David. Lot one than you, more Thank

please. question Next

Operator

from comes Research question next The Vertical O’Dea Joe with you. Thank Partners.

question. your ask may You

Joe O’Dea

Hi, good morning.

for might we on tranche second paid into what's on first stand any much across tranche. any farm how the payments, aid that how far commodities. on that been so is on where and talked the But, timing that of announcement so be visibility and a Just insight you've looking the about, spread amount your has the of

Brent Norwood

you've I Joe. out as think noted I Thanks conversations there's mean December, similar there's expectations come could that it amount. been

we're about I that, payment and think that quicker. come as probably seeing think as some we out importantly, of noted

of that see we expectation come So through first tranche. on the in or the here two the some month maybe next more

announcement So see we'll in December. timing that but of the

that of 'XX. the first of could then couple months calendar in see You

Joe O’Dea

Okay. lot. a Thanks

Josh Jepsen

Thanks.

Next question.

Operator

you. Thank

Yakavonis with Your comes Courtney Morgan from next Stanley. question

You question. may your

Courtney Yakavonis

Hi. Thanks.

and C&F and you clarification wanted on get assuming the headwind year? tariff are are Just some XX% margin into to guys guidance for goes XXX for and XXX the assuming much A&G those, the from next how Do you Section that?

Brent Norwood

Yes. Great question, Courtney.

of do a saw Couple about play that impact So in than overall, think in you I -- higher think bigger steel seeing we we there. when -- we're things XXXX. XXXX

steel -- saw If what actually forecast as of that's we and of we quarter you we've higher think about kind where level XXXX. fourth the pricing business, into ag hot-rolled we on our of look is the side coil the

-- as at be we're fuel level more a comes down as this forecasts beneficial. it So elevated would that

and higher has move On the lot. been whole really C&F we've that actually side, a plate seen not steel

it to stay throughout appears look that's year. our But higher levels the So forecast. at it'll in like

mean little that 'XX, in, is all a 'XX So impact bit 'XX. I seeing 'XX higher, we're in

we're in inflation. importantly divisions that getting price think to both I offset

think you XXX As tariff. about the

in So with XXX And year XXXX in number, on million you we've our what embedded to the that's level. to million that teams XXX to got to XXX go but XXX forecast, enterprise we've is to that's try that negotiations hard the what million and across really they're beat would million. working tell estimated the for is and about XX% at the suppliers

Josh Jepsen

you. Thank

please. question Next

Operator

Thank you.

from with comes Dobre question Mig next Baird. Your

You may ask your question.

Mig Dobre

a morning. Good about you. bit. Thank Yes. to C&F just want I talk little

of about construction talked You implied help your versus about legacy you're core XXXX. order your Can Thanks. on months how XX, extending can understand business? us And then, frame growth thinking that? six you into you book Wirtgen

Raj Kalathur

Yes.

run we've beyond that's So we we talk than I orders think -- regular basis. less when on we in think hand a about well the yes, book, two months somewhere got to what a two month X of about typically order

So of seeing quite just our in visibility come on contractors a orders we're backlog work based that's the bit more really that have.

back think economic the supportive. we that at look step I when indicators still affecting industry and are they

mentioned to I housing about think been continued -- in the has You backlog, like supportive. be

I have strong. been rental utilization. so rates And think been that's Rental positive

informing I outlook. that driving So that's and think what is

we As C&F think about legacy versus Wirtgen.

billion think year. about mentioned I talked and sales Wirtgen as $X.X about we of next Brent think I

growth in transportation underlying solid backlog is healthy So there spending. that transportation, road global expectation growth about X%

that's think I as positive well.

I right factors would be forecast now. at So that's of what good kind where forming about think all of drivers not and those feel economic are the there we

Josh Jepsen

move on question. We'll go next the to and So thanks. ahead

Operator

you. Thank

from comes question UBS. next with Fisher Your Steve

You question. your may ask

Steve Fisher

about CapEx? incremental the if higher How that for What's I a &D? on through talk is mentioned the R to much tight XXXX Good of Thanks. flowing depreciation that that in could income planning net increase of that? you in And as XX% you're XXXX. CapEx morning. things wonder result you is some maybe roughly how

Raj Kalathur

continue opportunity we've large about extend and I in ag there. the It's noted got think move advancing view, and similar as we're a to you leadership precision really Steve. think Yes, it we When CapEx. ag on forward products, generation to to our focused story that capabilities our position is in our R&D an next

we're doing. I that what would increased spend. be biggest really think the And components that's those of So

Steve Fisher

clarification of the through income flowing to as Yes. I result net a depreciation into just XXXX, increase. XX% about that incremental the going was ask

Raj Kalathur

Yes.

million. I XXX it's than less up think

If at D&A increased of you year. it's million next look XX Slide about XX,

Steve Fisher

a Okay, perfect. Thanks lot.

Josh Jepsen

Thank All right. you.

Next question.

Operator

Thank you.

from Research. question Your Rob comes with Wertheimer Melius

ask your may You question.

Rob Wertheimer

XX% this been increase precision set the any that year is ag what? do XX good much volumes our it's have question on Thanks contribution just you on My from to what and X rates Hi. and and in feature your comment or to or overall whether or penetration is options. morning. contributing volume potential contribution volume that How and is, the features has

Raj Kalathur

year I you take ExactEmerge like those tell Rob, when over sized exactly we impactful, We're some things significantly we're where cases about ago. what combined active from ExactApply. is rate a side, rates Similarly it In we perspective a and rates and the be extremely combine on the adoption. there. think yield seeing advisor penetration that up in XX% haven't is, and increase seeing high take

think value to But towards will John… we've to difficult the So because value helps And we been it ability price what let so that and I part customers. And we our it, it for get mean the create is our the impact of also economic does decide of there. in it's top-line.

John Lagemann

really I It's product. think that's the integrated it's thing. into the main because

of it's value of the really think incremental sell to value measure but the I the hard product. it it, helps

think main I the So perspective. that's

Raj Kalathur

Yes.

by think Rob to and that perfectly, I answer more it'll point we say, probably it is your our question we noted So this impactful forward. be as at important as and but we our I doesn't think investments go think continue capital, and new

Josh Jepsen

next jump Thank you. We'll the to question. go ahead and

Operator

you. Thank

with Your question comes Bank. Chad from next Dillard Deutsche

You may ask your question.

Chad Dillard

Hi. Good morning everyone.

the how are want and increase the Deere dealer that you're the about maybe comment you exit then, XXXX? can just I large thinking expecting and inventories how inventory to ag, between just exit year And wanted [A&G] seeing mix you channel in secondly, year. you the then, [ph]. to on for evolve saw that how Just into exiting to understand dig and that small you

Raj Kalathur

year Chad, timing of think a we'd is expected. One when what Earlier I and about few where capital the and kind driven the it's up things. weather. really we year, we by think this working ended

impacted when So of timing some later retail. to would the we harvest has of certainly expect things

been that's a significant impact. So

year. terms ag small to It's of customer the the we're purchase and inventory. we've got that in availability also sales throughout important got inventory patterns You've building there, where

So our year lastly, in much a that's were than we a piece. ago. supply we're position a with better And then, now base

add this move did a part last to and 'XX much I'll to ask into a in year, efficiently allows So in component more we're a that us But not have we as effectively as better much comment. we John forward. year availability and go position producing

John Lagemann

two add of because ag it's over Josh. November when is look I'd us the large because we're strategic XXXX. they're on Number ag piece, I the I you that significantly up and is small a things play really reason tractor on timing and for frankly that sales, retail putting think market. the small the one at I focus say And think

So issue. it timing more I think the harvest made of late a

November encouraged very early look sales by XXXX. we're So we as in at the

Josh Jepsen

Chad. Yes,

end inventory. overall do I where we think kind -- comment field of your with of

John think pointed slightly year out, a again I where occurring. that's hundred retails we're just a when we of we feel at like those ago. timing inventory are of think horsepower plus higher some that's sales And combine a where as

thank take more We'll question. go So you. one and ahead

Operator

Thank you.

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

You may ask your question.

Ross Gilardi

squeezing Yes. for me Thanks guys in.

XXX,XXX survey connected ag $XXXX feedback ag from annual about last dealer all $XXXX the technologies. precision various more customers of to basis machines. your the of So dealers on revenue quarter subscription week, not talked from our if cumulative gathering Last you from a

you if sub-revenue activation $XXX seem nearly multiply times machines, charging them some $XXXX you So things as million get XXX,XXX then, And be these of just in revenue. it fees. to

it not the base. a basis it for You've $XXX to where XXX for larger of hardware is today, are you your company. got else? precision Deere at pricing And if is margins that streams. Is revenue points unreasonable substantially ag it in million revenue business Thanks. Is think other than of that or rest higher revenue somewhere subscription accounting the

Josh Jepsen

one. it's not break business because in right in break we it's big terms We where the It's to It's the now. picture but Yes. -- do particularly that we're a to out Thanks know easy Ross. of out think level at not want important. really integration we of that

provide continue premium -- and we to more think forward, I think do point in in but color, to about base as this features, really that -- you equipment then at those you dig you the and we'll subscriptions. monetization go in and that see

value. we going as to do think for So to able we're that it's a think create be customers we in we value to opportunity participate that significant and

Ross Gilardi

is inside volumes of the it or buried on the pricing points you're top XXX it just is year. basis in that forecasting of pricing is this of the pricing your or It

Josh Jepsen

premium components things the that in other combination. would base Yes. It's that be a come is of your features. There hardware really through and would there's

bit one it's clean item. of line So just mix. just simple a not If -- little a as simple one

Ross Gilardi

Okay. Thanks.

Josh Jepsen

Ross. Thanks right. All

Josh Jepsen

callbacks. hope be we everyone and thanks your has we'll today care. happy Well, participation. right. for everyone Take available I All appreciate Thanksgiving

Operator

conclude thank you time you your participation. and disconnect you Thank does your for lines. At this today's conference. this We may

Deere & Company (DE) 21 Nov 182018 Q4 Earnings call transcript