DE - Earnings call transcript Q1 2019

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Operator

Good morning and welcome to Deere & Company First Quarter Earnings Conference Call.

Your lines have been placed in 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

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

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

the accepted Company's GAAP. of Additional measures accounting principles Exchange information and financial the X-K United non-conformance materially in recent with most concerning may filed Securities the States in factors call that contained Form with could periodic cause are differ actual results generally Commission. America, is to that include and This reports

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

Brent Norwood

progress while services cost Despite quarter Deere markets Company with from pressures, financial growth demand a was made our product while and higher cost in critical pace construction albeit innovative and order the markets, agricultural benefited results completed construction first replacement to logistics. negatively healthy advancing programs, continue sales inflationary equipment early raw slower sales Top for investments in and equipment activity by line reflect new stable solid from order operations our key a demand profitability investment impacted and technology book. drive solid through group. continued both programs. John contributions In at the

up Now let's was income share. On Net beginning total net worldwide Slide on on sales results XX% first were The equipment price revenue by realization up a the sales quarter take or & XX% X points. Deere were points closer Currency look of translation negative Wirtgen points. to $XXX one Slide to X, diluted XXXX to per compared in quarter X. month and to was Company operations in X.XX X.XX net $X.XX inclusion only in X by XXXX. impact entire was million was our billion, due its billion, quarter the for attributable positive X

shipment contracts X. $XXX volumes million, Operating up the businesses to currency the impact review the expenses. quarter-over-quarter profit sales realization, higher from driven by primarily XX% offset higher same individual Turning of comparison, in starting and positive product related warranty R&D negative Net & our Agriculture Turf Slide was on down operate With of and costs, higher were by and mix with a price to partially expenses, in XX% a of benefits step-up our expense. and steel volumes increased X lag. month offset to the as costs, were important production favorable to production shipment by note year the last on X regards higher quarter price warranty realization that a it's higher less

to are of extend premium freight anticipate of still quarter. down expenses, we bottlenecks chain tightness Additionally, requiring while issues significantly, third and supply levels are we elevated these pockets experiencing into the overall

look outpacing let's expected outlook, driven the to season. sales X demand industry ag the use decline ratio to by year. ratio corn’s to use affecting at is response On 'XX-'XX review in the projected supply, for decline is stock in the fundamentals stocks to we Slide higher to business. Before usage Wheat’s the feed

decreased yields demand Conversely, While remained response stocks-to-use U.S. the normalized China. Europe in and forecasted dispute between of ongoing in is U.S. in ratio drought has response the build conditions to and and steady, to production has parts Australia. trade the yields soybean’s to and higher-than-expected in

much additional trade principal China. and for been estimated trade XX the to than to how Slide flow indicator readjust. crop crop Asia cash demand. to the important about cash readjust non-China X data are patterns soybeans as XXXX, nine Southeast uncertainty and U.S. outlines of indicates latest an receipt, equipment metric to $XXX receipts XXXX tons flow Middle-East billion, XXXX. highest were as principal would higher continue an to million U.S. since exports exported U.S. months, last Over there including accommodate EU, has displaced The to USDA destinations slightly be the

that cotton offset are Xth In this the higher the 'XX-'XX in in important in improved three yields be commodities. the soybean expected fact, the prices Corn, highest to to record reflecting for It's year. of on prices prices than note most market. four the high for have and was marketing wheat previous softness held major and year crops

better nearly continues account solution. farmers. all in farmer USDA of USDA longer many ag fluid persist. Industry the up trade Canada throughout for many and to economics benefited the be to sales the prefer soybean fundamentals outlooks X. are on $X.XX year. forecast to region, XXXX. industry for remain underlying the though Slide USDA has flat on improved By and uncertainty sentiment in Even the than remains are with the areas, solid bushel, farmer and turf summarized permanent sentiment while of U.S. farmers are And and U.S. Even appreciated year weighed X% the our temporary aid, last XXXX uncertainty free-market economics aid, aid including erode this when per However, on from a

intact, in resulted programs, order in resulted and XXXX varied orders shifted despite farmers combine And uncertainty tensions. between demand the fundamentals single market factors the some observably results early temporarily digits reaction U.S., demand with a XXXX U.S. of down in Canadian program In orders of late as to as the investment trade still our such the unfavorable illustrating Conclusion U.S. from harvest order early Meanwhile, compared FX. our to of external momentum decisions. movements equipment of has remains XXXX, the Canada. of were in sales rise pausing the down flat the replacement and orders market result global uncertainty. held resiliency replacement while During

efficiencies relatively it's continue on to Farm farm. rapidly important ongoing to the volumes, factors with and driving replacement the While consistent out reiterate XXXX advancing is demand. age XXXX technology remains equipment fleets operational

As such, as volumes we abate. resumed routes in a new trade or mature recovery tensions trade anticipate U.S. China equipment and

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

sales Asia, conditions and account Brazil in inflation flat weather in for forecast demand up projected strength political balanced tractors expected Moving strength the be strong is quite outlook a approximately weather-related the industry as and consumer Central X. to markets week, year, down, industry in equipment be Farm remains the markets challenges In modestly. Farmer supportive based continued slowness industry turf in to Northeast. is Western combines in retail sales a Brazil, sales during forecasted are America, industry of up quarterly by as first Canada and to Shifting confidence. worldwide year of division the where to all X% region a is be in which be of the be X & XXXX forecast on margins are to to XX%. had flat Argentina slow of to approximately Slide of the utility South the factors and first dry high key with be which Putting despite XX, of in the continued this to we support crop uncertainty. flat together on very projected flat are XXXX mirror Last sales to sentiment up X% U.S. offsetting XXXX. in on EU in of quarter. impact Deere equipment be in solid to positive turf to to similar Fiscal the Turf’s currency are about ag seasonality Furthermore, margin points. on includes Ag and The slightly anticipate XXXX and now equipment to economic X%, that sales XXXX negative season. growth

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

was benefiting a favorable largely the First from costs $XXX realization net quarter. by quarter product million, and profit positive partially the C&F XX.X% acquisition, for production mix. and margins Wirtgen less higher offset were operating operating price

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

activity remained hovers starts and equipment oil total levels demand and gas growth. investment XXXX, construction at while stable, supportive For housing for

to remains U.S. year's rates with much Importantly, high, year. grow Furthermore, customer through the backlogs on is base the of our XXXX. rental utilization still rental in healthy extending continue optimistic prospects equipment while

continue companies level supportive Importantly, further CapEx independent from rental demand. for at budgets the equipment

year X Lastly, product XXXX. investment the which results X% in by X overall forecast to about about order are market to a economic vary months this reflected strong forms. and global now half well extending book The into transportation is is second indicators grow of though positive

are Wirtgen construction the cut-to-length acquisition XXXX, are of result now to in anticipate certain Reed, is and financial ownership Slide to equipment, the largely go flat of At guidance months XX% about a above full of operations estimates to on about comments XX at Argentina be provide billion XX% Wirtgen. slowed that. recent demand geographies regards John and be a global forestry He we as Europe million. as year. welcome to Russia. Wirtgen, updating full to and environment current Financial. for the integration this will synergies, margin C&F’s as on products increase be planned in an for Deere outlook result margins sales C&F two to as year is the €XXX like Moving XX% months between strong point, now for sales a We our XX% to such our for XXXX forecasting I'd China stronger for $X.X The Cory? projected well as Cory Wirtgen's President X% to have and additional with compared forestry services forecasted markets well forecast up operating to continues to as as in to Deere's previous With of years. be forecast to as up months. demand XX the

Cory Reed

Thank you, Brent.

a quarter's discussing enterprise. to the to business results, I'd Before the strategy like key JDF's as supporting review

Financial precision Deere adoption sustainable our shows and role emphasize focus and Slide As Financial's financing to sales. exists By equipment JDF's Furthermore, cycles in extending throughout Deere's broader XX area. John to deepening and shown mission play of John the customer enable and Slide the enterprise. services fulfilling to on managing key financial disciplined the ag this provides we enabling growth on portfolio exclusively sales in is an while this strengthening mission, to equipment increasingly demonstrates credit position XX, by aligned leadership to of Deere It's accelerating our important are channel. composition dealers effectively business risk. distribution relationships solutions customers of vital the

Over this management. risk allowing consistent, relatively years, between optimal for the remained growth portfolio last has balance composition and few an

basis strong kind history. of value and our points. at Deere In has of John its also those unique average XX-year third-party Financial current lease of Even resale much than reflects purchase little customer the crisis, performance of their marketplace. financed the and operations in who maintained exceptional benefits Today, base families difference equipment. the exceptional in quality farm for and many many worthiness position never an the height customers the write-offs the better This with provision at credit quality, to equipment. has credit know Furthermore, XX residual vendors. get us understand XX Deere lower to basis credit ag remains stands between those the strong generations, cases, our record allowing Deere Regarding exceeded from XXXXs Company's The throughout points. who

with line While trough, portfolio lease closely expectations. in Ag watched during performing our is

Deere months Importantly, we ago. than products the the tend steps lengthening just since of lease took XX by book XXXX, value years Overall, three XX months on financeable quality their the challenges the U.S., now durations of versus better stand improve assets. to which at in other average to maintain

and of portfolio as high is required, acres will the demanded, value well farmed grain be ensuring equipment quality maintained. As be is will long our

advantage growth. quality impressive, important the JDF's While which contributes is credit note the division it's to to enterprise

we these areas. Specifically, in contributing see key four JDF

availability sustainable providing cycle. throughout First, credit the

Second, the seamlessly integrated dealer with creating experience. financing packages

adoption Third, enabling fourth, accelerating sales of in international precision ag the markets. And solutions.

financing based John tends the conditions. on First, the many cycle flow third-party provides throughout support Deere Financial while lenders and to ebb market of short-term business

JDF business result, to our provides sustainability a As model.

for financial the During critical example, upholding our standards. operations customers continuity of crisis dealers, quality its all division of XXXX, the and to provided strong credit while

the and financial and are precision packages machines, that span dealer by parts and close activations, financing services. Deere operations, subscriptions, precision offerings enabled hardware, our services between These service, group Financial. Deere Secondly, John provides the software equipment across integration dealer ag

make for ag both Deere any of equipment its our positioned XX% deep U.S. This JDF right package financing share tailor than to farmer More next more operation. XX% uniquely equipment. farming investment our enjoys and drives best to are that Deere understands how understanding market deep knowledge collaboration and combined our dealers can tight and equipment customer customers, for financers, other the dealer the John the with Deere the successful. Given ease-of-use

He ag financing North an ag in to Last seamless precision in to Indiana integrated all a from Deere to critical Importantly, that the essential in selling fleets switch I models business by the farm month, plays green large converting Depending multicolored converting possible with John order met was of Financial of on to to a fleet who finance. geography, benefit financing Deere's complex a competitive role delivery retail fleet offerings. precision commented an we packaging Deere. change made him motivated otherwise and Outside simplifying but America that options transaction. support utilize the to various are equipment.

we we India, maintain portfolio a servicing the in our employ own where and own teams. subsidiary sales, example, underwriting For field wholly-owned and credit

depends co-operation branded Sub-Saharan ever, of availability retail the market, and Africa, finance choose in market sales model we In business many including However, factors on Wirtgen, solutions we banks. the size component we the and JDF financing case where of the growth retail We've deliver financing, to local risk is leverage environment. JDF U.S., solutions of agreements More Wirtgen support our developed an equipment being the manage of each international that and the risk. launched The in team and has to prioritized are effectively Canada sale the products financing integral deployed. in already leadership solutions of and our India. aspirations the than tailor

better increasingly week, revolving our from one Financial dealer of farmers ag that dealers Earlier latest our and this his costs. precision provides allow Southern improve multi-use entering to With team services. our technologies precision to used machine to He finance precision technology everything just yield of make successful platforms, it ag had better in most equipment and Deere services. harvesting. sprayer precision was ag better use for of also market John I innovative financing market customers Lastly, offerings the easy on new day adopt their commented a farmers and planting, the components, critical has He increasing make to services and maintenance harvest easy of that the spraying customer year, for progressive is field them offerings and role demand and the software, broaden he from features for our Delta. off-season finance offerings playing hundreds technology unique precision the his ag ag technology. JDF's to in JDF upgrade hardware With adoption. on and new with multi-use for subscriptions his accelerating solutions the dealer, planter, for that services manage each upgrade buy focused upgrades, precision finished pushed optimization This customers including it with

and do positioned actively well We’re that. to working just

outcomes in the quarterly JDF's creating role sustainable for discussing and business reiterate Deere Before our both customers. I'd to like results,

First, ensuring most. sustainable it Financial regardless as have when is dealers of Deere liquidity and need that fluctuations, our committed I've customers John mentioned, customers they to cycle already

new for enables that mechanization, Financial the access their make will sustainable. Deere nations Deere to for especially we as facilitate to developing economically equipment John operations markets. This transitioning farmers critical for is Second, enter international smallholder

a Financial and the Lastly, has enterprise. source Deere reliable of been John steady for very earnings

varying of business important equipment the While financial experiences levels provides cyclicality, demand overall an JDF to the results. consistency

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

worldwide attributable Company Moving $XXX was XX, income in first million quarter. to to Slide the financial services net Deere &

For Brent year now the in $XXX remains Norwood. call at turn forecast back net full to Brent? the I'll over million. income XXXX,

Brent Norwood

outlines XX Slide inventories. receivables and

receivables For the a the quarter whole, C&F a increase is the schedules. Company as up In inventories and higher book production billion. order $X.X ended result division, of and the the

we and due Ag, By is For better the small and inventory compared require forecast ratios. to supply of adequate with XXXX. for positioning end the our ag to increase continued in sales inventory base which products, demand inventory a receivables the to reduction year,

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

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

The Turning due the in rate to Slide quarter to XX% items. operations equipment tax discrete first was XX.

equipment forecast year history billion $X.X XXXX, about Slide from Slide to operation’s equipment on in operations effective The now projected $X.X cash is up Deere's billion is financial is the between flow to now full in Cash XX%. For outlook XXXX. XX% rate XX about our from shows flow. strong be XXXX, of to Company's be tax XX.

We for have year of kept about point Wirtgen up two to price related net of our sales outlook points be one which realization, full includes and additional about to an X%, ownership. months three

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

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

Raj Kalathur

respond to full Turf to of questions, some share Ag like I would year. your outlook we the for Before & thoughts the on and division performance

decrease Canadian cycle XXXX, for forecasted The to replacement wait-and-see harvest. farmer from to ag season. combine and of First, unfavorable to in XX%. over has uncertainty, showing our address large of the like approach XX.X% the weather unfavorable an prolonged resulted flat the trade in Ag light trade & due order American which resiliency I change U.S. demand volumes XXXX the be now to flat reflects The book during a concern in in Turf global North margin uncertainty in would are forecast XXXX change was mix. largely to

tariff hours the the recent behavior digits ended watch progressive this order our market as Specifically, sprayer further early many momentum an that It's Xst more our for retail early the XXXX we of that replacement phases EOPs important clarity of Encouragingly, combine program March on further fundamentals and mid-single export to cautious during underlying equipment growth. the reporting deadline flow The the in date experiences on and programs U.S. on and to much still of brief continue very are the advancements demand. demand up included the important order optimistic will robust ended age latest for offerings further flat. are trade soybeans. intact planter constructive observed be that fleet reiterate even while in technology to The shifts a pause reflect and orders were farmers citing as activity dealers our if quoting to will drive along with clarity demand. are

Importantly, in believe affecting the a growth of replacement resumed resolution issues timely drive trade we will markets global agricultural cycle. the firmly

demand to ability cycle supply consecutive the bringing and XXXX further outpace advantages and mark Lastly portfolio market global grain is and balance proven to these this improving beyond. our to global the a our to and perform gives with to this of year channel. consumption world-class marketing capability projected long-term year product and production. into very Furthermore, to throughout again on us demand will technology importantly, leadership, capitalize increase Thanks XXth favorable key more along XXXX, for us the projected in results demand year our allow strong next trends. in This growth position breadth, deliver tailwind in with our will and of confidence strong

Josh Jepsen

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

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

Operator

Instructions] [Operator Cook come first Suisse. of from you. Thank will question Credit The Jamie

open. is line Your

Jamie Cook

Just first question.

some I'm color about also the keeping is that? trade same. if As expected within to about business, that you guys you you quantify guys issues, could say guys China around give trying -- you're ag the understand warranty to order cautious, but outlook the war because whether trying and industry and that And what the was -- or just you're you more then, just product Raj, not talked sound you

is forecast like of A down to start understand to order point? sort your where line and to Jepson book quarter the top just – why margins relative maybe at take tractors we this not consider. ag that of of and there so the about what are things you I'm first couple Joshua there, think saw If trying expectations -- So, to with

called improvement as is, important related to one really out, taking discussed And We product we're occur those and the as saw of programs. warranty and before, are issues the making customers. So care were we're that as we you adjust those they it's there sure lumpy.

in that's So, first why see you that that occurred quarter expense higher and the in the quarter.

As airfreight few impacts customers. you machines bring and have on were we've a to margins critical and for generally, talked -- the issues, our think issues still the order factories components, get other we're amount about seen premium a suppliers quarter, about improved, those incurring supply have we’ve in logistics into having we the of first significant to stabilize those that to but

expect really had we've related first the we first issues those into So, steel as quarter XXXX. issue, we second discussed the that, material to difficult have quarter didn't the in which had quarter. 'XX quarter that the of a of been on that of 'XX compared a freight start on linger to and big until third impact comparison, two top issues to quarter pretty is XXX And of

that see we half. in impacting more So, us first really the

in R&D contracts. our quarter third latter -- then those to of part abate lastly, on get And impact our and generation as fourth those lags the up see we the to we're the quarter, and we've about, due ag there. are our next of that products into four quarter, items that step we've we the us focused that the in to as some As pricing talked overall precision got

Raj Kalathur

say line the about that's trade, is, and your And what X% temporary. sentiment and Jaime, ag more impacted on we top trades would question

So, is we there upside an if is say would there trade resolution.

is the think downside seeing if demand think much trade not what as the thing the we that is very still because from prolongs, we replacement Now, healthy. still we are

us it to all right term So very And out. when up. work and we actually a left beyond the said, look that, are that just There tend longer we other is for like are will Ag us up. up are fundamentals where yes, ag then that's is that, that's now, downside, strong, actually then Ag -- factor we trade it working places of the you but upside, why these negative Brazil, is small at if and portions

Jamie Cook

But Because trying is order book trade tractors? see if And I downside just risk? your the what in right to you think is head that big their do then scratch war now everyone resolved, where around.

Raj Kalathur

if to trade further, bumpy fundamentals are have years looking of strong. be Yes, a that underlying said, limited seeing, we and always are and couple what see are trade of when so the happens for going flows we -- okay? still of of overall, extends be that as routes and Ag but the will risk, kind demand that's pretty trade strong the said readjust we it's replacement downside overall, the some realigned the know we we've Now, this war trade will and

Operator

Tim next Thank question of from comes The Thein you. Citi.

Your line open. is

Tim Thein

year a the move have North clarification the forecast? to on Ag America, in the the switch any or Raj the large the relative of we initial balance pricing implications first for that as Just through lowering Does forecast.

A –Joshua Jepson

think so, order tractor understood. -- as the -- the the that's the book some impacts mentioned, we we there. when Raj we created the and as about large come we've yes, were combine When Tim, about impact change programs seen what in think large there that's we've earlier about some, on ag and seen with the our that And driver in seeing in we're margins. the where of mix down talk has change really as to we well that's really year-over-year come

small continue XX.X% driven on we the that XX% All strength that on mix large to on to so ag for of mix is of uncertainty shift in margins shift this the trade and the ag that's the from ag change see because driver. in

X% we first in you view similarly in regard. participating on think the for the both about quarter, for that, very year, you full the full divisions overall yeah, are year. And maintained that As price, X% our if think about

Tim Thein

the that, on follow-up costs. And operating

the still terms sounds a XQ? kind the $XXX right that you how on of as in a outlined that help about headwind dissipates about year? half, And second of through move had You the any year, It already in number? in how experienced million we lot been has B, year that like Is think but of would of A. of much

A –Joshua Jepson

comps as we past. our in half we our contracts lagged about steel in unfavorable first the as pricing The talked see

As fourth the of latter comparison part see get quarter, we improve from perspective. into third we that a the quarter,

So, we that. of that's some where see

buying steel half. XX% our buying Now, we're about the seasonality first versus how of this second year -- build we're and XX% half

is terms too some of that But we're reductions that what forecast. XXX steel is I’d point those that And that seeing The I only purchasing in some and point is, comes we steel we're impact of offsetting of tariffs. other get really those price the question the what issue come this what mentioned some, our of a as on out rolls seeing benefit? likely to benefit top then that So, the down. has in as I'd down kind out that is, is thing as are to with happens maybe earlier airfreight that that, through is related

on today. again a range say, we end we $XXX go about we've quarter Today, So, what March, got that's forecast at would assumes we're $XXX ago, to our And on that XX% of that $XXX which is said XXX, had in we million. to million. the that but low a certainly question, X

caller. So, the thanks, to and jump we'll Tim, next

Operator

Fisher UBS. of next you. is person Steven Thank The

line open. is Your

Steven Fisher

Just be to clear. very

largely limited outlook? flat? construction no up Does you that happens, trade said flat construction, North like mean X% guidance it America if And goes downside. January, China American lower real time first was in been to in change like to sounds there your like in down construction deal to forestry. in looks core Wirtgen then North Argentina It the that's construction Was to related So, Raj, awhile your the settlements down. retail and were plus any that's

more I'm what just in So, us signal up, that a that guess driver wondering or again? does still to extent the Dirt I becoming demand rental First with tell important is cautious is

Josh Jepsen

I'll unpack that to bit, a little Steve. Yes. try

thinking were about the and really what Raj’s to our trade at relative really are mean, on guide are doing. what disputes. we're demand and we're the that think, informs I drivers, when the comments looking what first, guide, fundamentals, the I we

a trade mentioned, what farmer does about could fundamentals we come production year refocusing the As some really think the expect say, of and on up, consumption. we resolution either the receipts cash you do for course we the the that Raj means the think by recovery us, from outpaced our orders would customers, of as kind for that being -- just in mean or P&Ls over that of rest and being as about

couple I are in of So, think those components there. play the

by driven order right are you the for C&F, and like driven weakening to in a that's some, you C&F think relates bit, correct, your coming when line seen shifting there also some coming From and seen of is guidance really it we've Argentina perspective, about some by we've assumption markets in really some their in that there mix. those it’s Turkey, book. top continued little back China, As where Wirtgen entirely legacy strength a

but to general economic X indicators called companies, be out continue the have. we're by that the just rental We contractors mentioned, X positive. backlog from Brent also we've out what work driven months to that our seen of and independent As really

So, come some. the we've seen in numbers that C&F Wirtgen and move while slightly up top line

So, of the will question. ahead combination all those how and that's jump kind Thank interplay. you of go next to the

Operator

of from Thank you. Evercore ISI. The David next Raso question comes

open. is line Your

David Raso

seen margins gain we've on the turf ag comfort last Just The more trying and in little a after year EBIT ag and the up. XX%, to despite sales the are that two down of you're implying rest margins. turf incremental quarters

appreciate So little the mix more the XQ, adverse. I sounds would say, freight about a continuing to comments premium the obviously, I

get some three I Just we give down to little come giving the us clarity a have on think flat more been costs maybe better the you with are If months? people can a a incrementals first know the much minimum more that in margins at gain why next the little you so should worse, trying year-over-year. comfort us on of costs, would've thought comfort, would the input quarter? expect to the but

baseline. is the we're the higher comforting? mean completely frame costs Can XX bps? just next right commentary thought were us the incrementals way quarters, of XXX in aren't So, to bucketing lower you some about would've you bps now I costs some give XX at three production than given warranty were bps,

Brent Norwood

versus David, think XX% in margin XX.X%. think, we the so about at I maybe particular, if absolute full year

important impact than point an thing think FX a you've of there, to half and consider got of than X.X more impact I more point similarly from mix.

So, also components the steel those see the some the goes I in of and side drivers seeing, quarter. business. two you that with on you're the are and into compares, third particularly improve airfreight we biggest the right of late as we're that, think And mentioned, get in the the do you critical year, as

out. our So you improvement turf. as get do the we further and expectation ag price a see is From on perspective,

throughout the is stable across No price year. year. Our fluctuations big the pretty

David Raso

than but What the costs in Can books production you some warranty with year-over-year positive framework costs that thought, some were margin help the and full-year first comfort now. just definitely the in but the warranty forth? is freight incrementals please way quarter so drags go Just and there given given we after cost? again, with to were the bucket quarter even? more the it. Maybe terms, for mix appreciate here less some why us -- I the months

Josh Jepsen

maybe guess put I context. to in So,

drag you RNA, in see do If as the see the when about first a at not you think the we for we the look drag full-year, full-year. that quarter,

one. quarter the between that's So and full That’s significant then a the difference year.

Cory Reed

product customers change… no that improvement our timing get just full-year programs care and out of of, get couple to David. a real had taking but Yes, that wanted We we was

David Raso

drag? just the But no first us quarter quarters quantification here three next year, to size way to with some of the forward I mean help the moving

Josh Jepsen

We don't those size specifically David.

David Raso

on quarter the the incremental, got mean revenues, full the thing, didn't not What the revenues we I the full Wirtgen, quarter get incremental. was just quarter? just we same Wirtgen the Wirtgen, full the

Josh Jepsen

Yes, business. quarter, to this is for so a quarter it consider quarter mean small was one just there the is thing first their seasonally really I --

As so full and like, roads you’re range the terms weather, not building of you for of the their in sales something of million $XXX impact the like year. their colder overall think in about first quarter, was it

from comparatively would margin -- smallest perspective, perspective. it's they quarter a from So, that a sales that the have

David Raso

of the rest the year? that right? at for -- rest XX% the year, Wirtgen of For for Can full to have year, XX%. same some costs was with the rest still The help least again the the question, like deal get Wirtgen there kept the year to over the improvement, low get to first us margin ag margin something margins you the or of quarter something in single-digit

Josh Jepsen

-- it's Yes, historically a of that's them. and weak driven driven Wirtgen Their there. for the long terms that yes, is the it's think being just prospects when what really common year slow really seasonality really the business good by -- activity their in margin. quarter full in the for We we’re about feel really about term first XX.X% quarter, you been and

huge they So how I think that's in surprise of not terms are performing. a

So with David. that, talk jump off-line, next we question. can more We’ll

Operator

Thank Vertical from you. Research is The Joe question O'Dea next of Partners.

line open. Your is

Joe O'Dea

a and stuff would wanted seen I coming. in don't think you pretty continue you lot mix shaped to quarter similar was expectations. up actually first I the like I guess, a warranty have vein, your sounds similar it the to knew surprise of

to comes back with half flattish? year-over-year get the bps cost that's really I to so, when decline just that appreciated? a less be of lighter any about, growth? you we're help from a when we XQ kind that ag mean, then nice and turf., and is year-over-year margin, Seasonally, with XQ, turf structure, how moving parts generally step-up of think XQ the of think in ag in looking And in think So would comfortable comfortable XQ, we some more we're if I about XQ think XXX and margin at that and year-over-year flattish about see whether to trying

Josh Jepsen

significant historically -- break as terms if see seasonality percentage our XQ of similar always pretty know, we on I of kind in how sales largest view. out mean in the we it's and a a out break sales term quarters It's pretty our you to from step-up. top line point quarter of expect a mentioned, Yes, Brent be always you other

would good And going be so expectations of think forward. indicator the we I a as in perform past our

Joe O'Dea

In margin sequentials of terms well. as

sequentials? You’re talking revenue about just not

Josh Jepsen

both right sides. on that’s Yes,

Joe O'Dea

understand the on C&F legacy in then quarter. is the for And down C&F just now it margin to kind -- like full Wirtgen side, the the very year. seems Okay. you underlying, stepping of Are good

Sorry Wirtgen at if full this what's margin the expectation point? missed I year but this,

Joe O'Dea

-- about Yes, margins sale. so full full Wirtgen, year we on XX.X% year expect to flat essentially be to

margin. So, $X.X billion of XX.X% sales and about

question. to next we'll that, with jump the So

Operator

Andy Securities. question Thank Fargo you. The next comes Wells from of Casey

Andy Casey

million on from decrease question that? $XXX a What the OCF had a $X.X billion. I prior drove guidance

Josh Jepsen

shift the we of biggest that refine was portion seasonality know, capital biggest just as like. the you And, driver. and Yes, some working change the forecast. that was But have movement in you

Andy Casey

in call. and So XX, I if for I that you're slide look Is now your $XXX conference don't you think fourth at expecting quarter receivables tailwind million different? outlook gave inventory. that significantly

Josh Jepsen

in think significant a not timing moves how and -- that receivables year, terms it are Yes, significantly it's of shift. I and of it's I I how related and don't is moving that's but some in it inventory think different. mean, out when throughout the

Raj Kalathur

still some changes those then shifts and It $X.X the month ending -- the go to also working the cash some always strong. on we very had from and dividends from JDF overall, capital next portfolio, are such. from operations size we and will portfolio as is billion know Andy, you based flow of have to one the

So, cash still from a very flow strong operations.

Operator

from Thank Morgan. JP The comes next Duignan you. question of Ann

Your line is open.

Ann Duignan

if soybeans of almost think on risk soybean result impact exports, downside U.S. Can the if these something that's you've be U.S. that deserves the talk that tariffs that to XX% be through true? our agriculture these end touched is Raj, happens export are permanent that exports January? this flows trade the the down even permanently XX% eliminated. on more about the of tariffs fact a our what and as of of the are you could could year-to-date we on attention and impacted for I back they and and So, production a

Josh Jepsen

to soybeans we've of start. Ann, of going places former I seen our more I the think is mean trade Europe, Josh, Egypt, this I we've positive think we trade like the some rerouting, think, Brazilian flow I'll seen that think occurring, already about thing like Yes, I when partners. is,

fundamentals a in produce places of there world looks it So I are demand. gets back and the to think continue meet increase those -- and enough are that things happening. demand that only few And has to it increased to the soybeans to

we hard this what it's reroute So, think seen damage permanent do because really to some of I move. have is we say think and

Raj Kalathur

Again, we'll Ann, already. damage is permanent I'm not no, say there a sure

will now and So strong. fundamentals what very reroute, say we flows is, are again, trade would still the

That's a predictor the you cash important, Canada. And ag for last global are and growing including big XX been for grains has As for receipts oilseeds right. in years. know, demand the demand equipment U.S.

you and good been X marketing years, balance. been and the growing very the plentiful been production you’re X at 'XX has year, the the Even plentiful in general, If XXXX production and and last seeing portion. has and last has weather better for than look higher though, years, consumption marketing production and consumption

again. prices reducing consumption stocks As and we be pressure higher said, putting production, is on than to forecast commodity

farmers prices very many So, and now, consistently XXX are that's replacement machine million these going acres economic the U.S., which of earnings to above the so Again, the reason actors would continue are for up say major need what to means commodity they and holding equipment. who their from are in well good why utilize the crop plant farmers. are reasons breakeven for prices why economics INFORMA well

is balance, downside So, pretty on still we think limited.

Operator

question next comes of Jefferies. Volkmann from Steve The you. Thank

is open. line Your

Steve Volkmann

follow-ups, if might. I two Just quick

of question, combine the just Could the orders You've the talked about about weaker sort And you the just that this a tractors? in to Or but right orders of bit I’ll hairs, just market? R&D planters what's you then, decrease Maybe slight for put slightly of is spending, sprayer. it what a is little on And early talk response second and some tractors, splitting sort early that unrelated? here. and saw about? in is

Josh Jepsen

adjustment are it's R&D, just timing and to related those how the an on really latter, the with start Maybe working out. programs

that So how other we year. first how quarter tuning through for the and there the playing significant or we're out anything no spending see just than for forecast shifts our up

some some a to to and the talked customers tractors is relates quarter seen large as it purchase we trade really, wait prolonged decisions slow as have approach. orders ago where see about, As compared the as we take a were uncertainty pausing we

think pretty and in you I our CEOs, across strong just look to activity. the year, they first retail important activity three we see a really talked we our strong of see a our quoting when dealer of saw And months -- tractors at dealership, the we combine. the lot of -- dealers had a we dealers, large with as meeting all traffic and it's

little So, side -- line waiting, maybe the are I think we've quoting. on while do the a sitting you bit the they folks some and dealerships, traffic seen is there

mentioned, I definitely Raj believe continue certainty little to a as demand So, those think more drivers of we there. be

Operator

next The question is Markets. Seth from RBC Capital Weber of

Seth Weber

we we some question. Can with the do exit the swing with steel and business mid with your at year? year and turf thought low mean, incremental right next the mix were the better? things still and like way, to costs to back And kind where XX% -- year the is you I mid gets of the to ag year the, take margin? you wanted of margin another about this of exit for getting to that way, think the feel at you kind I freight assuming can

Josh Jepsen

the of impact drivers. if I and fair. biggest Yes, didn't I and perspective, mean of that from you'd have mid-XXs, at our incremental think the think be of mix, that's in now, look you an those kind are if right you I kind think full year FX margins -- about drivers

those say, biggest full-year the two guide. to been our fair hindrance to that's things have think I So,

Seth Weber

can industry you stuff seeing on horsepower there are just then are getting And the concerns real inventory because on higher you elevated? that just comment what quick, on it's

Josh Jepsen

inventory, as half you is AEM, and above mean the in you comfortable were I -- for our less that. and horsepower XX%, example look industry Deere we're levels our about XXX inventory at I about we is very look with of think, view there, at and

less diligently thoughtful inventory be lower Deere, out on be manage third the to Combines, about be will than inventory. to continue position there. managing we're so continuing a field we thoughtful So industry we're the continuing about and cautious how and to would that for example,

Operator

Dobre next Mig Thank Baird. is you. of question The from

open. Your line is

Mig Dobre

I'd we go if may. back like to to Wirtgen,

through, in looks So, to you X% the you've margins, I'm what any like and like used understand from XX% versus can you the And outlook performance you to the or it trying then whack. quarter flat also of done your taken if something quarter. to longer-term, to be specific seasonality XX.X%, expected but it bit you've out your raised anything like the something recall seems in doing of -- little I it how this something I'm you're the in margins through restructuring quarter the And like downright margin you've it? Wirtgen me the going was wondering. sort expect me a What forward, And year? because guess rest synergies of wondering, here if business. does to I just flow growth the and seems step it I'm I with is

Josh Jepsen

I think XQ and is impact. see mentioned the that you kind – slowest, smallest earlier like seasonally I quarter of say, I’d

inventory also machines, third even of you their building know the think I those they are as have they amount necessarily aren't getting a parties. channel, component to so or building that significant sold you own of

we're optimize to impact. we about going and that fulfillment that. manage And order of field then some as a align have inventory component -- thoughtful is you strategies, to there So, we how be of our work

been one flat shifting a but which is business. that’s bit the guide lines particular, I'd sales -- some those are then in softness about of those come that terms really some of think key in on drivers around drivers, biggest our of are I X.X that their amongst well to product China say little the billion. So, year-over-year markets, activity, the bit little that’s that sales discussed a drive in mix talked we really be in and of And taking

Mig Dobre

the I but me. of margin through would what's what's versus happening this still out of -- if what year? not these sort excluding called margin here items like I typically the mean the of the and plan you seasonality to mean, temporary, some we're be it's clear to that's business would no, Josh, that that have been? of seemed

Josh Jepsen

for of that I normal is think seasonality kind business, this Mig.

the normal The for so first remainder and XQ it traditionally and of lighter is in mid-quarters, a into the that's margin particularly much RX much better the be quarter would you quarter, of move kind gets year, as their business. it

what So, the more for seen would that questions, more from We got seasonality we expect big think their I is departure we've so additional can this what we've don't that's chat Mig. offline, past. in a not

ahead go please. and to will We go next question

Operator

Thank you. of The Sachs. Jerry next from question Revich is Goldman

Your line is open.

Jerry Revich

historically other to the need the you about sales I'm guidance for to the wondering than than your balance to In order year inquiries results to over that large words, a of you've have rate order and Josh, at and foot if can higher Do so overall normal hit rates higher up ag spoke seasonality? convert talk the program you traffic. orders early Do the turf year. pick more ag? given weaker in the about

Josh Jepsen

see Brent the refocus think would lot crops. farmers, we would 'XX good four just we orders, think see. underlying age I mentioned, fundamental of seeing be in terms feel you that of That from the continue some there, on to about, know, the talked that resolution And whether expect to to trade recovery level see thing mentioned, you about, again, of in as as perspective an drivers three mean, expect the major we'd you prices or is I The equipment. on that demand higher we from there fundamentals. what on Many underlying comes Yes, we're a traffic. be hours, I 'XX, as of

as think driver that's a So, I significant well.

Jerry Revich

an has Is hearing Okay ExactApply can fit penetration folks in market to the fair good I'm the River ag and standpoint, from that with we're a dealers a comment. couple wondering, of Blue years? nationwide architecture XXs. from And on and you if how number? your on spraying you precision existing momentum and in architecture side, ExactApply that does when the really bring

Josh Jepsen

adoption We've Combine question. saw Active of so is continued in good closer growth take a seen XX% it's be XX%, those Yields things that. XX%. I XX%, we that which the more about rate we seen machines in half taking to ExactApply, strong technology have big about whether ExactEmerge, of earlier like about programs steps like Advisor to mean, across It's

good both I product working say Blue soybeans. I to we're what year when you we're developing do tested Today we in to really with and that But it I going think, being look you We will cotton or and that River Spray in terms we're know, I'd about it's like, and out but still I we this So, that think, to as look forms had what performance exactly the mean, of like. we've how exactly continuing see pretty relates in like. that. those look that and field, in adoption. know, what premature that product ExactApply the come, See looks seen think we've form feel say through still

Operator

you. of next BMO. Tiss Thank question Joel is The from

open. is line Your

Joel Tiss

precision there just from half and I us versus kind Is any a the pricing equipment of Just increases? of to breakout to of price sense pricing? the your way half give the wonder. underlying of kind

Josh Jepsen

designed terms it's hardware. our and we've with it built be this and think Yes, one of the, that's how our vertical I integration to of a same benefit one, Joe, in the

out So, because it's pricing different two we're a to break that components. those not challenge as

each items. have But -- you we add-on. those and don't separate might of to that you can dig dig those it solutions Now features

So automation. Telematics, guidance ag? we like way lastly I would go and say then for job for systems how be and base, and a are base, subscriptions do hardware second be in guidance, to that would or our It's guidance we monetize precision in back things Telematics, what features

allow it's the ExactEmerge, ExactApply, that customers those it's harvest Advisor, better Combine it's sorts plant, So spray, things and things. of so to

the think far driven say price year, as So when it's is for really you to amount by about X% that. realization hard as, what

are have think dig way continue we -- to have more specific conversations but pricing to good I ag, around we don’t not today precision in to will that. attribute So we and a

appreciate hour, are think questions, so top So doing of we I the that, be the we with follow-ups. all will at we

Thank appreciate and talking So, you. be will the all soon. you interest to

Operator

conference disconnect. time, all Thank At you may parties call. today's on for this your participation

Deere & Company (DE) 15 Feb 192019 Q1 Earnings call transcript