DE - Earnings call transcript Q3 2019

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Operator

Good morning. Welcome to John Deere & Company Third Quarter Earnings Conference Call.

Your lines have been placed on listen-only until the question-and-answer session of today's conference.

I would now like to turn over the call to Mr. Josh Jepsen, Director of Investor Relations. you. Thank

begin. may You

Josh Jepsen

take Also about Financial call your we Economist; Officer; of outlook spend XXXX. we Norwood, morning. third fiscal at Campbell, earnings for markets quarter and are respond and our will questions. Manager and will Today, Communications. Chief Luke time Investor that, closer on good to look today your talking the some Ryan Brent a our Hello, After Chandler, current Chief our

available are can slides that complement our the site They note Please morning. this to be Web call on accessed at www.johndeere.com/earnings.

prohibited. and reminder, is consent Any this without use this the earnings part by their First, of use, likeness live a call. and written recorded copyrighted of broadcast Company. in & the session, transmission media call strictly all of other used stored in on is Deere and may the agree portion Internet Participants Deere transmission Q&A expressed recording be as broadcast and future that for including or call, the being the of remarks any

comments the This forward-looking risks uncertainties. for subject to concerning that includes company's important and projections plans the call future and are

could contained results filed recent cause factors differ materially Securities to and is the with concerning information X-K and Additional in that most Company's reports the actual Form periodic Exchange Commission.

America, conformance also This of that principles accounting with in accepted financial generally call the not include States GAAP. may are in United measures

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

Brent Norwood

strong Concerns market commodity, Meanwhile, markets some have partially of uncertainty of industry. as exports the U.S. strength as for results have showed with in in access, quarter near-term continue a overshadowed incomes over such continued North production challenge have foreign and benefited third crop industry and to weather local Brazil heightened degree sector for outlook the the farm the and higher increased completed signs a Deere John demand the agricultural over America. reflecting

strong, resulting construction investments. books and such quarter, In a gas track solid of to GDP a the With and growth, on finish infrastructure and forestry, drivers is most through division industry broad-based fourth market the extending from remained the for demand year. oil order end activity,

Now, our beginning let's look take slide closer down to and quarter $XX Net at billion. results revenue a sales on third X% three. were

Net was Company favorable income $XXX due a or Deere share. reform. attributable & provision income per to the The results to $X.XX million tax diluted for taxes included to benefit U.S.

$X.XX adjusted $XXX diluted net share. or item, was income per million this Excluding

four, three sales realization to On while equipment worldwide points. net was slide total operations were points positive quarter Price the negative was by by two translation X% $X.XXX currency down in billion.

to slide down net the of negative review in positive primarily by quarter-over-quarter our were partially businesses by comparison driven offset of starting the on sales turf impact Turning currency five, price & with our shipment agriculture individual realization. lower X% volumes and translation,

unfavorable million, The profit due effects the product cost, by positive of operating was price resulting in shipment for to the volumes, XX.X% currency $XXX a offset was year-over-year division. and margin Operating partially foreign exchange, lower higher realization. decline

point, the this discuss ag fundamentals our to affecting to Luke economist At Chandler Luke? business. to call would welcome I chief the the like

Luke Chandler

the support disease demand, disputes, and setbacks, trade to XXXX year all. Increasing Thanks, Brent. prices, offset agriculture. be higher global helping Good uncertainties some programs morning is by are caused to a government mixed for proving disruption. and weather

slightly on X% are year-over-year. on forecasted in grain and six, - to fall oil improved farm global the around of XXXX are seeds par As shown stocks expected economies XXXX. mostly XXXX in Major major world or slide be

and other parts Argentina. issues farmer increased for notably Brazil confidence, American detrimental export farmers North the have opportunities While emerged been ongoing the in market world access to of

one sector closer highest to started the beginning crop stocks has years. with particularly agricultural The U.S. USDA the the a at year around where Corn level now at economies XX row volatile the ending forecasting in Belt. of take XXXX farmers Turning United in corn been look States world, a with for key the over those some the the

amount ending Soybean levels and the record near at stocks in wheat U.S. smallest acreage planted of history.

was U.S. corn season flooding brought uncertainty particularly across was and growing and production. uncertainty reflected major XX-month spring The corn heightened delays latest production. As surprised the temperatures released Monday of which planting wettest the row this cold past around market crop record the estimates regions. history planting progressed, the the forecast and period result soybean This in USDA’s on national in

is season. is growing remaining time remembering the there a that quite of in worth It lot

some to addition which May summer, market in direct $XX.X the XXXX facilitation of second in MFP earlier billion improvement the announced USDA the U.S. the or in includes farmers. to to in In round the prices up payment program

acreage, in season. contributed and swing details yield, wide uncertainty have sentiments levels final harvested and throughout farmer Higher MSP to regarding of the planted

maybe farm benefit XXXX by the Looking environment. the That somewhat impact to uncertain although delayed farm U.S. continues MFP the ahead the payments of received to the seven crop economy. said, cash sentiment as in U.S. rest shown full of higher second forecast season, the on the industry uncertainty across leads dampen trade of current or of receipts slide on to demand round dampened

restrictions overhang the ongoing Canadian farm the ongoing trade China. lower of Up with abundant prices in pressured Wheat to the on farm continued and dispute income of economy north by while imports. growers be supplies continues of to by levels of an be fight XXXX board Chinese challenged canola

year. result, this balance farmers positive are with investments equipment dry decline start after season to the and a and new a this expected receipts And season, sheet modestly Canadian even improving benefiting the are again of from rain yet Canadian As On solid. farmer is sentiment. though cautiously year's cash a proceeding profit light crop remains needs area major note,

marked corn Rising encouraging season production. for soya prospect for driving also global to forecast for is on shown as season well. South to eight, a year XX - slide demand oil America, the seeds next grains record and level combine exports higher XXXX down record as the and Moving

XXXX In of all currencies to in poultry are last expected in production beef, year-over-year with a nearly farmers to basis. but products is key pork, on seeds expanded higher soybean higher oil year. Brazil, be sugarcane Brazilian capitalize and local opportunities also only seeking than on and value XX% for exports tracking of meat grains in not and trade the

the the industry poised further demand an shortfall the in demand From equipment perspective, motor budget for year. [ph] earlier

drought. supportive is value since farm Argentinian new equipment production has last the the replenished rebounded However, year. XXXX-XX viewed be Overall, sector and The Meanwhile for XX% -- ag sorry, have expected conditions for is as the XXXX meanwhile season's crop higher over the farmers demand. budget from of to harvest been plan year-over-year. strongly historic Argentinian

Argentine ag political the more challenging While for environment financial remain generally. markets create uncertainties solid, fundamentals

hemisphere, southern shaping drought continues the in dominant the Still widespread to issue economy Down be Australia in Under. the farm

drought this expected is a significantly Coast, average growing East below to albeit result to to consecutive winter is southern Cotton from allocation. crop the lower third be in constrained year water regions production due also grain expected last improved On year. have

U.K. macroeconomic spring the In last regarding a recent season looking before are Conditions ongoing this winter has off West remains XX crop. October between for clouded uncertainty whether the deal rain economy reached and Europe will crops. season's conditions In better mixed EU and Brexit and EU farmers to drought the to affected outlook across the production by season's from grain be expected agricultural much Coast deadline. with the will grain here EU, finish up recover on in held the be the

USCI's France rebound challenges the the of a tempered are the high ag ensuing expected to production forecast as lower like result wheat rainfall has like although over XX% parts. lack has prices. up in latest markets Core despite outlook temperatures been excessively by and

which were important expected the condition largely at in a last XXXX. stable lower benefit strained in and drought farm to feed EU are cost sector, of year dairy combination Looking from prices incomes

Black do be to volatility Ukraine. backdrop uncertainty nearly XXXX, ag last with economies more some the outlook the XX% the Russia for current farm in producing high up, the the regions favorable expected X.X% the forecast continued and in major and Sea is outlook in region, Wrapping over we to in up harvest than while on year see production sector. in improvement weigh machinery is most of Moving

industry decrease uncertainty in summarized slide By are in Ag on are Turf and Canada reflecting outlooks previously XXXX, to Ag industry with the sales region the be flat market. forecast at mentioned in guidance the XXXX, nine. U.S. and to the

small in XX EU and production be to somewhat outlook the recovery by tempered flat XXXX, grain as to the forecast process. is also is Moving the lower industry

balanced Brazil economic flat be and and for industry In strength a X% monitoring. be to to the uncertainty. South in to practice with key Asia, key flat due to mentioned slowness sales growth America, previously as combines to the growth as industry Shifting of expected up in slow down market Argentina, year slightly to -- project by sales are political

projected Lastly, notably industry to up U.S. consumer macroeconomic utility be solid equipment continued are on of to based sales in in Canada confidence. turf and flat the X% and XXXX factors,

I will now to Brent call Brent? Norwood. back turn the

Brent Norwood

Thanks, Luke.

update planter and Ag XXXX earlier and provide I'll sprayer forecast, to our moving on first Before phase an Turf the XXXX of program. the

rains mentioned, the planting already out Luke persistent weeks. farmers season, as for significantly kept this delayed of As was fields

we flat program, of two to with exceeded during three. of impacted underway units orders which may context, In for still last year. our are earlier compared sales phase early Subsequently, phase or the indicative that many phases was planting believe this result, program, since to year's planters a As overall one the results one push first sales expectations phase less progress. negatively our

on seed increased anecdotes, Importantly, More technology solely to planting. sales examples and of many underscores a plant prices. tight to customer advanced seed value customers strongest. this proposition the exact planters, to uptick window early over our take is the while larger Anecdotally, season the due we increased acres who ever so the due higher rates immense rates were take of value heard with from is driving when thousands most investments and placement our value to These emerge of able of order for the precise than use overall make the planter. equipment of our willingness demonstrate minds program, three-day an

book ended results the year. Canada. As program. our program's significantly down Orders the compared double-digits overall first the one of order sprayer U.S. last between to the in and varied phase And phase for

conditions conditions and in mentioned, as on well canola. due to season Canada previously and barriers trade in weakness, last as FX season, challenged adverse remain As weather this both

to With just were the The negatively were the skew first U.S., also extent impacted in larger were featured the customers this delayed was cost significant. of Canada. in down lesser and until to Canadian crop. It's results one earlier equipment the phase but driving our gaining important U.S. spraying further of machines, on to that to of phase XXXX clarity spray tough program, highly by activity season. its than impact mix a beginning near year-over-year Sprayer on order towards the volumes note customers in year's a differ end

of Moving sales slide are Turf on approximately to XX. Fiscal be forecast worldwide of which Turf forecasted two XXXX and negative Ag year to impact up and Ag currency X%, includes on our a about now points. equipment

is XX.X% margin in previously impact Our U.S., market margin the conditions additionally, discussed broadly reflect negative forecast now year. the full-year the for currency uncertainty development as lingering in of as the Canada, unfavorable to the well operating

quarter positive by construction price let's Wirtgen of profit increased was we're million translation. on forestry favorable of on billion, offset slide Operating a realization about accounting price XX. up to and of purchase a less lower offset negative the $X Now, impact Net sales primarily X%, realization by $XXX product mix. the from for partially benefiting impact currency focus due partially and

of the year. Moving to the XX, drivers remain economic for to the slide equipment supportive demand for division continue

remain firmly construction the levels growth level. has at continued and and and solid continuing for oil and Meanwhile, XXs levels, are local oil with and equipment prices infrastructure both at For XXXX, starts demand. investments in while investment the housing solid and gas overall activity state slowed, total at XXs

grow into high Furthermore, utilization remains rates rate to XXXX. equipment rental while continue rental

independent equipment healthy companies the level fourth extends by indicators demand. book investment grow then Back rental at CapEx positive global a rates is overall X%, now year vary which from budgets continue The about reflected to of market. Importantly in economic quarter. further so this are order through most forecasted supportive transportation of the growth at

to in forecasted Wirtgen's months. forecast be with the XXXX slide the two as about Wirtgen. to year and & forecasted about to full-year flat on have are in up up expected with coming XX% linked slowed line by margins last outlook products compared well XX, additional Deere's to of of Construction about global as be operating be sales from Wirtgen projected XXXX and are C&F driven with now Forestry months demand market to Moving geographies to sales The custom $X.X ownership for in strong primarily equipment is an margin be growth X% certain to recent C&F's overall forestry division. is in Russia. Europe billion XX%

provision shows points, percentage and the the Let's portfolio, XX-year the forecast move now well. below about services a provisions of of financial operation. loss for as financial contemplates to loss the as losses forecast puts average the slide on current a basis XX Slide average shown our below the XXXX XX-year for XX credit loan provision the average

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

compared guidance million. tax income in XXXX, million contemplates to For higher the The forecast a forecast previous $XXX lower is $XXX now of rate. full-year net

and XX receivables Slide outlines inventory.

as for whole, and the the division, is the In quarter company up schedules that at receivables to and result production worth order inventories forecasted line about of entered position sales is was start a a $X.X It's a the higher is book low the For our averages. historic largely increase billion. third field attributable C&F quarter in to inventory of ratio rise the with a inventory full-year historically noting XXXX.

quarter $XXX inventory the anticipated into in due weakness and For the Brazil in as and is year, forecast to we the new By a of receivables. recent increase deferred program. Canada demand end million retail increase customers

in equipment the up in R&D up was be to of quarter X% XX% for or sales as up XX% about in was was excluding SA&G primarily third with guidance XXXX compensation. incentive next X% X% our products. investments quarter X% increase and XXXX down expense of in for third cost XX, operations the year-over-year XXXX sales full about net be slide the part projected large line ag to XXXX as is relates X% The relates the Wirtgen. and the a Moving quarter forecasted ag and in The to well in strategic decrease guidance results. about in to precision year. generation for to in decrease

effective to third quarter -- quarter XX, slide rate projected $XX provision the be rate tax income a third the to now and full-year XX%. to taxes Turning for a The the included is between in XX% benefit tax included resulting for million period. XX%

forecast Cash Slide reduced XX shows billion our operations equipment OpEx voluntary be in flow XXXX. million equipment plan. our contribution operation $XXX is to from about $X.X guidance the strong now is to cash. The reflects a potential

XX. Company's financial outlook on is slide

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

headwind side, negative full-year. expect about the we for the two the to point currency On be a

XXXX forecast full-year Finally, forecasted our to our income net now be at billion. be is in $X.X to

over call closing Ryan now I for turn the will to comments. Ryan? Campbell

Ryan Campbell

Brent. Thanks,

of cash near-term in discuss I'd on financial performance, Before market. our given priorities end uncertainty use fluctuations use our cash to our priorities the markets, to of the provide some first perspective the questions, persistent remained Like same. and respond like your in we then

to cash the continue cycle. generate throughout strong We flow

our first ensuring Importantly, needs. operating allocation decisions our while capital support rating, we effectively that and continue A also growth to fund

Next, through XX% and we ratio earnings sustained dividend the cycle. targets of be that a mid-cycle payout can to will XX% maintain

under over XX% our our the as increased and progress will demonstrate last we've that dividend increased by that consideration years further increases profitability Note to be goals. two we

million when create to the repurchased long-term buy shareholders. stock we we will can during Lastly, value and we of quarter, $XXX for continue

generation financial note in regarding we've our invested our Now ag accelerated to products large precision ag want and initiatives. that performance, next I significantly

division and through forestry construction our diversifying acquisition. Wirtgen the while Although

our systems an gain the dealer replacements acceleration of and in the we and occurred in program, to customer spending our engagement. order built our enhance of has efficiencies infrastructure Additionally, increased in XXXX indicated and momentum initial of modernize Beginning XXXX in early our demand. XXXX, part which summer business ag

the As we incremental projected demand. took meet to steps the such, required

organization. but these swine differentiation deteriorated African our American of an action efficient uncertainty to upon customer assessment, to will a investments due we over efficiency, organizational These structure for growth. and actions replacement aggressive now demand as focus has impact beginning cost most fever are XX% more footprint capitalize us a on North weather in sentiment with are the XXXX. demand the since and create of also market will aspiration structural on resumption nimble to of more by which operating profits Unfortunately, involve opportunity our persist, only increased position the and support And challenges due to to access, achieve

Josh Jepsen

Ryan. Thanks,

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

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

Operator

you. Thank

will now first We from Our begin Melius with [Operator Wertheimer Instructions] session. the question question-and-answer comes Research. Rob

open. line Your is

Robert Wertheimer

Hey, it's you me? Rob. hear Can

Josh Jepsen

Yes, hear Rob. can you, we

Robert Wertheimer

spend R&D? balance I is the sorry areas, button. therefore into a high or know, that more for the really innovation maybe focus potential also good cuts about and you you can nice maybe and could you've and a the really as on so just had return two that. talk are you Thanks. aspect? three generate plan in you next, your more mean so years I hit seeing innovation, savings Question spending on a projects you I'm wrong maybe that or just are on about look keep policy cost and other that

Josh Jepsen

I'll is start. Thanks, Yes. This Rob. Josh,

differentiation we've so our things earlier, that and you've this, and and drive been it seen over and on out Combine as most that last the on years, the ExactEmerge think over we noted, -- bringing Ryan was value technology about really focus most the which things things those side, customers, continued like ExactApply, like for think precision creation we River as of years the I been investing few think Advisor. it's the mentioned in or last Blue features as couple or Brent we've that whether

kind a think and So to their be the operate forward. key of focus going ability will I we prioritize how

Ryan Campbell

We've Hey, the and and say, the grow. value deliver do to more the it, blocks on would our of value today, in minds work Rob. agriculture, to to to I to in will that. delivering This customers our building be significant What continues early incremental is technology we use we're made opportunity, precision we continue through investments the able -- measurable we're the opportunity but Ryan.

be continue we'll that for to have So a priority us.

at time, same more well. to our satisfy products global efficient we ways and we're Now, going at and look their our as to the to work that deliver services, so customers find needs can

Josh Jepsen

and go go to question. Rob. Thanks, next We'll ahead our

Operator

Next Seth Capital from question Markets. with Weber comes RBC

Your line is open.

Seth Weber

morning larger quarter kind you're kind third at, quarter for about Josh, everybody. potentially quarter production good fourth XX% thinking can you guys recalibrate the and you facilities, quarter? where where some of was, relative you're Hey, what us then last about and talked of down to taking Thanks. just of third

Josh Jepsen

clear to Yes, I of been. as not clear that have as was probably out, it maybe think, kind just could it as

As we that year, half the of -- back-half year was back-half of XXXX. of back the versus the think about comment

to we we expect commented did that less a we So, continue to than produce what XXXX quarter ago. in will similar

for the in I tractors, a America we is importantly, mid as maybe for demand more think retail large large a we underproduce North think will tractors about single-digit. little clarity by

quarter were continues we ago, but where that to a to change our significant expectation. be no So,

and All our you, go question. Thank to We'll ahead next right. Seth. go

Operator

with comes Sachs. Jerry from Revich question Next Goldman

open. Your line is

Jerry Revich

on fees for wonder if on cost just us had looking initiatives you performance I good out about if costs Hi, earlier update this the how of compared we morning, how what you much supply could expediting Yes. time deliveries mind the shook improvement and improving chain quarter wouldn't seen and to and year? talk you're that this everyone.

Josh Jepsen

we're shape supply-based better down the a there. perspective So, and better in seen delinquencies come have the from challenges, disruptions, significantly, we've definitely

on it to tractors. small more relates we and some more think have operating about premium talked issues I seen So, and We seen freight. as effectively your acute efficiently, you've

the we and they've but improved. don't abated third quarter, those situation -- noted, which and expect have the we do large did expect carry see By forward. we those to they go As into much not to we as

typically we we As was reduction, savings think from and challenge move ramped spend certainly to time. you forward, structural have think 'XX are, I time about really how in which getting opportunities there can as more material the cost 'XX, a cost in, parts shift over we moving we significant as on which

go ahead Jerry. to Thanks, question. We'll our next go and

Operator

Next Cook from Suisse. comes Jamie with question Credit

open. Your line is

Jamie Cook

I questions. good Hi, guess morning. two

construction about. guess, construction in comment based are just position in the about production XXXX good demand, sounds the the this second back on retail approach guess you visibility. whether But have channel excess with in the how I on be there's side under specifically said then what you in line like of we half side to obviously there on my on good you're we'll Just well, And year. feeling too. and as question, ag are inventory I guys it given XXXX inventory the on large some and the produce concerns numbers and that quarter a

just your So can from perspective? Thanks. talk what you you're seeing about

Josh Jepsen

overall, I a think really the Yes, think it's inventory I question.

mentioned, for about large America, tractors. I large think ag underproduction we the just North talked about single-digit you mid If in

will would weakness were as think there's allow us demand. particularly what what noticed, to were retail U.S., I Canada we there. the the taken to expect in little is actions produce more -- a

to need further. So through work we that's spot a that

maybe a we're would to the positioned about where longer, say at as that do -- but bit we take from so, a field perspective you would if bit U.S., in So inventory a construction. in we're think

coverage, which order run. with really mentioned, we Brent months a still is on got where average, couple As traditionally we aligned of

in to times ability So say that's that's also changing react -- our a dynamics. to shorten. helps thing, market which we have had And replenishment those positive

to on needed. loads. year, to So of our But the quickly be adjusting us as field during the as that's we build allows still inventory intend we've historical off quicker talked and be more ability replenishment to coming about

watch market forward. that changes So and to make while go we we'll continue

ahead go So, We'll to jump thank our question. next you. and

Operator

Steven Our next question UBS. comes with from Fisher

open. is line Your

Steven Fisher

if Good about as $XXX are see kind and driving Thanks. reduction? of and sales think would be I guys. growth can do guidance the changes you the morning, growth year-over-year net guidance in fourth both driving that your quarter? suggests construction million And what income talk then, What actual sales ag the in QX you biggest

Brent Norwood

build areas we see bit is to Yes, so had beneficial. America we demand, the in start some and cash think there fourth little be to particular perspective XXXX biggest the about quarter, prepare is so a little for and impact in bit small in about in in and XQ. a some XQ of particularly stronger a is impact XQ we flatter, of from that's of MFP little really we a Brazil as XQ trying South a some Ag were as you little think a Brazil growth see then could a we that weaker receipts two don't bit market there as those spring bit that in large year and we just where could incremental season we and talked where we biggest, in tractor well There think about year-over-year is payments and last as but improving inventory

quarter expected there. perspective inventory to it's that C&F that the the is got and we I side, for it year throughout would we On a the that fourth building see drives plan up the say from more,

Ryan Campbell

volume that Ryan, Canada to moving spend a pieces the really took both But market. the to are us There's so also incremental expecting this I you're those there little by guide that thinking relates say it the some There's would divisions. X.X we're about overall X% some $XXX is about in from what price is discount in million. as bit And still X.X. particularly down of realizations, of

Josh Jepsen

Steve. Thanks,

our So then we can question. next go to

Operator

comes next with JPMorgan. Our Duignan from Ann question

Your line is open.

Ann Duignan

hi. Yes,

In on higher your rose X% on that onto you're also equipment. new sheet assets and on balance operating returned on is being talking that the know the more year-over-year, quarter meantime used in lease the suggesting residuals your XX% about books. You equipment pricing other losses

what's buy But So account? pay have talk out on pricing or operating taken to you the pay cannibalizing even X% values is about doesn't there gross I not a wiped market. into that's willing and versa, technology, for used just vice on can going we if farmers and getting technology are mean whether losses new price to on talking on willing equipment equipment that about technology for they're the residuals used used really you've as

Ryan Campbell

most we're conditions. a seeing customers this so adoption. going for what and the actually I I mentioned about model Yes, impact important I year in whether through a and large And for I as mean seeing technology, challenging we late think be importantly used and continues on you're it's be think as we if Ag we're are is think think them new demand condition as good stable you seeing EOPs maybe particular we are strong fetching pretty hearing premium directly values there to from is are technology

execute and as used. deal both I new certainly to seeing presence, that's on and So the jobs field we the windows with technology and invest in say is willingness we're benefits there the in shorter

I differentiation there So lot a of between that there's those two. not think

Ann Duignan

channel. think in you the through note Deere operating so your comment market quarter, as dealer think goes lease returns initial lease come to about the losses And about back as John back that on did Financial, when you we

quarter? on aged here uncertainty in used the that result to some in now. for that's have reflected pressure customer recovery and And have from another decided perspective in we what carry of seen rates inventory the to some not seeing impacting So and move order certainly past the environment the as a a season right we're as we've we is that, was

be the that. due most XX with I and noting think have forward-looking look how thing best as the we XX actually than worth see is mindful forward, in recent maybe of as and we one go forward, the maturities to we dealers months we customers less coming the we to really months. what's do we continue work And lease there manage in

there. doing and continue we'll mindful be we're managing what So that of

Josh Jepsen

you. Thank

please. question Next

Operator

from Next Securities. question Wells Andy comes Fargo Casey with

open. Your line is

Andy Casey

Thanks by be mid-cycle margins margins where and be goal range be to margins question you in for called a everybody. in XX%, seem to similar at to to ag the out dissipating the pathway headwind XXXX. headwinds morning operating the turf. My to The lot. FX from really XXXX mid had X% guiding through the to that XXXX you somewhere is Good appear low

If next snap understand headwinds those expect more to that healthy headwinds, have I'm goal pretty the the XXXX XXXX? in to weighted or those closure like, margin you that XXXX couple trying back absent to guess margins with help could you XX% what over we I looked us is years, exclude just gap would should

Brent Norwood

Yes, thanks combination you right. ag little the in for look more mix a drag and Andy. mean at I our FX of than are and X.X you're a year, division of margin Yes, turf the XXXX. if

been, a is that as talked there. then bit component material in the quite a about So of premium significant has been the has And a freight we've on as margins. drag well

the past expect as take to high Similarly improvement. as Those to we're we we first year. the And are that the continuing level comments add look the to about move look that fourth the to months response to expect don't we things margins. to for see favorable. we see have I as think improved actions forward to that improve deliver forward, to that and would three and expect all in then in Ryan's of we've we premium question freight quarter, talked material we in of be Gary's

but of be is we cost not going XXXX. in component XXXX to go So that through a forward as reduction only

value a feel adoption remain really can do The perspective is same the ag our for differentiated that what precision from other customers. we we are of and and things accelerating about good

Our of those business the integration get parts of successful to aftermarket that XX% the are and to in target all where recipe us grow and to Wirtgen our from are ability services aspirational things the today XXXX. to we

Josh Jepsen

will next we Andy, Thanks our go question. to

Operator

Gupta question next comes Stephens. Ashish Our with from

is line Your open.

Ashish Gupta

Thanks. morning. Good

if roughly be I be order seems way to Just months But talked just imply with ag, two which think a kind four be covered this think being which you that's the mostly now wanted last sort I XQ consistent the would of like the would about it? in out clarify of clarification it of on sort you May, kind book September of about talking about roughly and to months uncertainty it would right commentary. quarter

Brent Norwood

got actually forestry in the months reference average about on book. construction where mostly to covered there the in we've construction two So was

think about or X,XXX As X,XXX well you into And where tractors. large we're Series look if tractors, both that's you at November.

So visibility again think schedule pretty ago. I we've lower got, what coverage a we quarter on but similar a further did albeit got to we've there

Josh Jepsen

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

Operator

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

is Your line open.

Joe O'Dea

are sort the the understand in and how morning. you good indications to technology heading planters of into like about what in where understand next you what demand? and so out the think parsing the to of and but it that of drag you're trends Hi, just how the about EOP you're divergent combines year and oriented days try it's kind sprayer a seeing gate is that sounds seeing just level guys of underlying think Josh, seeing do trends to demand direction good maybe early highly to trying there through far then the in but

Ryan Campbell

June. when question, Yes, uncertainty started EOP happy indicator think where the of good mentioned be with date this that season great as there. Brent mean not is the June, backdrop the may Historically expect an over, June we because occurring well first I just in planting of is planting we the of because what a we the as in with think in year to so started past Joe. level into come I

really we're spraying will much U.S. a that June. there, down typically Sprayers because see Ag though or in really nearly well impactful and but even and so third bit are industry service then significantly that high a better, make any of obviously spraying dynamic the been as providers all maybe different impactful, of technology up in at machines amounts Canada as May little more perceptions that's a been Brent you level the for limited delayed bit not mentioned little you're has the in ordered of Canada you and doing double-digits they've as U.S. down one markets that's

and until a delayed So get season. CapEx decisions there some said of the deeper think anecdotally they've conversations I into bit we their then little the deferred

of kind played that's -- been that's out think time. I So over

news think willingness see continue see the outcomes. technology programs, I positive looks in we'll to in for those So can what positive they customer's like invest very is but where to few value

addition look And to you growth similar there, emerge saw that, in on supply. on exact at take what we in our exact rates

and this in, as two fourth progress, through to to weeks and to quarter. January. relates So the of combines early. we'll runs the That so kicked-off some month as monitor it We're insight in that we continue first really provide continued part get program still

we'll go as that So evolves we how see that forward.

Josh Jepsen

Thanks go to We'll go and Joe. question. our ahead next

Operator

Raso David comes Our Evercore next ISI. question with from

is open. line Your

David Raso

lot target just thank a into the help bit go year in you right you. inventory to of us it's did demand a statement those making trying year-end to but went you profile. you targets? through understand one year-end a kind I'm quarter there with what receivables, Hi, your know next you about when with demand I bake assume Can profile assumption for inventory

Ryan Campbell

expectations there. end piece in that strong market given think terms really changes ag and the two that other to in what and things and I the in I receivables. there and the bit Luke some then some strong little quarter expect of you from one look as mentioned seeing represented our And seen the of we inventory impact there see Brazil. crops a that particular, factors to that's are is guide. changed would And If where mean previous the Canada weakness forward some really margins, in say would turf market be higher we're we've we positive ending that that translates first of

Josh Jepsen

David. Thanks

question. go our will We to next

Operator

from with next question Our comes Volkmann Jefferies. Steven

Your is line open.

Steven Volkmann

guys. morning good Hi,

three my figure to is I not points I'm try out, pricing you of around and the capture trying pretty I mixed. think to guess So and question prices is just impressive

the you we emerge and as So I'm value further? out be just curious I'm not and mistaken of sort outlook of sort what how price the and if not X%, things little there in exact is a the like bit can go push might much that

Ryan Campbell

right like for things to in As be added would that that include on. commentary that is does he not and it relates like price, or you're features your

So that's fair.

realization. those mix So in show not our kind price would things up of and in

So correct. we you're I kind and Yes, able are price, why think to think if get that's about of you how it.

exact I think that it's number it, really to been the for customers the outcomes to and understanding able a of inputs we're about think that value a ability to in plant acres we to of able and three and versus really example that had days all the customers economic getting execute big I talked deliver converts with be and can had. That's being difference weather able not. difference three advantage be XXXX they at a the have the days and only and that's to good a crop to deliver

as we've step on look and As decade you closer and about price think think about probably net points this we as average we over forward. to the averaged last going in we've the our average get forward, quick forward, higher two a I that half operations of been year

Brent Norwood

can to support of add mean there's incremental and our as say with can dealer our we and Yes, value we what continually as comfortable total production I I feel that service equipment our the significant respect that that some the and for system technology the network customers. provide would value about think we

we that's pricing. think about so And how

things pricing that overall year-over-year out. Now when into bring service ranges. have support That within the the comparisons our Josh indicated it that that technology with doesn't come Josh total pricing that but something value as it that give provide our products, comfort and bounds is that dealers our within can and us well pricing but updates is and can the we said, or into come new already does to been comes out historical

Josh Jepsen

our question. go Thank you. to We'll next

Operator

Bank. with comes Chad question from Deutsche Next Dillard

Your open. line is

Chad Dillard

Hi, morning guys. good

get to wanted just also savings, like get that cost business timeframe like what so circle with splitting versus about run question the to just the full the magnitude each the just and production enact you're then for How a control a for the just between want line on could a Sprint of to how to you sense back thinking channel be. order low and the horsepower retail your on inventory and sense tractor hit demand? you rate. So want secondly then comfort just And are business

Ryan Campbell

Yes, Ryan. this is

relatively those an $XX XXXX in million in in and going an So, at cost they call cost might cost. this today's of XXXX about margins earnings margins our aspirational would on just of to going cycle update small to as with detail. some say mean acknowledgement our quarter give the to ready from path targeted it's what I'd prepared contemplated on taken provide that to point, our is fourth we larger quarter, are quarter, XXXX. already missed we component not just haven't we're the reduction What actions What side, the a that we've fourth level would provide say We're be that the of third I outlook forward. to is XX% in got the total we've total those

Brent Norwood

I the line U.S. and aligned industry really end an market from demand and driven pretty contractor, continue at to comfortable in just And inventory think we're general follow-on in maybe is much strong with I level conditions to where we'll economic by particular. where relative broadly the think with we feel in we're there be

So thank you.

Josh Jepsen

ahead to will and our go next We go question.

Operator

question comes next Mig from Our with Baird. Dobre

Your line is open.

Mig Dobre

to the driven Yes, the in is term are markets on me if about like expected thank Wirtgen, here part seems business go has you're on on down. my an forward? Thanks. update I'm I wondering should about the because planned this the can how outlook your just second sort end follow-up love that it thinking you. margins actions help structural understand of more et view in maybe that to cetera volumes And margin you is Good me there and longer question ticked morning for production and this or cost talking nature changes by be maybe and your of we

Brent Norwood

quarter mean start really I will about think expect Thanks which strong overall, that. Burkett. Burkett Mig, I so Yes, if on about we third talked that we you

essentially a So level. actually last you of that's kind margins XX% on lower slightly margins sales accounting about if in out similar take year, purchase

have some align we is couple the business as that our some seen production by of the way as driven fulfillment did order really about strategies mix, feel come a in business Margins well as full-year good in under their performed. of brands we on So as changes shifts as integration. for their you in part

under under are there. forward year some to their position but we So and margins do extent forward is ourselves that are to to produce thing producing for right to going as we impacting that's the going this think

really I and good So to we continue the that strong Wirtgen, marching go. business, as that we in summary about provide in mean quarter, and synergies feel path continue million on down €XXX performance updates margin in of confidence

Ryan Campbell

reduction cost our in on lever come pulling that. the in really quarter changes structural call opposed are to given focused in longer-term cost side, structure as are to cycle we earnings on plans fourth the Yes, but more for the where

Josh Jepsen

our you, I next to go Thank will question. Mig.

Operator

next Our from Courtney from question Morgan Stanley. Yakavonis comes

open. Your is line

Courtney Yakavonis

Hi, good morning guys.

embedded XX% because give up same it you level incrementally granularity are any the and fourth a currently about the Ag. $XXX like talked Thanks. grinding of quarter, uptick that see is a you higher? early about run you of Can reduction. us talked ExactEmerge being talked precision orders, more is Just continuing the the the quick clarification on or whether step about things million higher then $XX that rate roughly being on them function you and secondly, to and million of flat third out And in that units when a at guidance in just is

Ryan Campbell

to of Yes, to featured those on so seeing about side from the going with EOP XX% are the I that's we're we with a kind Brent also as that just think up being both up larger things but ExactEmerge and move more value that planters exact third numbers contributing of that planters, highly just saw planters and of noted. bigger that around

Brent Norwood

million in in are guidance costs. embedded those run side, I $XXX conclude we that that's cost that reduction is the one-time rate. it the the On have. And wouldn't

Josh Jepsen

We'll to question. Courtney. Thanks next ahead go go our and

Operator

from comes De question Maria Blair. next Our Larry with William

open. line Your is

Larry De Maria

Hey, you. Thank good morning.

farmers So sounds change cash Just to contemplate not. thinking and out, fourth guessing use did your because buy to came just some your since out at equipment report came I'm it USDA still all expect MFP it in curious, outlook that like did you the quarter? their fiscal your of

Thank over time? are? now? where it And and don’t if know differ expectations maybe out So planted guys you I you. on stand yield where secondly, acreage do from plays you

Josh Jepsen

market, the maybe certainly acreage with part yield. the and fundamental yield. harvested planted, Monday, planted the particularly start I'd the on say so the the question And with Yes, and corn, to I'll obviously, USDA what than surprised of regard on areas more released

price corn the moving So has in caught limit down lot a people surprise. of by

with, this kind we that's say would growing in work long at to season. what guess of to is the So we go what I moment a that, way have there's still

Obviously, weather. we've had a of lot abnormal

of delay it's light the and in the the things. the lot variability Obviously, across development there's planning, where for a side, variability. those of lot early planning, a corn With belt, of sorts crop up there more a looking crops lot opens to better side is where the windows progress eastern from western of

into USDA and history and some get actual shows we yield estimates, see changes go harvest from significantly so And us season. can through as changing final -- as might vary we that harvest crop the August the numbers certainly that get that data, uses relatively these methodology forward. the we go So as we

number. terms that'll crucial means And of in obviously be stocks that that's it we'll important So And be watching what closely. final production. to ending

Ryan Campbell

grain of the ran terms prices or a situations think June, you very mean, do what as in and MFP market not health farmer-to-farmer, size crops, impact? I the get Larry, May, you out. of think, in I they very, their of Certainly And different about kind whether

that'll a there's dynamics, they of impact, think when perspective. if cash that some from receipt use of and lot So I a

Luke Chandler

think just that farmers, Yes, trade to provides we've U.S. guess the helps, with this uncertainties it commodity in levels it listed add Josh, the to arm about like boost receipts, in really has shot been that the the a given MFP its that week cash issues it to XXXX. so And and the you for impact we've on of I seen some prices. that when on for got XXXX certainly highest the

to what from year, we'll it highest uncertain the five some conditions market we benefit as able been And to So them able as of had docks earlier prices wait have. the higher some demand in we crop for will well. they've old obviously, what see to means at been the prices, were given equipment in of years have marketing forward

Josh Jepsen

next Thanks, Larry. We'll go question. to our

Operator

from Our Evercore Raso ISI. next question comes David with

Your line is open.

David Raso

addresses it. I you. missed I few if thank Hi, A that apologize

up. explain I the can for performance pretty My the construction explains are roll implied like fourth the that’s would year-over-year case? solid that. And quarter. basis, despite decline, that if Your of all it on sudden equipment missed sales a a I looks a why mean, why you like something apologies margin margins but

Josh Jepsen

you're fourth the saying in Yes, quarter?

David Raso

correct. Yes, full-year the margin for the is I guidance believe XX%,

or on that was run strong that'd nature And I X.X quarter be incentives or and given something of implies, -- if us the year-over-year, just down of despite I'm for sales having mix X%. or pretty fourth that margins, for So up dealers something that a wasn't missing? sure, something changing

Ryan Campbell

It's Yes, Ryan. David.

a that. mix think component is of I

The that of footprint. construction is material, as other commodity aspect a different

that costs, that benefit. that projecting in -- is positive on benefits yet we're fourth material is And seeing overall quarter still part in the to in not of that ag, so construction see

improved that fourth last the other that we The some are of pricing. comparison quarter our is little a thing bit -- pricing actions took pricing gets tougher. There in year our

for margin a we're little construction. tougher gets those quarter in projecting performance the takes comparison really the puts fourth the associated bit fourth with are -- quarter the So the that and for the compare construction, in

David Raso

Thank you.

Josh Jepsen

Thanks David.

one we'll Okay, more question. take

Operator

Sachs. question Goldman from with Jerry last Revich comes Our

open. Your line is

Jerry Revich

follow-up. we Yes. at have savings pretty Tier if because folks Hi, thank we streamlined you on the reduction transition of upgrade expand can that a footprint as and manufacturing already the just wondering I'm X look big opportunity buckets for well. the you cost the taking on conceptually tooling the as

comments quarter So buckets helpful? about detailed mentioned, qualitative but get us in can as you improving understand further here obviously, are any the you of as mind would from structure opportunities If talking we major context? the more help be more don't just you a cost numbers next we'll bit

Josh Jepsen

I areas efficiency. in out kind organizational kind of of think, Ryan kind the terms of so Yes, laid three of

I you think the footprint. second think about is one

global I think single a there, are we on for basis. our a products source lot of

we're capacity, for good most then those and that feel be prioritize focused two start So add how our look the areas. make on do we we sure those at to going things so our customers most important value we and about to are

Ryan Campbell

Jerry. Yes,

to ready buckets. breakout not we're those So

way it’s on going and up all we're fourth our margin three Although, an where we aspirational quarter provide is improvement hit to what the focus will it all that on to view to update our to targets. kind and are, towards means XXXX XXXX of

Josh Jepsen

appreciate you, We thank Jerry. Thanks, it. So everyone.

be reach good have weekend. will questions. please around, so out, you Thank if a you. We And got

Operator

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

Deere & Company (DE) 16 Aug 192019 Q3 Earnings call transcript