DE - Earnings call transcript Q1 2020

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Operator

Good morning. And welcome to Deere & Company First 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 the call over to Mr. Josh Jepsen, Director of Investor Relations. you. Thank

begin. may You

Josh Jepsen

Also Financial call Manager Officer; Communications. morning. Campbell, of are our Chief and on good today the Ryan Investor Hello, Brent Norwood,

our we’ll to and to this current first at for fiscal are at website some Today, available that, complement talking Please outlook closer morning we’ll note After be then slides respond time markets call earnings, accessed questions. and spend Deere’s our about XXXX. a take your the at quarter johndeere.com/earnings. can look that

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

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

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

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

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

Brent Norwood

been some was access farmers USMCA, for and phase passage early first through completed and market signs the performance as for trade of Deere with stabilization progress That's U.S. industry. the quarter agreement the China. sees addressing X U.S. of with solid a the made Ag John improved

to the for manage even lower division actions fundamentals adjust and as same slowed, dampening markets as Meanwhile, to to results markets farm slower demand. high. remains the as levels off and time, division Construction underlying At and our production Brazil of start, inventory a takes levels got such Forestry

beginning billion. first and revenues our were Now, to net let's look operations results take Slide our Net X% a billion, Enterprise while up voluntary X. program the $X.X for $X.X about diluted $X.XX at down X% to Company quarter The to to million, to separation a were of on down about X% net quarter. sales equipment Deere relating & results attributable closer sales during income was $XXX conducted per $XXX included the pretax expense share. million employee or

the point. offset volumes and with Slide to our on impact currency comparison, start a X. Moving turf realization. and the translation by Price we down was was positive currency in X% positive first of negative by realization Net on of by review sales primarily by will agriculture were translation, quarter-over-quarter X individual businesses, lower driven partially in while points, shipment price quarter the

the Operating in for as by profit was year-over-year realization $XX employee was the charge million and price production offset an X.X% operating to margin well separation primarily lower due $XXX a voluntary million, positive resulting The partially as volume lower relating to costs, increase division. program.

abated as on trade X, Slide first show with Starting globe. sentiment with signs began in of our of and the quarter, reviewing around signing farmers' operations the passage surrounding provide USMCA to industry stabilization X uncertainty outlook, Deere market impacting the the commentary of China. the we'll and phase the markets on the agreement dynamics during Before U.S. Ag regional early access

further XXXX, part, in receipts expected to U.S. enhancing totaled are the in of market announced aided liquidity. payments, Additionally, the recently which tranche by billion, farm third increase facilitation cash farmer $X.X

until will likely China improved to begin certainly Ag access has sentiment, flow. exports market farmers remain While cautious to

increase to exports for soybean season. seasonality ports significantly to China unlikely the are until demand, Given harvest

expect not large year, sold changes do XXXX. many products via significant Ag cycle of our ahead, Furthermore, in are As point the closed. order a the fiscal early replacement in at we year now that have already this during result, programs

basis cycle, the combine were early by current in stronger final ending we the a encouraged of program a Despite price on After down due start, U.S., results down a low increases. while a digits our in finish the single but down of in phases single limited Canada. overall changes total, two order digit the slow low-single the basis, a just digit double In resulted digits unit up on program to ended orders high replacement revenue this program. to

ahead is option year for healthy, tractor XXXX sold order a row featuring integrated XR, a for tractor. an our industry positive our newly fully track strong with frame indicating rigid redesigned a book crop position four Meanwhile, fiscal first to reception

The field are significantly industry. rest continue for in below tightly sales Ag desirable we equipment. part, position took resulted retail with XXXX, sales new which strong supportive price is field years, measures Meanwhile, we actions the levels in during Moreover, manage is inventory to to XXXX, order a to year. in And took, in produce reflects their inventory XXXX that ratios, used used we'll in us stable healthiest plan. allowing currently of still of throughout inventory, our the in line to book large the inventory environment which equipment the manage are in

Canadian Canada. exchange averages. lower inventories, income In this contrast on to remain is our to still rate. considerably increase a farm will namely to expected barriers conditions, declining though trade elevated in than the below is due year, but canola industry This and year, last Net long-term existing field U.S., challenging be

to the see don't our we field As focus can reduce and in production to on in continuing inventory, sales we change cycle that, closely retail more so match a we on will result, equipment XXXX, XXXX. much replacement

rates this improved producer Europe for healthy overall record production to Brazil with Shifting outlook to in America drive the improving very for country sugar have prices dynamics, exchange XXXX. coupled These and South favorable continue fundamentals on X, soybean and margins year. favorable soybean Slide an in

as better terms somewhat shifting on beginning investment, dynamics which equipment are the further Brazilian yet sales of to financing trade possibly shipments sound and farmers anticipating cautious the equipment, end be XXXX. of also of regarding lower government fundamentals, to sponsored contributed were clarity lower have XXXX and the for farm through at retail impact determined. Despite these farmers

is late On government that support second equipment in note, margins be that are export provide for On clarity options year's higher soybeans. new equipment. in taxes. market positive January, announced the and sentiment funding the strong, expected base of higher Ag sales, Argentina farmers This for half face remained on a transition in potentially unsubsidized stronger for on year. a very the corn even the and as the to greater to taxes and financing note, adjust begin this crop to Meanwhile, farmers development should program subdued rates of positive will

north Ag on mixed, improved the Moving Europe, to livestock though, despite from have drought. continue year-over-year, supportive, prices is But, breakeven have does while in conditions and last sentiment even as improvement the levels. above wheat overall remained fundamentals remain for soft. dairy Margins year's been mostly recovering results, winter region fundamentals, crop in modest

focus degrees continue to within to Concerning business. of and optimization greater we Europe, Deere's our drive operations

frontline sales months, began work operations branches Over selling our we've on resources efforts. our the to few and of the shifting more last rationalizing

in we have more in North support large closely, is order we're degrees Tomorrow to in to our ensure scaled what to years. appropriately accelerating strategy and America concentrating region, Dealer our deeper the We of And a towards of with technologies. product and are channel technology implementation, coming the done in our focus portfolio precision deliver of optimized also Ag, on higher the

outlook industry for U.S. down With let's stable and XXXX, and from reflecting X% Slide turn in Ag Unchanged that by we in be to context, expect a XXXX, to environment turf quarter, sales on the U.S. Canada. Ag conditions last more in industry challenging about the offset X. our Canada

flat the last for impacted Moving forecast dairy with outlook year's expected on favorable outlook remains the drought Europe, the for be to XXXX, year. most sector in stable. is Furthermore, regions recover, the industry from to as are production to

in margins the be a remain the In and are market. restored Brazil result production sales in South to combined producer and as grain positive, financing of levels industry, tractors America, healthy projected for year. of of flat Fundamentals liquidity with combines high

like the greater near-term for the Argentina, American potential policy extent challenges to faced other Ag Mexico a sector. impacting markets, and to However, adverse due Latin

by Shifting offset China. to in Asia, sales industry growth slowness are expected India in be flat, to with

Lastly, industry be in to retail and sales utility in flat stable the general equipment turf on are Canada of U.S. projected based economic factors. XXXX, and

of Slide fiscal down producing contemplate X, and Moving sales are important in XXXX It's X positive below about that Ag small equipment price to our our for year expectations to sales be and of of demand on still forecasts point. of continues and headwind includes forecasted which XX%, between XXXX. turf worldwide to X% a turf on forecast to points currency to note, retail tractors realization a Ag

our forecast year margin, is operating and between division full the ranging quarter. unchanged last XX.X%, from For XX.X%

Additionally, due introduction quarter, tractor production changeovers the X Ag when Series that to the limited from factory full of lower the build, second our new schedules keep series combines. of XR the modeling large mind, production some of volumes in shipment year, and in resulting the include new a

construction on Now, forestry X. let's and Slide on focus

realization. $X.XXX the lower of to For and million, XX% lower Operating partially relating employee to year-over-year volumes shipment offset as were currency to the due impact $XX in down program. to lower billion moved sales $XX translation, quarter, due as of expenses price the voluntary positive volumes shipment separation about million primarily net primarily profit well by

positive, quarter. currency the the On for profit and benefited price realization

outlook Let's mixed forestry forecast in turn between levels U.S. indicators and reflecting industry to field to and industry to construction sales Slide Construction XXXX inventory. X% our and elevated of XX. down be on XX%, Canada the economic equipment are

all mostly employment, CapEx remain CapEx and year-over-year. drivers housing year, rental gas down demand, For GDP the and starts are of oil and while stable

more X% lumber the Moving on Canada the and the year, this forestry, to North U.S. expect to now of the decline and as in markets declining pulp America. world, XX% to global rest than industry soften with prices we

outlook forestry Deere's mid-single The compared outlook. construction decline is day our compared is last the C&F remains replenishment equipment are building window, XX our historical to to and under mostly in to construction order digit book a forecast to to XXXX down XX within year-over-year with sales to production volumes, and retail consistent inventory XXXX. year. by The still Moving of XX, be driven XX% the between XX% to Slide on

Our net point. expectations currency of X includes and of for X point of sales headwind positive price guidance realization a year, about about the

year XX.X%, operating forecast full the between For division's to X.X% our last quarter. is from margin, ranging unchanged

Slide Let's move Worldwide first financial services & now income operations quarter. attributable in services million Company was to financial our Deere the XX. $XXX on to net

basis XX $XXX and credit high rate at tax losses provision For a credit current points, fiscal contemplates within XXXX degree a which XX% our year XXXX, reflecting for between net quality of The income million, is in forecast remains portfolio. XX%. forecast

Slide for outlines XX, tax guidance rate cash our our effective and net flow. operating income,

our that on the working to guidance, the authorities, and noting production. the reviewing a primarily monitoring of wellbeing of our and situation we return are coronavirus Before Chinese employees worth components focused provincial closely it's safe with the

exposure, terms with base our the providers. impacted the and suppliers Deere remains logistics In The in operations. serves we're international situation of overall biggest that to closely is fluid, supply and our relation potential working

Our full XXXX. be billion forecast between for $XXX effective net to $X.X to of to plan. from to $X.X unchanged an voluntary and flow OPEB Cash and projected to remains to year range guidance is a the is reflects to The unchanged be be also in outlook equipment a in tax billion, rate potential $X.X contribution million of XX%. our expected a XX% in $X.X billion operations with range forecast billion income

closing the comments. I'll Ryan? over now Campbell, turn for to call Ryan

Ryan Campbell

questions, first underway on we Before the your like Ag, some XXXX. and thoughts conditions market initiatives I'd key in offer we to current revisit respond some in of to have

producer signs we're USMCA for early the X last the steps some sentiment XXXX, the agreement view as that year beginning weighed in the phase has stabilization of first passage evident the of a XXXX. in uncertainty over signing with of important year. of trade of uncertainty on After of We the encouraged removing and by China

part, Continued be upon sentiment a and pickup dependent of positive in goods to exports agricultural will China. U.S.

and quarter, were order program the on last order large our with tractor the the Over pleased our progress conclusion we book. made, of combine early

As ended noted, program the for our U.S. in Brent combine up orders

units even operations, their in offer and and can of that economic products periods, the We increasingly average higher the to in we results for prices evidence, finding periods are high that are is us. for productivity, We of customers and to down. value. levels as opting drive of view number invest better Customers a when driving uncertainty, selling continue sell that for drive solutions outcome services financial this that slightly our growth flat we highest despite,

beyond, our key some to XXXX help focus and better shifting initiatives Now, us our discussed, recently strategy. execute to

Day, his Analyst out May, laid During CEO. our CES John priorities as

first business. And our opportunity investments on markets one, priority on Our to retrofit precision the aftermarket refocus our differentiation. and allocation Ag that and that emphasis have capital expand for products Two, leadership. intensify three, is our greatest our increase

our greater involves towards organizational cost more that a to design during voluntary quarter, us. and structure, first on program a both achieving in footprint opportunity of significant the create to company, priority of reorienting second our Our separation agility. agile best conducted step To including capitalize the front end, we degrees a as

efficient the We year, better the market conditions. more organization we’ll additional Over our opportunities to dynamic be equipped, pursue to respond believe course design. footprint the pertaining and will to overseas organizational and resulting of

we our quarterly initiatives calls, decisions will on indicated, As we as during have made. these updates earnings are provide

Brent Norwood

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

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

Operator

you. Thank

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

open. is line Your

Jerry Revich

Yes. last organizational if on comment realignment. expand wondering set wrong. Hi, you the just I'm Ryan, good could in your if of me I'm opportunity Correct structure terms morning from and everyone.

services. very folks you organizational set with shared think on up matrix emphasis I as are a structure heavy

the in And benefit so really transitions there the quickly. significant these pretty direct line towards responsibility, regional margin seen been past, has we've when at

similar So how from responsibilities to transition here from seen think an transition as outlined regional should your we compared had matrix what you that that to about we've organization have others here?

Ryan Campbell

a XX%, we X% would for margins from we come our when is bridge what look We're Yes, program it now going XX.X% mid-cycle of we from thanks the and separation cost would still that, we might is component talked the to component point the that. that is, question. analysis And to from Certainly, structure. through what said synergies about a I Jerry, that executed about to voluntary Wirtgen like. of CES of just talked

the And recharacterization rest design then of the footprint and organizational of the will the that. of kind be

voluntary about took synergy and And so - $XXX in from rest if $XXX about of €XXX is X would you million, separations about did point we’ll a XXXX in think Wirtgen XXXX. get million, you million we be savings over get the similar The the programs, we about amount for it.

we we at, So, we're those decisions, talk that’s point. as it but early characterize we'll would this make how at

Jerry Revich

along? talk of ultimate when seen to could that? your it changes closer is bigger Is in past, to size be I basis that about something too points XXX the we're we've basis than Ryan, of set, or we've soon And until the that shows, XXX improvement. these guess, further points margin opportunity benchmarking seen it numbers what

Ryan Campbell

to to talk the soon talked we that. XX%. about us numbers that you to say, to about point I get too would We'd still

through provide on get we calls. updates we'll certainly quarterly As our it,

Operator

you. Thank

question or Research. Joe next from O'Dea Our Vertical from is comment

Your open. line is

Joe O'Dea

Hi, good morning everyone.

on purchasing, Ag of type of activity, should whether You purchasing touched we the phase a that post the seasonality you stronger about on return agreement? dispute X getting based but commodities, be agreement. of and China your think phase that just of of How pre-trade level about into thinking to are than as whether X the fall U.S. it'll evaluation

Ryan Campbell

question. Joe, thanks for the

I early. think, still it's certainly

post see time. typically to to Brent back moved time, our kind I North of America, we're South America where a harvest at purchases think, alluded period now you to, the as of coming

time we there some like So, there. is think

think of to purchases, larger is, X do roughly have there we a as kind the about of averages. on some get number how question historical times we've we what I think and numbers the that of real out historically are done

is purchases So, haven't we pretty big I pork, what into haven't continued things there always to like and trade commodities a the significant. been exactly that other determine of what necessarily a soybeans do think still play see looks it's up, role, others and early been come or commodities that that ethanol make also it

of coronavirus the So, I near-term have think overall slowed, lot make that as well there, terms things still comes that and that purchases. impact with in how in on of does some in activity of have just questions through, China, a the as their to ability what those

Joe O'Dea

Thank it. you. Got

Ryan Campbell

Thanks, Joe.

Operator

Thank you.

Our Jefferies. next from comes question or comment from Stephen Volkmann

Your line is open.

Stephen Volkmann

margins. the a And a good expected here of everybody. quite came the a kind little production some the we think some view I your given in it's kind them wanted full bit more in in frankly, of the you've Hi, and mix to quarter. savings would to to they I of a little and I probably from little about of hold dig year. better versus Ag in tailwind assume, the the bit us for into level first reduction morning, last guidance than year. terms Obviously, down improvement, think, tough of to maybe headcount bit retail When

range some we about of how Are those that the you're some that? headwinds is maybe that that there skewing kind end little higher a of toward Or be conservative on are color or we of thinking something, thinking margin outlook more should or offset just the somewhat of benefits? about a

Ryan Campbell

I Yes, right. mean, Steve, you're

pleased up think on First of with in, all, lower I were came think a positive. the first I way sales, quarter that's that we the margins

bit it China as watching we closely, we slower retail as where, still few things full we've we've well think in about coronavirus We're the One, little are year noted, as that started the contemplating. Brazil, is with a with in As think early. year, I a activity. the situation

pretty that's picks view back-half more up, loaded, there's closely. something that watch but it's we'll Our

the as rest first first points the nearly a quarter One X of think price versus we quarter of we about had realization. thing, the year, other

Our is much that X full from as perspective. points, about so, there year not expected

think, overall, so of a lot moving we pieces, in change So, not feel still range, and we a our prudent. that's there's like

thing out we unusual One, to in Waterloo, in XQ because one alluded that's for in a timing as we're they first our to transition few, in call lower quarter. year, quarter, Brent is result say, things, as also, second our of the for his quarter, limited during cotton impacts see the XR second the much builds have of we well new the new about ship production we this have and the those production. Maybe particular, certainly seasonal just And in I'd maybe through quarter, think and came what really comments, a produce But our new combine. brand impact product will tractor, so of as two able to month. sales we

last think one those base the XQ there, of our to coronavirus, of in one about and on operations that some then parts the get to the supply ability think about thing things thought And and we as about impacts, we've to is our internationally. impact is,

in we've able to into sure about So, the actually, make parts expedited million included of we're that our that to operations. freight cost get to availability $XX second have quarter of

things that, result see. probably those seasonally line would So in, we than of and for all a what XQ lighter topline margin

Josh Jepsen

Yes.

range quarter. of about moving we maybe it's the and Ryan, a few to point. early feel change our So too rest the in at first to overall certainly the But, just performance the us this for for pieces year, summarize, there's good

Stephen Volkmann

it. Got

appreciate guys. helpful. I that's Okay,

Operator

you. Thank

Tim from next Our comes Thein Citigroup. from question

Your open. is line

Tim Thein

perspective? is of from a But change just higher in historically, those Thank highest this but you. magnitude thought, you just again, to quarter of does along make that terms margin factors the perspective. quarter second margin we recognize lines. continue the that the of train these for seasonal just guidance, the of thanks you don't I margin obviously, added outlined year that that disclosures The - And quarter, such Or, those think sure a from enough the in are first, Josh, third kind quarterly than give second to to you understand impacts.

Ryan Campbell

we've say difference similar Yes, that the between in more seen I'd those than two now past. the

Tim Thein

So, on another's? kind XQ of with okay, posted XQ, par one

Ryan Campbell

yes. Correct,

Tim Thein

right. Thanks lot. a All Okay.

Operator

from comment or Credit question from Our next Suisse. Cook Jamie comes

Your line is open.

Jamie Cook

good Hi, morning.

Steve's on to guide seems question margins, again, I agree his with that Ag Just the conservative. the following on thoughts

the You did within Ags. also talk actions about of some taking you're in Europe

associated relative or first So, sort that that's weighing U.S. there wondering that South about if how margins on think much my Ag with incrementally to how or for there's costs So, I'm any question. if I the Ag? margins America any of in

expected, same, particular the Thank And construction the in my you. that your than first on I were just was understanding, weighed kept little margins if guess have side, sort flip the question the a second margins of there weaker on level construction I there, anything confidence your quarter. but the you would in margins

Josh Jepsen

as done, starting the in do we about today, on those of on we've we contemplated stand where the major and I additional as I those, call so, out. So to with lay through nothing Ryan we we executed think Ag side, of Europe, as but Ag XQ, mean, further 'XX the nothing actions, side, think right at, in already out XQ now. some we're talk and If mentioned, things we'll

that think the construction are mix, quarter. then production the $XX had drivers we lower construction you margins, an in then and have about the the unfavorable separation quarter, of really impact, voluntary under margin As just lower biggest million, component in the volume, and lower expenses and

construction just and mix expect improve we of full see to see through do year, the equipment mix as the less context and expect, as will what Maybe our about throughout construction year. a we as we as North there, under the improve year, produce we American the think go we do we balance

seasonality to of is to which portion more heavily seasonally the weighted our in and bigger a year, addition XQ and XQ year. skewed, much that, business total C&F In building, road more this their is is

biggest probably construction perspective. think from on the a I are side those drivers So, margin the

Jamie Cook

you. Thank Okay.

Operator

you. Thank

is from Gupta Ashish from question Our next Stephens. comment or

open. is line Your

Ashish Gupta

budgeting Hi, chain guys question. the color the for Thanks the good second supply taking the on for quarter. are morning. you impact and Appreciated costs the

just the on, component impacts said if Japan other to markets, make type China there's that I'm wondering come Korea. international you for and that if wondering spreading supply can chain you expand in I the time think South with could over you any virus maybe Just and

Josh Jepsen

about Yes, relatively mentioned. is business kind small the and like exposure, for the One sales Ag direct China building, components and turf for we business. a potential kind of is of so though, think the our and impacts into that our our of that's we has bigger exposure coronavirus when impacts C&F Road traditional market there. two

sales. in road to China So building their overall of tend to will XX% XX% be

So more there. an of impact

some in in We their the lack or last did activity see reduction topline as month a result over of market so. the of that

So one. impact. of we have that seen some That's

The chain. second that supply in globe. the operations our we've And component on suppliers is got China across supply

our the So, through we're when each suppliers to so they working of monitoring are we're supply to teams working closely, either, really the and diligently begin understand watching or process something those where watching producing are, are management to they closely. and those going are we're produce, to that's

ahead during expedite I go to make mentioned, set we sure those as where try to get and to did result As to quarter. facilities that, get our up that's freight the of a can and parts capacity we

Ashish Gupta

suppliers sort if Korea you or we remain quarantining component that the other see there? regions in I impact you in do can you other in do you should leverage also, down in any ask shut And Japan, But or an have I guess, South of from or extended U.S.? Europe impact see

Josh Jepsen

and on. what's really is terms it's day-to-day shifting early. fluid say This mean, going I first, very in Yes. of I'd

to update, as that’s will kind our today. supply we of what always, So, suppliers certainly opportunities are but we multiple locations. forward, we teams resource at And and management always looking move leverage as that have know

next those ahead through Thanks So working will go Ashish, go to and our we all opportunities. we're potential question.

Operator

you. Thank

from comment from Casey Fargo. Andy Wells Our or next question is

line Your is open.

Andy Casey

Good relative cash last on first everybody. cash Thanks. I terms of on flow, the in A had a year operating outflow to cutting question line. really the morning quarter mean, good you

change year guidance. the full You didn’t really

with are the keep for terms balance capital? wondering I'm the of didn’t dampened what b, pace reaccelerate? that the a repo you balance and signal to or working you So, then, And keep I'm wondering, year really that of the of for year do share if it you expect the that’s going in will

Josh Jepsen

we it first flow maintain and progress I'd overall, inventory good managing cash say, perspective But really saw you quarter. We range, a in From cash receivables. it's noted year. the topline early in Yes. months focused in our prudent that the as nor given we're I Felt think income ranges that adjust was flow on our we a maintain three the range. perspective. just net from We didn’t

Ryan Campbell

evens although Andy, inventory And took quarter, We evens of do inventory so reduction. but the balance in 'XX, Ryan. it's significant first project inventory time, out that throughout the reduction over out it out, we still an

that’s working With first respect did million for Typically, we quarter, around build line a to buyback, our capital. average. with $XXX the quarter use some the for is historical first in of cash we us as

what historically, that. quarter. we've in first into read to right It's with the line done in nothing So

Operator

Our Evercore or from next David is Raso from question ISI. comment

open. is line Your

David Raso

I'm think price cost the turf the or on next in do If for baking the thank Ag year are rest we just Ag months? and cost, the to year, what trying you Hi, for for just the you. margin year. the walk a nine for of price

Josh Jepsen

It favorable. would be

Ryan Campbell

price. know in And about we did you as Josh X said,

The quarter full X. first is year

So, that there is going of the an the impact year. through of rest

So price quarter. favorable favorable less than the first but cost still

David Raso

you the million cost savings think the when first to to second of the right trying decrementals quarter moving in nine so. way that freight and year I'm But of the the savings about the Do implied from the are about offset volume in X.XX something those add you Is million two versus Well, is the figure another the or price just roughly year. to within walk implying should on next the from in separation months the this quarter. $XX cost declines back rest parts, cost coronavirus here production $XXX go for rest Because The incremental the XQ? division cost the separation positive think from cost freight your the I'm the change. for just pricing up? price you was the change trying get

Josh Jepsen

than two points includes the it's is Yes. - in more said, overall, Ryan a of for the little Well, or little to us one think I year. as price a mean, for and just - there more additional trying I compare full maybe favorable are components. XXXX freight that and X Material

David Raso

million. $XX

Josh Jepsen

there. so year. pension would favorable. costs The that higher and the in be additional do us is costs million, the OPEB have still comp going are things year, higher in We couple a $XX against Incentive

that impacts there some the net-net there So moving are pieces overall there.

David Raso

year the Ag at the months be versus And you. underproduction high that question, be Thank changed three turf, horsepower, for related to all same and would magnitude? color Any has in horsepower it appreciated. ago, there that low that from

Josh Jepsen

in retail, Yes. No to year-over-year. how terms we relative change of produce or expectations of the

Ryan Campbell

Yes.

So still underproduction. in roughly Ag line, large Ag, small

David Raso

All you. thank right,

Operator

question next Dobre comment from Baird. comes Our Mig from or

line is open. Your

Mig Dobre

you. morning. Thank Good

maybe you your of into the do to a kind or Going in back you think beyond? a what At and little point time you're late can in a about maybe us terms of sort I'm going you help do about you business, demand? Is think more of guidance can where position baked retail to XXXX construction, what's you XXXX thing? curious this building? quarter And earthmoving be in in closer second as earthmoving to your versus understand road of produce think here

Josh Jepsen

Yes. Thanks Mig.

is, which about really year the is first where construction we significantly question the year. than look the of I retail quarter, produce think loaded. the of equipment, kind produced more construction at It's for front-half demand. if we under and will forestry North think we lies, we the will more we under balance your American think of I Certainly, when balance and

improving North year, a equipment during of that's - business over the So, of that the less the quarters underproduction little result mix about of that American as talking in remaining I construction that mentioned year. CE a bit

Mig Dobre

And is more less road segment guidance? or building down the average than

Josh Jepsen

Less.

Mig Dobre

Can that? quantify you

Josh Jepsen

Yes. I or mean, it's X% less.

Mig Dobre

thank Okay, you.

Operator

Our comment Bank. from Chad is or Dillard Deutsche next from question

Your line is open.

Chad Dillard

morning, guys. Hi, good

to where up the little to want want same able the understand, are Where on when up small question with the are So it did end expectations? And about longer? in go retail underproduction? in I about XXXX? question your you just initial we retail? first produce Or of Ag line to thinking thinking to a versus quarter. your how end Is and that just did be later bit versus sales back in you'll And expectations

want uptake get indication unfold. adoption And the how on the seeing from new comments XR you're penetration farmers? secondly, just some Any to on

Josh Jepsen

Yes.

easiest relates it tractors at North small look it's given probably full year as So, seasonality. to America, and in to or this on best the

Ryan expect the we to mentioned, XX% retail changed on hasn't and that XXXX around contractors for as demand are, in year. under produce We

position that that's inventory to. sales from puts when end year. So the we to an really in us a executing perspective the think And solid we plan we're that

Ryan Campbell

we're Yes, so we XXXX, business. producing line in in would project with retail that

Josh Jepsen

As it seen XR, relates overall, there. we've good the activity order new

lots little think year impacted we're well for were of we time particularly transition track ordered are the over than moved the - delivers. But the a we've just the particular, received new further machine by That's what and out ago. as response interest four producing we and XR, been there that seen a I option really has positive We that changed new model. activity factory in in misleading the bit to - begin

that. good So, about feel

Chad Dillard

Thank you.

Operator

Thank you.

question or next JP comment from Our from Duignan comes Ann Morgan.

open. is line Your

Ann Duignan

good year-to-date. might bean exports your impact U.S. thoughts to think agriculture? maybe on and curious Hi, the couple morning. as thoughts of hear side. mean side What versus the versus we the in and and do that - U.S. Argentinian that are And with what on the of the back on strong to and peso dollar, it Brazil on switch your the FX competitiveness to has real the Ukraine I'm dollar and corn fundamentals, terms the it's real I up forward? go we the the And If of strength could you XX%

Josh Jepsen

Yes.

the certainly, So, in been has deterioration particularly on real America seen South and and we've I think there. peso, what going

So producers profitability as that those those benefits markets also does competitiveness, impact the well. in in short-term. It particularly for

that both think demand where en production. we So, there's of this, that scale, the particularly fact only consumption to those. are of grains is, masse, grains, growing, see places I importantly, and few we our puts perspective that low produce soybeans, think and and relatively I a cost mean, takes continue in growing, these at are about there on as - from of

the Argentina extent. and places those are a lesser to think, we U.S., Brazil So,

are because we So, again that those those be places to for there's think need only from. really grains, the coming going the they're

or the FX wise back I at feel for thing advantages grain as there important only step places, the But can when big recall. a So, won is an lost, and demand moves. are certainly, think we be picture timing few like these that fact grown scale to in

Ann Duignan

than Brazil midyear? favorable - if is on wouldn't why spending financing money now just lines going farmers again, if they to disappear those be along And

Josh Jepsen

Yes.

a talked caution China's of the I think, see So, around bit, purchase some And a pattern. trade. about I shift the been I mean, you little has we there well, think significant in

little end particularly we the that's a this And bit little the think last and over of concern of year, saw think market bit. paused a into on at the year I I this financing.

subsidization of we've concern out as that's forward, came we one talked seen think as eliminate Finame, other the go as now think transition less big equalization I interest the getting things a begins system. and and market I of some program market, free as government about less helped in rate we've to referred talking our the the or that more about to to

been a that is in seen think, benchmark things rates, the which that, Brazil interest levels, rate very low pretty support I low we've couple at has is positive. one And

So helps. that certainly

to And quite our had for largest Brazil financing. in some time, customers have access private bank bank,

because the and this the believe machinery stability will in we Ag by alike. create demand it begin be or longer-term driven more this actually market, actual more we will that not volatility So, and finance sector, as the in less availability transition

out the the the seen seeing and lots of coming noted, note made why someone more numbers one As Brazil, we've we you shipment noted, as activity. at as comment weakness, other in folks Brazil, it maybe are look Anfavea, earlier of on relates,

occurring seen as double-digits, or horsepower splits the lower above reporting we're the declining side. we're you've down there's seeing been last on have at whereas, year-on-year. It's the their high we that's has horsepower a segments, in XXX growing, distinction. and where even that seeing thing and horsepower, horsepower, One ranges seen years, up been you high year-to-date, lower big while pretty we're been horsepower And has look over we've that really at looked by three been market, horsepower

that are technology, and market. positive, years continuing and market the high over there, dynamics think the but the certainly, more horsepower few very as trend a we to the and precision certainly in start into more that deliver helps particularly share Ag last there a and you drive few So, us, to gains helped we growth see we've seen

viewing some of We'll go our ahead I long we're to but market. So, answer, Brazilian the that’s how think question. next jump and

Operator

you. Thank

or Weber RBC. next Our from question comment Seth comes from

Your line is open.

Unidentified Analyst

This on is morning. the touch higher last Good quarter you the out as this called Brendan I'd on losses lower to Seth. well. on residuals, for like

think if to be sufficient on a like level then So your was ask enough less equipment residuals or them construction if kind I'd the headwind where lowered to you get, whether both? to forward. you've a saying, your talk of equipment, could going that were of lower Ag you And you that it

Josh Jepsen

Thanks, Brendan.

actions came terms a losses of what just just leases, quarter really of was C&F things. bit little those on older some aged So, used lease quarter through had the inventory prices. our we as to our A relatively C&F first and in inventories the we vintage. noted Primarily to that then of the in pressure overall inventory operating little reductions on an under put saw. pressure matured that year-over-year, did environment two that $XX move of division, with result have there in of context significant million, as losses on downward in we GDF of size bit And higher during in take some

saw are So, those the think there. we I things

change improved quarter. and much in bit us little for where From portfolio an see the turf was we actually and Ag a perspective, stable didn't pretty recoveries, return rates

really to early ago focused those very we incentivize now, place think a on start a programs in So, of dealers much the engage inventory the higher changes, dealers process as made very, to through about customers more on our at working that retaining the with managing quarter both to we in we're lease but of level. maturities, and

and our question. to ahead next With that, we'll go go

Operator

next Joel from from BMO. Our question is comment or Tiss

Your line is open.

Joel Tiss

guys, Hey it how's going?

Josh Jepsen

Hey Joe.

Joel Tiss

little together. go How you glue quick maybe of kind ones before have exiting of buying I'll on wonder, far the the they chunks? farmers Or drought equipment? can any bigger two Like, just longest do what replacing start I looking just been? their on more a like like focus history this geographies And you has you. granularly? is Thank are whole side, more then and contemplating tweaking

Josh Jepsen

serve products can that there, when about efficient in way, delivering your we how do with and think best start we I how think focused I Maybe and deserve also customer in it's those of I'd want question. terms more to say markets, much they experience and customers expect we in Yes. the second an we that that deliver. that while mean,

customers. than So, but I thoughtful how saying geography serve of think targeted it's product or form, can those being entire we more best in terms

Ryan Campbell

we market to little to we're markets, on Yes. which Maybe a opposed it's as going go how more into.

Joel Tiss

Okay.

Josh Jepsen

someone can about it how the go pertains fleet age think you we're long aging in particular, fleet. U.S. of the or as we in And to until purchases, see

past has back the now going of XXXX. historically to say kind what are been pushing We equilibrium

on that kind So beyond we're we're XXXXs. and at the and of ran early the on really horsepower pushing we've tractors high combines on through point

we So, on replacement think the of that and demand that of technology of there terms we're drivers in productivity activity. and to top more see

dealt think productivity, the we overall there's think the there. when But can only a value our farmer, think been cost XX over lot there's to And but for talking a and we about not when team, dealers, uncertainty reduction, I has there. that. mean, of P&L I last talking to caused appetite we've I certainly with months interest deliver

comments, see little as situation, of a bit the younger. is age alluded a maybe his result, the Canada, little a maybe some bit a of little and replacements. where to in we this fleet And that out different to further Brent

market that the in us cycle we that or did given Just saw up not U.S. down as much

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

Operator

Stanley. Our Courtney or Yakavonis from comes Morgan next question comment from

Your line is open.

Courtney Yakavonis

question. for the can if expectations. about talk pricing just Thanks Maybe you first, the guys

that still pricing first for it the worse. And was implying pricing bit raise expect year think a in quarter. I but you we the little better did little bit than

talk the where strength it the saw for an year? can and quarter of you remainder you the about decelerate So should maybe, just this why Ag

of secondly, the kind back last then the on question. And of

and industry down than staying little you definitely talked outlook when Ag, X%. expecting at you a a America sounds think is large bit I U.S. worse. about originally little the Canada's better It bit North like

to about historically And So, the into that no talked XXXX. you I to that make you for start change just to if replacement you what schedule, again? impact some have wanted us continue you've commodity pick year framework need was of thought to pause up just the that happened And replacement before schedule type of about is level you last go saying been going maybe I Thanks. talking to when that where will the kind think then can first give sure in prices. equipment schedule? prices prices commodity commodity And think you see replacements

Josh Jepsen

of probably you're America, bit So, the on right I a We and down the X% in Canada the Ag on about think, exactly think on in North see U.S. as you large side. weaker improvement little that. side

saw talked combines. So an U.S. little versus tractors kind similar - at impact about look order large We talked Brent We a see bit on Canada we book as very what a a from fair. we perspective. of that’s

So that seen there. the kind of dynamic we've that

quarter, the the As in for the first into for a that we year. we we a you quarter came think about point, got about price and point and we how expect expect C&F,

in Ag side, saw in actually little year. price full the overseas improvement our bit first a markets. stronger the some On quarter than We

and was, expected, us the above bit, a a what the quarter. us had that pushed So, mean, margins little we little bit I helped into

Courtney Yakavonis

prices impact on and replacement. commodity then lastly, the And on

Josh Jepsen

So, opening important tensions think and really market of step. as we the think I I access, easing first trade the is up of mean,

you absolute $X.XX prices want we've as replacement folks purchases supportive can I demand felt importantly, that’s important. of actually moving about think of think, think range to that that’s grain see we and drive I actually And believe mean, think grain flowing, replacement corn the I soybeans - in demand. occurring. $X particularly

access being is actually if more I of grain the think of supportive think, a terms So, move, replacement that start provides we confidence think there. demand. little see actually I in to we And

Thanks, question. we'll to ahead So go our go Courtney. and next

Operator

question Ross Bank from comes of or from Our next America. Gilardi comment

line Your open. is

Ross Gilardi

Thanks of for a got in for couple off minutes. me cut guys. squeezing I

just dealer year-on-year retail in at like it's but than trying and inventories turf maybe in the nobody hopefully, be just you there down I clarify would more than I'm it the hard what expected looks less already But at X% quarters. sales, revenue your color decline not to to the contributing the you Any appreciate in asked Ag dealer, number in was this. look revenue meaningfully if to totality, is it. swing had So whether being get reason decline what restocking or it's you could QX? tell in

Josh Jepsen

Yes.

as XX% it down I think combines XX% above, when of it, kind come from and saw well. we we look down at XXX to horsepower particular, and we look came if at inventory year-over-year sales, in to

small and overall for from think where continued a I and maybe tractor are about execute where think were ago. to we Ag down from plans year with feel industry in-line we little overall, from the we've good bit tractors. the we're a perspective to a relatively large But a small I perspective,

Ross Gilardi

you. Thank Okay.

Josh Jepsen

Thanks.

think one we’ve for more I time So question.

Operator

from our from comes question Goldman Jerry Thank And you. last Revich Sachs.

Your line is open.

Jerry Revich

margin C&F the for I'm if for Thanks specifically. about could follow-up. you improvement taking plans wondering the talk

the on to on I'm discussion the what target? closer corporate that a C&F their bit Ag So, XX% opportunities and just a Wirtgen a focused if lot wondering have get the for equitation. is the to of of of synergies pricing, the we've could precision spoken little side you beyond Ag about really part

Josh Jepsen

I think at I when to expect about you high level level Thanks, the we XX%, that we think margin deliver. maybe mean, know, a Yes. Jerry. is

us about be as road not which particularly may But gives we in distinction. as in but getting businesses contributing margin strong Our we an all and think important that as probably like feel is an opportunity. has business, profile our number, well there a building, to exactly all we add construction

be leverage into technology perspective, business. opportunities done our see we've a things the do construction that Ag I we some to think, of from able business to on our

further there think the value those today, say, But there think would I'd add the that there. important synergies there's we on focus create for near-term areas. we on delivering is an is very, opportunity focused So, and very managing component that’s managing be integrating to and which business, out. customers, that Wirtgen inventory, opportunity

Jerry Revich

Thank you.

Josh Jepsen

sort maybe take of aftermarket our telematics construction, the lifecycle care today, all last is that our opportunity in think Yes. have we product ability Analysts I particularly retrofit, parts go talked over can a of CES at the And margin those we leveraging businesses and we and we things think about that service opportunity thing as deliver in forward. that for one Day at the in from perspective, of the to and

Jerry Revich

Thanks.

Josh Jepsen

questions. our call. all We out the Thank you. Please you that got appreciate reach have Well, concludes interest. if

Operator

today's concludes for participation. That Thank your call. conference you

You may disconnect.

Deere & Company (DE) 21 Feb 202020 Q1 Earnings call transcript