Earnings call transcript Q2 2023

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Operator

Good morning and welcome to Deere & Company Second 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. Brent Norwood, Director of Investor Relations. Thank you, you may begin.

Brent Norwood

Hello. Economics; today Vice-President, Jepsen, and Ag Barr, of call, Dave Financial Marketing; the Manager Director Senior Bach, Gilmore, and Corporate on are Communications. Chief Josh Officer; Kanlaya of Also Investor Rachel and Turf Sales

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

First, of for broadcast prohibited. future being portion broadcast copyrighted any a use, express & live recorded use and Internet other by of Deere consent strictly this and call is reminder, the of transmission Deere this without Company. transmission on written or is Any the recording,

as all call. to the concerning remarks call, plans for be future stored Participants factors likeness risks, their on and to changes - other the Q&A that difficult used uncertainties, and of that that the circumstances, session predict. forward-looking in subject media projections statements may call agree includes and part including are the in company's the are and This earnings

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

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

will turn call Bach. the over now Rachel to I

Rachel Bach

Financial outperformance driven operations. us margin demand, everyone by our joining businesses, favorable pricing, quarter for with second the quarter execution John thanks was enabled strong Across and XX% for improvements. morning, Good equipment supply-chain completed and results operational Deere performance. the today. for included strong by

second and providing fiscal Likewise, healthy, benefit the remainder for books order remain Forestry XXXX, fiscal of with half backlog a of year and demand the fundamentals full healthy Construction order and to Ag continues the strong the fiscal year. virtually from that extends year. throughout support

Slide X the begins Company the second Net while net to for for was billion, were with and diluted up Net or quarter. the per Deere equipment XX% revenues up results operations income & $X.XX $XX.XXX sales $X.XX share. to $XX.XXX attributable were billion. sales to XX% billion

at precision in the with shipment XX individual increased billion on we segments, production was price were points. X. last fact our quarter realization Taking to look forecast, positive than by XX% more year primarily sales and the second due a own to and and realization. $X.XXX Slide begin compared closer Net Price up volumes the ag of business about

realization expect as to normalize points. We three translation to was subside. negative price approximately Currency by inflation continues

were The impacted production results spending, related Russia $XX partially profit increased was due unfavorable events an and XX.X% primarily Ukraine. resulting These and shipment billion, price Prior by foreign were year-over-year exchange. costs, impairment negatively to realization margin. increase improved offset in SA&G operating Operating in $X.XX million a year of favorable and currency higher volume. and was by R&D to

points. Price second up realization turf positive roughly negative ag a just small partially XX%, shipment in $X.XXX currency and by was by translation. by offset as currency and higher Moving result of X. were on XX quarter, points, Slide while volumes, over price negative the was to billion Net realization two totaling sales

offset volumes operating million, and $XXX shipment production translation. to were and profit to a extent costs, was currency price resulting improved and and negative margin. partially in increased XX.X% lesser SA&G, profit realization due higher R&D higher a The was by mix, Operating at which year-over-year primarily

covers outlook globally. ag industry Slide turf our markets and for X

equipment of in Canada age, continued industry ag historically last strong quarter a large be supply low industry to sales of prior and expect We've U.S. themes We with inventory reflecting up and since demand. strong seen ag from year's another high constraints. fundamentals, approximately year fleet field XX%,

to We expect order elevated into the the year of that demand year by continue back for evidenced 'XX. extends bank an half as fiscal

strong, mid-sized like tractors Canada turf, and has weakness windrowers, more offset remained by Hay U.S. declined rising ag XXX and ground be products sales driving and as Demand and resulting small strength For industry around XXX compact for year-over-year, to in products. Forge for the Meanwhile, in tractors, estimate consumer-oriented bailers. for in to equipment X% inventory our to segment levels. demand down pre-COVID we levels horsepower is

Moving input Europe, highs industry to to to prices X%. flat down near-all-time recent the are but farm prices up be is have months, from as well. Commodity on forecasted in softened coming

rest still the As for the from normalizing continuing drive above-average a demand and result, to cash-flow but arable recent year. of peaks is

remain historic significantly delays industry America, South expect sponsored programs for financing Meanwhile, levels. yields flat Brazil, to - to Argentina the in In for holding grapple sales government Ag tractors and in historical to but of drought, solid producers. fundamentals relative year. are markets combines strong which be we small with continues pressured has tempered the ag by

the are to X. Asia Slide digging now be beginning moderately into forecast on forecasted in segment sales down Industry

around ag price year minimal XX currency full precision and net about assumes for The the production sales full-year. continue realization impact. to of points forecast and be For XX% the for positive forecasted up

reported relative the noted As quarter, half moderate price to in fiscal we realization to year last expect of our six-month. first latter the

our now year between operating forecast For the XX%. is and full XX% segments, margin,

XX.X% our includes up forecast between be now positive currency to XX.X%. We projected around 'XX. just and net margin ag X.X for in point realization small This of segment's turf segment. expect operating headwind. shows sales the price year now be about X of and points Slide fiscal X% nine over The and to is guidance

while quarter up point. XX%, Forestry billion, we'll translation on With XX to primarily net for Construction the price was to $X.XXX volumes. negative Price currency due shipment positive by sales and approximately improved by X.X points that, turn and realization were was nearly X, realization Slide

Operating profit million higher margin increased venture. comparing investment higher year-over-year to XX.X% volumes mix, last equity year, and and results and benefit expenses. shipment offset prior-period included in When to the operating keep driven production increased and costs $XXX net R&D mind previously Deere-Hitachi a on mostly $XXX non-repeating by SA&G resulting, realization price the partially to a a million, the gain held of joint in due by

America to for up Forestry to projected stable. compact compact earthmoving both equipment flat X%. and of Slide sales remained industry Industry XX construction remain and Construction our End-markets shows earthmoving outlook. and in XXXX North equipment relatively are

and segments commercial and housing the gas While office starts real-estate the appear bottomed. sector have to is oil leveling and weekend,

declines inventory from and Headwinds residential and restocking. year-over-year offset strong commercial been have rental more in than infrastructure spending U.S. by

below Importantly, dealer historical remains inventory averages.

industry are will we sluggish market road forestry, flat. global U.S. to well grow. as to forecast North Canada the estimate of as the flat be and to Europe America Europe building continued Global In for Asia. fundamentals compensating parts markets remains as strongest be in markets while soften, continues the

are the now to Construction Forestry net Deere's up XX%. forecasted outlook be and C&F on XX, Moving sales in Slide XXXX around segment to

in XX considers to to of for the guidance XX%. positive of Operating the is XX% now realization. price points range margin about year sales net be Our expected

losses, services Services our a offset income the million. Worldwide quarter by financial to partially we'll & to financing Company operations attributable was credit net was The and on second to provision less Deere for Next a Slide higher higher $XX favorable portfolio. decrease earned Financial on XX. in income average shift due spreads

$XXX was unrelated and incentives to correction tax credit of financing remains the dealers. of or the there timing expense strong. quarter, accounting the Additionally, The during financial offered correction million current recognition market is the which portfolio, the quality a Deere after services John of for accounting to conditions treatment

now balance. is For on average SA&G the gains the financing financing offset fiscal year lease less accounting increased incentives. provision of benefits the losses partially higher favorable from reflecting portfolio correction and for spreads, XXXX, credit by $XXX operating higher expenses a for million, lower our dispositions, treatment the A outlook

at XX, for the portfolio Turning losses to past with credit write-offs allowances percentage basis as remains a averages long-term well historical credit, points loans credit dues averages. and for our within in quality write-offs, fiscal non-performing 'XX to reflecting dues Russia of remains below excluding provisions and portfolio, past XX quality portfolio. be and Slide Meanwhile, above forecast minimal all strong is remain the stable

lastly, And for operating our Slide our net guidance effective on rate XX, income, tax flow. cash we've and outlined

net again strong for continued the reflecting year. second are billion we the outlook between XXXX, for $X.X and year raising our income optimism to the and quarter $X.XX the for fiscal be of results remainder billion, For

rate tax between guidance our Next, an XX% XX%. incorporates and effective

the in from range $XX.X $XX flow operations equipment cash projected our now billion is be to to billion. of Lastly,

formal our comments. concludes That

few a Q&A. this before specific now topics relevant a for will discussion line We to shift open to quarter, the of we

quarter? additional items X% Brent, the Deere's with XX% primary revenue precision performance saw was turf margin strong ag non-recurring expansion net revenue C&F growth, points drivers operating seven of and operating start the and margin top-line ag was up six up year-over-year, on points. expanded operating by XX% and Let's of Small margins accompanied XX% quarter the this production what excluding and were we

Brent Norwood

beginning best top-line of internal performance had From of would perspective, quarter at the primary line factories faster Thanks, machines a to a own due to Rachel. ahead I start Supply-chain COVID. execution factories two improvements expectations since our hit deliver in of and our rates saying their the their by came drivers. pace. enabled our

third some the into we'd - experienced running back result, over lowest ahead to the since be fewer XXXX. pull production we level the bit production cost inefficiencies, inflation revenue the a we a year's production smoothly, half, in quarter second of to were some - off factories by quarter. take sequentially fact down which As more With pressure XQ, so the in second the saw quarter, XX% able expect will of

from and labor challenges to and achieve Fewer Furthermore, overhead us relative material compares enabled factory efficiency to due raw last supply-chain year. incur benefited production disruptions to premium lower costs freight costs. better better

Rachel Bach

our benefits perspective on helpful chain factories. improving supply That's the of the in

year? forward, second As shape increased of we half in the the production how allow Will the that supply does for the pull back chain production half?

Brent Norwood

later will our their the said, are production there constraints Supply-chain commitments That enough volume in higher that year. on-time still base levels supply improve improvements have and towards deliveries. the in enabled of to deliver their limit suppliers

components is safety stocks still of and error our relatively low are thin. critical for margin Our

half about seasonal of but foresee adding existing lot we use production the seasonal the to XXXX. constraints, we our pull execute year that The inventory, ahead think on expect don't back more Furthermore, fiscal also field the Given more laser-focused schedules our to to schedule, managing year. is exiting the products. we benefit production customer's return to are as real to of closer of the a are

Rachel Bach

remain My There from thanks, record, Kanlaya. question income of fundamentals this at prices markets Meanwhile, impacting input year's are are the impacting coming second a remain variables down. these Great, last next stock-to-use is for constrained. Farm while a Brent. now? farmers albeit tight right farmer volatile export be for season. and all-time severely corn factors remain lot largest net are prices two four How commodity of down will high,

Kanlaya Barr

and There come season, uncertainties, it many the down thanks and Well, question, factors profitability. of all of the in especially are lot end, still there's we the the are growing for midst that here Rachel. are as at to a in play

offset commodity revenue this to in the Russia, losses Argentina On of not in prices and to side, grain and severe Brazil are although Ukraine. Bumper be crops year's continue effect combined are Australia, tight. enough volatile, stocks the

yield below past price will farmers crop in decade and provide XX-year soybean the Furthermore, highest well. a prices corn be highest. for average. The wheat, insurance a net Assume and USDA safety stock-to-use the forecast third the reference remain the will trend to as second

the Now looking quite at bit. costs input come have cost on a down side,

savings could farmers at are this this lower in next to be a the looking for year. that the all will be tailwind Not those cost end, we a realize crop. but And able [ph] year, provision

at looking are great are year, year these really the but average. income margin are going is moderate, Now we last going together, putting off XX-year coming a farmer's of we above to to be that still all

Rachel Bach

elevated increase How costs in globally? over about how with And interest are farmers last rates year? contending this

Kanlaya Barr

their ag lower fixed are production The a Interest-rate that expense is little total which at tied but only X% over of to be tied mortgages, half about X% smaller that and X% less about is of is expenses, row-crop number their that portion rate. - loans producers, is mostly tends to that operating expend X% overall more of is even to to rate variable operating for interest expenses. than

on tailwinds the impact of higher but this smaller lower fuel real from relatively costs. affected rising much the So interest continue an up year. by to values been interest farmland have significantly is and have that QX while the elevated also hold interest rates had market have the this the impact of farmland nothing, rate estate, - With input been rate, immune, is than housing and costs market said, through

Dave Gilmore

some add rates roughly today spring. to of came from the every Bank City, interest just U.S. history, $X.XX Rachel, earlier of in going from context of long-term comments And to average $X.XX. relative dollar some is to Federal Kansas put When interest you farm earnings perspective this of a Midwest Reserve the cost versus that

As expense very customers are result, a well. this managing

focused component manage additional is our and operating and helping bushels the better Also increase solutions of minimize increased periods as costs marginal on delivering X.X That's equivalent a of loans corn. major the that interest by in Fed volatile yields. reported, industrial for customers on smart of the yield costs strategy is an our financial why products,

to goal that products, structure our deliver and improve variable is offset Our solutions and cost of farmers. the

Rachel Bach

That Dave. other helps Thanks, think over the what should picture. really tailwinds or years? paint we few the next about headwinds Kanlaya,

Kanlaya Barr

for volatility Rachel. with The uncertainties continue be time. us that's will some and quite great Well, question, to

tailwind expect income growing a increased and to However, population from we continue.

heavy-duty play an aviation, In bio-fuels these alternatives segment, to will transportation the addition, journey or sustainability providing and in including important increasingly term. the marine long-haul vehicles, off-highway part by

to technological headroom, of will drive consider. improvement reduce still equipment, about tailwinds to continue large cost think overall, farm finally, And number in provide which more positive a and economic so productivities,

Josh Jepsen

proactively shifts end-market obvious add to One of macro of while efficient the in here monitoring can is, staying control and ahead be we effective and helping environment. we're to field, focus the more volatility, can't regardless we trends out on thing and other in of the ensure farmers

Rachel Bach

Josh and Kanlaya. Thanks,

over Brazil you a that? what's the last driving Dave, little the the one dig been focus markets global specifically issues the on and Brazilian Let's in three has industry years on deeper strongest of mentioned market. the been

Dave Gilmore

as adding Brazil you few horsepower It's our world, growth also market efficiencies in ag It's and just correctly technology, us of adding certainly a each production market which plays both strengths. has that's said, area for Well, adopt higher terms migrating Rachel, and geographies the precision of rapidly a been in profitability. great beginning the to year. one to to

ag last terms combination The in-turn, generated few have but records has seen and our yields, customers for farmer production, for growing equipment years. of also currency favorable years in excellent profitability exports last agricultural has demand The our over profitability. both few of record the and, driven significant

Josh Jepsen

is thing Yes, margins achieve our American set or Latin we of smart strategy, add to Dave's onset America. goal this one like industrial North in to the Josh, I'd comments a at better

overall we've company. so-far, financial achieved the the And to very of making the profile region, that, important

Rachel Bach

I current an guess give trending. that our this into my month? leads us question, Dave, Can you right follow-up update the how Agrishow earlier market post conditions,

Dave Gilmore

is forward. show highlighting in year, America. largest been which Brazil this Agrishow, optimism I equipment sales sales That ag for customer the small was attendance for event customer produced Latin record have The to behind inventory. in leading and running pace increased going down Absolutely field Rachel, said, just farm

financing on producers the other government-sponsored most plan Agrishow, some has the John equipment credit to but government-sponsored for been are postponed gets typically on The Large producers at medium on utilizing be or in purchases. time-being, private and for Deere financing announced rely purchases, lines who instead small the delay which especially Financial. tend less it's for caused reliant financing government-sponsored cash, hand,

in pressing a crop The exporting grew for manner, storage impact timely now record the of ag delayed right that for year for plan the they producers had limited this large Brazilian lack given More grains. is large harvest has customers.

we equipment market. stable, large year. of would return for reflecting though see retail demand back-half do monitoring closely However, we remains year, that inventory expect season for the I higher-end normalcy are activity this a to the the further to for note

Rachel Bach

for of a right been regional how pivotal in into additional faring update transition Deere like I'd to everyone very you and Deere this John two nation's us the watching Financial eventful is discuss our John it's appreciate on to topics, quarter an give Josh, can is I environment? many banks. insight an briefly now. first, market, Financial closely

Josh Jepsen

Of last as banking Rachel contended the course, closely the in market the rates year. challenges with sector, all has monitoring we're over the rising

Fortunately, Deere John Financial ability in condition. been remains There's in to credit excellent portfolio been outstanding. no fund our the change has the quality and

write-offs and near-zero as been. this loans strong our below and previously, return forecast nonperforming we remain and are are rates past stable dues, long-term lease ever as recovery As for discussed implies averages they've our rates are portfolio year

years customers feel strong like have we're so financially, very - Our we very here. had well-positioned including XXXX, three

Rachel Bach

hear, net on of after accounting that to and treatment, Financial, Deere John the income tax. you saw explain second was profitability? any, affected and might can what future to good That's million we on that impact $XXX if have Correction by question related what

Josh Jepsen

relates thanks. incentive on the they're accounting redeemed recognition from correction much when incentives. in are made program. timing with Effectively, methods Sure incentives an moving of of operation's for equipment loyalty It our the earned when dealer we've line treatment accounting to to expense our -

GDS just abundantly broader the the concerns, of credit to it accounting make portfolio. to Due or correction, it clear quality to is that a is coincidental unrelated I timing non-cash one-time market this performance want of

Rachel Bach

products Perfect, explain tractors. thanks a recent field The related shows on inventory Dave, moment? like new ag next and the the drive at clarification, combines what's for large data the in increase for The you can question AEM Josh. year-over-year four-wheel inventory. with is going to inventory

Dave Gilmore

comparisons schedules. production we Keep faced of first ag from normal The supply-chain as labor in in is disruption to the the mind due recently obstacles. XXXX inventory of build in to the seen challenges because year-over-year half our relevant, that large aren't seasonality to the return

us These end run of the well in appear seasonally-adjusted sales teens all as of challenges making Compared below increase target the and historic the ratios and however, averages, are we four-wheel somewhat XXXX, during tractors inventory low April. unhealthy caused drive of to still year-over-year inflated. to with levels at for to XXX-plus levels

Pre-COVID both our for be sales to ratio XX we quarter products the pull would basis. ahead inventory combined the expect of able quarter. been second an sits highest the were to inventory production our this least quarter At to year. second time, have the this into at as we currently production second XX%, to at some in combines sales ratio Meanwhile, higher on points

used pace of peaks allow to historic quarter is it before IS ratios of dealer seasonality, a Combine to contributes year, heavy were inventory healthier seasonally are of lot customers are greater one which their during of Last the new our quarter There due a year, currently. with arrived. last and production to trades dealers deliveries. highest to where for average reluctant normal than delayed customers. returning a we were used to These to trade, remarket machine the fourth benefits

pace season. Being planning better-used on the a more seasonal harvest prior facilitates trade to

used and equipment, up both year, ag dealers for keeping we've and historic important large seasonally, will elevated lower is The which seen target of good that levels. than most inventory inventories both with customers. production end increase by sales the So, the new be to takeaway of is

Rachel Bach

characterize and final into one the year question, equipment environment How Thanks, would market Dave. as we XXXX? progress the half through farm of And back the Brent. for you

Brent Norwood

to severely first, I The some volumes after labor modest of XXXX, which industry think compared start to kept how the current six-year ag replacement we prior began periods. And historic base, Rachel. with production this period to question, entire by It's and underinvestment supply since the on has best equipment. replacement relatively cycle in a when constrained got XXXX been point. But in a it's great context

and down equipment out and new below the age levels to fleet combines. a remains, has bit it's tractors, for even for for Inventory target used continued if

volumes the in are we average it's these While of of to an for through periods. of cycle XX% replacement To production the prior been the the less equipment the unintended than constraints difficult era, that, amplitude dampening XX% working quantify challenges the all producing time being. created benefit roughly post-COVID

begin XXXX, to below of Furthermore, of As we ending visibility look the With order robust for with demand through with and position in a fall XXXX early very we through making order we'll our continuing providing levels, books soon our more inventories good seasons. entering books ahead next to be starting we target to see visibility the summer rest to and regards the year. XXXX. expect order gain excellent the end year, programs the

opened As a Early Sprayer Sprayer Phase Order in sold evidence of and Furthermore, our already One out Early included our the pricing Order One continued healthy for pointing averages, line amplitude. of Program be supportive allocation. of demand May environment with the Program Phase our are a, we historic of levels, to to dampened Overall, a to and healthy in with industry. reversion continues cycle normalcy business

Rachel Bach

for questions, Brent. Thanks for commentary the any open we insight, and line Josh, before And other thoughts? the final

Josh Jepsen

strong very XXXX, of Deere John experience employees a the to team, had first this we've have the providing everyone extraordinary half committed, suppliers dealers remained with Sure, is best entire the to and of customers to efforts testament from possible. a our

move of encouraged half year. we second through are into strong As we visibility of remainder by year, the the the the

Overall, a customers, and value fundamentals the Additionally, products in supply solutions as customer inventory are position positive deliver in for to XXXX in continue our and such while us fleet situation seeing and to remains unbalanced fleet fragile. we deliver dynamics chain, put which the to helping us good is beyond. and improvement age

fundamentals, have we firm it's give the our program view Although early confidence us early to too season. into on selling 'XX, order move a as

our segments for couple new our value years. include do we will This as create and the customers to ways sustainable unlock businesses for we customers invest this, dedicated Importantly, we resilient, remain will the more all add to long-term for as further evidenced of drive to last Deere continue structural across value and profitability and Deere. for to

Rachel Bach

Thanks, Josh.

from open our let's questions Brent. for the line Now, investors.

Operator

Suisse. Thank you. with Jamie [Operator Instructions] First Credit Cook question

ahead. go may You

Jamie Cook

regards do your I good thought. quarter. if sales bit. guide production guess ag, for industry on get want up the bodes you want and you or a want higher I beat a some degree cycle, which changed morning chain supply forecast pricing do North But large than what match with to better degree, and hasn't to and you to improves, congrats with production first, understand you - your forward, Precision America pull there's XXXX? nice to Hi, to to -- well do a

And structural company. to then margins and second Thank are guess margin I fantastic. think much and just supply the been versus my of of the benefits of performance pricing do you. question related starting Obviously, your it's is to inflation the come on chain sort this freight How you over in? earning just with

Brent Norwood

Hi, good on morning the I'll production first Jamie, for question. levels. thanks start

first the roughly, would If production we'll PPA, and all be quarter at of for of the But half second C&F to look you of quarter revenue similar SAT. all see kind segments, half. highest second segments, for

quarter. a see going the revenue as in third a you're as anywhere So go to result, we sequential from to XX% into decline XX%

inventory true, speaking, of that four of really the we is quarters at we start. think equal as to we year, really sort a that most sure the I three We're and set segments. make for that the of we sure ourself broadly want are and be make levels really And to managing end will good exit that's 'XX, really, the midpoint rationale of year behind reason and in And for levels, roughly production here well. our

of on color production sort of schedules. a that's little the So bit

is the sure of patterns return the thing seasonal use to is healthy in note again, there, - match schedules I more to Jamie, this to then customers of would make our really production our other that products. seasonal sort our And and

quarter. be second well pleased the So, execute to we really were able in to

of structural profitability, things a Now with I think play. respect couple to at there's,

has add levels. say margin for at has come to have all technology, on right? been this to The last solutions, of new the equipment. investment would our And been years, And technologies our those over center really in the piece accretive four structural I we've new been Deere of that of improvement journey profitability First, years. able

benefiting very that are. are irrespective in a So, of we way, from where today structural volumes

That improvement will structural continue to for us. drive

We tech launch to drive done XXXX, addition And our a our there spend improvements. industrial under lot there's the smart portfolio organization. not of We're strategy come, in you in think of I yet. that, with to saw all us the still right? consolidated CTO

to think in solutions, to precision profitability. improve part on better - structural solutions going as upgrades, of I the areas further continued a cycle life our see you're to effort our service,

volumes we said, are on should be at assets That think based the given return the we structural margins commensurate what today, moment. company and we of we're at a that achieving the with the profitability on achieving

Josh Jepsen

mentioned, add. Yes, should given thing we're - I'd I we're Jamie, performing the feel This Josh. where it's in cycle, One we be. think as Brent like where in at replacement with line we

what structural board. I in improvements we've seeing C&F. significant our across be think importantly, to businesses we in are would the And maybe highlight seen example one

methodically last executing performance strategy that bit have been few see today. you strategically maybe is delivering the we years, a on over and the So, a

own So that Wirtgen, on our exposure joint venture dissolving in is a have adding road excavators machine on that, with that our we terms the our portfolio to to we of equipment and and managed of building. exiting have. It markets certain critical portfolio acquisition is there form product of large destiny top compact while the on extending class production in On construction. the control small in end

driven we probably get ag been our performance of helpful extending to for done where compact things business. And doesn't tremendously the construction, into today. which that's has fanfare, we've on like a are lot channel distribution that And which distribution but extending

them forward, to profitable I make we as and more look and the precision from will and to more think our technology Forestry benefit Construction customers ability technology productive. to bring

that other businesses. our I think, across we'll see

business. one of example an that's So

to those think I similar as businesses will things through other well. carry

top drive structural to thinking how continue you. profitability will and we we that, company. of have for as before move we manage out about to pressures, So and Thank to inflationary costs forward continue the those route do on

Jamie Cook

Thank you.

Operator

Thank you.

Our with next Thein caller is Tim Citigroup.

You may go ahead.

Tim Thein

Yes thanks.

to Just ag. large on back come

out inventory It's terms rate just last but terms I in time your In exactly to the expect quarter, last of in again, regarding you expectations fourth this spoke? year especially we a channel perspective, half parse the own from have hard quarter. exit changed back again, your the forward, and of of, the channel where terms exit pull from to inventory guess to relative

Brent Norwood

With the our guidance end changed since hasn't year Yes. inventory, actually the ending for first the in forecast respect to last quarter. our of

in our I is, than because again, think ahead come a production quarter. thing real pull benefit of changed dealers. seen channel up bit a second to the the little only That's that's inventories faster expected. We've in the

customers, used It's giving them our trade-ins. deliver facilitate to to time machines more more time to

positive. view I'd Sales So maybe at say ahead commentary Head those and of who's had what pull over Marketing, of if that. our to are end on changed all the he is Gilmore, And things some And on further and turn hasn't year. second quarter really our all I'll Dave the in

DaveGilmore

Yes. Thanks, Brent.

sold of delivery inventory ag and return to a retail right relative You said retail that's high now, inventory seen the that equipment a customer. pending a reports customer seasonality. And in and is noted is build place to a large to it. of new to the The due that's field the should be today one that percentage simply to normal inventory thing recently that really in field

expectation very to returning good to a the of end we're levels year. low historically the the that's inventory normal for and of and So, our change industry, it Tim and doesn't thing Thanks at meet seasonality, target

Operator

caller is UBS. And with our next Steven Fisher you. Thank

Steven Fisher

thanks. Great

I appreciate forward. question inventories. that a to And pull a just But that maybe seasonality. Brent, the of laser out sounds it to return inventory like I commentary on Just you're again. focused bit that of normal think a on it's follow-up also,

to that line large with And things whether So of I inventory building flat or the guess, in channel few or what just your orders producing spray production. kind be tell for you going looking should months the you do a next imply you're ag to lower still over be higher, or then early are retail? on

Brent Norwood

of sort we'll next through an terms idea order into we dimensional months. management, as way begin we'll great in progress as need Steve, to fall have Yes. get where works, inventory rates And fulfillment production of process year the ending then summer of that be. our you on the of visibility eyes the to we XXXX, and

of now, is that, to for think to compare. some It's sprayer our program idea results really discipline One points The in. do a I come right saw was of data hard of the until maintain EOP year-over-year Phase those we encouraging. as the

ran one relatively running year, it period year, first was short and phase. that only This fully we a the a phase time. are two in we met had Last we ceiling, of and allocated

portfolio. So that phase were of to broadly say I pleased velocity order difficult rest with product But of extrapolate we one would for the to book. the it's the one

is, particularly data balance the as say than we our a about years. think in from for want would more on should of ending the of in we to that's view and of last a little that I return it's certain dynamics year. we'll we EOPs, and XXXX, little to over next dynamics, return to information normalcy equipment before see healthy in our come 'XX that been see to three we wait discern change in dynamic XXXX be rates inventories any we market supply bit as further may do demand frankly, but What Quite refine farm the what and bit for books sort further order a view production a and

Josh Jepsen

been it's where Steve, a of Josh. couple give taking you Maybe and Yes, examples I of monitoring actions. we've

in they production will and cut inventory. back to off interest we the and the manage more see you North are macro Chile at America, we'll a from retail come small the tractors we tractors to try cut look where that year industry - exposed there of in you the and we've below environment, seen obviously, inventory have compact perspective, half to rates retail produce If rise, and

in seen comments on tractors, we tractors X,XXX, Series small to because well. XXX slowness made lack Brazil as X, the retail are of you've in where financing, the back Brazil, Similar that some of Dave dialing the in environment,

of to places, I field and will in think accordingly Thanks, So, Steve. we to a monitor continue manage number execute inventories.

Steven Fisher

so you much. Thank

Operator

you. Thank

next TD Our Matt is caller Cowen. with Elkott

sir. ahead go may You

Matt Elkott

has to hear thoughts - the because thoughts of teens? down last with love Would to El Nino late you. your any the cycle equipment the the thank emerging some on have you morning, Good one mid- overlap might event

in ethanol that El as there coming challenge well know for important years. cycle the next trade a but the temperatures Nino tariffs, were very off pose reasons warmer expansion like as and good down I few

external flip weather continues adoption try On like productivity? benefit the farmers advance, offset Thank actually side, challenges and yields can as as to from to with precision technology you. higher

Josh Jepsen

jobs high-speed the over few leveraging hours of maybe hugely latter to a getting question. and Yes, the more weeks. emerge I'll like to and days we more XXXX, in to traditional spring Good relates this Thanks. on done technologies a Precision Technologies. matter start planted versus Matt. crop see great wet precisely customers more - be our and we last uncertainty part quickly, [ph], really we've beneficial. get as example, where more it ability is customers' certainly, the had I mean exact operations, as And a their in seen years, planting, volatility

is deliver to to as a more important. able yield weather better the react not be on it's to that We really able think same a to time relates outcomes from outcomes, we think side. ultimately it cost, driver perspective to uncertainty but So, be and the then and just

Kanlaya Barr

again, the El still is end El pattern a and side, regarding towards Nino. more and the Historically, toward looking at go a might then the of still way the this Well, we weather be long pointing Nino here. to India there

really have to to We and happens out summer. turn if how that's that going in the see

America. like or some probably will mean in of places moisture I the in see North we Australia dryness historically, and South But South more - Africa Northern America

that as out. the how we America, come we well, still we're - Niño, monitoring see that really is we would have So in seen yield for upside trend if have some that. but again, play this And still to might months on to see North El

Matt Elkott

Great, very thank you much.

Operator

you. Thank

with is caller Capital Markets. John next Our Joyner BMO

ahead You may go sir.

John Joyner

for taking Thank my question. you

negative is seasonal Somehow these a now normalization days.

So say, get myopic with regard profitability prices, year months new crop even hesitation such side a in to and today with do correctly of on versus, so purchasing the farmer six equation, but is average - prices a any at have has cost the all around you ago, Rachel, sense focus that moderated creeping a highlighted of farmer grain sentiment, you ago there equipment? and whether though

Brent Norwood

sentiment to always the maybe seeing and the indicators regards matched farm they last the detached with versus out the with we those see fundamentals, years. have that's of become we're that's fundamentals interesting, barometers of the over phenomenon it's sentiment And haven't a two industry. been precisely farmer and there, two what John, three to actual all Hi and where --

purchase use difficult to sometimes those really read barometers great decisions. happening with what's a as it's for respect customers' So to

going demand customers customers going very even to the profitable some plugging figures, be this year ahead and year. good And are said, early capable profitability money. at have Barr, next in replacement still today. are And of you making see we're be kind are any of into know, look of WASD we That I that levels as still if on start stimulating think of to beyond kind where at I you'll well. that Kanlaya further even as comments don't

Kanlaya Barr

I of And cost top mean well. agree last coming coming price the that, the good down, is on as if still guys years. cost have yes, at, three is No, with no, then side, still XX it's we look Brent. you the I down but

that, margins this coming pretty think still we new farmers would year. favorable I have for good yes, crop into So

Josh Jepsen

strong on values, overall supportive. inventory. We're a The trade about large still John investment Thanks and we That's other to still of which differentials. used are see important relatively decision, ag to benefit, that think component levels is very we're low continuing really helpful when that

Operator

Thank you.

ahead. caller go Sir, next Melius Research. may you is Rob Our Wertheimer with

Robert Wertheimer

as market Thanks. little Josh, This The construction. just I curious quarter. state and done, strong, And where give in this in up strong did market and whether were and good going quite And given what as less to I - you've my a margins small on question fundamentals? the in not obviously production hold price be of you would done can strong turf. I'm what have wonder wonder but ag somewhat are inventories the guys if of is market bit Thanks. that you you about you as precision. sustainability, is high a

Brent Norwood

small to the improvements radar screen. regarding Rob, think and it's segment business, turf that's that structural some profitability under made ag probably flown the and Hi of a I

compact it's like goes by tractors. investors. utility products, last the portfolio over to things segment. a equipment learned we've things that's It's one-third segment offer the of couple quarters, also diverse of we of small in that always really our the a well the business About as products that and ag riding very One as turf lawn understood of not consumer-oriented well

four the into you've a two-thirds the where last think have portfolio the economy. are the we've other seen that improvements probably made years. that's over most turf business. years ag - the in last of and We've that the But decisions made some the over structural lot I been small of farm over sold four And

sort offerings those So that we've play product very markets markets. offer of we very, and we and been the discerning in that to the

I'd Monheim, turf those in Europe ag our recorded then majority And a been come little division. bit focused And our years. important much really out mid-sized this also highlight small the been calls, has three prior are there. of our Germany, of being tractors has that the last over and in strategy talked driver that we've a Europe of more about on some the And

segment more technology appreciate. small years. what's much kind and have is on We've of couple focus our high a focused improvements over precision XXX-plus differentiated of through ag there's, the think products and the That's the add that I horsepower driven really more that flowing of segment, division else the a turf lot anything investors you'd than Dave, maybe last comment? on to

Dave Gilmore

in perhaps operations, generating Canada, majority those products Yes. livestock referenced into in a perspective, customers dairy you we and to turf, "small include and and ag From to U.S. XXXX. that would those in of profits a profit products and when and which, generation are the going U.S. again, continue that Canada are customers, the expected

dealers for on generating customers market good a and and livestock been a that's focus our from operation. So as our those us income company dairy

Josh Jepsen

very this disciplined globe, the been that driving top has two down. which said, been and Josh. the it's cost that we've these I'd structure area is the One I Dave been add products of cost and things on or that, to very price beneficial. of Brent an Rob, on And focused have think where on we structure, across everything in

into as dairy And relates ability the that's value. then continued developed things technology like our like that to and business, forage and opportunities ag it in drive leverage parts there's will other believe not the unlike livestock precision of emerging been to we production technology hand

the to Thanks connectivity about that the customer a where company. of not only and what support customers for ability take see better driving You good think Rob. example connectivity and also opportunity create customers, care better a value serve means we but from and to

Robert Wertheimer

Thank you.

Operator

Thank you. Nicole DeBlase with Deutsche Bank.

ahead. may You go

Nicole DeBlase

Yes thanks, good morning guys.

Josh Jepsen

Good morning Nicole.

Nicole DeBlase

around pricing. My is question

you just particularly what define normal And ag. guys Thank kind to what second normal, to of you production price? respect precision competitive part that with return seeing when starting within you. from then question to are ads, pricing the would is is say So of you a perspective

Brent Norwood

we And expect Regarding price, in took just XXXX. progress Maybe price maybe in the our a of couple here. to I'll we pricing play you dynamics there's actions of the XXXX. this realization with year, start at would reflects of that see different that guide. really rest We can midyear moderate of kind through the as and some

you'll implied for pricing in and that's the effectively that XX% we those production example, Ag, in the lap moderate second quarter, the we'll our third and achieved see Precision first XX% here in anniversary in quarter. given guide, We'll in quarter,

is guide year XX%. full Our

we'll XQ significantly. see in three that implies that realization price So down

the on are production also moderating. flip side costs Now there,

delta the back the think static of first between the half half to year. relatively two we So remains

we've Now normalized said relates to pricing, along, of XXXX more as was to it realization. all to back levels goal our price get

to look pre-COVID would X% that equipment sort the If you be back of era, X% anywhere sort from of for operations. over entire the

now, been programs extending of on to the side. one the manufacturers the other the Ag have we're on that end first typically into and Right divisions early Precision and lower some of has order of Production range higher XXXX.

early filled somewhere pricing The quickly. relatively we X% So which talked range. program, products. out was prices the order sprayer those on was the those depending have sprayers configuration, do in on for to the about X% We

a see to line then though normal, to So stabilize conversation costs. bit - a conversation again, would the today, about costs view And for which production that then. will production industry. about XXXX have of based for range moderation sight on where price, and is we as we we a that stand healthy in Nicole. we think further a have have to And appears right we would Thanks as importantly, where as right also in we we continue us

Nicole DeBlase

Thanks.

Operator

you. Thank

Our next with caller is Zakaria Tami JPMorgan.

Tami Zakaria

good Hi morning, thanks so much.

extend in GP on [ph] answer which didn't phase two following the allocated that's first said last to early do just make to now to the up last year, you the sure all XXXX? it So order programs does quarter it And of phases. you for also,

So this year it's different versus last year?

Brent Norwood

Yes, right. that's

we're phases even historically, more we return X two equipment, Last order done for dynamics typically, farm had and run and to demand supply have historic for maybe run phase. order balance the programs. Again, the three we for in to year, we early dynamics So more to try what sprayers supply that we've patterns to balance in of early planters and only going programs. still seasonal demand and mimic were as out

in second these of regarding are about we - want about we run through us and important So so this about Typically, year, we're production as of year programs that phases. going shift for And the sprayers the to program talk source order early part for to think there planter two. XXXX really you XX% year. the Dave model question next

Dave Gilmore

the might equipment a as I of upgrade in this have we In addition phases well, portion year factories, yes also precision ordering to our goods, whole products our early add from and that unlock program John that and most value. the piece environmental economic purchased to allows a to of them recent technology to upgrade agronomic, earlier Deere a allows customer order that

production another early the to to do what order those early schedule. change Brent referenced. improvement that's getting and EOPs ultimately, that program So of we're with is And intending indicator

new delivered that So that we XXXX. of will be season in them orders customers prior be will get their the can build we taking now throughout to and so those [ph] hands

Josh Jepsen

talked that's we to follow-up one inflationary price, Maybe price. normalizing Josh. price is this Nicole's purely question about on Yes, and

that is features, seen which to you and much another X% So that more of have comes at can X% historically though, all. changing see think that additional and don't trend we effectively through to what X% on technology, X% is price about top is we of

accelerating drive potentially drive for as value for more anything those customers very, if cost more yield. investments And as we very and improve create more ROI reduce to quick and and features they opportunity

just we'll an and to jump question go Thanks add Nicole's So question. the to ahead on next price.

Operator

next Thank caller Oppenheimer. Kristen The with Owen is you.

ahead. go You may

Kristen Owen

to question. the Great, you I and wanted Forestry. thank about for Construction ask taking

for industry And just just were that us statement? You inventories that I'll there? you did to or still were there I there? the said you. tight. Thank then mix full And the believe help Can a wanted it virtually Deere you the mention understand order clarify, statement leave an year. I quite was books

Brent Norwood

question. the for Kristen, Thanks, Yes.

you're really market have That's over quarter. are the back we still bit and correct. the If has last to order And and we of the the We're Canada, half we're almost books, the that be half suffered one we for really weakened year. little look more of year, year. here the rise in have market inventories monitoring in in first the the C&F, have a retails as closely we seen U.S. full work Regarding certainly at full that do would Brazil. a

that rates bit downward little think on have I higher year, a for bit us. of a a uncertainty political it's earlier of combination interest put little of in the a pressure market

of I would for out rest call one the the have really of that's So XXXX. sort

inventory. it been have as inventory, on to all relates Deere Now comments our call specific the

ag, had we but inventory to with forecast right our levels running lean in we've of ending really bit of And little year. production seen the the a quarter. end shows in at that all increase us an the our season, commensurate still that's large here Similar now second really,

we're of as our exit end going 'XX. So, continue starting that really we and XXXX to create tightly, manage to point

Josh Jepsen

Kristen add first taking orders order America, from the Maybe perspective, Kristen, North Josh. to thing it's one quarter an into on Yes to we're 'XX. that of

there. for labor. the to because continuing see strength their we're jobs are lack Contractors careers first down of continue So, time in turning of

manner the desirable. is easier, ability simple an jobs in think, the for do more I So technology, desire to more

opportunity a of to So, there continue. Thank we you. lot see

Brent Norwood

Michele, think last caller. one for I time have Hi we

Operator

Thank you.

Stanley last with Elliott Stifel. caller is Our

sir. ahead go may You

Stanley Elliott

times expectation of Good the share for morning can repurchase I the half want guys in. kind is to fitting the Thank cash flow and Quick me free two accelerating? you year, of tracking of you. back year last thank ahead question, you about in you're talk

Josh Jepsen

it's the Josh. appreciate Stanley, I Hi question.

I executing that year and of of we model strong benefit full the in think terms our with the And seeing guide, cash strategy we're our really see here generation. continuing. business clearly,

similar So, pace there, we through a at we did about We to quarter. the $X.X billion here this would I year. don't provide but think continue forecast assume fair a

Brent Norwood

Thanks, appreciate today. us thanks and concludes everyone's joining Stanley. call. today's for That We time,

Operator

Thank call. This conference concludes today's you.

You may time. disconnect and go this ahead at

Deere & Company (DE) 19 May 232023 Q2 Earnings call transcript