Q4 2021 Deere & Co Earnings Call

Speaker 1: including reconciliations to comparable GAAP measures is included in the release and posted on our website at johndeere.com slash earnings under quarterly earnings and events. I'll now turn the call over to Brent Norwood.

Sears, including reconciliations to comparable GAAP measures is included in the release and posted on our website John Deere Dot com.

Earnings under quarterly earnings and events I'll now turn the call over to Brent Norwood.

John Deere finished the year with solid execution in the fourth quarter, resulting in a 13, 6% margin for the equipment operations.

Speaker 1: John Deere finished the year with solid execution in the fourth quarter, resulting in a 13.6 margin for the equipment operation.

Speaker 1: Ag Fundamentals remained strong through the course of the year, and our order books indicate another year of robust demand in 2022. Meanwhile, the construction and forestry markets also continue to benefit from strong demand and lean inventories, leading to the division's strongest financial results in over 15 years. Now, let's take a closer look at our year-end results for 2021, beginning on slide 3.

AG fundamentals remained strong through the course of the year and our order books indicate another year of robust demand and to 2022.

While the construction and forestry markets also continue to benefit from strong demand and lean inventories leading to the division's strongest financial results in over 15 years.

Now, let's take a closer look at our year end results for 2021, beginning on slide three.

Speaker 1: For the full year, net sales and revenues were up 24% to $44 billion, while net sales for equipment operations increased 27% to $39.7 billion. Net income attributable to Deere and Company was $5.96 billion, or $18.99 per diluted share.

For the full year net sales and revenues were up 24% to 44 billion, while net sales for equipment operations increased 27% to $39 7 billion.

Net income attributable to Deere <unk> company was $5 96 billion or $18 99 per diluted share.

Speaker 1: Slide four shows the results for the fourth quarter. Net sales and revenue were up 16% to $11.3 billion, while net sales for the equipment operations were up 19% to nearly $10.3 billion.

Slide four shows the results for the fourth quarter.

Net sales and revenue were up 16% to $11 3 billion, while net sales for the equipment operations were up 19% to nearly $10 3 billion.

Speaker 1: Net income attributable to Deere and Company was $1.283 billion or $4.12 per diluted share.

Net income attributable to Deere <unk> company was $1 $2 3 billion or $4 12 per diluted share.

Speaker 1: At this time, I'd like to welcome Corey Reed, President of Production and Precision Ag, to the call to discuss the segment's results and provide an update on the global ag environment. Corey?

At this time I would like to welcome Cory Reed President of production and precision Act to the call to discuss the segments results and provide an update on the global AG environment.

Hi.

Thanks, Brent before I cover our fourth quarter results I'd like to recognize all of John Deere 77000 employees for their tremendous hard work and dedication throughout a year filled with unpredictability I'd also like to recognize the ongoing efforts and unparalleled capabilities of the John Deere dealer network that is not only an integral.

Speaker 2: Thanks, Brent. Before I cover our fourth quarter results, I'd like to recognize all of John Deere's 77,000 employees for their tremendous hard work and dedication throughout a year filled with unpredictability. I'd also like to recognize the ongoing efforts and unparalleled capabilities of the John Deere dealer network that's not only an integral part of our value proposition in the market, but also often called upon in the toughest of times to keep our customers up and running.

Part of our value proposition in the market, but also often called upon in the toughest of times to keep our customers up and running.

Speaker 2: Let's start with fourth quarter results for production and precision ag starting on slide five.

Let's start with fourth quarter results for production in precision AG, starting starting on slide five.

Speaker 2: Net sales of $4.66 billion were up 23% compared to the fourth quarter last year, primarily due to higher shipment volumes and price realization.

Net sales of $4 66 billion were up 23, 23% compared to the fourth quarter last year, primarily due to higher shipment volumes and price realization.

Speaker 2: Price realization in the quarter was positive by about seven points. And currency translation was also positive by roughly one point. Operating profit was $777 million, resulting in a 16.7% operating margin for the segment, compared to 15.2% margin for the same period last year.

This realization in the quarter was positive by about seven points and currency translation was also positive but roughly one point.

Operating profit was $777 million, resulting in a 16, 7% operating margin for the segment compared to 15, 2% margin for the same period last year.

Speaker 2: The year-over-year increase was driven by positive price realization, higher shipment volumes, and mix, partially offset by higher production costs. Also, it's worth noting that last year's results were negatively impacted by employee separation expenses resulting from restructuring activities. Shifting focus to small ag and...

The year over year increase was driven by positive price realization higher shipment volumes and mix, partially offset by higher production costs also it's worth noting that last year's results were negatively impacted by employee separation expenses, resulting from restructuring activities.

Shifting focus to small AG and turf on slide six net sales were up 17% totaling $2 8 billion in the fourth quarter. The increase was primarily driven by higher shipment volumes and price realization.

Speaker 2: Net sales were up 17%, totaling $2.8 billion in the fourth quarter. The increase was primarily driven by higher shipment volumes and price realization. Price realization in the quarter was positive by just over four points, while currency translation was minimal. For the quarter, operating profit was $346 million, resulting in a 12.3% operating margin.

Price realization in the quarter was positive by just over four points, while currency translation was minimal for the quarter operating profit was $346 million, resulting in a 12, 3% operating margin.

Speaker 2: The higher shipment volumes, sales mix, and price realization were partially offset by higher production costs, R&D, and S&G. When comparing to the fourth quarter of 2020, keep in mind the prior period included $77 million in separation costs and impairments.

Higher shipment volumes sales mix and price realization were partially offset by higher production costs R&D and SMG.

When comparing to the fourth quarter of 2020 keep in mind. The prior period included $77 million in separation costs and impairments.

Speaker 2: Slide shot seven shows our industry outlook for ag and turf markets globally.

Slide seven shows our industry outlook for AG and turf markets globally.

Speaker 2: In the U.S. and Canada, we expect industry sales of large ag equipment to be up approximately 15%.

In the U S and Canada, we expect industry sales of large AG equipment to be up approximately 15%.

Reflecting another year of strong demand in fiscal year, 'twenty, one customer demand driven by the combination of strong fundamentals and advanced fleet age and low inventory outpaced the industry's ability to supply.

With all of these dynamics still present in 'twenty, two we expect demand to exceed the industry's ability to produce for a second consecutive year as supply base delays continue to constrained shipments.

Speaker 2: Order books for the upcoming year are mostly full, except for a few cases where we've paused orders to manage supply challenges and allow us to re-evaluate inflationary pressure later in the year.

Order books for the upcoming year are mostly full except for a few cases, where we've caused orders to manage supply challenges and allow us to reevaluate inflationary pressure later in the year.

Speaker 2: Currently, orders are complete for the year's production of crop care products, while our combine production slots are over 90% full with the early order program still ongoing. Meanwhile, large tractor orders are sourced well into the third quarter, and we expect the remainder of the book to fill out shortly.

Currently orders are complete for the year's production of crop care products, while our combined production slots are over 90% full with the early order programs still ongoing. Meanwhile, large tractor orders are sourced well into the third quarter. When we expect the remainder of the book to fill out shortly.

We are encouraged that take rates for our mainstay precision technologies like combine advisor exact apply an exact emerge continue to track higher year over year.

Speaker 2: We're encouraged that take rates for our mainstay precision technologies like Combine Advisor, Xactiply, and XactiMerge continue to track higher year over year.

Speaker 2: More recent product introductions such as exact rate planners and the X9 combine saw significant increases when compared to last year. While our premium and automation software activation take rates are over 85 percent for our 8-series and 9-R series tractors.

More recent product introductions, such as exact rate planners and the X nine combined saw significant increases when compared to last year, while our premium and automation software activation take rates are over 85% for our eight series and nine R series tractors.

Speaker 2: Additionally, we saw significant increases in customer engagement with our digital tools in 2021. Engaged acres now stand at over 315 million acres due in part to a sharp increase in Europe where the number of engaged acres has doubled over the past year.

Additionally, we saw significant increases in customer engagement with our digital tools in 2021.

Engaged acres now stand at over 315 million acres due in part to a sharp increase in Europe with a number of engaged acres has doubled over the past year.

Likewise use of our digital features such as expert alerts and service adviser remote has increased by about 30% compared to last year.

Speaker 2: Likewise, use of our digital features such as expert alerts and Service Advisor Remote has increased by about 30% compared to last year.

Speaker 2: In the small lag and turf segment, we expect industry sales in the U.S. and Canada to remain flat for the year as supply challenges continue to limit industry production.

And the small AG <unk> turf segment, we expect industry sales in the U S and candidates remained flat for the year as supply challenges continued to limit industry production.

Following two years of very robust demand field inventory levels are at multiyear lows and are unlikely to begin recovering until sometime in 2023.

Speaker 2: Following two years of very robust demand, field inventory levels are at multi-year lows and are unlikely to begin recovering until sometime in 2023.

Speaker 2: Moving on to Europe , the industry is forecast to be up roughly 5% as higher commodity prices strengthen business conditions in the arable segment and dairy prices remain resilient even as margins show some pressure from rising input costs.

Moving onto Europe, the industry is forecast to be up roughly 5% as higher commodity prices strengthened business conditions in the <unk> segment and dairy prices remain resilient, even as margins show some pressure from rising input costs.

We expect the industry will continue to face supply based constraints, resulting in demand outstripping production for the year.

Speaker 2: We expect the industry will continue to face supply-based constraints, resulting in demand outstripping production for the year. At this time, our order book extends into the third quarter from Monheim Tractors.

At this time, our order book extends into the third quarter for Mannheim tractors.

In South America, we expect industry sales of tractors and combines to increase about 5%.

Speaker 2: In South America, we expect industry sales of tractors and combines to increase about 5%.

Speaker 2: Farmer sentiment and profitability remain steady at all-time highs as our customers benefit from robust commodity prices, record production, and a favorable currency environment.

Farmer sentiment and profitability remained steady at all time highs as our customers benefit from robust commodity prices record production and a favorable currency environment.

Speaker 2: Our order books reflect this strong sentiment and currently extends into the second quarter, which is as far as we've allowed it to grow. Despite limited government-sponsored financing programs, private financing is supporting continued strength in equipment demand, while strong farmer balance sheets enable many customers to purchase using cash.

Our order books reflect the strong sentiment and currently extends into the second quarter, which is as far as we've allowed it to grow despite limited government sponsored financing programs private financing supporting continued strength in equipment demand, while strong farmer balance sheets enabled many customers purchased using cash.

Industry sales in Asia are forecasted to be flat as India, the world's largest tractor market by units hold steady in 2022.

Speaker 2: Industry sales in Asia are forecast to be flat, as India, the world's largest tractor market by units, holds steady in 2022. Moving on to our segment forecast.

Moving on to our segment forecast beginning on slide eight.

For production in precision AG net sales are forecasted to be up between 20% and 25% in fiscal year 'twenty two.

Speaker 2: For production and precision ag, net sales are forecast to be up between 20% and 25% in FY22.

Forecast includes expectations of about nine points of positive price realization for the full year.

Speaker 2: Forecast includes expectations of about 9 points of positive price realization for the full year.

Speaker 2: For the segment's operating margin, our full-year forecast is between 20 and 21 percent, reflecting consistently solid financial performance across the various geographical regions.

For the segments operating margin our full year forecast is between 20, and 21%, reflecting consistently solid financial performance across the various geographical regions.

Slide nine shows our forecast for the small AG <unk> turf segment, we expect net sales in fiscal year 'twenty two to be up 15% to 20%.

Speaker 2: Slide nine shows our forecast for the small ag and turf segment. We expect net sales in fiscal year 22 to be up 15 to 20 percent. This guidance includes nearly seven points of positive price realization and roughly one point of currency headwind. The segment's operating margin is forecasted to range between 16 and 17 percent. With that, I'll turn it back over to Brent Norwood.

This guidance includes nearly seven points of positive price realization and roughly one point of currency headwind.

The segment's operating margin is forecasted to range between 16 and 17%.

With that I'll turn it back over to Brent Norwood.

Speaker 1: Thanks, Corey. Now let's focus on construction and forestry on slide 10. For the quarter, net sales of $2.8 billion were up 14% primarily due to higher shipment volumes and six points of positive price realization.

Thanks Corey.

Now, let's focus on construction and forestry on slide 10 for the quarter net sales of $2 8 billion were up 14%, primarily due to higher shipment volumes and six points of positive price realization.

Speaker 1: Operating profit moved higher year over year to $270 million, resulting in a 9.6% operating margin due to positive price realization and higher shipment volumes, partially offset by higher production costs, S, A, and G, and R and D. The quarter also benefited from the lack of one-time expenses included in the prior period.

Operating profit moved higher year over year to $270 million, resulting in a nine 6% operating margin due to positive price realization and higher shipment volumes, partially offset by higher production costs.

<unk> and R&D.

The quarter also benefited from the lack of onetime expenses included in the prior period.

Speaker 1: Let's turn to our 2022 Construction and Forestry Industry Outlook on slide 11.

Let's turn to our 2020 to construction and forestry industry outlook on slide 11.

Speaker 1: Both earth-moving and compact construction equipment industry sales in North America are expected to be up between 5 and 10 percent.

Both Earth, moving and compact construction equipment industry sales in North America are expected to be up between five and 10%.

Speaker 1: in markets for earth-moving and compact equipment are expected to remain strong in our fiscal year 22 forecast, benefiting from continued strength in the housing market, increased activity in the oil and gas sector, as well as strong capex programs from the independent rental company.

End markets for earthmoving, and compact equipment are expected to remain strong and our fiscal year 'twenty two forecast.

Benefiting from continued strength in the housing market increased activity in the oil and gas sector as well as strong cash capex programs from the independent rental companies.

Demand for earthmoving and compact construction equipment is expected to exceed our production for the year, resulting in continued low inventory levels, especially for compact construction equipment.

Speaker 1: Demand for earth-moving and compact construction equipment is expected to exceed our production for the year, resulting in continued low inventory levels, especially for compact construction equipment.

And forestry, we now expect the industry to be up about 10% to 15% as lumber production looks to remain at elevated levels throughout the year, even though lumber prices have come down from peaks in mid summer.

Speaker 1: In forestry, we now expect the industry to be up about 10 to 15 percent as lumber production looks to remain at elevated levels throughout the year, even though lumber prices have come down from peaks in mid-summer.

Moving to the CNS segment outlook on slide 12.

Speaker 1: Moving to the CNS segment outlook on slide 12.

Speaker 1: Deere's construction and forestry 2022 net sales are forecasted to be up between 10 to 15 percent. Our net sales guidance for the year includes about eight points of positive price realization.

Deere's construction <unk> Forestry 2022, net sales are forecasted to be up between 10% to 15%. Our net sales guidance for the year includes about eight points of positive price realization.

We expect the segment's operating margin to be between 13, 5% 14, 5% for the year benefiting from price volume and lack of onetime items from the prior year.

Speaker 1: We expect the segment's operating margin to be between 13.5% and 14.5% for the year, benefiting from price, volume, and lack of one-time items from the prior year.

Speaker 1: Now, let's move now to our financial services operation on slide 13.

Now.

Let's let's move let's move now to our financial services operation on Slide 13.

Worldwide financial services net income attributable to Deere <unk> company in the fourth quarter was $227 million benefiting from income earned on higher average portfolio and favorable financing spreads as well as improvements on the operating lease portfolio, partially offset by a higher provision for credit losses.

Speaker 1: worldwide financial services net income attributable to Deere and company in the fourth quarter was $227 million benefiting from income earned on higher average portfolio and favorable financing spreads as well as improvements on the operating lease portfolio partially offset by a higher provision for credit losses.

Speaker 1: results for the prior period were also affected by employee separation costs.

Results for the prior period were also affected by employee separation costs.

Speaker 1: For fiscal year 2022, the net income forecast is $870 million, as the segment is expected to continue to benefit from a higher average portfolio.

For fiscal year 2022, the net income forecast is $870 million as the segment is expected to continue to benefit from a higher average portfolio.

Speaker 1: Slide 14 outlines our guidance for net income, our effective tax rate, and operating cash flow. For fiscal year 2022, our full year outlook for net income is forecasted to be between $6.5 and $7 billion.

Slide 14 outlines our guidance for net income our effective tax rate and operating cash flow.

For fiscal year 2022, our full year outlook for net income is forecasted to be between six five and seven 1 billion.

Speaker 1: The four-year forecast is inclusive of the impact from higher raw material prices and logistics costs, which we estimate will add an additional $2 billion in expenses relative to 2021.

The full year forecast is inclusive of the impact from higher raw material prices and logistics costs, which we estimate will add an additional $2 billion in expenses relative to 2021.

Speaker 1: At this time, we expect two-thirds of that increase to manifest itself in the first half of the year as the comparisons get easier in the back half of fiscal year 22.

At this time, we expect two thirds of that increase to manifest itself in the first half of the year as the comparisons get easier in the back half of fiscal year 'twenty two.

Speaker 1: At this time, our forecasted price realization is expected to outpace both material cost and freight for the entire year, though we will likely be price-cost negative in the first quarter.

At this time, our forecasted price realization is expected to outpace both material cost and freight for the entire year, though we will likely be price cost negative in the first quarter.

Moving on to tax.

Speaker 1: Moving on to tax, our guidance incorporates an effective tax rate projected to be between 25 and 27 percent.

Our guidance incorporates an effective tax rate projected to be between 25 and 27%.

Lastly.

Speaker 1: Lastly, cash flow from the equipment operations is expected to be in the range of $6 to $6.5 billion and includes a $1 billion voluntary contribution to our pension and OPEB plan.

Cash flow from the equipment operations is expected to be in the range of $6 to $6 5 billion in.

That includes a 1 billion voluntary contribution to our pension and <unk> plans.

Speaker 1: Before we open up the line for Q&A, we'd like to first address a few of the likely questions around the current market dynamics, our financial results, and the details around our new labor agreement, as well as provide some thoughts on capital allocation for the next year.

Before we open up the line for Q&A.

We'd like to first address a few of the likely questions around the current market dynamics, our financial results and the details around our new labor agreement as well as provide some thoughts on capital allocation for the next year.

Speaker 1: To cover the range of topics, I'll engage today's call participants to provide some additional color, and then we'll open up the line for additional questions.

To cover the range of topics I'll engage today's call participants to provide some additional color and then we'll open up the line for additional questions.

First I'd like to start with the current demand environment for large AG equipment.

Speaker 3: First, I'd like to start with the current demand environment for large AG equipment.

Speaker 3: Corey, can you provide some additional color on demand for large ag products and which new technologies are resonating with customers?

Corey can you provide some additional color on demand for large AG products, and which new technologies are resonating with customers.

Yes, Thanks, Brent we're really encouraged by both the velocity of our order books and the take rates for some of our latest technology demand has been strong since the beginning of 2021 and overall that doesn't look like it's going to let up in 2022.

Speaker 2: Yeah, thanks Brent. We're really encouraged by both the velocity of our order books and the take rates for some of our latest technology. Demand has been strong since the beginning of 2021 and overall that doesn't look like it's going to let up in 2022. I touched on this earlier. Our order books are either full or near full for most of our North American large egg product line.

I touched on this earlier, our order books are either full or near full for most of our North American large AG product lines.

Speaker 2: starting with a combine EOP. Our EOP for 2022 production will finish in January , where we'll grow the levels of S-series production, and we've already sold out of our planned production for X9 combine.

Starting with our combined.

For 2022 production will finish in January where we will grow the levels of F series production and we've already sold out of our planned production for <unk> combines this is the first year and a multi year ramp up of production for <unk> nine and we will ship a thousand plus units of <unk> into North America alone.

Speaker 2: This is the first year in a multi-year ramp up of production for X9 and we'll ship a thousand plus units of X9 into North America alone.

Speaker 2: We'll further solidify our market leadership in the Power Class 9 Plus combine categories, while also establishing a clear new global benchmark in both productivity and efficiency.

Will further solidify our market leadership in the power class nine plus combined categories. While also establishing a clear new global benchmark in both productivity and efficiency.

Speaker 2: We're also seeing strong demands for some of our newer products. Products like ExactRate planter applied fertilizer systems and AutoPath. ExactRate represents an important first step in the precision application of fertilizer. Future iterations of this product will be critical in helping us improve nitrogen use efficiency for our customers. In just its second year, we're seeing take rates of that product close to 20 percent, which is really encouraging.

We're also seeing strong demand for some of our newer products products like exact great planner applied fertilizer systems and auto path exact rate represents an important first step in the precision application of fertilizer.

Future iterations of this product will be critical in helping us improve nitrogen use efficiency for our customers and adjusted second year, we're seeing take rates of that product close to 20%, which is really encouraging.

Speaker 2: Similarly, in the first full season, we've seen tremendous feedback from the launch of John Deere AutoPath.

Similarly in the first full season, we've seen tremendous feedback from the launch of John Your auto path.

Speaker 2: AutoPath leverages John Deere's on-board technology like our Gen 4 displays, SF6000 receivers including the SF3 correction signal, and embedded software linked to the John Deere Operations Center throughout a customer's entire production cycle.

Auto path Leverages, John Deere's onboard technology like our Gen. Four displays SF 6000 receivers, including the SF three correction signal and embedded software linked to the John Deere operations center throughout our customers' entire production cycle. The technology Leverages data from planting to know exactly where the ROE unit travel.

Speaker 2: That technology leverages data from planting to know exactly where the row unit traveled to plant seeds and then creates a guidance line for each subsequent path, making in-season fertilizer applications, manual cultivation for weeding, or crop protection passes easier and more accurate.

To plant seeds, and then creates a guidance line for each subsequent path.

In season fertilizer applications manual cultivation for weeding or crop protection passes easier and more accurate.

Speaker 2: At Harvest, it makes it easier to find your guest rowees and makes that easy for Harvest to be even more efficient.

And harvest it makes it easier to find your guests released and it makes that easy for harvest to be even more efficient.

Speaker 2: In 2021, we saw take rates of the automation package activation or subscription, which includes AutoPath Double, leading to more customers enabled with John Deere's highest value precision egg software.

In 2021, we saw take rates of the automation package activation or subscription, which includes auto path double leading to more customers enabled with John Deere is highest value precision AG software.

Speaker 2: In 2022 and beyond, we'll continue to add value to AutoPath through new features and new technologies as a part of our Precision Ag software package strategy.

In 2022, and beyond we will continue to add value to auto path through new features and new technologies as a part of our precision AG software package strategies.

Speaker 2: and AutoPath will be foundational for even more automated farming in the future, making every step of our customers' production system even better.

In auto path will be foundational for even more automated farming in the future, making every step of our customers' production system even better.

Speaker 2: Lastly, Seed&Spray. Seed&Spray Ultimate is going to hit the market this year on a limited basis, and we're excited to get it into more customers' hands. We view Seed&Spray as just the first step in a long series of sense and act, and that journey we're encouraged by, to see early demand for both Seed&Spray itself and multiple products related to plant-level management in the future.

Lastly, <unk> spray Sainsbury ultimate is going to hit the market. This year on a limited basis and we're excited to get it into more customers hands, we view seeing spray as the just the first step in a long series of sense and act in that journey. We are encouraged by to see early demand for both <unk> itself and mulch.

<unk> products related to plant level management in the future.

Let's talk a little bit deeper on the fluctuations and North American large AG market share for fiscal year 'twenty, one and then let's provide some expectations for this next year in fiscal year 'twenty. Two can you first walk us through the progression of market share that we saw in 'twenty one Corey.

Sure. Yeah, 2000, 2021 was a unique year demand inflected sharply from October 22, the January 'twenty, one time frame.

Speaker 2: Sure, yeah. 2021 was a unique year. Demand inflected sharply from October of 20 to the January 21 time frame.

Speaker 2: And as a result, we experienced pressure on market share early in the year due to our asset light model. If you recall, we talked about this dynamic in our fourth quarter earnings call last year and noted that we expected to recover that share quickly. And that's exactly what happened. In fact, we gained two points of market share in North America for our large egg products by year end. And you can see an example of that in the last three quarters of retail sales data for the 100 plus horsepower tractor categories.

And as a result, we experienced pressure on market share early in the year due to our asset light model. If you recall, we talked about this dynamic in our fourth quarter earnings call last year and noted that we expected to recover that share quickly and that's exactly what happened in fact, we gained two points of market share in North America for our large AG products by year end and you can see an exam.

Ample of that in the last three quarters of retail sales data for the 100 plus horsepower tractor categories.

Speaker 3: So, how might market share play out this next year given that our most recent labor agreement didn't ratify until November 17th?

How might market share play out this next year given that our most recent labor agreement didn't ratify until November.

17th.

Speaker 2: Yeah, that's a great question. And while it's too early to forecast with a lot of precision, we see the potential for 2022 to play out very similarly. We're very likely to see similar pressure in the first quarter as we recover from record low inventories, but also expect a production ramp that helps us maintain and even grow our position as we execute throughout.

It's a great question and while it's too early to forecast with a lot of precision we see the potential for 2022 to play out very similarly.

Very likely to see similar pressure in the first quarter as we recover from record low inventories, but also expected production ramp that helps us maintain and even grow our position as we execute throughout the year.

Let's pivot to some of the details on our latest labor agreement one of the most frequent questions out there is on the incremental cost of the new contract relative to the previous one so how should investors think about the impact to our cost structure.

Speaker 3: Let's pivot to some of the details on our latest labor agreement. One of the most frequent questions out there is on the incremental cost of the new contract relative to the previous one. So how should investors think about the impact to our cost structure?

First it's important to note, we're really glad to have our UAW employees back to our factories and proud of the ground groundbreaking contracts that we put in place.

Speaker 4: First, it's important to note we're really glad to have our UAW employees back in our factories and proud of the groundbreaking contract that we put in place.

Speaker 4: With respect to its impact on our cost structure, there are a few moving parts to the agreement. Some components directly impact wages and benefits immediately, while many others, like of the retirement benefits, will have a longer tail that largely accrue outside of the contract.

With respect to its impact on our cost structure. There are a few moving parts to the agreement some components directly impact wages and benefits immediately while many others like of the retirement benefits will have a longer tail that largely grew outside of the contracts peer.

Period over.

Over the six year contract the incremental costs will be between $250 million to $300 million pretax per year with 80% of that impacting operating margins.

Speaker 4: Over the six-year contract, the incremental cost will be between $250 million and $300 million pre-tax per year, with 80 percent of that impacting

So we experienced a gap between the last contract and the current run resulting in a few weeks of lost production.

Speaker 3: So we experienced a gap between the last contract and the current run, resulting in a few weeks of lost production. How does that impact the quarterly cadence?

How does that impact the quarterly cadence of our financial results.

Speaker 4: Yeah, there are a number of unique items impacting the first quarter. At first, we would, if you think about first quarter 22, we expect the top line for the equip ops to be pretty similar to the first quarter of 21, you know, missing a few weeks plus of production will neutralize some of the benefits that Corey mentioned in terms of ramping up to higher line rates in December and January .

Yes, there are a number of unique items impacting the first quarter first we.

We would if you think about first quarter 'twenty two we expect the top line for the <unk> to be pretty similar to the first quarter of 'twenty, one missing a few weeks plus a production will neutralize some of the benefits that Corey mentioned in terms of ramping up to higher line rates in December and January with.

Speaker 4: With respect to margins, there are a few things to consider. In the first quarter, we'll have our toughest price cost comp for the year. We expect that to be negative in the first quarter, but positive for the full year. We also expect to experience poor overhead absorption due to the lower volumes, as mentioned. And there are a few other one-time items that will provide some additional drag, including ratification bonus and some favorable tax credits that we saw in the first quarter of 21 that don't repeat in 22.

With respect to margins there are a few things to consider in the first quarter, we will have our toughest price cost comp for the year, we expect that to be negative in the first quarter, but positive for the full year. We also expect to experience poor overhead absorption due to the lower volumes as mentioned and there are a few other onetime items that provide some <unk>.

Digital drag, including ratification bonus and some favorable tax credits that we saw in the first quarter of 'twenty, one that don't repeat in 'twenty. Two all in we expect first quarter margin to be mid to high single digits for the equipment operations with those businesses that have been most affected by the delayed ratification to be below that average looking beyond the first quarter.

Speaker 4: All in, we expect first quarter margins to be mid to high single digits for the equipment operations with those businesses that have been most affected by the delayed ratification to be below that average. Looking beyond the first quarter, though, we do expect margins for the rest of the year to be more favorable and incrementals more in line with historical average.

Though we do expect margins for the rest of the year to be more favorable and incrementals and more in line with historical averages and maybe stepping back and just thinking about the full year impact on margins, we'd say it'll be about one point lower as a result of combination of work stoppage and some of the supply disruption.

Speaker 4: and maybe stepping back and just thinking about the full year impact on margins, we'd say it'll be about one point lower as a result of a combination of work stoppage and some of the supply disruptions.

Switching topics, let's conclude with some discussion around capital allocation.

Speaker 3: Switching topics, let's conclude with some discussion around capital allocation. Ryan, how would you characterize our capital allocation strategy in fiscal year 21 and what might we expect this upcoming year?

Ryan how would you characterize our capital allocation strategy in fiscal year, 'twenty, one and what might we expect this upcoming year.

Speaker 5: Yeah, thanks. Thanks, Brent. With respect to 2021, you know, our strong liquidity position and our cash flow generation really allowed us to execute against all of our cash priorities.

Strong liquidity position and our cash flow generation really allowed us to execute against all of our cash priorities.

Speaker 5: You know we continue to focus on maintaining our solid a credit rating. But beyond that we invested in our strategic growth priorities both organically and inorganically. In addition you know we returned over three point five billion in capital to shareholders through dividends and shareware purchases.

We continue to focus on maintaining our solid credit rating, but beyond that we invested in our strategic growth priorities, both organically and inorganically.

In addition.

We returned over $3 5 billion in capital to shareholders through dividends and share repurchases.

Speaker 5: Our two dividend increases are evidence of the confidence we have in the structural improvements we've made in the earnings power of our business.

Our two dividend increases are evidence of the confidence we have in our structural improvements we've made in the earnings power of our business.

Overall, our actions in 2021 serve as a good blueprint for how to think about 2022, as we expect to again execute against all of our priorities.

Speaker 5: Overall, our actions in 2021 serve as a good blueprint for how to think about 2022 as we expect to again execute against all of our priorities.

It sounds like we'll continue to see discipline with respect to returning capital, but can you elaborate any further on investing back into our businesses.

Speaker 5: Sounds like we'll continue to see discipline with respect to returning capital. But can you elaborate any further on investing back into our businesses. Yeah sure. Brent is a smart industrial strategy that we put in place during 2020 is the foundation for us to focus our resources on the areas that are most differentiated from a customer value perspective.

Yes, sure Brent the smart industrial.

Strategy that we put in place during 2020 is the foundation for us to focus our resources on the areas that are most differentiated from a customer value perspective.

Speaker 5: It's through that lens that we are positioned to increase the level of investment back into our business both organically and inorganically through M&A.

It is through that lens that we're positioned to increase the level of investment back into our business, both organically and inorganically through M&A.

Speaker 5: As you can see in our guidance, the R&D investment is up 17% in 2022. The focus of the increase is on further developing our tech stack, which accelerates our capabilities related to sense and act, autonomy, digital solutions, connectivity and electrification.

As you can see in our guidance the R&D investment is up 17% in 2022.

The focus of the increase was on further developing our tech stack, which accelerates our capabilities related to SUNS enact autonomy digital solutions connectivity and electrification.

Speaker 5: We plan to demonstrate many of our new technologies at our Investor Tech Day in mid-2022, so stay tuned for that exciting event. Finally, as it relates to M&A, expect us to continue to be active, aligned with the themes that we have discussed over the last year.

Finally to demonstrate many of our new technologies at our Investor Tech day in mid 2022, so stay tuned for that exciting event.

Finally, as it relates to M&A expect us to continue to be active aligned with the themes that we've discussed over the last year.

Lastly is there anything else that you'd like to highlight for investors to expect in 2022.

Speaker 3: Lastly, is there anything else that you'd like to highlight for investors to expect in 2022?

At 2022 is shaping up to be a very important year for us.

Speaker 5: We put in place the new strategy and are well positioned to accomplish our goals.

We've put in place the new strategy and are well positioned to accomplish our goals.

Speaker 5: On that note, we do have a set of goals, both related to business and sustainability, that will sunset this.

On that note, we do have a set of goals both related to business and sustainability that will sunset this year.

Accordingly.

Speaker 5: Accordingly, we will be rolling out our next suite of goals that will highlight the opportunity we have and what we think we can accomplish over the rest of the decade.

We will be rolling out our next week goals that will highlight the opportunity we have and what we think we can accomplish over the rest of the decade.

Speaker 5: Importantly we are uniquely positioned and that there is direct alignment between our creation of customer value improving our own earnings and delivering more sustainable outcomes for the environment.

Importantly, we are uniquely positioned in that there is a direct alignment between our creation of customer value improving our own earnings and delivering more sustainable outcomes for the environment.

So Brent expect us to see expect to see a comprehensive suite of goals that really brings all of those elements together.

Speaker 5: So burn expect us to see expect to see a comprehensive suite of goals that really brings all of those elements together.

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

Speaker 4: Now we're ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. In consideration of others and our hope to allow more of you to participate in the call, please limit yourself to one question. If you have additional questions, we ask that you rejoin the queue. Tasha?

Additional questions, we ask that you rejoin the queue tushar.

If you would like to ask a question, Chris for our wine and spirit.

Speaker 6: If you would like to ask a question, press star 1 and speak your name in company when prompted. If you would like to remove your question, press star 2. Again, to enter the queue, press star 1.

Your name and company when prompted.

I would like to remove your question press Star Q.

Again to enter the queue.

<unk>.

Our first question comes from Bob Wertheimer with Melius Research Your line is open.

Speaker 6: Our first question comes from Bob Worthammer with Mellius Research. Your line is open.

Hi, good morning, everybody and thanks for all the color. My question is on Sainsbury Ultimate I Wonder in whatever way you could if you could expand on what little launched me how the technology is progressing I don't know if you can talk about the pipeline for fertilizer versus herbicide.

Speaker 5: Hi, good morning, everybody, and thanks for all the color. My question is on sea and spray ultimate. I wonder, in whatever way you could, if you could expand on, you know, what limited launch means, how the technology is progressing. I don't know if you can talk about the pipeline for fertilizer versus herbicide and or the geographic scope of the launch. Thank you.

Andrew the geographic scope of the launch thank you.

Speaker 4: Yeah, I'll start there. Corey, please add in. You know, we haven't put out exact numbers, but we'll have that, you know, out in, again, in customers' hands with, you know, production units. And again, you know, through multiple products, you know, there, and I think feel really, really good.

Yeah I'll start there. Please add in we haven't put out exact numbers, but we will have that out in again in customers hands with.

Production units.

And again.

Through multiple products.

And I think feel really really good.

Speaker 4: about both how we're performing and the customer response as we get it into their hands.

About of how we're performing and the customer response as we get it into their hands.

Yes.

Started with exact apply and the ability to use individual nozzle control, we've gone through and put them.

Speaker 2: started with ExactApply and the ability to use individual nozzle control. We've gone through and put the Select product into into the market this year in full supply, so that's the green on brown solution. We're now taking many units into a commercial application with Select customers in 2023 or in 2022 of SeamSpray Ultimate. That's to both, you know, prove out our business model.

Select product into into the market. This year in full supply so thats. The greenhorn Brown solution. We're now taking many units into a commercial application with select customers in 23 or 2022 of <unk> spray ultimate that's both prove out our business model.

Model and show the value and then we'll ramp from there. So it's it's a really exciting journey, we're seeing a lot of demand.

Speaker 4: model and show the value, and then we'll ramp from there. So it's a really exciting journey. We're seeing a lot of demand for it, and we're excited about it going forward. Yeah. Thanks, Rob. We'll go ahead and go to our next question.

<unk>.

And we're excited about it going forward.

Yes, thanks, Rob.

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

Okay levels with Goldman Sachs. Your line is open.

Yes, hi, good morning, and happy Thanksgiving everyone.

Speaker 7: I'm wondering if you folks can talk about what you're seeing in the installed base of equipment. I know you track used equipment inventories closely based on industry data that we see it looks like that's cut in half from 2015 levels, but maybe you can comment on where it stands for your equipment inventory.

I'm wondering if you folks can talk about what youre seeing in the installed base.

Equipment energy track used equipment inventories.

Closely based on industry data that we see it looks like that.

Cut in half from 2015 levels, but maybe you can comment on where it stands for your equipment.

Specifically and what does that tell you about what the potential for new equipment.

Speaker 7: specifically, and what does that tell you about what the potential for new equipment demand to our ships apply?

You may have thought ship supply beyond 'twenty two.

Yeah.

So I think when we look at used I mean, we're at we're at tremendously low levels of used inventory, particularly in large AG.

Speaker 4: I think when we look at used, we're at tremendously low levels of used inventory, particularly in large ag. Used prices, which has been really positive for our farmers that are trading in product, impacting their trade differentials, making those differentials as they trade up more or make that differential less. I think that's a big piece. I think it's also important as we think about just overall the replacement cycle and recovery that we're seeing there. The lower those inventory levels are, I think that extends some of that cycle.

Used prices, which has been really positive for our farmers that are trading in product. So.

Impacting their trade differentials, making those those differentials as they trade up.

More.

Make that differential less excuse me. So I think that's a big piece I think it's also important as we think about just overall the the.

<unk> cycle and recovery that we're seeing there.

The lower those inventory levels are I think that.

To that extent some of that some of that cycle corie anything you'd add.

Speaker 8: Corey, anything you'd add? No, I, you know, I.

Josh said it we're well below the bands that we would normally see in the lowest we've been in 10 years you have a combination of factors going on obviously you have solid financial income on the part of farmers, albeit with some headwinds in inputs. We have an aging fleet you have new technologies, you have the opportunity to trade their equipment at the Hyatt.

Speaker 2: Josh said it, we're well below the bands that we would normally see and the lowest we've been in 10 years. You have a combination of factors going on. Obviously you have solid financial income on the part of farmers, albeit with some headwinds in the

Speaker 2: you have an aging fleet, you have new technologies, you have the opportunity to trade their equipment at the highest values they've ever traded and it's driving tremendous demand. So, you know, right now the limitation is used is creating significant demand going forward. It's really figuring out the supply side and making sure that we can deliver every product into the market, but used right now is at all-time low.

Values, they've ever traded and it's driving tremendous demand so right now the <unk>.

<unk> is used is is creating significant demand going forward, it's really figuring out the supply side and making sure that we can deliver every product into the market, but used right now is at all time low.

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

Jamie Cook with credit Suisse. Your line is open.

Speaker 6: Jamie Cook with Credit Suisse. Your line is open.

Speaker 9: Hi, good morning. I guess question, the R and D up 17%. That's a big jump. I'm just wondering if, you know, given where we're going with technology, should R and D structural be up in sort of the high teens range going forward? And then just sort of, you know, on the M and A side, can you just talk about

Hi, Good morning, I guess question.

The R&D up 17%, that's a big jump I'm just wondering it now given where we're going with technology and R&D structure will be up in sort of a high teens range going forward.

And then just sort of on the M&A side can you just talk about.

Speaker 9: know the the pipeline there and what that implies um you know for is it just focused you know on on technology precision uh you know ad type solutions thanks

The pipeline, there and what that implies.

For the guest focus.

On technology precision.

<unk>. Thanks.

Speaker 4: The R&D, maybe looking at the increase in 22, some of that is compared to 21, where we were down a bit. And some of that was really the effects of pulling together the organization, creating the Chief Technology Officer org, which did allow us to pull and centralize components of the tech stack. So we saw some elimination of redundancies. So that's really the jumping off point, then, for this increase in 22, which is focused on the areas that Ryan mentioned in terms of where we really feel like we can accelerate and differentiate sense and act, autonomy, electrification, connectivity. So those are the areas where we see the biggest opportunities to deliver value for customers and are spending there accordingly.

The R&D maybe.

Looking at the increase in 22, some of that as compared to 21, where we were down a bit and some of that was really the effects of pulling together the organization, creating the chief technology officer or.

Which did allow us to pull in centralized component of the tech stack. So we saw some elimination of redundancies. So that's really the jumping off point than for this increase in 'twenty, two which is focused on the areas that Ryan mentioned in terms of where we really feel like we can accelerate and differentiate since it act autonomy electrification.

And connectivity. So so those are those are the areas, where we see the biggest opportunities to deliver value for customers.

And our spending there accordingly.

Relative to M&A.

Speaker 10: Relative to M&A.

Speaker 5: Yeah, this is Ryan. So as it relates to M&A, you know, as we've talked over the last year.

Yes. This is Ryan so as it relates to M&A as we've talked over the last year. We've got these thematic trends with respect to the <unk> platform that we're building autonomy digital solutions connectivity and also electrification and an example of digital solutions.

Speaker 5: You know, we've got these thematic trends with respect to the Cincinnati platform that we're building, autonomy, digital solutions, connectivity, and also electrification. You know, an example of digital solutions, we acquired Harvest Profit, and that's right along with our expectations of delivering value and overall management of a customer's P&L and making it super seamless and easy for them to use.

Acquired harvest profit.

And Thats right, along with our expectations of delivering value in the overall management of a customer customers P&L and making it making it super seamless and easy for them to use with respect to autonomy, which we see accelerating bear flag is an example of a transaction like that and so we've got a relatively full pipeline over the next several months you will see us do.

Speaker 5: With respect to autonomy, which we see accelerating, BearFlag is an example of a transaction like that. We've got a relatively full pipeline over the next several months. You'll see us do continue to be active and source deals and close deals that allow us to accelerate our journey along those thematic trends. Stay tuned, more to come, and you'll see us be active in this area over the next several years.

Continue to be active in and source deals and closed deals that allow us to accelerate our journey along those thematic trends so stay tuned more to come.

And Youll see us be active in this area over the next several years.

Speaker 4: Maybe the one thing, Jamie, I'm sorry, I missed part of your question was just the level. You know, this does represent a bit of a step up compared to where we were. You know, we think broadly this level is reasonable for where we operate. Again, always reserve the right in the future as we see new technologies or new opportunities to invest to create value, but I think that's a fair view of where we are today. Okay, thank you.

And maybe one thing Jamie I'm, sorry, I missed part of your question was just the level.

Does represent a bit of a step up compared to where we were.

We think broadly this level is reasonable for where we operate again don't always reserve the right in the future as we see new technologies or new opportunities to invest to create value, but I think that's a fair view of where we are today.

Okay. Thank you.

Thanks.

Stephen Volkmann with Jefferies. Your line is open.

Speaker 6: Stephen Wolfman with Jeffries. Your line is open.

Hi, good morning, everybody.

Speaker 5: Hi. Good morning, everybody. I'm wondering if we could go back to inventory but touch on the new side. Does your plan for 22 anticipate rebuilding any new inventories or does that sort of get pushed out into 23?

Im wondering if we could go back to inventory, but touch on the news side does your plan for 'twenty to anticipate rebuilding any new inventories or does that sort of get pushed out into 'twenty three.

Good morning, Steve It really does imply very little.

Speaker 4: Morning, Steve. It really does imply very little to no inventory build, given what we're seeing broadly a demand above the industry's ability to produce.

No inventory build.

Given what we're seeing broadly demand above the industry's ability to produce we would expect most everything we ship gets retailed, but no replenishment of those inventories.

Speaker 4: We would expect most everything we ship gets retailed, but no replenishment of those inventories. As a result of that, whether it's large ag equipment, small ag, and construction, it probably takes multiple years to rebuild some of the field inventory levels coming off of historic lows. For example, if we look at

As a result of that whether it's large AG equipment small AG and construction it probably takes multiple years to rebuild some of the field inventory levels coming off of historic lows. For example, if we look at.

Speaker 4: you know, small tractors or compact construction equipment there in the team's inventory to sales as we as we ended the year, and the targets there are probably closer to

Small tractors or compact construction equipment. They are in the teens inventory to sales as we as we ended the year and the targets there are probably closer to <unk>.

Speaker 4: 40-plus percent inventory to sell, so there's a lot of room to go there. And even large ag, which traditionally comes down...

40, plus percent inventory to sales. So there's a lot of room room to go there and even large AG, which traditionally comes down.

Speaker 4: We're at levels we've really not seen before, row crop tractors, 10% inventory to sales.

Where we're at levels, we've really not seen before row crop tractors, 10% inventory to sales combines low single digits. So.

Speaker 7: combines low single digits, so very, very low, and I think as we consider how this continued replacement drives forward, we do see that as positive in that we see the need to recover inventory over a few years, not just one. Thanks, Steve. Thank you.

Very very low and I think as we consider how this.

Continued replacement drives forward, we do see that as as is positive and that we see the need to recover inventory over over a few years not just one.

Thanks, Steve.

Thank you.

Bob Dylan with Bernstein. Your line is open.

Speaker 9: Hi, good morning guys. So my question is, how much room is there to impose higher equivalent prices on farmers? Just trying to get a sense of whether there's any fatiguing in the near term, given what we're seeing on the fertilizer price side. And could you actually pass some of the costs on from the labor cost increase?

Hi, good morning, guys.

So my question is how much growth there.

Those higher on pharma.

Whether they are going with the team in the near term.

What we're seeing on the fertilizer side.

And.

So in the past.

Some of them.

The costs from the labor cost inflation.

Yes, thanks for the question.

Speaker 2: Yeah, thanks for the question. I think certainly farmers have seen some headwinds relative to their overall input cost. I think the first part

I think.

Certainly farmers have seen some headwinds relative to their overall input cost I think the first part is for us to focus on being able to deliver technologies that help them improve their profitability. So a lot of our pricing comes from our ability to deliver technologies and the machines that make them give them the ability to create more yield or manage the.

Speaker 2: is for us to focus on being able to deliver technologies that help them improve their profitability. So a lot of our pricing comes from our ability to deliver technologies in the machines that make them or give them the ability to create more yield or manage their cost differently. So that's a big part of it.

Cost differently, so that's a big part of it obviously.

Speaker 2: Obviously in the last 18 months with a lot of the commodity increases, there's also been the opportunity to recover for some of those commodities and that's allowed us to do that. But by and large I would tell you that our pricing model is based upon delivering value for them and being able to make sure that each time they can go to the field.

Obviously in the last 18 months with a lot of the commodity increases. There has also been the opportunity to recover for some of those commodities and that's allowed us to do that but but by and large I would tell you that our pricing model is based upon delivering value for them and being able to make sure that each time. They can go to the field, we can make them more profitable by using equipment that.

Speaker 2: We can make them more profitable by using the equipment that we put out there. And each of the examples, you can all take the C and Spray or X9 or AutoPath, that's what they do, is allow them to either create more yield or manage their cost and be more efficient in the field, and that's the focus.

We put out there and in each of the examples.

CN Sprayer X nine our auto path, that's what they do is allow them to either create more yield or manage their cost and be more efficient in the field and that's the focus.

The other thing we've seen two that's impacted price has been very strong overseas pricing. So as we've reacted to both FX.

Speaker 4: The other thing we've seen, too, that's impacted price has been very strong overseas pricing. So, as we've reacted to both FX movements as well as inflationary environments, we've taken more price. So, really, throughout 2021 and into 2022, we're seeing, if we look at production precision ag, low.

<unk> as well as inflationary environments, we've taken more price so really throughout 'twenty one into 'twenty, two and we're seeing if we look at production precision AG low double digit pricing in.

Speaker 4: double-digit pricing in the overseas market that has driven that. So as we think, you know, looking forward, we continue to see that occurring. You know, the one piece that we don't see as much repeating or tailing...

In the overseas market that has that has driven that so yes.

Looking forward, we continue to see that occurring the one piece that we don't see as much repeating or.

Yes.

Speaker 4: tailwind is on lower discounts. You know, as we pulled down discounts throughout the back half of 20 and 10 through 21, there's not much left there. So that is another thing to consider when we think about price. So thanks, Chad. Appreciate the question. We'll go ahead and go to our next caller.

Tailwind is on lower discounts as we pulled down discounts throughout the back half of 'twenty through 'twenty, one theres not theres not much left there.

So that that is another thing to consider when we think about price so.

Thanks, Chad I. Appreciate the question. We will go ahead and go to our next caller.

And Brian with Citigroup Your line is open.

Thanks, Good morning, Josh.

Speaker 11: Thanks. Good morning. Josh, maybe dig into the production and precision ag margin guidance of under 100 basis points of improvement on 20 plus percent sales growth. So with a billion and a half or so of positive price, just maybe walk us through obviously that. I would assume, as you talked about, to the total company, call it 100 basis points.

Let me dig into that production in precision AG.

Margin guidance of call it under 100 basis points of improvement.

20, plus percent sales growth so with.

With a $1 billion five or so of positive price.

Maybe walk us through obviously that I would assume.

<unk> talked about for the full for the total company call. It 100 basis points from the year.

Work stoppages.

Speaker 11: work stoppages. I assume that a disproportionate amount of that is impacting that segment. Maybe I'm, maybe you can correct me on that, but maybe just walk us through how you get to, you know, maybe, you know, headwinds and tailwinds as we think about margin for that segment. Thank you.

That a disproportionate amount of that.

It is impacting that.

That segment.

Correct me on that but maybe just walk us through how you get to.

Got it headwind and tailwind as we think about margin for that segment. Thank you.

Speaker 4: Sure, and you're right. There's an outsized proportion of that impact is largely affected. If we think about the puts and takes, particularly in the first quarter, as I mentioned, you've got some amount of lower production impacting that which drives lower overhead absorption, material break costs higher, and we'd expect to be price cost negative in 1Q in production precision ag.

Sure and you're right there is an outsized.

A proportion of that impact is largely affected.

If we think about the puts and takes particularly in the first quarter as I mentioned you got.

Some amount of lower production impacting that which drives lower overhead absorption material and freight cost higher and we would expect to be price cost negative in <unk> and production of precision AG and then there again you have the larger portion of some one time items like ratification bonus and you may recall.

Speaker 4: And then there again, you have the larger portion of some one-time items like ratification bonus and you may recall the last

Last last year in the fourth quarter.

Speaker 4: last year in the first quarter, we had about a $50 million benefit from taxes overseas related, so that goes against us in the first quarter. So that pulls down the absolute margin pretty significantly.

Excuse me last year in the first quarter, we had about a $50 million benefit from taxes overseas related. So so that goes I guess, it's in the first quarter. So that pulls down the absolute margin pretty significantly stepping forward from that and then thinking about the full year, which you mentioned about 100 bps higher from <unk>.

Speaker 4: Stepping forward from that and then thinking about the full year, which you mentioned, you know, about 100 dips higher from an absolute margin point of view, if we return to the incrementals, you know, that would run historically where we'd expect to see them. So, you know, around 35% incremental rest of year, so 2 through 4Q for PPA. Thank you.

The margin point of view, we returned to the Incrementals.

That would run historically, where we would expect to see them so around 35% incremental rest of year so too.

Through for Q4 for PPA.

Thank you. Thanks, Tim we'll go ahead and jump to our next question.

Propane Ella <unk> with Oppenheimer. Your line is open.

Speaker 6: Kristen Owen with Oppenheimer, your line is open.

Thank you.

Speaker 9: Thank you. Cora, you talked about the incremental functionality that you're looking at rolling out for AutoPath over the coming years. Can you just speak to how you're thinking about sort of current customers' ability to participate in that incremental functionality? The question is really one about business model and what types of model, be it subscription, service, et cetera, that you're exploring for that solution. Thank you.

You talked about the incremental functionality that you are looking at rolling out for auto path over the coming years.

Can you speak to how youre thinking about current customers.

To participate in that incremental functionality. My question is really went about the business model and what safe to model subscription service et cetera.

Exploring for that solution.

Speaker 2: Sure, and you'll see more on this from us in the coming quarters as we roll out.

Sure and you'll see more on this from us in the coming quarters as we rollout.

Speaker 2: uh... some objectives for how we're thinking about this one of the things we're talking about in making sure that it just like we did with guidance solutions in the past where we started years ahead putting base functionality in the machines that would allow us to

Some objectives for how we're thinking about this one of the things we're talking about and making sure is that just like we did with guidance solutions in the past, where we started years ahead, putting base functionality into machines that would allow us to both put the functionality for in this case auto path or further automation features into every machine.

Speaker 2: both put the functionality for, in this case, Autopath or further automation features into every machine.

We will start working through a series of making sure that the base functionality of the vehicle will allow us to either shift the vehicle with the functionality or upgraded in the future and we're looking at new ways and new business models to make that easier for customers to adopt so that.

Speaker 2: We'll start working through a series of making sure that the base functionality of the vehicle will allow us to either ship the vehicle with the functionality or upgrade it in the future. And we're looking at new ways and new business models to make that easier for customers to adopt. So.

That journey.

Speaker 2: That journey, you know, we're on that path right now, we're rolling out ways that we're doing that with our PrecisionEgg hardware, you'll see us do it more with our subscriptions and software.

Speaker 2: going forward. So we're out cooperating and working with customers and how we can make that work on their operations today and how they'd like to consume it and you'll see that that revenue stream continue to grow from us in the future.

That revenue stream continue to grow from us in the future.

Speaker 5: Yeah, Kristen, it's Ryan. As we talk about and roll out our next generation of goals, you'll see us think through an evolution of our business model over the next decade with respect to what Corey talked about and the value we're delivering every time our customers go across the field, and how can we think through a business model that's more of an ongoing basis. So more to come on that. You'll see us have some relatively specific targets and goals on what we think we can deliver from that evolution.

Yes, Chris it's Ryan as we've talked about and rollout our next generation of goals, you'll see us think through an evolution of our business model over the next decade with respect to what quarter, you talked about and the value. We're delivering every time our customers go across the field and how can we think through a business model. That's more of an ongoing basis, so more to come on that.

You'll see us have some relatively specific targets and goals on what we think we can deliver from that evolution.

Thank you.

Yeah.

Adam Uhlman with Cleveland Research your line is open.

Speaker 6: Adam Ullman with Cleveland Research. Your line is open.

Hey, everybody.

Speaker 12: Hey, everybody. Happy Thanksgiving. I guess I wanted to turn back to the supply chain issues that you had mentioned. Could you share some more insights on what exactly you're seeing and more so maybe, you know, what you've included in the forecast?

Happy Thanksgiving I guess I wanted to play.

Turning back to the supply chain issues.

Mentioned.

Could you share some more insights on what exactly are you seeing and more so maybe what you've included in the forecast.

Curious how much visibility you have into <unk>.

Speaker 12: Curious how much visibility you have into supply chain getting better, what could be tough still with chips that maybe should start to improve, and maybe what could be held back by capacity limitations that your suppliers that maybe won't free up for another year or so.

Apply chain and getting better.

What can be tough still with chips that maybe should start to improve and maybe what could be held back by <unk>.

Limitations that your suppliers that maybe won't free up for another year or so.

Good morning, Adam.

Speaker 4: Morning, Adam. If you go back a quarter, go in the third quarter, we expected the supply challenges to be more impactful in 4Q, and that's what we saw. We did see it deteriorate. It was a more challenging environment in the fourth quarter between the supply challenges and some of the work stoppage.

If you go back a quarter ago in the third quarter, we expected the supply challenges to be more the more impactful than <unk> and Thats. What we saw we did see it deteriorate there was more of a more challenging environment.

In the fourth quarter.

Between the supply challenges in some of the work stoppage.

Speaker 4: that probably impacted the fourth quarter by a half point of margin or so.

That probably impacted.

The fourth quarter by call it half point of margin or so for the equipment operations. So it was it was more challenging and as we think about the 'twenty. Two plan. We went in assuming that similar level of disruption and activity and supply chain. So we have embedded a significant a significant amount of improvement there and we expect to.

Speaker 4: for the equipment operation. So it was more challenging. And as we think about the 22 plan, we went in assuming that similar level of disruption and activity and supply chain. So we have embedded a significant amount of improvement there that we expect to continue to be challenged and choppy. One of the things we did do during the last couple of months is we continued to bring parts in.

Continues to be challenged and choppy.

One of the things we did do during the last couple of months as we continue to bring parts in.

Speaker 4: parsing components into our facilities, so we were able to continue that. We didn't slow that down.

Parts and components into our facilities. So we were able to continue that we didn't slow that down. So that's positive as we as we ramp up as Corey mentioned start to ramp up production coming back that's important but we think that continues to be challenging.

Speaker 4: So so that's positive as we as we ramp up as Corey mentioned start to ramp up production coming back. That's important. But we think that continues to be a challenge. And you know it's broad based. So chips you mentioned very tight. We expect that continues through 22. You know other things you know that there's material challenges. There's labor availability in the supply base.

It's broad based so chips, you mentioned very tight and we expect that continues through 'twenty two.

The other things.

There is material challenges there is labor availability in the supply base.

Speaker 4: And, you know, to this extent across many geographies, so logistics become a challenge as well. So we're continuing to work through those supply management teams, working really closely with our suppliers. We've given them more visibility than we ever had before to try to work through this and we've tried to plan accordingly.

And this extends across many.

In many geographies the logistics become become a challenge as well so we're continuing to work through those supply management teams working really closely with our suppliers, we've given them more visibility than we ever had before.

To try to work through this and we've tried to plan accordingly.

Yes, I would echo that this Corey if you look at 2021, we knew we were going to have some challenges come forward and what we said was we have to execute and make sure that we can manage that better than anyone in the industry and I think what you saw us do through the back half of the year was manage it well we're positioned well as we kick off and have the workforce.

Speaker 2: Yeah I would echo that this Korea you know if you look at 2021 we we knew we were going to have some challenges coming forward. And what we said was we have to execute and make sure that we can manage that better than anyone in the industry. And I think what you saw us do through the back half a year was manage it well. We're positioned well as we kick off and have the workforce back.

Back and they're going to be a whole lot of pop ups that come.

Speaker 2: and they're going to be a whole lot of pop-ups that come, electronic components, labor, logistics, but we have to manage through them and that's where our folks have been up to the task on to this point and we're confident they can be up to that task going forward.

Electronic components labor logistics, but we have to manage through them and thats, what our folks have been up to the task on to this point and we're confident they can be up to that task going forward.

Yes, we have seen some regional disparities I think Europe for US is probably operated a little more smoothly.

Speaker 4: Yeah, we have seen some regional, you know, disparities. I think, you know, Europe for us has probably operated a little more smoothly than, say, the Americas in Asia. So, you know, there are some some deltas and differences there that have impacted our businesses differently. But, yeah, continue executing and we'll update as we go through the year. Thanks, Adam.

Then say the Americas.

In Asia. So there are some some deltas and differences there that are that have impacted our businesses differently, but continue executing and we'll update as we go through the year. Thanks Adam.

Ross Gilardi with Bank of America. Your line is open.

Hey, good morning, guys.

Speaker 13: Yeah, good morning, guys. Um, can you just address your ability to deliver in time for planting season, which isn't that far away, you know, in the aftermath of the strike and given all the supply chain constraints?

Can you just address your ability to deliver in time for planting season, which isn't that far away in the aftermath of the strike and given all the by chain constraint and then just talk there seems to be a lot of investor chatter that soaring, but costs for the pharma are going to lead to a big slowdown in equipment demand.

Speaker 13: And then just also that, you know, there seems to be a lot of investor chatter that that soaring in foot costs for the farmer are going to lead to a big slowdown in equipment demand.

Speaker 13: for premature end of the cycle. I mean, it seems like the opposite might be true if lower fertilizer application rates lead to greater demand for precision ag as well as lower yields. And then I'm just wondering if you'd address that too. Thanks.

We're premature end of the cycle I mean, it seems like the opposite might be true if lower fertilizer application rates.

Greater demand for precision AG as well as lower yield and then I'm just wondering if you could address that too.

Yeah. Thanks, Ross This Korea Youre right I mean, one of the things. We're focused on is even as we were in the middle of the interruption was making sure that we can deliver products on time seasonally for our customers' planting is the top end of that we continued.

Speaker 2: You're right. I mean one of the things we're focused on is even as we were in the middle of the interruption was making sure that we could deliver products on time seasonally for our customers. Planting is the top end of that. We continue.

Speaker 2: uh and made sure we could surge components into our planning lines as people are coming back. We've got a production plan.

And made sure we could surge components into our planning lines as people are coming back we've got a production plan.

Speaker 2: that's commensurate with what our early order program is. We do have some risks. We've gone out and talked to our customers about where we are and our dealers about where we are with that, but we feel really confident in our ability to deliver even more planners into the market this year. And where we have the opportunity, if customers want to accept planners later in the season, we'll do that as well. So from that standpoint,

That's commensurate with what our early order program as we do have some risks we've gone out and talked to our customers about where we are and our dealers about where we are with that.

But we feel really confident in our ability to deliver even more planners into the market. This year and where we have the opportunity of customers want to accept planners later in the season, we will do that as well so from that standpoint.

We operate with transparency talk to our dealers and customers and then put a good production plan together that allows us to meet market demand that demand hasn't slowed in fact, it's continued and much like all of our other large AG products planters for one of those things that even post the.

The optimum planning window people are taking product.

And then Ross when we when you your question related to input costs.

Speaker 4: And then, Ross, when you, your question related to input costs, you know, and how does that impact the cycle, maybe stepping back more broadly, and I'll address that in part of this, but as where are we at right now and how are we seeing this play out, you know, we feel like there

How does that impact the cycle, maybe stepping back more broadly and I'll address that and part of this but.

Where are we at right now and how are we seeing this play out and we feel like there is continued runway of replacement recovery out here to do to continue to be had.

Speaker 4: continued runway of replacement recovery out here to continue to be had and that's for a few reasons. One, underlying farm fundamentals continue to be very strong, whether it's cash received, income, what we're seeing, land values, for example, those are positive. We see

For a few reasons one underlying farm fundamentals continue to be very strong whether it's.

Cash received income what we're seen land values for example, those those those are positive.

We see demand for replacement the age of the fleet you've talked with you've heard US talk about this a lot 21, we've got older. Even as we look to 'twenty. Two we would expect the fleet overall in North America two to age out and then you have this dynamic that we've seen in 'twenty, one and repeat in 'twenty, two where demands above the industry's ability to deliver.

Speaker 4: demand for replacement, the age of the fleet. You've heard us talk about this a lot. 21, we got older, and even as we look to 22, we'd expect the fleet overall in North America to age out. And then you have this dynamic that we've seen in 21 and repeated in 22, where demand's above the industry's ability to deliver.

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Speaker 4: further, in our minds, stretches or elongates a little bit of that recovery cycle.

Further.

In our mind stretches or elongated a little bit of that recovery cycle.

Speaker 4: And as mentioned earlier, inventory levels for both new and used are quite low. So again, when you think about comparing back, we get comparisons back to 2012 and 2013 and some of the dynamics. One of the big differences is we are significantly lower levels of inventory, which makes some of the replacement

And as mentioned earlier inventory levels for both new and used are quite low.

So again when you think about comparing back we get comparisons back to 2012, and 13 and some of the dynamics one of the big differences is we are significantly lower levels of inventory.

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Some of the replacement.

Demand push push out a bit further and then lastly, as it relates to input costs.

Speaker 4: demand push out a bit further. And then lastly, as it relates to input costs.

Speaker 4: As input costs rise, the impact that our precision tool can have in terms of leveraging technology to drive more accuracy, more precision with inputs, whether that's seed, fertilizer, chemical, and make that value proposition even more attractive. Corey talked a bit about this in his prepared remarks.

Input costs rise.

The impact that our precision tools can have in terms of leveraging technology to drive more accuracy more precision with inputs, whether that seed fertilizer chemical and make that value proposition even more attractive.

And.

Corey you talked a bit about this in his prepared remarks.

Speaker 4: But the take rates that we're seeing on technology, it took a significant step up, you know, we're exact apply on sprayers 55% which is up quite a bit exact emerge on planters 55% and then we're seeing that really across these technologies a pretty significant step function change in terms of the use of the technology that drives

But the take rates that we're seeing our technology took a significant step up.

Exactly play on sprayers, 55%, which is up quite a bit at exact emerge on plants or is 55%.

And then we're seeing that really across these technologies are pretty significant step function change in terms of use of the technology that drives again back to better yields and lower costs through through increased precision. So we will we will continue to execute there, but we feel like there is there is there are legs to this recovery.

Speaker 4: again, back to, you know, better yields and lower cost through through increased precision. So we will we'll continue to execute there, but we feel like there's there's a there are legs to to this recovery that were that were in and really began, you know, about one year ago right now. So thanks, Ross. We'll go ahead and jump to our next question.

They were in and really began.

About one year ago right now.

Thanks, Ross, we'll go ahead and jump to our next question.

Mig <unk> with Baird. Your line is open.

Yes. Thanks for taking the question just looking to maybe get a little more color on the commentary of raw material headwinds that $2 billion that you called out.

Speaker 2: Yes, thanks for taking the question. Just looking to maybe get a little more color on the commentary on raw materials headwinds, the $2 billion that you pulled out. So kind of two questions to that.

So kind of two questions first.

Sure.

Speaker 12: Where are you in terms of the assumptions that you made relative to current spot prices for things like steel? Like what's kind of baked into this number and then you know given the higher than normal visibility that you have In terms of where you know the order early order programs seem to be shaped shaping up I'm kind of curious as to what you're doing in terms of either forward buying materials or You know the various components that you're gonna. You know you're gonna

Where are you in terms of the assumptions that you made relative to current spot prices for things like yield like what's kind of baked into this number and then.

Given the higher than normal visibility that you have.

In terms of where.

The order early order program can be shaped shaping out.

Curious as to what Youre doing in terms of forward buying.

Materials or.

The various components that youre going to youre going to need.

The material freight costs. So Brent mentioned this we expect $2 billion.

Speaker 4: The material freight costs, so Brent mentioned this, we expect $2 billion of headwinds compared to $21 billion, and that's split roughly 80% material and about 20% freight.

Headwinds compared to compared to 'twenty, one and that's split roughly 80% material and about 20% freight.

Speaker 4: The freight is driven by essentially all different modes, whether it's air, ocean, truck, all those things are impactful there. On the material side, it...

The freight is driven by essentially all different modes, whether it's air Ocean truck all of those things are impactful there.

On the material side.

It's things like the raw that you mentioned steel for example, you know traditionally we buy roughly a quarter ahead.

Speaker 4: It's things like the raw that you mentioned, steel, for example, you know, traditionally we buy roughly a quarter ahead.

Speaker 4: We have seen from a pure spot price, you've seen Steele moderate some from where it was peaking probably a quarter or so ago.

We have seen from a pure spot price you've seen steel moderate some from from where it was peaking probably a bit quarter sogo. So we haven't adjusted significantly.

Speaker 4: So we haven't adjusted significantly. We do work with Supplybase to ensure that we've got availability.

We do work with supply base to ensure that we've got availability.

Speaker 4: So, you know, given the demand we have and the customer, you know, desire to get product, we will try to balance that in terms of having product and making sure we've got the availability of ROZ. So, I mean, from a price perspective, yeah, we haven't gotten into the detail of where we're at or, you know, where we're locking in, but definitely we do expect to see more of that come through the first half of the year.

So given given the demand we have.

In the customer desire to get product, we will try to balance that in terms of having product.

Making sure we've got the availability of raws, So I mean from a price perspective, yes, we haven't gotten into the detail of where we're at or where we are locking in.

But definitely we do expect to see more of that come through the first half of the year.

Speaker 4: and our comps get a little bit easier in the back half. So of that $2 billion, we expect about two-thirds to come through in the first half of 2022.

And our comps get a little bit easier in the back half so of that 2 billion. We expect about two thirds to come through in the first half of 'twenty two.

Speaker 4: And maybe lastly, similar splits in terms of the businesses, about half of that is production precision ag, about 30% small ag and turf, and roughly 20 CNF. And a lot of that just varies based on the products and the makeup overall of their material. With that, we'll go ahead and jump to our next question.

And then maybe lastly, similar similar splits in terms of the businesses about half of that is as production precision AG.

30% of all I can turf and roughly 20.

CNS.

Lot of that just varies based on the products and the makeup overall of their material.

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

Charles <unk> with BMO Your line is open.

Speaker 12: Yes, just switching gears a little bit. Can you talk a little bit about the focus of future restructuring and any guidelines that you can give us about, you know, you think 50 basis points a year of margin improvement or 100 basis points or just sort of some of the targeted areas and what it's going to mean?

Hey, guys just switching gears a little bit can you talk a little bit about the focus of our future restructuring and any guidelines that you can give us about 50 basis points, a year of margin improvement or 100 basis points or just sort of some of the targeted areas and what it what it's going to mean.

Good morning Joel.

Speaker 4: Going through, you know, the smart industrial operating model and the shifts and changes we made, you know, in 2020, we feel like we're seeing the benefits of that play out in 21, as we, you know, refocus the organization, and then really started to put the capital allocation model to work in terms of, you know, how do we guide and invest in the parts of the business where we feel like we can differentiate and create the most value. You know, so I think as we've worked through that, I think you see now maybe some of that impact as you see R&D increasing, you know, this next year, and that's in the areas that we focused on. So, you know, we made adjustments to how we're organized and to how we're allocating resources, and we worked through some things like divestitures in 2020.

Going through the smart industrial operating model and the shifts and changes we made in 2020 and we feel like we're seeing the benefits of that.

Play out in 'twenty, one as we refocus the organization.

And then really started to put the capital allocation model to work in terms of how do we how do we get.

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Invest in the parts of the business, where we feel like we can differentiate and create the most value.

I think as as we've worked through that you see now maybe some of that impact as you see R&D increasing.

This next year and Thats an area that we focused on so we made it made adjustments to our organized and how we're allocating resources and we worked through some things like divestitures.

In 2020, so I think thats the continued model.

Speaker 14: the continued model.

Speaker 5: Yes, Ryan, you know, I think you'll see us pivot, particularly as we announce our next set of goals.

Yes, Ryan I think you'll see us pivot, particularly as we announce our next set of goals.

Speaker 5: to focus on the growth opportunities that we have.

To focus on on the growth opportunities that we have.

Speaker 5: There'll be financial components of the goals that come out, but there'll also be kind of additional infrastructure-related investments that we can make with our technology stack that will really unlock the next generation of customer value. So that's where we're focused. You know, we spent the last couple of years doing some restructuring activities, having a more dynamic capital allocation process. But now as we move forward, it's going to be more about growth and taking advantage of the unique opportunities that we have to create customer value, both profitability and sustainability-wise. Great. Thank you.

There'll be financial components of the goals that come out, but they'll also be kind of additional.

Infrastructure related investments that we can make with our technology stack that will really unlock that next generation of customer value. So that's where we're focused we spent the last couple of years doing some restructuring activities, having a more dynamic capital allocation process, but now as we move forward that's going to be more about growth and taking advantage of the unique opportunities that we have to create.

Customer value, both profitability and sustainability wise.

Great. Thanks.

Thanks, Joe will go head and go to our next question.

Stanley Elliott with Stifel. Your line is open.

Speaker 6: Stanley Elliott with Cycle, your line is open.

Hey, good morning, everyone and thank you all for taking the question.

Speaker 3: a good morning everyone thank you all for taking the question uh... people a little bit about uh... you know that with the news on the infrastructure bill the other week when would you expect to see that through the portfolio uh... and then also maybe any sort of nuances between the the road construction business first of the legacy

Can you talk a little bit about the.

The news on the infrastructure build the other week when would you expect to see that through the portfolio and then also maybe any sort of nuances between the road construction business versus the legacy core.

Speaker 4: Morning, Stanley. On infrastructure, the interesting thing there is, as we start to see that, we think jobs probably really start to move more towards the end of 22. But given this dynamic of demand above the industry's ability to produce due to supply, probably not as much impact as one might expect or hope in 22. So we'll continue to watch that. We think that type of

Morning Stanley.

On the infrastructure.

The interesting thing there is as we start to see that and we think jobs probably really.

To move more towards the end of 'twenty, two but given this dynamic of demand above the industry's ability to produce due to supply.

Probably not as much impact as one might expect our hope in 'twenty two.

So we'll continue to watch that we think those that type of program.

Speaker 4: very, very positive for the industry, tends to have a long run of impact, but probably start to see more of that in 2023. When we step back and look at that, there's a significant amount of the funding that is roads, bridges, waterways, broadband, all of which really are very attractive and applicable to our earth-moving and road-building businesses.

Very very positive for the industry tends to have a long long long run of impact, but probably start to see more of that in 2023, when we when we step back and look at that and Theres a significant amount of funding that is roads bridges waterways broadband all of which really are very.

Active and applicable to our earthmoving and road building businesses. So so thats I think thats, particularly positive if you look at our our industry outlooks.

Speaker 4: So, so that's, uh, I think that's particularly positive, you know, if you look at our, uh, our industry outlooks, you know, we're, you know, and again, this is muted somewhat by, by just the, the supply constraints, but, you know, up five to 10%, uh, North America for both construction and compact construction and globally, uh, we'd say road buildings probably in that, in that same vein up, up five to 10.

And again this is muted somewhat by budget. These the supply constraints.

5% to 10% North America for both construction and compact construction.

Globally, we'd say road building is probably in that in that same vein up 5% to 10.

Speaker 4: Uh, so, you know, we'll, we'll, we'll keep, keep our eyes out there. Dealers are obviously working very closely with customers.

We'll keep keep our eyes out their dealers are obviously working very closely with customers I think we'll.

Speaker 4: I think we'll watch the independent rental companies, we've seen some of their capex that start to move upward in 21 and into 22 and that's probably a good leading indicator of some of the work on infrastructure coming. Thanks everyone, happy Thanksgiving.

I'll watch the independent rental companies, we've seen some of their capex and start to move upward in 'twenty, one and into 'twenty, two and that's probably a good leading indicator.

Some of the work on infrastructure coming.

Thanks, everyone happy Thanksgiving.

Thanks Stanley pick up your.

Your line is open.

Speaker 11: Hi, good morning, guys. Thanks for the question. Can you just share for us a little bit the gap between your small ag industry guidance and your sales guidance, you know, obviously price inventory levels to most of it to mix or, you know, just help us understand the difference between those two?

Hi, Good morning, guys. Thanks for the question can.

Can you care for us a little bit the gap between your small AG industry guidance and your sales guidance.

Price inventory levels similar to the mix or just help us understand.

The difference between those two.

These small your turf.

Speaker 4: North America, we expect to be up, or excuse me, expect to be flat, you know, in our overall...

North America, we expect to be up.

We expect to be flat.

Overall.

2% to 20, so a big part of it is price so about seven points of price embedded in there.

Speaker 4: to 20. So a big part of its price, you know, so about seven points of price embedded in there.

More global operation.

Speaker 4: more global operation. So that has some impact when we think about where where and how we operate around the world. So there's a piece there. So there's a little bit of.

That has some impact when we think about where we're.

And how we operate around the world.

So there is a piece there so there's a little bit.

Speaker 4: assume some some gains there and then you know on on the very little margins maybe on on some segments of tractors we expect to build

Do you assume some some gains there.

And then yes.

Yes.

Very little margins, maybe on some segments of tractors, we expect are built.

Relatively relatively muted. So I think those are those are the components that are driving the difference.

Speaker 4: Relatively, relatively muted, so I think those are those are the components that that are driving the different.

And maybe just as a follow up can you.

In Spain.

Speaker 15: being, you know, down year over year in that segment, you know, is that

Down year over year in that segment.

Is that.

Yes.

Speaker 16: you know, anything that's disproportionately weighing on on the small.

That's disproportionally Wayne.

Alright.

'twenty, two but I'd say, it's the most challenged.

We're quite positive.

But thats, where were seeing a bigger and bigger impact there as it relates to margin and particularly incremental margins.

Speaker 4: But we're seeing a bigger impact there as it relates to margin, and particularly incremental margins.

Our.

Are more challenged in that regard and I would say that's the part of the business, where we are seeing.

Speaker 4: are more challenged in that regard and and I would say that's the part of the business where we are seeing

Speaker 4: constraints on the supply side that are impacting some parts of that business, maybe a little bit more than others. So, with that, I think we've got time for one more question.

Constraints on the supply side.

That are impacting some some parts of that business, maybe a little bit more than others.

With that I think we've got time for one more question.

Speaker 6: Larry DeMaria with William Blair. Your line is open.

Larry de Maria with William Blair. Your line is open.

Speaker 17: Okay, thanks. Good morning. I'm slightly off topic here, but now that the labor negotiation striker

Hey, Thanks, good morning.

<unk> off topic here, but now that the labor negotiation Stryker concluded congratulations.

Speaker 17: We have potential OSHA rules on the horizon around mandatory vaccines. I'm just curious if there's anything in the contract that talks to that, what your policy is, and just trying to understand the expectation around further issues in production both here and potentially even in Mannheim.

We have potential Osha rules on the horizon are around mandatory vaccines.

If there's anything in the contract that talks to that what's your policy is.

Just trying to understand the expectation around further issues in production, both year and potentially even in Manhattan.

Sure. Thanks, Larry.

Yes, I mean, I would say the focus here over the last couple of months has really been around the negotiations on the contract and getting our our employees back back in our facilities and operating well.

Speaker 4: Yeah, I mean, I would say that, you know, the focus here over the last couple months has really been around the negotiations on the contract and getting our employees, you know, back back in our facilities and operating. We'll continue to work through, you know, all the all the important guidelines and everything that needs to be put in place. I'd say, you know, if we go back to the early days of the pandemic, we were taking measures ahead of guidelines, ahead of CDC requirements in as well as in other other parts of the world.

We will continue to work through.

Although it's.

Important guidelines and everything.

That needs to be put in place I would say if we go back to the early days of the pandemic. We were taking measures ahead of guidelines ahead of CDC requirements.

And as well as another other parts of the world to take care of R.

Speaker 4: take care of our of our workforce, keep them safe. You know, we we we we shifted to multi shift operations in order to create distance. We put a number of those things in place early on.

Of our workforce to keep them safe, we shifted to a multi shift operations in order to create distance we put a number of those things in place early on so I think we feel pretty good about the track record we have of.

Speaker 4: So, yeah, I think we feel pretty good about the track record we have of taking care and keeping our employees safe and our work environment safe, and we'll continue to do that.

Taken care and keeping our employees safe in our work environment safe and well we will continue to do that.

Speaker 4: So with that, we'll go ahead and wrap up the call. I appreciate everyone's time. Hope everyone has a good Thanksgiving, and we'll talk soon. Take care.

So with that we will go ahead and wrap up the call I. Appreciate everyone's time hope everyone has a good good Thanksgiving and we'll talk soon take care.

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

Speaker 6: Thank you for your participation in today's conference, you may disconnect at this time.