Q1 2024 Deere & Co Earnings Call

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Good morning, and welcome to <unk> Company first quarter earnings Conference call. Your lines have been placed on listen only until the question and answer session of today's conference I would now like to turn the call over to Mr. Josh <unk> director of Investor Relations. Thank you you may begin.

Unknown Executive: As a reminder, this call is broadcast live on the internet and recorded for future transmission and use by Deere & Co. Any other use, recording, or transmission of any portion of this copyrighted broadcast without the express written consent of Deere is strictly prohibited. Additionally, participants in the call, including the Q&A session, agree that their likeness and remarks in all media may be stored and used as part of the earnings call. This call includes forward-looking statements concerning the company's plans and projections for the future that are subject to uncertainties, risks, changes in circumstances, and other factors that are difficult to predict. Additional information concerning factors that could cause actual results to differ materially is contained in the company's most recent Form 8K. Risk factors in the annual Form 10K, as updated by reports filed with the Securities and Exchange Commission.

Hello, Welcome and thank you for joining us on today's call joining me on the call today are John May Chairman and Chief Executive Officer, Josh Jepsen, Chief Financial Officer, Erin Wetzel, Vice President production systems for production in precision AG and Josh Rohleder manager Investor Communications.

Today, we'll take a closer look at Deere's first quarter earnings then spend some time talking about our markets and our current outlook for fiscal 2024 after that we'll respond to your questions.

Please note that slides are available to complement the call. This morning.

It can be accessed on our website at John Deere Dotcom Slash earnings.

First a reminder, this call is broadcast live on the Internet and recorded for future transmission and use by Deere <unk> company any.

Any other use recording or transmission of any portion of this copyrighted broadcast without the express written consent of Deere is strictly prohibited.

Participants on the call, including the Q&A session agree that their likeness and remarks in all media may be stored and used as part of the earnings call.

Unknown Executive: This call also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America. Gap. Additional information concerning these measures, including reconciliations to comparable cap measures, is included in the release and posted on our website at johndeere.com slash earnings. Quarterly Earnings and I'll now turn the call over to Josh Rohleder. Good morning.

This call includes forward looking statements concerning the company's plans and projections for the future that are subject to uncertainties risks changes in circumstances and other factors that are difficult to predict.

Additional information concerning factors that could cause actual results to differ materially is contained in the company's most recent form 8-K risk factors in the annual Form 10-K as updated by reports filed with the Securities and Exchange Commission.

Josh Rohleder: John Deere completed the first quarter demonstrating solid execution across the cycle. Financial results for the quarter included an 18.5% margin for the equipment operations. Fundamentals in the end markets that we serve remain supportive of equipment replacement demand. Ag Fundamentals, while down from the record highs of the last few years, have returned to near mid-cycle levels. In Construction and Forestry, we see fundamentals stabilizing at levels supportive of demand across most markets. This demand backdrop is reflected in our order books. While fleet replenishment is moderating, our order books remain at healthy levels representative of normalized volume. Notably, our first quarter performance demonstrates the structural business improvements that we've achieved, enabling us to deliver higher levels of profitability across all points in the business cycle. Slide three begins with the results for the first quarter. Net sales and revenues were down 4% to $12.185 billion, while net sales for the equipment operations were down 8% to $10.486 billion. Debt income attributable to Deere & Co. was $1.751 billion, or $6.23 per diluted share.

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

Information concerning these measures, including reconciliations to comparable GAAP measures is included in the release and posted on our website at <unk> Dot Com Slash earnings on a quarterly earnings and events.

I'll now turn the call over to Josh role that are good.

Josh: Good morning, John.

Josh: John Deere completed the first quarter, demonstrating solid execution across the cycle.

Josh: Financial results for the quarter included an 18, 5% margin for the equipment operations.

Josh: Fundamentals in the end markets that we serve remains supportive of equipment replacement demand.

Josh: AG fundamentals, while down from the record highs over the last few years have returned to near mid cycle levels.

Josh: Construction and forestry, we see fundamentals stabilizing high level supported of demand across most markets.

Josh: This demand backdrop is reflected in our order books, while fleet replenishment is moderating our order books remain at healthy levels representative of normalized volumes.

Josh: Notably our first quarter performance demonstrates the structural business improvements that we've achieved enabling us to deliver higher levels of profitability across all points in the business cycle.

Josh: Slide three begins with the results for the first quarter.

Unknown Executive: Turning now to our individual segments, we begin with the production and precision ag business on slide four. Net sales of $4.849 billion were down 7% compared to the first quarter of last year, primarily due to lower shipment volumes, which were partially offset by price realization. [inaudible] Currency Translation was also positive by roughly 1%. Operating profit was $1.045 billion, resulting in a 21.6% operating margin for the segment. The year-over-year decrease was primarily due to lower shipment volumes and higher SANG and R&D expenses, although these were partially offset by price realization. Moving to small lag and turf on slide five. Net sales were down 19%, totaling $2.425 billion in the first quarter as a result of lower shipment volumes partially offset by price realization.

Josh: Net sales and revenues were down 4% to $12 $1 85 billion, while net sales for the equipment operations were down 8% to 10 486 billion.

Josh: Net income attributable to Deere <unk> company was $1 $75 1 billion or $6 23 per diluted share.

Josh: Turning now to our individual segments, we begin with the production and precision AG business on slide four.

Josh: Net sales of $4 $8 9 billion were down 7% compared to the first quarter last year, primarily due to lower shipment volumes, which were partially offset by price realization.

Josh: Price realization was positive by about four points.

Josh: Currency translation was also positive by roughly one point.

Josh: Operating profit was 1.045 billion, resulting in a 21, 6% operating margin for the segment.

Unknown Executive: Price realization was positive by just over three points. Currency was also positive, but roughly half of it was negative. Operating profit declined year over year to $326 million, resulting in a 13.4% operating margin.

Josh: The year over year decrease was primarily due to lower shipment volumes and higher <unk> and R&D expenses. These were partially offset by price realization.

Josh: Moving to small AG and turf on slide five.

Net sales were down 19% totaling 242 5 billion in the first quarter as a result of lower shipment volumes, partially offset by price realization.

Unknown Executive: The decrease was primarily due to lower shipment volumes and higher SANG and R&D expenses, which were partially offset by price realization and lower production costs. Slide 6 gives our industry outlook for ag and turf markets globally. We continue to expect large ag equipment industry sales in the U.S. and Canada to decline 10 to 15 percent, trending closer to the lower end of that range, as normalizing farm fundamentals and elevated interest rates are somewhat tempered by resilient farm balance sheets, lower input costs relative to record peaks seen over the last few years, and fleet age, which, even after multiple years of strong replacement, remains at or above long-term averages. For small a The dairy and livestock segment continues to remain healthy thanks to elevated cattle and hay prices.

Josh: Price realization was positive by just over three points.

Josh: Currency was also positive by roughly half a point.

Josh: Operating profit declined year over year to $326 million, resulting in a 13, 4% operating margin.

Josh: The decrease was primarily due to lower shipment volumes and higher <unk> and R&D expenses, which were partially offset by price realization and lower production costs.

Josh: Slide six gives our industry outlook for AG and turf markets globally.

Josh: We continue to expect large AG equipment industry sales in the U S and Canada to decline, 10% to 15% trending closer to the lower end of that range as normalizing farm fundamentals and elevated interest rates are somewhat tempered by resilient farm balance sheets lower input costs relative to record peaks over the last few years and fleet age.

Unknown Executive: The compact utility tractor market remains soft as the industry works to bring down inventory levels, while demand for truck products has stabilized. Moving to Europe, the industry is now forecasted to be down 10 to 15%. Demand is expected to be softest in Central and Eastern Europe, as local commodity markets remain disrupted by the ongoing conflict in Ukraine.

Josh: <unk>, which even after multiple years of strong replacement remains at or above long term averages.

Josh: For small AG and turf in the U S and Canada industry demand estimates remain down 5% to 10% the dairy and livestock segments continues to remain healthy thanks to elevated cattle and hay prices. The compact utility tractor market remained soft as the industry works to bring down inventory levels, while demand for <unk> products has stabilized.

Unknown Executive: Western Europe is faring better, although uncertainty related to current cash crop receipts, ag policy changes, and high interest rates is increasing caution for some customers. In South America, industry sales of tractors and combines are expected to be down around 10%, continuing the demand moderation that began in 2023. Brazil, in particular, is experiencing adverse weather conditions in the current growing season.

Josh: Moving to Europe. The industry is now forecasted to be down 10% to 15% demand is expected to be soft just central and eastern Europe as local commodity markets remain disrupted by the ongoing conflict in Ukraine West.

Unknown Executive: Coupled with high interest rates, demand is expected to remain down from recent record highs. Argentina is expected to deliver strong ag production after multiple years of drought, while the industry will remain regulated by ongoing economic challenges. Industry sales in Asia remain forecasted to be down moderately. Next, our segment forecasts begin on slide 7, and for Production & Precision Ag, net sales are forecasted to be down around 20% for the full year. The forecast assumes roughly 1.5 points of positive price realization for the full year and minimal currency impact. For the segment's operating margin, our full-year forecast is now between 21.5% and 22.5%, reflecting the further tempering in net sales as demand normalizes. Slide 8 shows our forecast for the small lagging turf.

Josh: Western Europe is faring better although uncertainty related to current cash crop receipts.

Josh: Policy changes and high interest rates is increasing caution for some customers.

Josh: In South America industry sales of tractors and combines are expected to be down around 10% continuing the demand moderation that began in 2023, Brazil.

Josh: Brazil in particular is experiencing adverse weather conditions in the current growing season.

With high interest rates demand is expected to remain down from recent record highs Argentina is expected to deliver strong AG production after multiple years of drought.

Josh: Will the industry will remain regulated by ongoing economic challenges.

Unknown Executive: We expect net sales to remain down between 10 and 15%. This guidance now includes 1.5 points of positive price realization and flat currency translation. The segment's operating margin remains between 15 and 16 percent. Shifting to Construction and Forestry on slide 9. Net sales for the quarter were roughly flat year-over-year at $3.212 billion, with positive price realization offset by lower shipment volume. Price realization was positive by nearly three, and currency translation was also positive by just under one point. Operating profit of $566 million was down year over year, resulting in a 17.6% operating margin due primarily to higher production costs, lower shipment volumes, unfavorable currency translation, and higher SANG and R&D expenses.

Josh: Industry sales in Asia remained forecasted to be down moderately.

Josh: Next our segment forecast to begin on slide seven.

Josh: For production in precision AG net sales are forecasted to be down around 20% for the full year. The forecast assumes roughly one five points of positive price realization for the full year and minimal currency impact.

Josh: The segment's operating margin our full year forecast is now between 21, five and 22, 5%, reflecting the further tempering net sales as demand normalizes.

Josh: Slide eight shows our forecast for the small AG and turf segment.

Josh: We expect net sales to remain down between 10 and 15%. This guidance now includes one five points of positive price realization and flat currency translation.

Josh: The segment's operating margin remains between 15 and 16%.

Unknown Executive: These were partially offset by price realization and favorable sales. Turning now to our 2024 Construction and Forestry Industry Outlook on slide 10. Industry sales for earth-moving equipment in the U.S. and Canada are now expected to be flat to down 5%, while compact construction equipment in the U.S. and Canada is expected to be flat. Improvements in the industry outlook are reflective of a better than expected demand backdrop and stabilized optimism through the balance of the year as dealer inventories return to more normal levels, and markets remain healthy with single-family housing starting to improve, infrastructure spending continuing to increase, and elevated manufacturing investment levels offset by further declines in commercial investment. Global forestry markets are expected to be down around 10% as all global markets continue to be challenged.

Josh: Shifting to construction and forestry on slide nine.

Josh: Net sales for the quarter were roughly flat year over year at 321, 2 billion with positive price realization offset by lower shipment volumes.

Josh: This realization was positive by nearly three points.

Josh: Currency translation was also positive by just under one point.

Josh: Operating profit of 566 million was down year over year, resulting in a 17, 6% operating margin due primarily to higher production costs lower shipment volumes unfavorable currency translation and higher <unk> and R&D expenses. These were partially offset by price realization and a favorable sale.

Josh: Mix.

Josh: Turning now to our 2020 for construction and forestry industry outlook on slide 10.

Josh: Industry sales for earthmoving equipment in the U S and Canada are now expected to be flat to down 5%, while compact construction equipment in the U S and Canada is expected to be flat.

Unknown Executive: Global road building markets are forecasted to be roughly flat, with strong infrastructure spending in the U.S. offset by continued softness in Europe. Moving to this construction and forestry segment outlook on slide 11. 2024 net sales are now forecasted to be down between 5 and 10 percent. Net sales guidance for the year includes about 1.5 points of positive price realization and flat currency translation. The segment's operating margin remains projected between 17 and 18 percent. Transitioning to our financial services operations on slide 12. Worldwide Financial Services net income attributable to Deere & Company in the first quarter was $207 million.

Josh: Improvements in the industry outlook are reflective of a better than expected demand backdrop and stabilized optimism through the balance of the year as dealer inventories returned to more normal levels.

End markets remain healthy with single family housing starts improving infrastructure spending continuing to increase and elevated manufacturing investment levels offset by further declines in commercial investments.

Josh: Global Forestry markets are expected to be down around 10% as all global markets continue to be challenged.

Josh: I will road building markets are forecasted to be roughly flat with strong infrastructure spending in the U S offset by continued softness in Europe.

Unknown Executive: The increase in net income was mainly due to a higher average portfolio balance, which was partially offset by less favorable financing spreads. For fiscal year 2024, our ELEC remains at $770 million as benefits from a higher average portfolio balance offset less favorable financing spreads. As a reminder, fiscal year 2023 net income was also impacted by a non-repeating one-time accounting correction. Finally, slide 13 outlines our guidance for net income, our effective tax rate, and operating cash flow. For fiscal year 2024, our outlook for net income is now expected to be between $7.5 and $7.75 billion. Additionally, our guidance incorporates an effective tax rate between 24 and 26 percent.

Josh: Moving to the construction and forestry segment outlook on slide 11.

Josh: 2024, net sales are now forecasted to be down between 5% and 10% net.

Josh: Net sales guidance for the year includes about one five points of positive price realization and flat currency translation.

Josh: The segment's operating margin remains projected between 17 and 18%.

Josh: Transitioning to our financial services operations on slide 12.

Josh: Worldwide financial services net income attributable to Deere <unk> company is in the first quarter was $207 million.

Josh: The increase in net income was mainly due to a higher average portfolio balance, which was partially offset by less favorable financing spreads.

Josh: For fiscal year 2024, our outlook remains at $770 million as benefits from a higher average portfolio balance offset less favorable financing spreads.

John C. May: And lastly, cash flow from the equipment operations is now projected to be in the range of $7 to $7.5 billion. This concludes our formal comments. John, before we shift to a few topics specific to the quarter, would you mind sharing your thoughts on how 2024 is progressing? Thanks, Josh. I'd be happy.

Josh: As a reminder, fiscal year 2023 net income was also impacted by a non repeating one time accounting correction.

Josh: Finally, slide 13 outlines our guidance for net income our effective tax rate and operating cash flow.

John C. May: You know, we've had a great start to the year. The quarter was strong, and I truly appreciate the efforts of the entire Deere team to deliver these results. You know, as I think about 2024, it's helpful to consider the smart industrial journey that we've been on, which is grounded in unlocking incremental value for our customers through technology and enabling Deere to deliver structurally higher financial performance. I'm extremely pleased with how we've executed our production systems approach. Centralized and advanced our tech stack and focused on delivering value across the entire life cycle of our solutions, all while allocating capital in a more efficient and strategic manner. Deere's last few years of financial performance are evidence of the structural improvement that comes with executing our strategy, all while delivering better outcomes for our customers. You know, to put 2024's financials in context, let's look at how we've performed since introducing Smart Industrial. In 2022, our equipment operations net sales were just under $48 billion. And we delivered a net income of over $7.1 billion, equating to just over $23 of EPS.

Josh: For fiscal year 2024, our outlook for net income is now expected to be between seven 5% and $7 75 billion.

Josh: Next our guidance incorporates an effective tax rate between 24 and 26%.

Josh: And lastly, cash flow from the equipment operations is now projected to be in the range of seven to seven 5 billion.

Speaker Change: This concludes our formal comments.

Speaker Change: John before we shift to a few topics specific to the quarter would you mind sharing your thoughts on how 2024 is progressing.

John: Thanks, Josh I would be happy to we've had a great start to the year the quarter was strong and I truly appreciate the efforts of the entire deer team to deliver these results.

Speaker Change: As I think about 2024.

Josh: It is helpful to consider the smart industrial journey that we've been on which is grounded in unlocking incremental value for our customers through technology, and enabling dear to deliver structurally higher financial performance.

Josh: Im extremely pleased with how we've executed our production systems approach centralized and advanced our tech stack.

John C. May: In 2023, net sales increased 16% to over $55 billion, and we delivered record net income of over $10 billion, or $34.63 per share. Our 2024 guide implies a roughly 15% reduction in net sales, putting us at very similar sales levels to 2022. However, continuing that comparison, our net income forecast of $7.5 to $7.75 billion contemplates at least a $400 million improvement over 2022. On an EPS basis, that's growth of over $4 per share. Demonstrating.

Josh: And focused on delivering value across the entire lifecycle of our solutions.

Josh: All while allocating capital in a more efficient and strategic manner.

Josh: Theres last few years of financial performance are evidence of the structural improvement that comes with executing our strategy, all while delivering better outcomes for our customers.

Josh: To put 2020 for financials in context, let's look at how we performed since introducing smart industrial.

Josh: In 2022, our equipment operations net sales were just under 48 billion and we delivered net income of over seven $1 billion equating to just over $23 of EPS.

Unknown Executive: Structural improvement enabled by our smart industrial strategy. Going forward, as we execute our plans under our new operating model, we will deliver better outcomes for our customers and deliver higher levels of financial performance for Deere, generating strong cash flows that will fuel continued reinvestment in the business, and a Significant Return to Shareholders.

Josh: In 2023, net sales increased 16% to over 55 billion and we delivered record net income of over $10 billion.

Josh Beal: Thanks, John. Now, we'll start off with Farm Fundamentals this quarter. The USDA just updated its 2024 forecasts for net cash farm income, as well as global supply and demand estimates. U.S. net cash farm income is forecasted to be down over 20% from 2023 levels, albeit up from November. At the same time, global stocks for corn and soybeans are expected to fully recover from decade lows despite lower production in Brazil. Josh Beal, can you provide some additional color on what this means for both farmers and equipment demand over the rest of 2024? Absolutely, Josh. I think that's a great place to start.

Josh: <unk> hundred $34 63 per share.

Josh: Our 2024 guide implies a roughly 15% reduction in net sales.

Josh: Putting us at very similar sales levels to 2022 however.

Josh: Continuing that comparison, our net income forecast of seven five to 775 billion.

Josh: Contemplates at least a $400 million improvement over 2022 on.

Josh: On an EPS basis.

Josh: That's growth of over $4 per share demonstrating the structural improvement enabled by our smart industrial strategy.

Josh Beal: What's most important in this conversation is content. We've certainly seen better-than-expected crop production over the past six months. We had record corn yields in the U.S. Recovery in Argentina crop production is offsetting the losses you mentioned in Brazil, and two consecutive years of bumper wheat crops in Russia are offsetting losses in Ukraine and Australia. All of that is supporting rising carryover stocks, which are putting downward pressure on prices, culminating in lowered expectations for crop margins. All of these fundamentals are captured in the reduction in the U.S. net cash farm income forecast that you cited. But it's important to keep the expected decline in context of where we have been. We're coming off three years of record farm income, and the projected reduction puts us in line with historical averages that are still supportive of mid-cycle equipment demand. The punchline here is that farmers continue to be profitable at these levels. In addition to farmer profitability, there are other factors that are supportive. The U.S. fleet age remains above 20-year averages for both tractors and convoys.

Josh: Going forward.

Josh: As we execute our plans under our new operating model, we will deliver better outcomes for our customers and deliver higher levels of financial performance for Deere generating.

Josh: <unk> strong cash flows that will fuel continued reinvestment in the business.

Josh: Significant return to shareholders great.

Great: Great. Thanks, John now lets start off with farm fundamentals this quarter the.

Speaker Change: The USDA just updated 2024 forecast for net cash farm income as well as global supply and demand estimates.

Speaker Change: S. Net cash farm income is forecasted to be down over 20% from 2023 levels, albeit up from November estimates at.

Speaker Change: At the same time global stocks for corn and soybeans are expected to fully recover from decade lows. Despite lower production in Brazil, just bill can you provide some additional color on what this means for both farmers and equipment demand over the rest of 2024.

Unknown Executive: Used inventory in the U.S., while increasing, remains at manageable levels. Additionally, farm balance sheets are strong, with U.S. farmland values up approximately 7% year-over-year and debt-to-equity ratios near all-time lows. Outside of the U.S., we're seeing a similar story.

Bill: Absolutely Josh I think that's a great place to start what's most important in this conversation as context, we've certainly seen better than expected crop production over the past six months.

Bill: We had record corn yields in the U S recovery in Argentina crop production is offsetting the losses, you mentioned in Brazil in two consecutive years of bumper wheat crops in Russia are offsetting losses in Ukraine in Australia.

Aaron Wetzel: Farmers remain profitable in both Europe and South America, albeit down from recent record levels. There's certainly caution in the market, particularly in the high interest rate environment that we're seeing, but we still expect to see replacement demand in both regions. Thanks, Josh. It's helpful to understand where fundamentals are in relation to historical levels and encouraging to hear that, despite a moderation in demand, there remains a supportive macro backdrop. Aaron, from a sentiment standpoint, what are you hearing in your conversations with customers and dealers? Thanks for the question, Josh.

Bill: All of that is supporting ryzen carryover stocks, which are putting downward pressure on prices, culminating in lowered expectations for crop margins.

Bill: All of these fundamentals are captured in the reduction in the U S. Net cash farm income forecast that you cited.

Bill: But it's important to keep the expected decline in context of where we've been.

Bill: We're coming off three years of record farm income.

Bill: Projected reduction puts us in line with historical averages that are still supportive of mid cycle equipment demand.

Bill: The punch line here is that farmers continue to be profitable at these levels.

Bill: In addition to farmer profitability those other factors that are supportive of you.

Bill: Fleet age remains above 20 year averages for both tractors and combines used inventory in the U S. While having increased remains at manageable levels.

Aaron Wetzel: During my recent visits with both dealers and customers across North and South America these past few weeks, I've heard a similar sentiment from customers to what you've outlined. All are coming off record highs these past few years, and with lower commodity prices and increasing interest rates, they're beginning to shift to a more typical replacement pattern. Dealers in the U.S. continue to see good demand for products and are proactively managing inventories as the underlying fundamentals of the market chain. In this changing environment, customers are seeking opportunities to further improve their productivity and efficiency through the adoption of technology into their operations. Technology that will enable them to reduce inputs, improve operational efficiencies, and address labor challenges. That's great, Aaron.

Bill: Additionally farm balance sheets are strong with U S farmland values up approximately 7% year over year and debt to equity ratios near all time lows.

Bill: Outside of the U S. We're seeing a similar story farmers remain profitable in both Europe, and South America, albeit down from recent record levels.

Certainly caution in the market, particularly in the high interest rate environment that we're seeing but we still expect to see replacement demand in both regions.

Speaker Change: Thanks, Josh It is helpful to understand where fundamentals are in relation to historical levels and encouraging to hear that despite a moderation in demand there remains a supportive macro backdrop backdrop Erin from a sentiment standpoint, what are you hearing in your conversations with customers and dealers.

Thanks for the question Josh during my recent visits with both dealers and customers across North and South America. These past few weeks I've heard a similar sentiment from customers to what you've outlined all are coming off record highs. These past few years and with lowering commodity prices and increasing interest rates. They are beginning to shift to a more typical replace.

Unknown Executive: It's good to hear perspectives from our customers and dealers. Now, Josh Beal, I'd like to pull on a thread you briefly touched on earlier and ask about field inventory. Could you give us an update on where we stand today? Absolutely, and it's probably best to start with new images.

Speaker Change: And the pattern.

Dealers in the U S continued to see good demand for products and are proactively managing inventories as the underlying fundamentals of the market change.

Speaker Change: With this changing environment customers are seeking opportunities to further improve their productivity and efficiency through the adoption of technology into their operations.

Josh Beal: The essential element of our performance across the cycle is inventory management. We structure our production schedules to maintain the appropriate level of field inventory for wherever we are in the cycle. Notably, that's why we continue to produce to retail demand in the North American large ag market. As we noted last quarter, we entered the year well-positioned from a field inventory standpoint. Q1 levels are consistent with normal seasonal changes and comparable with inventory-to-sales ratios from a year ago.

Speaker Change: Technology that will enable them to reduce inputs improve operational efficiencies and address the labor challenges they face.

Speaker Change: Great Aaron it's good to hear perspective from our customers dealers now just feel I'd like to pull on a thread you briefly touched on earlier and asked about field inventory levels can you give us an update on where we stand today.

Aaron: Absolutely and it's probably best to start with new inventory and a central element of our performance across the cycle is inventory management, we structure, our production schedules to maintain the appropriate level of field inventory for wherever we are in the cycle.

Josh Beal: With nearly 90% of orders sourced through our combine, sprayer, and planter early order program, we have significant visibility into the balance of the year for those product lines. Tractors are managed on a rolling order book, and as a quick update, we're currently taking orders into the third quarter for row crop tractors, while our four-wheel drive tractors are full through the balance of the third quarter.

Aaron: Notably that's why we continue to produce to retail demand in the North America large AG market.

Aaron: As we noted last quarter, we entered the year well positioned from a field inventory standpoint in Q1 levels are consistent with normal seasonal changes comparable with inventory to sales ratios from a year ago.

Josh Beal: All in all, we expect to end the year in the U.S. and Canada positioned to produce in line with retail demand in 2025. Let's move on to new inventory outside of the U.S. Europe will underproduce demand for the remainder of 2024 in response to softening market conditions. In Brazil, we are already seeing progress from our efforts to reduce field inventory in response to the market pullback. Notably, Combined Inventory is down 25% on an absolute basis for the quarter, in line with our expectations, and we are on track to reach target levels by fiscal year. For both Europe and Brazil, our intent is to position 2024 year-end inventory so that we can produce in line with retail demand in 2025. Aaron, I know you just got back from Brazil. Do you have anything you'd like to add?

Aaron: With nearly 90% of orders sourced through our combines sprayer and planter early order programs, we have significant visibility into the balance of the year for those product lines.

Aaron: Our manage on a rolling order book and as a quick update we're currently taking orders into the third quarter for row crop tractors, while our four wheel drive tractors are full through the balance of the third quarter.

Aaron: All in all we expect to end the year in the U S and Canada, Canada positioned to produce in line with retail demand in 2025.

Let's move on to new inventory outside of the U S and Canada and.

Aaron: In Europe will underproduce demand for the remainder of 2024 in response to softening market conditions.

Aaron: In Brazil, we are already seeing progress from our efforts to reduce field inventory in response to the market pullback.

Aaron: Notably combined inventory is down 25% on an absolute basis for the quarter in line with our expectations and we are on track to reach target levels by fiscal year end.

Aaron Wetzel: Yes. In fact, just a few weeks ago, I had the opportunity to visit both dealers and customers in Brazil. I was able to spend time with both sugarcane producers as well as soybean customers in Mato Grosso.

Aaron: For both Europe, and Brazil, our intent is to position 2020 for year end inventory. So that we can produce in line with retail demand in 2025.

Aaron Wetzel: Sugar King customers are seeing strong prices for sugar today and are making investments in equipment to drive efficiencies and productivity improvements. Our recently launched CH950 sugarcane harvester is gaining adoption as it improves harvest efficiencies through its unique two-row design and delivers improved fuel efficiency for producers. Our soybean customers are continuing to manage through the impacts from dry conditions in the region.

Speaker Change: And I know you just got back from Brazil, do you have anything you'd like to add yes. In fact, just a few weeks ago I had the opportunity to visit both dealers and customers in Brazil.

Speaker Change: I was able to spend time with both sugarcane producers as well as soybean customers in the Mato Grosso sure.

Speaker Change: Sugarcane customers are seeing strong price for sugar today, and are making investments in equipment to drive efficiencies and productivity improvements.

Aaron Wetzel: Coming off historically high levels of profitability in the last few years, our soybean customers are shifting to a more normal demand for products. Both customers are very optimistic for the future of Brazil as planted area continues to increase and average yields continue to improve, creating even more production to support the growing demand for commodities globally. This is Jepsen.

Speaker Change: Our recently launched CH 950, sugarcane harvester is gaining adoption as it improves harvest efficiencies through its unique to redesign and delivers improved fuel efficiency for producers.

Speaker Change: Our soybean customers are continuing to manage through the impacts of from dry conditions in the region.

Speaker Change: <unk> off historically high levels of profitability. The last few years, our soybean customers are shifting to a more normal demand of product.

Josh Jepsen: One add is our continued focus on investing in Brazil for the long term. During the past quarter, we announced an investment in a Brazilian technology development center to focus on products and solutions suited for tropical agriculture. This should enable us to deliver, develop, and deliver solutions for Brazil in Brazil and bring them to the market more rapidly. Awesome. Thanks all for that additional color.

Both customers are very optimistic for the future of Brazil as planted area continues to increase and average yields continue to improve creating even more production to support the growing demand for commodities globally.

Speaker Change: This is Jefferson one AD is our continued focus and investing in Brazil for the long term during the past quarter, we announced an investment in a Brazil technology development center to focus on product and solutions suited for tropical agriculture. This should enable us to deliver develop and deliver solutions for Brazil in Brazil, and bring them to the market more.

Unknown Executive: It's great to hear about the developments and optimism in such an exciting growth market. Now, Josh Beal, do you want to switch over and talk about used inventory? Yeah, definitely.

Josh Beal: Within used inventory, in North America, we've seen year-over-year increases in both combines and tractors, most notably in the high-horsepower tractor segment. However, to put these increases into context, while levels are up from recent lows, they're still in line with historical averages. Additionally, used prices have remained flat to up over the quarter. All in, we continue to feel comfortable with the used inventory levels that we're seeing. This is Jepsen again.

Speaker Change: Lee.

Speaker Change: Awesome. Thanks, all for that additional color, it's great to hear about the developments in optimism in such an exciting growth market.

Speaker Change: <unk> do you want to switch over and touch on used inventory that.

Speaker Change: Definitely within use inventory in North America, we've seen year over year increases in both combines and tractors, most notably in the high horsepower tractor segment.

Speaker Change: <unk> put these increases into context, while levels are up from recent lows theres still in line with historical averages. Additionally used prices have remained flat to up over the quarter. All in we continue to feel comfortable with the used inventory levels that we're seeing.

Josh Jepsen: It's also worth noting that most dealers experience an end-of-year seasonal increase in used equipment as they take in trades and deliver new machines. This increase in used equipment typically occurs in the first half of the year, which our dealers are accustomed to handling. And, in fact, I was just with some of our dealers from North America, Australia, and New Zealand this past week, and heard a consistent message from them.

Speaker Change: This is Jeff and again its also worth noting that most dealers experience and end of year seasonal increase in used equipment as they taken trades.

Jeff: They deliver new machines. This increase in used equivalent typically occurs in the first half of the year, which our dealers are accustomed to handling and in fact I was just with some of our dealers and from North America, Australia, and New Zealand. This past week and heard consistent message message from them they feel comfortable with used inventory levels, especially when compared to where they were last fall and many were able.

Josh Jepsen: They feel comfortable with used inventory levels, especially when compared to where they were last fall. And many were able to proactively reduce inventory and are feeling good about where they're at today. All that to say, we feel comfortable where we are with our current new and used inventory levels and with the plans we have in place to manage them. Thank you all.

Jeff: To proactively reduce inventory and are feeling good about where we're at today.

Jeff: That to say, we feel comfortable where we are with current new and used inventory levels and with the plans we have in place to manage them.

Unknown Executive: That's a really helpful perspective on what has been a topic of interest lately. And on that note, one overarching impact from this discussion that we've yet to address is the updated outlook for the quarter. Markets have clearly shifted this year, but we've maintained strong performance through the first quarter with 18.5% margins for our equipment operation. This clearly points to the structural improvement that we've achieved, bolstered by a 2024 forecast that would represent our second best year ever from an earnings standpoint. With that in mind, Josh Beal, can you walk us through what's transpired over the last three months and how that relates to the rest of the year? Yeah, great points, Josh, and definitely worth unpacking.

Speaker Change: That's really helpful perspective on what has been a topic of interest lately.

Speaker Change: And on that note one overarching impact from this discussion that we've yet to address is the updated outlook for the quarter.

Speaker Change: <unk> have clearly shifted this year, but we've maintained strong performance through the first quarter with 18, 5% margins for our equipment operations.

Speaker Change: This clearly points to the structural improvement that we've achieved bolstered by a 2024 forecast that would represent our second best year ever from an earnings standpoint with that in mind, Josh feel.

Speaker Change: Can you walk us through what's transpired over the last three months and how that relates to the rest of the year, yes, great points, Josh definitely worth unpacking here lets start with our production in precision AG and small AG and turf businesses.

Unknown Executive: Let's start with our Production and Precision Ag and Small Ag and Turf business. Beginning with the quarter, we saw strong year-over-year price realization across both sectors. It's worth noting, however, that we expect price realization to moderate throughout the remainder of the year, in line with our annual guide of 1.5 points for both segments. Relative to production costs, we saw material and freight come in lower for both large and small ag, leading to favorable year-over-year comparisons for the quarter. This is aligned with our expectations to see slightly favorable production cost comparisons for both segments for the full year. Looking at S, A, and G, we had unfavorable impacts in the quarter from incentive compensation, timing of spend, which pulled costs forward into the quarter, and foreign exchange.

Josh: Beginning with the with the quarter, we saw strong year over year price realization across both segments. It's worth, noting however that we expect price realization to moderate throughout the remainder of the year in line with our annual guide of one five points for both segments relative to production.

Josh: Duction costs, we saw material and freight come in lower for both large and small AG, leading to favorable year over year comparisons for the quarter.

Josh: This is aligned with our expectations to see slightly favorable production cost compares for both segments for the full year.

Josh: Looking ahead as AMG, we had unfavorable impacts in the quarter from incentive compensation timing of spend which pulled cost forward into the quarter and foreign exchange, notably.

Unknown Executive: Notably, we don't expect the first quarter to be indicative of our SA&G run rate for the rest of the year, as we're pulling levers in line with the rest of our operations. Shifting to our outlook, we are seeing demand shifts in production of precision ag impacting combines and large tractors, which will be felt mostly in the back half of 2024. Conversely, we're seeing minimal change to our small ag and turf outlook from last quarter as the dairy and high-value crop segments remain stable.

Josh: Notably, we don't expect the first quarter to be indicative of our <unk> run rate for the rest of the year as we're pulling levers in line with the rest of our operations.

Josh: Shifting to our outlook, we are seeing demand shifts in production of precision AG impacting combines and large factors, which was felt mostly in the back half of 2024.

Josh: Conversely, we're seeing minimal change to our small AG and turf outlook from last quarter as the dairy and high value crops segments remained stable.

Unknown Executive: It's important to reiterate here that our plans in large ag to produce for retail demand in North America and underproduced retail in Brazil and Europe reflect our commitment to inventory and cycle management. This approach should position us well going into 2025 across all geographies. This is Aaron.

Josh: It is important to reiterate here that our plans in large AG to produce to retail demand in North America, and Underproduce retail in Brazil, and Europe reflect our commitment to inventory and cycle management.

This approach should position us well going into 2025 across all geographies. This is Aaron I'd like to add quickly I believe the key opportunity here is our proactive management of production levels to adjust for the changes we are seeing in our end market demand. We have been highly effective in managing through the changing market dynamics in the U S and we will continue to remain.

Aaron Wetzel: I'd like to add quickly that I believe the key opportunity here is our proactive management of production levels to adjust for the changes we are seeing in our end market demand. We have been highly effective in managing through changing market dynamics in the U.S. and will continue to remain focused on the disciplined execution of our pricing strategies in order to maintain performance as we move through the cycle. Thanks, Aaron and Josh.

Aaron: Our focus on disciplined execution of our pricing strategies in order to maintain performance as we move through the cycle.

Speaker Change: Thanks, Darren and Josh that's really helping bridge between the AG industry outlook, and our Dear forecast, let's shift now to construction and forestry, which we haven't really touched on yet.

Unknown Executive: That's really helping bridge the gap between the ag industry outlook and our gear forecast. Let's shift now to construction and forestry, which we haven't really touched on. Results for the quarter came in better than expected, with margins slightly off year-over-year compares given flat sales levels. Josh Beal, can you walk us through how activity in the quarter has impacted our 2024 outlook?

Speaker Change: Results for the quarter came in better than expected with margins slightly off year over year compares given flat sales levels. Just can you walk us through how activity in the quarter has impacted our 2024 outlook absolutely. The key takeaway from the quarter is that underlying demand is stabilizing at levels higher than expected while at the same time the industry has become more competitive given inventory.

Josh Beal: The key takeaway from the quarter is that underlying demand is stabilizing at levels higher than expected, while at the same time, the industry has become more competitive given inventory availability. Looking forward, Deere inventory levels have recovered and are now in line with the industry. We expect slightly stronger sales through the back half of the year, which is embedded in our updated outlook. Demand will be driven by key end markets where optimism remains strong. All of this is reflected in our order books, which for construction and forestry are full through the second quarter across most product lines, with compact construction equipment notably full through the end of the third quarter. This is Jepsen.

Speaker Change: Availability.

Looking forward Deere inventory levels have recovered and are now in line with the industry.

Speaker Change: We expect slightly stronger sales through the back half of the year, which is embedded in our updated outlook.

Speaker Change: The menu will be driven by key end markets, where optimism remains strong.

Speaker Change: All of this is reflected in our order books, which for construction and forestry are full through the second quarter across most product lines with compact with compact construction equipment, notably full through the end of the third quarter.

Speaker Change: This is Jeff I would like to emphasize quickly the runway that remains on government infrastructure projects in the U S. Through 2023, roughly 40% of the Iia dollars have been awarded but relatively minimal amounts of actually been spent thus far needless to say, we expect infrastructure spending to provide a strong tailwind well into 'twenty.

Josh Jepsen: I'd like to emphasize quickly the runway that remains on government infrastructure projects in the U.S. Through 2023, roughly 40% of the IIJA dollars have been awarded, but relatively minimal amounts have actually been spent thus far. Needless to say, we expect infrastructure spending to provide a strong tailwind well into 2025 and 2026 across both our construction and road building segments as dollars are awarded and projects commence. Thanks for that color, Josh.

Speaker Change: $5 26 across both our construction and road building segments as dollars are awarded and projects commence.

Speaker Change: Thanks for that color, Josh It really helps contextualize the opportunity ahead.

Unknown Executive: It really helps contextualize the opportunity ahead. Shifting gears now, let's talk about the importance of managing varying end markets. Josh Beal, coming back to you, can you walk us through what we're doing to manage the current environment? Yeah, for sure.

Josh: Gears now, let's talk about the importance of managing across varying end markets, Josh Bill coming back to you can you walk us through what we're doing to manage the current environment for sure.

Unknown Executive: First and foremost, it's proactive actions to ensure we stay ahead of demand changes. All of our factories and product lines have a list of levers we pull depending on the magnitude and direction of the volume change that we're seeing. Those efforts are ultimately grounded in our focus on inventory management, which we spoke about earlier. The underproduction in retail in certain geographies and production to retail in North America directly reflect this laser focus on inventory management as a key pillar to maintaining price discipline and structural profitability across the cycle. On the cost side, supply chain management is of utmost importance.

Josh: First and foremost it's proactive actions to ensure we stay ahead of demand changes all of our factories and product lines have a list of levers, we pull depending on the magnitude and direction of the volume change that we're seeing.

Joshua Jepsen: Those efforts are ultimately grounded in our focus on inventory management, which we spoke about earlier.

Joshua Jepsen: The underproduction in retail in certain geographies and production to retail in North America directly reflect this laser focus on inventory management is a key pillar to maintaining price discipline and structural profitability across the cycle.

Joshua Jepsen: On the cost side supply chain management is of utmost importance.

Unknown Executive: Our team is working continuously to ensure not only that we're getting the best price on purchase components but that we're also maintaining a robust sourcing pipeline to ensure the resiliency of our supply. This year, we are seeing the impact of our strategic partnerships and supplier agreements come to fruition. Additionally, we continue to design cost reduction into our product. As noted previously, we expect the impact of these savings to drive year-over-year production cost favorability for our equipment operations. Despite headwinds and other spin categories.

Joshua Jepsen: Our team is working continuously to ensure not only that we're getting the best price on purchase components, but that we're also maintaining a robust sourcing pipeline to ensure the resiliency of our supply base. This year, we're seeing the impact of our strategic partnerships and supplier agreements come to fruition.

Joshua Jepsen: Additionally, we continue to design cost reduction into our products as.

Joshua Jepsen: As noted previously we expect the impact of these savings to drive year over year production cost favorability for our equipment operations despite headwinds in other spend categories.

Unknown Executive: One more thing to add here; all of this work ultimately impacts our decremental margins as we make decisions to proactively manage production and inventory levels. As we've noted, we'll underproduce in some regions, which will impact decrementals as we dial down production faster than we realize savings from pulling levers. Additionally, we are negatively impacted by unfavorable mix from declines in high-margin products like combines and tractors, as well as geographies such as Brazil and North America. However, importantly, we continue to robustly invest in future value-unlocked opportunities. It was awesome.

Joshua Jepsen: One more thing to add here all of this work ultimately impacts our decremental margins as we make decisions to proactively manage production and inventory levels.

Joshua Jepsen: As we've noted we will underproduce in some regions, which will impact decrementals as we dialed down production faster than we realized savings from pulling levers. Additionally were negatively impacted by unfavorable mix from declines in high margin products like combines and tractors as well as geographies, such as Brazil, and North America Importantly, we continue to robustly invest in future.

Joshua Jepsen: Your value unlock opportunities.

Aaron Wetzel: That's a great segue into my last question, which is for Aaron. Historically, we've maintained consistent R&D spend throughout the cycle, which in part reflects our commitment to leading through innovation. The ag industry is going through a precision ag revolution, and Deere has been on this journey for nearly 25 years. Aaron, can you give us an update on where we're at in our LEAP ambitions and precision ag journey? Within our production and precision ag business, our LEAP ambitions are to help customers produce more with less, less inputs like herbicides and fertilizers, and more productivity through more efficient use of labor. One measurement for this progress is through our engaged acre metrics, where we are planning to achieve 500 million acres engaged by 2026.

Speaker Change: Awesome, that's a great segue into my last question, which is for Erin.

Erin Wetzel: Historically, we've maintained consistent R&D spend throughout the cycle, which in part reflects our commitment to leading through innovation.

Erin Wetzel: The AG industry is going through a precision AG Revolution and gear has been on this journey for nearly 25 years.

Erin Wetzel: And can you give us an update on where we're at in our leaf ambitions in precision AG journey for sure.

Erin Wetzel: Within our production and precision AG business are leap ambitions are to help customers produce more with less less inputs like herbicides and fertilizers and more productivity through more efficient use of labor one measurement for this progress is through our engaged acre metrics, where we are planning to achieve 500 million acres engaged by 2026.

Aaron Wetzel: As customers use our machines and technologies, we expect to see those engaged acres continue to grow. To propel this, we will continue to make significant investments in R&D, prioritized by the needs of our customers around the world and the value we can unlock. Our production and precision ag strategy is predicated on three distinct pillars: product leadership, system leadership, and finally, go-to-market leadership.

As customers use our machines and technologies, we expect to see those engaged acres continue to grow.

Erin Wetzel: To propel this we will continue to make significant investments in R&D prioritized by the needs of our customers around the world and the value we can unlock.

Erin Wetzel: Our production in precision AG strategy is predicated on three distinct pillars product leadership system leadership, and finally go to market leadership.

Aaron Wetzel: Our products are our machines. They are the foundation of our work and enable customers to do the job in the field every day. Customers rely on our machines during critical times of the year, like planting or harvesting, and need those machines to perform.

Erin Wetzel: Our products are our machines. They are the foundation of our work and enable customers to do the job in the field everyday.

Erin Wetzel: Customers rely on our machines during critical times of the year like planting or harvesting and need those machines to perform in fact, we will be reinforcing this focus through one of our most significant new product launches coming in a few weeks.

Aaron Wetzel: In fact, we will be reinforcing this focus through one of our most significant new product launches coming in a few weeks. Customers will see our commitment to provide them with the most advanced machines, new levels of productivity, and the ability to perform their jobs faster and with more precision. It's going to be exciting and will have an impact on most of our production and precision agriculture portfolio, again reinforcing our commitment to product leadership through industry-leading machine performance and quality. Thanks, Aaron.

Erin Wetzel: Customers will see our commitment to provide them with the most advanced machines, new levels of productivity and ability to perform their jobs faster and with more precision.

Erin Wetzel: It's going to be exciting and will have an impact on most of our production and precision AG portfolio.

Erin Wetzel: Again, reinforcing our commitment to product leadership through industry, leading machine performance and quality.

Speaker Change: Thanks, Erinn, it's great to hear about the foundational heart iron that enables us to invest in more advanced solutions.

Unknown Executive: It's great to hear about the foundational hard iron that enables us to invest in more advanced solutions, and it sounds like there's a lot more to come on the new product front, beginning with the Commodity Classic event at the end of the month. So we'll wait to see any more.

Speaker Change: And it sounds like Theres, a lot more to come on the new product front, beginning with the commodity classic event at the end of the month, So a way to say anymore until then.

Unknown Executive: Now, the second pillar you highlighted is system leadership. Could you start by explaining that for us before breaking down what we're doing on this front? Sure.

Speaker Change: Now the second pillar you highlighted as system leadership could you start by defining this for us before breaking down what we're doing on this front sure.

Aaron Wetzel: The system is the key differentiating factor for us in the market. It's the integration of our technology solutions into our machines that make it easier for customers to more precisely plant seeds and apply chemicals and nutrients. The seamless integration of capturing data from the action in the field and sending it to the cloud allows customers to make better decisions and develop more efficient and sustainable practices on their farm. Our technology stack is helping growers reduce costs, improve efficiency, as well as increase yields, generating more profitability for their operations. This translates into significant savings for them, as well as more sustainable practices for the environment.

Speaker Change: The system is the key differentiating factor for us in the market. It's the integration of our technology solutions into a machine that make it easier for customers to more precisely plant seeds and apply chemicals and nutrients the.

Speaker Change: The seamless integration of capturing the data from the action in the field and sending it to the cloud allows customers to make better decisions and develop more efficient and sustainable practices on their farms our.

Speaker Change: Our technology stack is helping growers reduce cost improve efficiencies as well as increased yields generating more profitability for their operations. This translates to significant savings for them as well as more sustainable practices for the environment.

Aaron Wetzel: And all of this is enhanced through the use of one key foundational technology, machine connectivity. And for years, we've been working with customers to connect machines through cellular connectivity. However, there are many areas of the world where terrestrial cellular connectivity is not available.

Speaker Change: And all of this is enhanced through the use of one key foundational technology machine connectivity and for years, we've been working with customers to connect machines through cellular connectivity.

Speaker Change: However, there are many areas of the world, where terrestrial cellular connectivity is not available like Brazil for example, where nearly 70% of the current AG productive area does not have access to any connectivity.

Aaron Wetzel: Like Brazil, for example, where nearly 70% of the current ag productive area does not have access to any connectivity. This is why we recently entered into an agreement with SpaceX to provide satellite connectivity for our customers, connectivity that will enable real-time data access, which will drive cost savings and efficiency improvements in customer operations, while also providing the foundation for future advancements in automation and autonomy. This will be key to addressing the growing labor challenges facing our customers. That's really well articulated, Aaron.

Speaker Change: This is why we recently entered into an agreement with Spacex to provide satellite connectivity for our customers connectivity that will enable real time data access, which will drive cost savings and efficiency improvements and customer operations. While also providing the foundation for future advancements in automation and autonomy this will be key.

Speaker Change: To addressing the growing labor challenges facing our customers today.

Speaker Change: That's really well articulated Erin you can clearly see how complete system integration creates value well beyond any individual component and have connectivity is foundational to unlocking this opportunity.

Unknown Executive: You can clearly see how complete system integration creates value well beyond any individual component and how connectivity is foundational to unlocking this opportunity. The natural progression then from tech stack development and integration leads us to the last pillar you noted, our go-to-market strategy. Successfully designing precision equipment and technology is a feat within itself, but deploying these solutions is another challenge all on its own. What are we doing to solve this part of the equation?

Speaker Change: A natural progression then from Tech stack development and integration lead us to the last pillar you noted our go to market strategy.

Speaker Change: Successfully designing precision equipment and technology is a feat within itself, but deploying these solutions is another challenge on its own what are we doing to solve this part of the equation the.

Aaron Wetzel: Yeah, the third pillar of our strategy is around our dealer channel and our go-to-market capabilities to sell and support not only the equipment but also the suite of technologies available for customers. Our dealers understand deeply the needs of their customers and where their customers are in their own technology journey as they work with each customer to provide them solutions to improve their operation. Furthermore, we are providing the dealers with enhanced tools and capabilities to drive greater adoption and utilization of our technology. We've launched our solutions as a service approach with customers, where we're lowering the overall upfront cost of technology and shifting to a pay-as-you-go model. Our initial experiences have been extremely favorable as we engage a broader range of customers with our technology. Additionally, we're gearing up our precision upgrade offerings to further drive technology utilization on many of our existing machines in the field. Cnspray Premium is one of the latest products that enables customers with late-model sprayers to take advantage of the savings that Cnspray provides.

Speaker Change: The third pillar of our strategy is around our dealer channel and our go to market capabilities to sell and support not only the equipment, but also the suite of technologies available for customers.

Speaker Change: Our dealers understand deeply the needs of their customers and where their customers are in their own technology journey as they work with each customer to provide them solutions to improve their operations.

Speaker Change: Furthermore, we are providing the dealers with enhanced tools and capabilities to drive greater adoption and utilization of our technologies, we've launched our solutions as a service approach with customers, where we're lowering the overall upfront cost of technology and shifting to a pay as you go model. Our initial experiences have been extremely.

Speaker Change: <unk> as we engage a broader range of customers with our technology. Additionally, we're gearing up our precision upgrade offerings to further drive technology utilization on many of our existing machines in the field.

Speaker Change: <unk> premium is one of the latest products that enables customers with late model sprayers to take advantage of the savings that CN spray provides early demand for this solution has been strong and beyond our initial expectations.

Aaron Wetzel: Early demand for this solution has been strong and beyond our initial expectations. And one more thing to add as it relates to go-to-market, we've seen tremendous response to our newly released Precision Ag Essentials Upgrade Kit, which is our display, receiver, and modem with a SaaS go-to-market approach offering a low upfront cost and annual subscription. Orders exceeded our expectations, and this approach allows us to reach deeper into the installed base of equipment, as a large portion of the sales were incremental, going to customers that did not previously have this level of technology on their existing machines. Thanks Aaron and Josh, that's a great update. And before we open the line to questions, Josh Jepsen, any final comments? It was a good first quarter with strong results to get the year going.

Speaker Change: And one more thing to add as it relates to go to market. We've seen tremendous response to our newly released precision AG essentials upgrade kit, which is our display receiver and modem with SaaS go to market approach offering low upfront cost and annual subscription orders exceeded our expectations and this approach allows us to reach deeper into the installed base.

Speaker Change: Equipment is a large portion of the sales were incremental go into customers that did not previously have this level of technology on their existing machines.

Speaker Change: Thanks, Darren and Josh that's a great update and before we open the line to questions just yet and any final comments.

Speaker Change: It was a good first quarter with strong results to get the year going fundamentals overall began normalizing across our businesses and are supportive of near mid cycle volume levels.

Josh Jepsen: Fundamentals overall began normalizing across our businesses and are supportive of near mid-cycle volume levels. We returned $1.7 billion in cash to shareholders through dividends and share repurchases during the quarter, while also investing in record levels of R&D to bring new solutions to market. It was also exciting to see the team highlight some of our solutions at the Consumer Electronics Show in January that are unlocking value for customers, not just economic value but sustainable value as well. The company has been through economic cycles in the past, and we know how to manage through various stages of end-market demand. As John noted, we expect to perform better across all points of the cycle, as evidenced by our nearly 19% EquipOps operating margin forecast just below mid-cycle levels while remaining focused on managing production and inventories proactively. We are, at the same time, focused on building a more resilient, less variable business while delivering more value to customers than ever before. We will continue to adapt our business model to enable customers to adopt, use, and benefit from our tech stack. One important thing to consider.

Speaker Change: We returned $1 $7 billion in cash to shareholders through dividends and share repurchases during the quarter. While also investing in record levels of R&D to bring new solutions to market.

Speaker Change: It was also exciting to see the team highlight some of our solutions at the consumer electronics show in January that are unlocking value for customers, not just economic value, but sustainable value as well.

Speaker Change: The company has been through economic cycles in the past and we know how to manage through various stages of end market demand as John noted, we expect to perform better across all points of the cycle as evidenced by our nearly 19% <unk> operating margin forecast just below mid cycle levels, while remaining focused on managing production and inventories.

Speaker Change: <unk>, we are at the same time focused on building, a more resilient and less variable business, while delivering more value to customers than ever before.

Speaker Change: We will continue to adapt our business model to enable customers to adopt us and benefit from our tech stack.

Speaker Change: One important thing to consider our.

Josh Jepsen: Our customers do critical work to produce food, fiber, fuel, shelter, and infrastructure. The trend of fewer people going to work in these areas is not slowing, and we hear this from our customers each and every day. What this means is that our solutions need to do more, and no one is better positioned to meet our customers' needs than we are given our ability to seamlessly integrate hardware, software, data, financing, and service and support. Importantly, our team of Deere and Dealer employees get up each day with a purpose and passion to make our customers' lives easier and enable them to do more with less. Thanks, Josh.

Speaker Change: Our customers do critical work to produce food fiber fuel shelter and infrastructure the.

Speaker Change: The trend of fewer people going into going to work in these areas is not slowing and we hear this from our customers each and every day.

Speaker Change: What this means is that our solutions need to do more and no. One is better positioned to meet our customers' needs and we are given our ability to seamlessly integrate hardware software data financing and service and support.

Speaker Change: Accordingly, our team of Deere and dealer employees get up each day with a purpose and passion to make our customers lives easier and enable them to do more with less.

Speaker Change: Thanks, Josh and let's open it up to questions from our investors.

Unknown Executive: Now, let's open it up to questions from our investors. Now we're ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure.

Speaker Change: 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 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.

Jerry David Revich: In consideration of others, and 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. I'll begin the question and answer session. If you would like to ask a question, draw your QF card, and it will come from Jerry Revich. Yes, hi, good morning.

Speaker Change: Thank you we will now begin the question and answer session. If you would.

Speaker Change: Like to ask a question. Please press star one Amit your phone and record your name clearly if you need to withdraw your question Press Star Q again to ask a question. Please press star one.

Speaker Change: Our first question will come from Jerry Revich with Goldman Sachs. Your line is open.

Jerry Revich: Yes, hi, good morning, everyone.

Unknown Executive: Morning, Jerry. Hi, can we start the conversation on the revision to precision ag EBIT coming down by about $500 million? $700 million sales reduction. Obviously, you're off to a really good start this year.

Jerry Revich: Good morning, Jerry I'm wondering if we.

Jerry Revich: Can we start the conversation on the revision to precision AG EBIT, so coming down by about $500 million on a $700 million sales reduction, obviously youre off to a really good start in the year. It sounds like costs are tracking pretty well can you just expand on when do you expect.

Unknown Executive: It sounds like costs are tracking pretty well. Can you just expand on when do you expect a deterioration? How good the performance is on that cut. Yeah, no, thanks.

Jerry Revich: The deterioration in performance and what's driving the revision this early considering.

Unknown Executive: Thanks for the question, Jerry. I think, I think starting out, if you think about our PPA guide, and as we've noted in the change, you know, we were a range of down 15 to 20. We're now down to the lower end of that range.

Jerry Revich: How good the performance has been the implied decremental margin.

Speaker Change: On that cut thank you.

Speaker Change: Yes, no. Thanks, thanks for the questions here, but I think I think starting out if you think about our PPA guide and as we've noted in the change we were a range of down 15 to 20, we're now down to the lower end of that range and a couple of things I think to point out there.

Josh Jepsen: And a couple things, I think, to point out there, you know, we noted softening in Europe, you know, we've seen that market pull back some, we've seen some more caution in that market, and now we're now noting that we're going to underproduce retail in Europe, I think, particularly noting that there's more weakness in Central and Eastern Europe, given the ongoing conflict there in the region, and what that So you're seeing a little more weakness, a little pullback in sentiment on the European side. And although our guides are unchanged in North America, Josh Rohleder mentioned, we're probably at the higher end of that reduction on the North American guide, you know, as we look at our order books.

Speaker Change: We noted softening in Europe, we've seen that market pullback. Some we've seen some more caution in that market. We are now, noting that we're going to underproduce.

Speaker Change: Retail in Europe, I think particularly noting.

Speaker Change: That there is.

Speaker Change: More weakness in central and eastern Europe, given the ongoing conflict there in the region and what that's doing what that's doing for trade flows grain flows and kind of disrupting that so you're seeing a little more weakness.

Speaker Change: Back in sentiment on the Europe side, and although our guys are unchanged in North America. Joshua mentioned, we're probably at the higher end of that reduction on the North America Guide as we look at our order books.

Josh Jepsen: And as you know, we manage tractors on a rolling order book; we have seen some softening and velocity there on the tractor side, which is particularly causing us to look at the back half of production and pull back a little bit there. So we're practically taking on that production in line with sales, again, notably producing at retail levels for North America, but reacting to what we're seeing in the market. As that relates to decrements, you know, I think Josh Jepsen noted this earlier, but, you know, certainly an underproduction in regions, you know, like Europe, like Brazil, has an impact on decrementals. I think the other thing to note, Jerry, is that there are mixed elements, you know, as we're pulling back on certain levels of production, there are high-margin products that are coming out, I mean But the savings that you see from those levers don't necessarily come through, you know, right away. So there's a little bit of a timing piece as well. Yeah, Jerry. This is Josh Jepsen.

Speaker Change: And as you know we manage trackers on a rolling order book, we have seen some softening in velocity there on the tractor side.

Speaker Change: Which is particularly causing us to look at back half of production and pull back a little bit there's over proactively taken under production in line with sales again, notably producing at retail levels for North America, but we're reacting to what we're seeing in the market.

Speaker Change: That relates to the Decrementals I think Josh Jepsen noted this earlier, but certainly an underproduction in regions.

Speaker Change: Like Europe like Brazil has an impact on Decrementals I think the other thing to note. Jerry is that there are mix elements as we're pulling back on certain levels of production. There are high margin products that are coming out I mean large tractors combines in North America, certainly regions like Brazil.

Speaker Change: In North America, as well, that's bad mix as you pull out that.

Speaker Change: Higher decremental that Youre seeing in those particular reason regions, we are pulling levers to address that but the savings that you see from those levers doesn't necessarily come through right away. So there is a little bit of a timing piece as well.

Speaker Change: Yes, Jerry this is Josh Jepsen, the one thing I would add is yes.

Josh Jepsen: The one thing I would add is, you know, we are continuing to, you know, our order fulfillment model gives us good visibility; I think we have a good pulse on what's going on. And as a result, we're always going to make those adjustments more quickly than waiting. That allows our factories to get aligned allows us to start driving, you know, those changes from a material demand perspective come through. So again, this is all really rooted in as we see some of that order velocity change, see some of the fundamentals change from a customer perspective, getting ahead of that to the extent possible and position ourselves again to build in line with retail, as quickly as we can. We're doing that in North America this year. Some of But again, a proactive approach and trying to be really mindful of knowing the sooner we see these things, the more quickly we're able to make changes in our factories. So, thanks, Jerry, we'll go to our next question. Howard.

Joshua Jepsen: We are we're continuing to our order fulfillment model gives us good visibility I think we have a good pulse on what's going on and as a result, we're always going to make those adjustments more quickly.

Joshua Jepsen: And then waiting that allows our factories to get aligned allows us to start driving those changes from a material demand perspective come through so again. This is all really rooted in as we see some of that order velocity change see some of the fundamentals change from a customer perspective.

Joshua Jepsen: Getting ahead of that to the extent possible and positioning ourselves again to to build in line with retail as quickly as we can we're doing that in North America. This year. Some of the changes that Josh mentioned will impact what we're doing in North America tractors and combines but again a proactive approach in trying to be really mindful of knowing the sooner we see.

Joshua Jepsen: These things the more quickly we were able to make changes in our factories.

Speaker Change: Thanks, Gerry will go to our next question.

Our next question will come from Christian <unk> with Oppenheimer. Your line is open.

Kristen E. Owen: From Kristen Owen with, Here's what's next! Hi, good morning. Question. Somewhat of a follow-up to the first here is just helping us contextualize the headwind that you're assuming from that underproduction in Europe and Brazil. How much of the guide difference is related to that underproduction versus some of the incremental North American mix and effects that you've outlined? Hey, Kristen, it's Josh Jepsen

Christian: Hi, Good morning. Thank you for taking the question somewhat of a follow up to the first here is just how long does contextualize the headwind that you're assuming from that under production in Europe, and Brazil, how much of the guide difference is related to that under production versus some of the incremental North America mix.

And effects that you've outlined.

Christian: Hey, Kristen this is Josh Jepsen, yes, good question.

Josh Jepsen: Good question. If you look at the change, I'd say from underproduction, underproducing in Brazil, which we, you know, planned on and we're executing on in the first quarter, and then Europe, that's probably about a point drag on operating margin for production precision ag. So that's a decent piece of that. And then, as we noted, we've seen just a little more shift in demand in North America, but you know, about a point on that underproduction. I think it's important to note here, and we talked about underproduction in Brazil and some of the challenges that we faced last year coming into this year. You know, in spite of that, we're seeing in our South American business, still really strong performance, and I think evidence of structural profitability improvement across the company. But you know, even underproducing there, you know, somewhat significantly, you know; we're doing mid-teens margins in the region.

Joshua Jepsen: If you look at the change I'd say from the underproduction under producing in Brazil, which we planned on and we're executing on.

Joshua Jepsen: In the first quarter, and then Europe, that's probably about a point drag of operating margin for production precision AG. So that's a that's a decent piece of that.

Joshua Jepsen: And then as we noted we've seen just a little more shift in demand in North America, but about a point.

Joshua Jepsen: On that under production I think important to note here and we talked about on our production in Brazil.

Joshua Jepsen: Some of the challenges that we faced last year coming into this year.

Joshua Jepsen: In spite of that we're seeing in our in our South American business still really strong performance and I think evidence of structural structural profitability improvement across the company, but even even under producing there somewhat significantly we're doing mid teens margins in the region. So we feel good about what we're doing there.

Josh Jepsen: So we feel good about what we're doing there, the shifts and changes we've made to our business. And again, that's mid-teens margins while underproducing and making sure we're getting inventory in the right spot. So thanks, Kristen. We'll go to our next question. Chad Dillard: Hi, good morning, everyone.

Joshua Jepsen: Are the shifts and changes we've made to our business.

And again.

Joshua Jepsen: That's mid teens margins, while under producing and making sure we're getting inventory in the right spot. So thanks, Kristen will go to our next question.

Next we will hear from Chad Dillard with Bernstein you May proceed.

Chad Dillard: Hi, good morning, everyone.

Chad Dillard: Hey, Jeff.

Charles Albert Edward Dillard: Um, so you guys have done a lot structurally over the last couple of years to reduce your costs. I was hoping maybe you'd update us on how much you're seeing. And then, secondly, I think you talked a little bit about seeing some levers that you could pull to further reduce costs. Could you give a little bit more color on that, please?

Chad Dillard: So you guys have done a lot structurally over the last couple of years to reduce your cost.

Chad Dillard: Maybe you can update us with how much youre seeing and then secondly, I think you talked about seeing some levers that you could pull to further reduce costs could you give a little bit more color on that please.

Chad Dillard: Yes.

Unknown Executive: Yeah, I mean, thanks for the question, Chad. And I think we're encouraged by what we're seeing on production costs. I think that's evidenced, you know, in performance in Q1. You saw that favorability in both small ag and turf and in large ag, you know, in that performance.

Speaker Change: Thanks for the questions Ed I think we're encouraged by what we're seeing our production cost I think thats evidenced.

Speaker Change: <unk> performance in Q1.

Speaker Change: That favorability.

Speaker Change: And both small AG and turf and in large AG and that performance.

Unknown Executive: Yeah, so we're feeling good about what we're seeing. We talked about it in some of our comments, but you know, it's negotiating and partnering, frankly, with our suppliers on component costs. We've still got opportunity to bring some of that down.

Speaker Change: Yes, so we're feeling feeling good about what we're seeing we talked about it in some of our comments but.

Speaker Change: <unk> and partnering frankly with our suppliers on.

Speaker Change: On component cost as that opportunity to bring some of that down.

Unknown Executive: You know, we continue to design cost reduction into our products as well. And then we're pulling levers in other parts of the business as well, whether that be, you know, S, A, and G and other areas where we do have the opportunity to adjust as we see demand shift. And so we're making those, we're pulling those levers, and I think we have an opportunity in front of us. Yeah, Chad, one thing I'd add on the overhead side, we do see some headwind on overheads, and that's a couple items.

Speaker Change: We continue to design cost reduction into our products as well and then we're pulling levers in other parts of the business as well as with whether that'd be.

Speaker Change: <unk> and other areas, where we do have opportunity to to adjust as.

Speaker Change: As we see demand shift and so we're making those we're pulling those levers and I think we have opportunity in front of us.

Speaker Change: Yeah, Chad one thing I would add on the overhead side, we do see some headwind on overheads and Thats a couple of items.

Unknown Executive: Some is just the impact of adjusting production volumes and the time it takes us to see those things come through. The other is we have a contractual step up from our labor contract, and that's impacting us here in 24 as well. Yeah, Chad. This is John May.

Speaker Change: Some is just the impact of adjusting production volumes and the time it takes us two to see those things come through the other is we have a contractual step up.

Speaker Change: From our from our labor contract and Thats impacting us here in 2004 as well.

Speaker Change: Yes, Chad this is John maybe one more thing to add.

John C. May: Maybe one more thing to add. You know, certainly we're not going to forget about managing the fundamentals of the business. And we'll remain absolutely focused on that. And if you think about, you know, the things we can control, it's all about disciplined execution within the factories.

John: Certainly, we're not going to forget about managing the fundamentals of the business and we will remain absolutely focused on that and then if you think about the things we can control. It's all about disciplined execution within the factories. It's all about focus on quality that drives cost. If you. If you slip at all on that and then cost management.

John C. May: You know, it's all about focus on quality that drives cost if you slip on that and then cost management. And then to your point of tackling costs, if you go back to 2020, if you remember, when we first started the smart industrial strategy, we did a significant restructuring that put the company where it is today to perform at higher levels regardless of where we are in the cycle. But thank you for that question. Thank you.

John: And then to your point of tackling costs. If you go back to 2020, if you remember when we first started the smart industrial strategy.

John: Did a significant restructuring that position the company.

John: Where it is today to perform at higher levels, regardless of where we are in the cycle, but thank you for that question.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Angel Castillo with Morgan Stanley. Your line is open.

Angel Castillo: Hi, good morning, and thanks for taking my question.

Angel Castillo: I was just wondering if we could get a little bit more color on the net operating cash flow. It looked like the move there was maybe a little bit bigger cut than they implied it by the net income. So just curious about the pieces there.

I was just wondering if you could get a little bit more color on the net operating cash flow. It looks like the move there was maybe a little bit bigger cut than the implied it by the net income. So just curious on the pieces. There and then you talked about your own inventories and.

Unknown Executive: And you talked about your own inventories and just any incremental color around working capital and any other kind of levers that are impacting cash. Yeah, no, thanks for the question, Angel. Yeah, you know, a couple things to note there. As you know, we did bring down the cash flow forecast a bit, and a big piece of that is described or is, you know, part of our net income reduction. There's a couple other, you know, levers at play or things at play there.

Angel Castillo: Just any incremental color around working capital and any other kind of levers that are impacting cash flow.

Speaker Change: Yes, thanks for the question Angel.

Speaker Change: Things to note. There is as you noted we did bring down the cash flow forecast a bit and a big piece of that is described or is.

Speaker Change: Part of our net income reduction it was a couple of other levers that player things that play there I think first that working capital assumptions.

Unknown Executive: I think first, on working capital assumptions, we expect that there's a little bit, you know, maybe kind of another half so of explaining the differences from changes in working capital. We still expect inventory to be favorable to cash, you know, in 2024, but a little bit less so. And that's reflected in the adjustment. The other piece is we're seeing some higher levels of balance in our portfolio agenda financial that impacts, you know, how much cash we bring back from the financial operation to the equipment operation. So that really explains the balance of the change. Thanks for the question. David Raso, whichever corps I am in, Hi, thank you for the time.

Speaker Change: We expect there is a little bit.

Speaker Change: Maybe kind of a another half of explaining the differences from changes in working capital, we still expect inventory.

Speaker Change: To be favorable to cash in.

Speaker Change: In 2024, but a little bit less so and thats reflected in the adjustment and the other piece.

Speaker Change: As we're seeing some higher level of balance in our portfolio of gender financial that impacts.

Speaker Change: How much cash we bring back from the financial operation to equipment operations. So that really explains explains the balance of the change. Thanks for the question.

Speaker Change: Thank you. Our next question comes from David Raso with Evercore ISI you May proceed.

David Raso: Hi, Thank you for the time I was curious.

David Michael Raso: I was curious about the thought about replacing it. Help us how you're thinking about where retail sales are going. What is the base case right now? Good morning, David. It's Josh Jepsen.

David Raso: The thought about replacement demand and the market fundamentals are supportive of purchasing at replacement demand can you help us how youre thinking about where retail sales will be this year versus replacement demand.

David Raso: You are saying.

One for one and obviously when you model out you're obviously thinking about replacement demand in coming years. What is the base case right now for replacement demand say next year versus this year I know, it's just a framework analysis, but they can help us with again, a retail this year versus replacement and how to think about underlying replacement beyond.

Josh Jepsen: I'll start, I would say, you know, in 24 months, I think we're relatively aligned kind of on replacement to retail. And, you know, again, the dynamics of the fleet fundamentals would say, hey, we're still relatively aged, you know, we're above, you know, our long-term averages on high horsepower, you know, combines, you know, slightly above kind of the long-term average. So the fleet age, you know, while coming through a few years of strong demand really has not gotten tremendously younger from where we've been in the past.

Speaker Change: This year. Thank you.

Speaker Change: Good morning, David its Josh Jepsen I'll start I would say.

Joshua Jepsen: 24, I think we're relatively aligned kind of on <unk>.

Replacement to retail and again the dynamics.

The fleet fundamentals would say hey, we're still relatively aged we're above.

Joshua Jepsen: Our long term averages on high horsepower combines.

Joshua Jepsen: Slightly above kind of the long term average so the fleet age while coming through a few years of strong demand really is not has not gotten tremendously younger from from where we've been in the past. So I think that that continues to be supportive.

Josh Jepsen: So I think that that continues to be supportive. The one other thing I would note, the incremental tool we have this go around than we maybe did a decade ago is our ability to drive technology and technology that can directly impact our customers' bottom line. So taking costs out, improving their profitability, improving their margins.

Speaker Change: One other thing I would note is.

Speaker Change: The incremental.

Speaker Change: Two we have this this go around than we maybe didn't a decade ago was our ability to drive technology and technology that can directly impact our customers' bottom line, so taking cost out improving their profitability improving their margins and I think that is that is particularly helpful. For us as we think about precision upgrades the ability to.

Josh Jepsen: And I think that is particularly helpful for us. As we think about, you know, precision upgrades, the ability to go back across the installed base of machines, you know, we mentioned a few things. We've got a limited launch of SeamSpray Retrofit, which is called SeamSpray Premium, or the Precision Ag Essentials, which I noted. You know, we're seeing a strong uptick. It's allowing customers to get into these machines.

Speaker Change: Back across the installed base.

Speaker Change: Machines, we mentioned a few things we've got a limited launch on <unk> seen spray retrofit, which called <unk>, a premium or the precision precision AG Central's, which I noted.

Speaker Change: And we're seeing strong uptake, it's allowing customers to get into these machines, we're going deeper in the installed base.

Josh Jepsen: We're going deeper in the installed base and driving incremental business, so I think the combination of the desire to take cost out of their operations and improve overall productivity and profitability will remain, and we think that's particularly important. Thanks, David.

Speaker Change: And driving incremental business. So I think the combination of the desire to take cost out of their operations and improve overall productivity and profitability.

Speaker Change: We will remain and we think that that's particularly important.

Speaker Change: Thanks, David we'll go to our next question.

Speaker Change: Our next question comes from Steven Fisher with UBS. Your line is open.

Steven Fisher: Great. Thanks. Good morning, you gave us some color on the visibility of the order book.

Steven Fisher: You gave us some color on the visibility of the order book. But on the lower large ag sales outlook, I guess, to what extent was that guidance reduction driven more by what you're actually seeing at the level of the order books today versus really kind of the momentum and the sentiment indicators and the grain prices are suggesting? Just kind of curious how you frame the confidence you have in the second half outlook. Do you think you've gotten too far ahead of where that momentum is trending at the moment? Yeah, I mean, thanks for the question, Steve. Our best indicator of demand is our order book.

Steven Fisher: The lower large AG sales outlook, I guess to what extent.

Steven Fisher: Is that guidance reduction driven more by what youre actually seeing at the level of the order books today and that visibility versus kind of the momentum and the sentiment indicators and the grain prices are suggesting just kind of curious how you frame the confidence you have in the second half outlook.

<unk> gotten enough ahead of.

Steven Fisher: Where that momentum is trending at the moment. Thank you.

Steven Fisher: Yes.

Speaker Change: Thanks for the question, Steve our best indicator of demand is our order book and I think that was by and large the biggest driver here as we made these made these adjustments we noted.

Unknown Executive: And I think that was, by and large, the biggest driver here as we made these, made these adjustments, you know, as we noted, you know, large tractors, as we looked at the velocity of orders, and we mentioned, you know, we're out, you know, end of the third quarter on orders, but we do see some velocity moderating there. And given that, I think that was, you know, a big driver of the change for the segment this quarter was, was reflecting what we're seeing in our order books. Again, we, you know, we talked about some of the other changes, you know, beyond that, you know, similarly, I think some softening on the European side and some desire to take down inventories there as the other, the other piece.

Speaker Change: Large tractors as we looked at velocity of orders and we mentioned.

Speaker Change: <unk>.

Speaker Change: The end of the third quarter on orders, but we do see some velocity moderating there.

Speaker Change: And given that I think that was a big driver of the change.

Speaker Change: For the segment this quarter was reflecting what we're seeing in our order books again, we talked some of the other changes beyond that.

Speaker Change: Similarly, I think some softening in the European side, and some desire to take down inventory. There is another the other piece.

Unknown Executive: Steve, the one thing I'd add is, you know, the other thing we watched closely was what's going on with used, what's happening with used inventories, what's happening with used prices. And, you know, what we've seen is we've seen some uptick in used combines, for example, and used high-horsepower, but still, relative to historical averages, in decent shape, and pricing's I think we've seen, you know, combines from a quarter ago have been up slightly, and high-horsepower tractors have been, have been flat. However, watching that trend and being mindful of lessons learned from, you know, from, from the past would tell us, Hey, you know, we want to make sure we're exercising good caution there. Knowing where our order books are, but also, you know, what are the, what are some of the leading indicators? And that's been a bit of a guide for us as well, as we think about our revision here. Thanks, Steve.

Steve The only thing I'd add is the other thing we watch closely what's going on with used what's happening with used inventories what's happening with used prices and what we've seen is we've seen some uptick in used combines for example in used high horsepower, but still relative to historical.

Speaker Change: Decent shape and pricing has held in pretty well I think we've seen combines from a quarter ago have been up slightly high horsepower tractors have been have been <unk>.

Speaker Change: Flat, however, watching that trend and be mindful and lessons learned from from from the past, which I'll say, we want to make sure. We're exercising good caution there.

Speaker Change: Knowing where our order books are but also what are the what are the some of the leading indicators and that's been a bit of a guide for us as well as we think about our revision here.

Speaker Change: Thanks, Steve Thank you and our.

Steve: We'll go to our next question, which will come from Tami Zakaria with J.P. Morgan. Hi, good morning.

Speaker Change: Next question.

Speaker Change: Our next question will come from Tami Zakaria with Jpmorgan. Your line is open.

Tami Zakaria: Hi, good morning, Thank you so much.

Tami Zakaria: Thank you so much. I was curious about the partnership with SpaceX. Could you give some color on how exactly this gets integrated into your products? Is this more about, you know, a tech enhancement that will come as a default in new machines, or or is there more to come?

Tami Zakaria: I was curious about the partnership with Spacex.

Tami Zakaria: Could you give some color on how exactly this.

Tami Zakaria: Gets integrated into your product is this more about.

Tami Zakaria: <unk> has been that it will come as the default in new machine.

Tami Zakaria: Or is there more to come and more importantly, how do you think this partnership can be monetized over the long term a beat in terms of share gains or price mix gains or maybe subscription, but any color there would be helpful.

Josh Jepsen: And more importantly, how do you think this partnership can be monetized over the long term, be it in terms of share gains or price mix gains, or maybe subscriptions to any color there would be help? Thanks for the question, Tami. And I'll tell you, we're really excited about this. Aaron mentioned this, you know, in some of the opening comments, but, you know, connectivity is the foundation of precision ag. And candidly, there are parts, there are regions around the world where there are gaps in that connectivity.

Speaker Change: Yes. Thanks for the question, Jamie and I will tell you. We're really excited about that Aaron mentioned this in some of the opening comments, but.

Speaker Change: Connectivity is the foundation of precision AG and candidly there are parts of the regions around the world where there is gaps in the connected connectivity, we talked about 70% gap in Brazil, even 30% gap in the U S. As it relates to the total.

Josh Jepsen: We talked about, you know, the 70% gap in Brazil, and even a 30% gap in the US as it relates to the total, you know, ag farmland. And so, you know, as we've introduced this, it provides a solution for that gap and really is a foundational piece to introduce new technologies. And what I would tell you is that the level of interest we've seen from growers really exceeded our expectations. You know, as we came out with the announcement, and what it really presents is an opportunity to make precision ag work in their operations in the very near term. It provides benefits today in terms of things like access to data, remote data access, in the field data sharing, which enables, you know, customers to run their operations better. And this also serves as the foundation for future technology. So as you think about autonomy in the future and the opportunity that that presents, you know, a foundational piece of this is getting connectivity on our machines. Aaron, was there anything else you'd add to that?

Speaker Change: Total AG farmland and so.

Speaker Change: We've introduced this it provides a solution for that gap and really is a foundational piece to introduce new technologies.

Speaker Change: What I would tell you is that the level of interest we've seen from growers really exceeded our expectations as we came out with the announcement.

Speaker Change: And what it really presents us an opportunity to make precision AG.

Speaker Change: We're working on our operations.

Speaker Change: In the very near term.

Speaker Change: Provides benefit today in terms of things like access to data remote data access and field data sharing which enables customers to run their operations better and this is also serves as the foundation for future technology. So as you think about autonomy in the future and the opportunity that presents.

Speaker Change: A foundational piece of this is getting the connectivity.

Speaker Change: On our machines and was there anything else you'd add there yes.

Aaron Wetzel: Yeah, I'm, first of all, really excited to be able to announce our relationship with SpaceX and the value that this really unlocks for our customers, particularly in the areas where we don't have connectivity available to them. Just having been in Brazil a few weeks ago and talking to customers there, they're very excited about the opportunities this presents for their operations, being able to now connect their machines and to be able to do the things that Josh just referenced. I think in the short term, we'll be planning a retrofit solution as we bring this to market towards the latter part of 2024 and make this more fully available in 2025 and beyond. But the intent would be to bring that into factory installed options available for customers.

First of all it's super exciting to be able to announce the relationship with Spacex and the value that this really unlocks for our customers, particularly in the areas, where we don't have connectivity available to them.

Just having been in Brazil, a few weeks ago and talking to customers. There theyre very excited about the opportunities. This presents for their operations being able to now connect their machines and to be able to do the things that Josh just referenced in.

Speaker Change: In the short term, we'll be planning a retrofit solution as we bring this to market towards the latter part of 'twenty four and makes us more fully available in 2025 and beyond but the intent would be is to bring that into a factory installed option is available for customers at the end of the day, we want to provide the tools for our customers to be able to take advantage of the full text.

Aaron Wetzel: At the end of the day, we want to provide the tools for our customers to be able to take advantage of the full tech stack and be able to improve the operation, the efficiency of their farms. And this is a key enabler for them to do that. So we're excited about the future that this brings. Hey Tami, it's Josh Jepsen.

Speaker Change: <unk> and be able to improve the operation of the efficiencies of their of their farms and this is a key enabler for them to do that so we're excited about the future of the springs.

Speaker Change: Hey, Jamie it's Josh Jepsen to one part of your question there how does this as we can.

Josh Jepsen: To one part of your question there around, you know, how does this, you know, as we create value, how do you monetize? I think there are a couple of things. One, we would expect these to come through, you know, a solution as a service model. And on top of that, enabling as you enable automation and enable autonomy, you know, that comes with the combination of hardware and the potential for more of a SaaS solution as these things are getting better over time and there's the ability to continue to improve on those products. So, you know, this is foundational, particularly for Brazil, but, you know, we think it's going to be a key component of how we think about solutions as a service going forward. Yeah, Tami, you can tell we're excited. This is John May. I just want to jump in as well.

Joshua Jepsen: Great value, how do you monetize I think theres a couple of things one we would expect these to come through our.

Joshua Jepsen: Solutions as a service model.

Joshua Jepsen: And then on top of that enabling as you enable automation and enable autonomy that comes with the combination of hardware and the potential for more of a SaaS solution. As these things are getting better over time and there is ability to continue to improve on those products. So this is this is foundational particularly for Brazil.

Joshua Jepsen: But we think it's going to drive a key component of how we think about.

Joshua Jepsen: <unk> solution to the service going forward, yes.

Joshua Jepsen: Yes, EMEA you can tell we're excited this is John May I, just wanted to jump in as well.

John C. May: You know, the trend is definitely customers are wanting higher levels of technology, and they want us to rapidly accelerate that in markets where they don't have the infrastructure to support it. Telematics, obviously, and this satellite solution give us the ability to transfer data on board and off board to the machine.

The trend is definitely customers are wanting higher levels of technology and they want us to rapidly accelerate that in markets, where they don't have the infrastructure to support it.

John C. May: Telematics, obviously and in the satellite solution gives us the ability to transfer data onboard and off board to the machine, but we also have several several products that rely on that telematics connection.

John C. May: But we also have several products that rely on that telematics connection, whether we're sharing maps between machines, or planters in a given field. So we're going to monetize it through additional technologies that we offer today in markets like North America. We'll be able to quickly adapt those products and solutions. Now we have this connectivity in markets like Brazil, and we're really excited about it. Thanks for your question. Our next comes from Nicole DeBlase with, Yeah, thanks, guys. Good morning.

John C. May: We're sharing maps between machines planters in a given field. So we're going to monetize it through additional technologies that we offer today.

John C. May: In markets like North America will be able to quickly adapt those those products and solutions now that we have this connectivity and markets like Brazil, and we're really excited about it. Thanks for your question.

John C. May: Thank you. Our next question will come from Nicole <unk> with Deutsche Bank. Your line is open.

Nicole: Yeah. Thanks, guys good morning.

Nicole Sheree DeBlase: Just wanted to ask about, you know, particularly within production and precision ag, any help that you guys can give on quarterly cadence from here in terms of both revenue and margins? Like, is that under production more focused in the second half? Are you guys really going after that in the second quarter?

John C. May: Yes.

Nicole: Just wanted to ask about.

Nicole: Particularly within production and precision AG any help that you guys can give on quarterly cadence from here.

Nicole: Revenue and margins I guess that underproduction more focus in the second half are you guys really going after that in the second quarter that would be really helpful. Thank you.

Unknown Executive: That would be really helpful. Thank you. Yeah, great. Thanks, Nicole. I mean, I think as you look at overall equipment operations, you know, we'd expect Q2 to be down relatively more than the rest of the year, although pretty, pretty, pretty close. PPA, though, it's a little bit of a different story.

Speaker Change: Yes, great. Thanks, Nicole I think as you look at overall equipment operations.

Speaker Change: We would expect Q2.

Speaker Change: To be down relatively more.

Speaker Change: And then the down for the rest of year, although pretty pretty pretty close the PPA, though it's a little bit of a different story, that's a little bit more back half.

Unknown Executive: That's a little bit more back half loaded. Q3, Q4 is, I think, where you'll see more of the reduction coming out of the PPA segment. Yeah, Nicole, I think from a seasonality perspective, 24, you know, looks a lot like 23, a more normal distribution in terms of, you know, quarterly splits. So, you know, I would expect the strongest top line margin in 2Q would remain. So not a significant change from a, you know, seasonal split perspective in terms of how the business looks. Thank you. We'll go ahead and go to our next question. Okay.

Speaker Change: Loaded Q3, Q4 is I think where you'll see more of the reduction coming out of the PPA segment, yes.

Speaker Change: Yes, Nicole I think from a seasonality perspective, I think 24 looks a lot like 'twenty three or a more normal distribution in terms of.

Speaker Change: Quarterly splits.

So you're expecting.

Speaker Change: Strongest topline margin in <unk> would remain so not a significant change from a.

Speaker Change: Seasonal split perspective in terms of how the business looks thank you well go and go to our next question.

Speaker Change: Our next question comes from Steve Volkmann with Jefferies. You May proceed.

Steve: Thanks, guys. I wanted to go back to the ideas around the sort of decremental margins here because Josh Jepsen, I think he said that you were sort of looking to prioritize reduced volatility, but obviously, these decrementals early in the downturn look pretty big, I think, relative to what we were expecting. So can you just talk about, update us on what normal decrements should be as we think through a longer sort of downturn? And, you know, any implications for how we should think about 2025, I guess, is what I'm trying to think about. And then what an incremental might look like as well, if there's just kind of any update there. Hey, Steve, it's Josh Jepsen.

Stephen Volkmann: Great. Thanks, guys I wanted to go back to the ideas around sort of decremental margins here, because Josh Jepsen I think you said that you were sort of looking to prioritize reduce volatility, but obviously these decrementals early in the downturn pretty big I think relative to what we would expect.

So can you just talk about.

Stephen Volkmann: Date us on what normal Decrementals should be as we think through a longer sort of downturn and.

Stephen Volkmann: Any implications for how we should think about 2025, I guess is what I'm trying to think about it and then what an incremental might look like as well if there's just kind of any update there. Thanks.

Stephen Volkmann: Hey, Steve It's Josh Jepsen I would say, we're running right now if you look at the total equipment operations. Our forecast is probably in the range of.

Josh Jepsen: I would say, you know, we're running right now, if you look at the total equipment operations, our forecast is probably in the range of, you know, 37-38% overall, kind of across the businesses. And then obviously, there's a range there from, you know, 30 to, you know, just in the low 40s on the production precision ag side. You know, that production precision ag piece clearly impacted by the underproduction there. I mean, historically, that's probably, on the decriminal side, run higher.

Joshua Jepsen: 37% to 38% overall kind of across the businesses and then obviously theres a range there from.

Joshua Jepsen: 32.

Joshua Jepsen: Just in the low <unk> on the production precision AG side.

Joshua Jepsen: Yes.

Joshua Jepsen: That production precision AG piece clearly impacted by by the underproduction.

Joshua Jepsen: There I mean, historically, that's probably on the decremental side run higher.

Josh Jepsen: You know, closer to 45, I think we're seeing a shift in structurally how we perform and driving that down. And I think, you know, X under production would be 40 or maybe a touch better. But I think our focus area is, yeah, can we manage this across these businesses in this range of, from an EquipOps perspective, you know, between 35 and 40, and as we continue to execute, you know, drive that down. Now, part of that, to your question, one of the points you made is the ability to drive less variability in our business. Now, to your question, one of the points you made is the ability to drive less variability in The solutions as a service, which we just talked about with SATCOM as an example, and some of the things we're doing on the precision upgrade side.

Closer to 45, I think we're seeing a shift in structurally how we perform in driving that down and I think ex under production would be would be 40, or maybe a touch better.

Joshua Jepsen: I think our focus areas can we can we can manage this across these businesses in this range of.

Joshua Jepsen: From a from an equip ops perspective.

Joshua Jepsen: And between 35% and 40 and as we continue to execute.

Drive that down lower now part of that to your to your question. One of the points. You made is the ability to drive less variability in our business.

Joshua Jepsen: Certainly continuing to execute on our lifecycle solutions strategy helps there.

Joshua Jepsen: The solutions as a service was we just talked about the satcom as an example, and some of the things we're doing on the precision to upgrade side also we think we can continue to build our base of revenue and profitability that is much less reliant on just end market demand in terms of new units and volume each and every year. So we're focused there we're going to continue.

Josh Jepsen: Also, we think we can continue to build a base of revenue and profitability that is much less reliant on just end market demand in terms of new units and volume each and every year. So, we're focused there. We're going to continue to execute, but we feel good about, you know, the opportunity we have there. Thanks, Steve. We probably have time for one more question. Alright, thanks for screening me in.

Two to execute but we feel good about.

Joshua Jepsen: The opportunity we have there.

Speaker Change: Thanks, Steve.

Speaker Change: Probably have time for one more question.

Speaker Change: Thank you.

Speaker Change: Last question will come from Tim Thein with Citigroup. Your line is open.

Tim W. Thein: Alrighty, Thanks for squeezing me in.

Timothy W. Thein: Yeah, I suspect we'll hear some early feedback on the crop care EOP on next quarter's call. And, you know, obviously, the commodity price backdrop, heading into planning season in North America, looks like it'll be less supportive than last year. And I think there was also some uniqueness in terms of that, the tightness in new and used sprayers a year ago.

Tim W. Thein: Yes, I suspect we'll hear some some early feedback on the crop care.

Tim W. Thein: ERP on next quarter's call.

Speaker Change: We see that the commodity price backdrop.

Tim W. Thein: Heading into planting season in North America, it looks like it'll be less supportive than last year and I think there was also some.

Tim W. Thein: Uniqueness in terms of that.

Tim W. Thein: Tightness in new and used sprayers at year ago. So.

Timothy W. Thein: So maybe this is best for Aaron, but I'm just curious if you can share any thoughts, you know, as to how you expect this to play out. And, you know, back to the earlier point around early indicators for next year. What, you know, will that be as useful of a signal for Large Ag Demand in 25 years? So yeah, and then, I guess importantly, how you expect you'll approach pricing on that. So thank you. Yeah, thanks, Tim. Hey, this is Josh Jepsen.

Tim W. Thein: Maybe this is best for Erin.

Speaker Change: <unk>, if you can share any thoughts.

Erin Wetzel: As to how you expect this will play out and back to the earlier point around early indicators for next year.

Speaker Change: What.

Erin Wetzel: Do you expect that to be as useful as a signal for us.

Erin Wetzel: Large AG demand and in.

Erin Wetzel: In 2005.

Erin Wetzel: So and then I guess importantly, how are you.

Erin Wetzel: You expect youll approach pricing on that so thank.

Speaker Change: Thank you.

Speaker Change: Yes, I think so hey, this is Josh Jepsen, maybe I'll start I would say as we look at going forward.

Josh Jepsen: Maybe I'll start, I would say, as we look at, you know, going forward, we're early, you know, we'll, we'll roll out those early order programs in the June timeframe, you know, beginning on planters, and then sprayers to follow or in that range. You're right, last year, we saw a little bit of a bifurcation between those, those generally have looked similar, you know, we saw planters incrementally, a little bit weaker than sprayers and sprayers have been constrained. So, you know, there, there has been some difference in what we seen there, I think, importantly, to your question of, you know, do we think it's going to be a good indicator? I would say, yes, I think that's always a good, a good opportunity for us to get a pulse on our, our folks thinking after they've got a crop in the ground, you know, what, what are they looking at in terms of upgrading their, their, their planters and sprayers, and also level of technology, and the ability for us to also, you know, go go back and make trade-ins for folks that do want to upgrade their technology and take those trade-ins.

Joshua Jepsen: We'll roll out those early order programs in the June timeframe.

Joshua Jepsen: Beginning on planters and sprayers to follow or in that range.

Speaker Change: Youre right last year, we saw a little bit of a bifurcation between those those generally have looked similar we saw planters incrementally.

Speaker Change: Little bit weaker than sprayers, and sprayers have been constrained.

Speaker Change: So there has been some difference in what we've seen there I think importantly.

Speaker Change: To your question of do we think it's going to be a good indicator I would say, yes, I think that's always a good a good opportunity for us to get a pulse on how our folks thinking after they've got a crop in the ground.

Speaker Change: What are they looking at in terms of upgrading their planters and sprayers and also level of technology.

Speaker Change: And the ability for us to also go back and make trade ins for folks that do an upgrade their technology and take those trade ins.

Josh Jepsen: And upgrading them for the second or third customer will be important as well. And our dealers are investing in that activity; they're investing in the capabilities to do that, I think, which is really important. Go ahead, Aaron. Yeah, I don't know that I can add much more to what Josh said, other than I think given some of the new technologies we're bringing out across both planters and sprayers, we expect customers to want to take advantage of that for their operations.

Speaker Change: Upgrade them for the second or third customer I think will be important as well and our dealers are investing in that activity. They are investing in the capabilities to do that I think which is which is really important.

Speaker Change: So.

Aaron: Go ahead Aaron.

Aaron: I don't know that I can add much more to what Josh said.

Aaron: Other than I think given some of the new technologies that we're bringing out across both planters and sprayers, we expect customers to want to take advantage of that for their operations.

Aaron Wetzel: But we'll closely watch the EOP activity as it transpires through the period and adjust accordingly once we see how things roll out. Thanks for the question, Tim. And that's all the time we have for today. We really appreciate everybody calling in, and thanks for joining us. Have a great day. This does conclude today's conference.

Aaron: But we will closely watch the E&P activity as it transpires through the period and adjust accordingly, once we see how things rollout.

Speaker Change: Thanks, Thanks for the question, Tim and Thats all the time, we have for today, we really appreciate everybody calling in and thanks for joining us have a great day.

Speaker Change: Thank you that does conclude today's conference. Thank you for participating you may disconnect at this time.