DEERE & CO Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was characterized by resilience in a challenging market, with full-year operating margins at 18.2% and operating cash flow from equipment operations over $6.9 billion.
• In Q4, production and precision ag net sales were down 38%, small ag and turf down 25%, and construction and forestry down 29%.
• For 2025, ag and turf markets are expected to contract, with large ag equipment sales in US and Canada down ~30% and small ag and turf down ~10%. Construction and forestry demand is projected to be down, with net sales forecasted to be down 10%-15% for the year.
• Technology progress was highlighted, with engaged acres growing ~20% to 455 million acres in 2024, and significant adoption of technologies like See and Spray and Precision Ag Essentials Kit.

Segment Performance

• Production and Precision Ag: Net sales in Q4 were $4.305 billion, down 38% year-over-year. Operating profit was $657 million, resulting in a 15.3% operating margin.
• Small Ag and Turf: Net sales in Q4 totaled $2.306 billion, down 25% year-over-year. Operating profit declined to $234 million, with a 10.1% operating margin.
• Construction and Forestry: Net sales in Q4 were $2.664 billion, down 29% year-over-year. Operating profit was $328 million, giving a 12.3% operating margin.
• Financial Services: Fourth quarter net income attributable to Deere and Company was $173 million. Full-year net income forecast for 2025 is $750 million.

Guidance

• Fiscal 2025 net income forecast is in the range of $5 billion to $5.5 billion.
• Effective tax rate guidance is between 23% and 25%.
• Cash flow from equipment operations is projected to be between $4.5 billion and $5.5 billion.
• For ag and turf, large ag equipment sales in US and Canada expected down ~30% in 2025, small ag and turf down ~10%. For construction and forestry, earthmoving equipment sales down ~10% and compact construction down ~5% in US and Canada in 2025.

Risks

• Market contraction in ag and construction sectors leading to reduced equipment demand.
• Uncertainty in equipment purchases due to economic factors like high interest rates and depressed farm fundamentals.
• High used inventory levels impacting trade dynamics and pressuring equipment sales.

Question and Answer

Q: Kristen Owen asked about margin expectations for 2025.

A: Josh Jepsen responded that volume declines are weighing on margins, but favorable pricing and production costs are expected, with decrementals higher in large ag due to mix impacts.

Q: Jerry Revich inquired about the pool funds program and trade-ins.

A: Josh Jepsen explained that pool funds are deployed to stabilize the used market, with positive impact from incentives.

Q: Kyle Menguez asked about full-year guidance and retail demand.

A: Josh Jepsen noted year-over-year comps are worse in the first half of 2025 for segments like construction and forestry.

Q: David Raso asked about Q1 earnings and new administration impact.

A: Josh Jepsen discussed Q1 decrementals and monitoring the impact of the new administration on operations.

Q: Angel Castillo questioned construction price guide.

A: Josh Jepsen mentioned price dynamics in construction are dynamic, with road building providing some stability.

Q: Rob Wertheimer asked about used equipment inventory.

A: Josh Jepsen and Cory Reed stated used inventory levels are being worked on, with stabilized levels in Q4 and progress expected in Q1.

Q: Jamie Cook asked about PP&A decrementals and 2026 outlook.

A: Josh Jepsen responded on positive pricing in PPA regions and implications for 2026.