Deere & Company Q3 FY2025 earnings call

• Inventory reductions: Significant year-over-year declines in inventories across all business units and geographies due to actions taken over the past 18 months.
• Cost management: Factories running efficiently, costs reduced, material costs driven down, and ag and turf business production costs favorable despite tariffs.
• Market trends: Better-than-expected demand in some segments, positive sentiment in Europe and parts of South America, but caution in North America due to trade dynamics.
• Early order programs: Details on sprayer, planter, and combine early order programs in North America, with projected changes in sales for model year '26.
• Technology adoption: Over 5,000 global orders for JDLink Boost satellite connectivity solution, 21,000 orders for Precision Essentials, and increased engagement in the John Deere Operations Center.

Production and Precision Ag: Net sales were $4.273 billion, down 16% compared to the third quarter last year, with an operating profit of $580 million and a 13.6% operating margin. Small Ag and Turf: Net sales totaled $3.025 billion in the third quarter, down 1% year-over-year, with an operating profit of $485 million and a 16% operating margin. Construction and Forestry: Net sales were $3.059 billion, down 5% year-over-year, with an operating profit of $237 million and a 7.7% operating margin. Financial Services: Worldwide Financial Services net income attributable to Deere & Company in the third quarter was $205 million, with an outlook for fiscal 2025 increased to $770 million.

• Net income: Fiscal 2025 outlook tightened to between $4.75 billion and $5.25 billion.
• Effective tax rate: Between 19% and 21%.
• Operating cash flow: Expectations from equipment operations remain in the range of $4.5 billion to $5.5 billion.
• Segment forecasts: Production and Precision Ag net sales forecast down 15%-20% with operating margin 15.5%-17%; Small Ag and Turf net sales forecast down about 10% with operating margin 12%-13.5%; Construction and Forestry 2025 net sales estimates down 10%-15% with operating margin 8.5%-10%.

• Global uncertainty: Persistent global uncertainty affecting customer sentiment in key end markets.
• Tariffs: Pretax impact of tariffs in fiscal 2025 adjusted to nearly $600 million due to increased rates on Europe, India, steel, and aluminum.
• Interest rates: High interest rates pressuring customer purchase decisions in some segments.
• Trade policy: Uncertainty in trade policies impacting market sentiment and equipment replacement decisions in North America.

Q: My first question is on your comment that you want to produce to retail demand next year. Just so I understand -- just so we understand, in a scenario where, let's say, retail sales are up 5% or up 10%, are you expecting to be up -- the production to be up similarly? Or could it be up more because you're underproducing this year?

A: Tami, thanks for the question. First and foremost, as we mentioned in the comments, we feel really good about the progress that we've made thus far in fiscal 2025 on our inventory levels in the field. And as we mentioned, that's really across all 3 segments. Large ag was in good shape to start the year. We continue to bring that down. In small ag and turf and construction and forestry, both of those businesses, we did about 10% under production this year. We've seen inventories come down. So really good progress. We'll do a little bit more in Q4 there, but we've made really good progress and again, about 10% under production. C&F, that was really front half loaded really in the first quarter, we did that under production. So as a setup to your question, what that means for 2026, large ag, pretty much in retail this year. So whatever happens with retail next year, that will be the change. So plus 5%, your hypothetical would be pretty similar on the large ag side. Small ag and turf and construction and forestry, they'll get some lift building in line with retail next year, again, down 10% to retail in both of those segments this year. So there's some potential left as we build in line with retail in 2026.

Q: Just wanted to expand a little bit more on the early order programs. I completely understand your comments on why we shouldn't extrapolate sprayers. But if you could maybe talk a little bit more about just what you're seeing in planters, which are maybe a little bit further along and maybe just even very early days on combines and also just the commentary you made on quoting activity, just to the extent that you have the ability to kind of see how those are trending and how much better that might be versus sprayers, that would be helpful.

A: Yes, sure. I'll start, and Cory, feel free to add in here. I mean planters, Angela, it's -- we're a little bit more than halfway through the program at this point in time. I mean I think it's fair to say, given the uncertainty in the market the past 1.5 months, 2 months, it's been cautious ordering on the planter side. And candidly, customers have the optionality to wait until the end of that. We typically see a ramp-up towards the back part of the EOPs, especially in an environment like this. And so early days on the planter program. Then combine, as we mentioned, it opened on 1 August, so very, very early. Early returns are good, but it's early in that segment. And I think don't read too much into that either as well as we need to see that play out over the next several months. Cory, any additional thoughts on what we're seeing? Cory J. Reed: No, I think you summarized it well. We expect based on where all the external policy factors are that people are going to wait and see a little bit. But we've been pleased as we've opened the combine program with some of the response that we've seen. Joshua A. Jepsen: Yes. I think the other thing we're watching, too, is particularly here in the Midwest, but we see relatively large production. We think we're going to have good yields. And one thing that's true over time is more bushels will drive better outcomes for customers, which can in turn drive demand incrementally, whether that's pulling used equipment into the harvest or purchase decisions post harvest, new and used. So a lot to see here, and we'll learn a lot here over the next 60 days.