Deere & Co Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kristen Owen - Oppenheimer & Co. Inc - Analyst : Hi, good morning. Thank you so much for taking the question. Lots of color commentary particularly around some of the cadence in Q1. But I'm, I'm just wondering if we could get a little bit of a cleaner bridge on what the margin expectations are for 2025. What are the puts and takes in terms of productivity cost that you're carrying over raw materials and, and the headwinds from the production in the first half. Yeah. Good to see you, Chris. I can hear you. I'll, I'll take a shot and the team jump in, I think as we think about, you know, margin. There's a few things that place you at play here as you look at 2025 you know, fir first and foremost and, and, and notably, I think it's just the continued volume declines that we're seeing in the market, you know, expectations. As you look at the individual guides would be that total equipment operations, you know, would be down, you know, and, and, and kind of around 13% you know, for the, for the full year. And certainly that, that continued level of volume reduction, you know, is weighing on the margins. You know, as we mentioned, you know, we expect pricing, you know, to be positive across all three segments. And Josh Jepson mentioned, you know, favorable production costs as well. So, you know, receiving, seeing favorable price/cost, and in addition to that, obviously, some of the take the decisions we've made in terms of reducing cost this year, we'll carry over in the next year as well, you know, providing a lift. And, and so overall, you know, it's, as you mentioned, you know, margin expectations relative to history very strong, I think maybe lastly, if you think about detrimentals, you know, probably a little bit higher than, than, than normal on the large ag business that, that's really a mix driven impact, you know, as we think about, you know, the large AG business in North America being down around 30%. You know, our, our sales reduction will be less than that given the comp to, to 2024 and the under production that we did this year, but still the outsized reduction, you know, in one of our most profitable regions and, and, and some of our most profitable product lines that will weigh on detrimentals next year. Thanks Kristen.

Question: Jerry Revich - Goldman Sachs - Analyst : Yes. Hi, good morning, everyone. I'm wondering if you could just expand on the pool funds program and the use of pool funds to help the trade ins for the late model year equipment that I I know you can move around pool funds year to year and given the incentives last year from the rebates to dealers. There's quite a bit that you're able to deploy to get those inventory levels down. Can you, can you just flush it out for us? And if you don't mind, just share the order of magnitude on how much you can put in that direction. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. NOVEMBER 21, 2024 / 3:00PM, DE.N - Q4 2024 Deere & Co Earnings Call

Question: Kyle Menges - Citi Group - Analyst : Thank you. I was hoping if you could just unpack the, the for your guidance a little bit, sounds like it is back half weighted. Would just love to hear if, if that's kind of baking in any assumed improvement in retail demand and some of these end markets in ag and construction it, it. It's more so Kyle related to I think, year over year comps. You know, you could think about, you know, our segments and I'll, I'll look at large ag and construction and forestry and just, just look at it by half, you know, in, in 2024 large ag in the first half of the year was down 10% year over year compared to 23 in the back half. It was down 30. It's similarly in construction and forestry. First half of 2024 down, 4% year over year, back half down. You know, so you look at how that's going to play out in year, over year comps. You know, for, for 2025 you know, we, we would expect you know, greater year over year declines in the first half of the year for both segments, you know, particularly construction or forestry where we talked about, you know, significant under production in the first half of the year. And then those, those comps will get progressively better as we move through the year, you know, when you're comparing it to, to the back half of 2024 please go.

Question: David Raso - Evercore ISI - Analyst : Hi, I'm going to slide in two quick ones if you don't mind. Just a little sort of piggybacking off the last comment. So, so the first quarter just using midpoints, right? It's around $3 of earnings sales down, you know, whatever, 27% EPS down about 50. But the rest of the year that is implied, you know, sales are only down nine earnings down about 15. Just curious, I'm not trying to pin you to quarterly cadence, but just we have a sense of, of how the under production ceasing later in the year, at least how you're interpreting it. Are we back to growth year over year by the third quarter and then second, not to get you in trouble. Just curious, your thoughts, I'll give you the platform to answer with the new administration coming in. Just how are you thinking about the impact of tariffs and maybe compare it to, to to last time. The immigration question and obviously the the appointment of, of the new Secretary of Health and Human Services, just how to think about framework wise, how that could impact how, how farmers are thinking about their business. Thank you. Yeah, thanks David. Thanks for the questions. You know, start starting with the first one on, on, on the year. Yeah, I mean, as, as Josh Jepson mentioned, you know, as we think about Q1 particularly, you know, and sequentially, you know, that's going to be down 15% to 20% compared to the fourth quarter. And, and as Josh mentioned, if you look at the, you know, the margin expectations, you know, for, for the first quarter, you know, 300 to 403 100 to 400 basis points below the full year guide, you know, for equipment. So certainly you're going to see, you know, more of that decline in Q1 particularly again, You know, noting construction and forestry, which will be at the, at the top end of that range of top line sequential decline and that actually margins. If you think about like detrimentals for construction and forestry in the first quarter, it'll be, it'll be higher than the implied guide for the full year again, given the under production. And, and then, you know, to your question, as you, as you move throughout the course of the year, those, those year over year comps get better, you know, particularly in the back half. And, and you get to kind of flattish if not up a little bit, you know, as you look at at, at 2020 at Q3, Q4 of 2025 you know, on, on the on the new administration. I mean, obviously we're thinking about that in terms of how it impacts our, our customers, you know, how it impacts you know, our suppliers and certainly how it impacts our operations as well. You know, I think, I think too early at this point to know exactly what that means in terms of enacted policy and what, what the impact will be on those three stakeholder groups. But certainly we're engaging and we will monitor that as we go forward. Yeah. You know, and the other thing I'd like to add is we're, this is John May. By the way, we're positioned really well, we, you know, we rely heavily on our highly skilled employees in the US to design and, and build high quality the most technologically advanced equipment in the world. And as a result of that greater than 75% of all products that we sell in the US are assembled here in the US and they're assembled by highly skilled employees, 30,000 employees in the US that are located in 60 different facilities across 16 different states and a result of all of their hard efforts and frankly manufacturing leadership results in John Deeree ag and turf division being a net exporter of our products manufactured in the US, exporting it to other countries. So we feel really positioned well, we've been at this for nearly 200 years building product in the US. And I'm very, very proud of our team and what they're able to accomplish. Thanks for the question, David.

Question: Angel Castillo - Morgan Stanley - Analyst : Hi, thanks for taking my question. And I just wanted to maybe follow up a little bit more on the price dynamic, particularly in construction where you noted, you know, some bigger under production in the first quarter here. It seems like there's a little bit of a broadening of the soft, of the softness. I think we had talked about rental fleets as being a factor and now it sounds like a little bit broader than that. So with, with that in mind, can you just give us a little bit of color of what drives the price guide for the year being positive in, in construction and, or maybe how to think about that in the first kind of half of the year versus the second half and then yeah, just maybe more color on the trends that you're seeing outside of rental. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. NOVEMBER 21, 2024 / 3:00PM, DE.N - Q4 2024 Deere & Co Earnings Call Yeah, thanks for the question, Angel. I mean, yeah, certainly, as we've, as you've mentioned, you know, I think the the price dynamic in construction and forestry, you know, it is competitive. And as we've talked, you know, it's a balance that we're maintaining, you know, between, you know, between price, you know, and share as we, as we look at the environment going ahead in terms of the cadence of price, I mean, really nothing of significance there as you look at, at the layout of the year. And the other thing I'd remind, remind you too is that if you think about our construction and forestry business, and the different elements of that business that includes road building, you know, which makes up 35% to 40% of that, that business as well. It's been a lot more stable And, and there's opportunity to get price, you know, there as well. And so that, that adds into the mix, which is helpful, but, but certainly it's, it's dynamic. Thanks Angel.

Question: Robert Cameron Wertheimer - Melius Research LLC - Analyst : Hi, thanks everybody and thanks for the, the, the commentary around so many of the topics including used equipment. I'm curious if you can talk any more about that. I don't know if you're seeing already the kind of early bow way but people who would be trading up, you know, nibbling at some of the the higher price, higher valued used equipment. I don't know what if anything you can say about where you expect dealer used inventory balances to kind of progress throughout the year. Do we get to mid year and you work them down, you know, based on your production levels and how trade ins work. Any, any further commentary on that would be great because that, that seems to be a sticking point still. Cory Reed - Deere & Co - President - Worldwide Agriculture & Turf Division, Production & Precision Ag, Sales & Marketing Regions of the Americas and Australia Yeah. Hey, Hey, Rob. Thanks for the question. Yeah, I mean, we, we feel good about the progress we've made. And I think, you know, as you think about where used inventory sits in North America, you know, it, it's going to be, levels that we're going to work on here over the next few quarters. It's not something you turn overnight. I think we feel good about the stabilized level that we saw in the fourth quarter. You know, keep, keep in mind as you think about quarter, quarterly cadence on used, you know, Q4 for us is a big quarter from a retail standpoint of new equipment that drives trade ins, you know, coming in into the pipeline. And so to be able to you know, maintain and kind of mitigate, you know, the increase we've seen in the quarter we feel good about, you know, Q1 provides a really good opportunity for us as we think about you know, year end tax buying, you know, production levels a little bit lower typically in the first quarter. You know, sequentially, this, this next quarter in Q1 provides an opportunity to continue to drive that down. But we'll, we'll be working over that again over the course of the next couple quarters.

Question: Jamie Cook - Truist Securities - Analyst : Hey, good morning. And thanks for letting me ask the question. I just back to the detrimentals on PP and A you know, a little worse probably than I would have thought. And so my question is to what degree is pricing? I know you said positive pricing for for the year. But like with North America down, 30% can pricing be positive in that region. And then just the follow up, I know you said equipment operations will be 80% of mid cycle for 2025. Just your thoughts are on where large ag is going to be relative to mid cycle as we exit the year. And obviously what that means for 26. Thanks.