Good morning, and welcome to Deere & Company First Quarter Earnings Conference Call. Your lines have been placed on listen-only until the question session. I would now like to turn the call over to Mr. Josh Beal, Director of Investor Relations. Thank you. You may begin.

Hello. Welcome, and thank you for joining us on today's call. Joining me on the call today are Josh Jepsen, Chief Financial Officer, and Josh Rohleder, Manager, Investor Communications. Today, we will take a closer look at Deere's first quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2025. After that, we will respond to your questions. Please note that slides are available to complement the call this morning. They can be accessed on our website at deere.com/earnings. First, a reminder, this call is broadcast live on the Internet and recorded for future transmission and use by Deere & Company. Any other use, recording, or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited. 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, which 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-Ks and Risk Factors in the annual Form 10-K, as updated by reports filed with the Securities and Exchange Commission. This call may also include financial measures that are not in conformance with accounting principles generally accepted in the United States of America. Additional information concerning these measures, including reconciliations to comparable GAAP measures, is included in the release and posted on our website at deere.com/earnings under quarterly earnings and events. I will now turn the call over to Josh Rohleder.

Good morning, and thank you for joining us today. Deere & Company completed the first quarter with a 7.7% margin for the equipment. Global ag fundamentals generally improved this quarter. However, demand remains constrained by overall uncertainty in the market, which has continued to put pressure on order velocities, particularly in North America. Our fiscal 2025 ag outlook remains largely unchanged from prior guidance when excluding the impacts of currency movement over the past quarter. Notably, shipping volumes were lower in the quarter versus expectations as we calibrated full-year production schedules, billed as efficiently as possible. As a result, we expect to recover the first quarter shortfall over the remainder of the year. In construction and forestry, end market fundamentals remain supportive of replacement demand, albeit dampened by elevated interest rates, macro uncertainty, and a competitive environment planned underproduction. Our earthmoving segment during the first quarter showed further reductions in field inventory levels, enabling production optionality as market demand develops over the course of the year. Slide three opens with results for the first quarter. Net sales and revenues were down 30% to $8.508 billion, while net sales for the equipment operations were down 35% to $6.809 billion. Net income attributable to Deere & Company was $869 million, or $3.19 per diluted share, which included $163 million of discrete tax benefits related to special items. Turning to our individual segments, we begin with the production and precision ag business on slide four. Net sales of $3.067 billion were down 37% compared to the first quarter last year, primarily due to lower shipment volumes. Price realization was positive, by just over one point. Currency translation was negative, by roughly two and a half points. Operating profit was $338 million, resulting in an 11% operating margin for each segment. The year-over-year decrease was primarily due to lower shipment volumes and sales mix, partially offset by lower SG&A and R&D expenses and reduced production costs. Moving on to small ag and turf on slide five. Net sales were down 28%, totaling $1.748 billion in the first quarter as a result of lower shipment volumes. Price realization was positive, by just under one point. Currency translation was negative, by just under one point as well. Operating profit declined year over year to $124 million, resulting in a 7.1% operating margin. The decrease was primarily due to lower shipment volumes and sales mix, partially offset by lower production costs. Slide six gives our industry outlook for ag and turf markets globally. We continue to expect large ag equipment industry sales in the US and Canada to be down approximately 30% as higher interest rates, macro uncertainty, and elevated used inventory levels are slightly tempered by improving ag fundamentals and expectations for farm net income, which is further bolstered by additional government support. For small ag and turf in the US and Canada, industry demand estimates remain down around 10%. The dairy and livestock segment remains at strong levels of profitability despite reaching the lowest level of cattle inventory in over seventy years. However, profitability in these segments has not yet translated into equipment purchases. US and Canada demand has been further impacted by continued weakness in turf compact utility tractors as high interest rates weigh on purchase decisions. Moving to Europe, the industry is now projected to decline around 5%. Farm fundamentals have stabilized, albeit down, with less volatile commodity prices and stronger dairy margins offsetting macro uncertainty. Additionally, in Central and Eastern Europe, reduced pressure from Ukrainian grain imports is supporting better than expected farm net incomes. In South America, industry sales of tractors and combines are expected to be roughly flat following two years of significant industry declines. In Brazil, sentiment is showing signs of improvement as depreciation in the real has pushed local commodity prices higher amidst a year of stronger yields. Along with softening input costs, farm margins are expected to improve. Additionally, declining production, tight global stocks, and strong demand have driven outsized profitability in coffee bean production, supporting equipment demand for small and midsize tractors. In Argentina, decreased currency risks and export tax reductions support some improvements in farm margins despite negative impacts of dryness at the beginning of the year. Industry sales in Asia are still projected to be down slightly.

Next, segment forecast begins on slide seven. For production precision ag, net sales are now forecasted to be down between 15% and 20% for the full year. The forecast assumes roughly one point of positive price realization for the full year offset by two and a half points of negative currency impact. The reduction to our sales guide from the prior quarter is primarily driven by the strengthening of the dollar relative to nearly all foreign currencies, most notably the Brazilian real, Canadian dollar, and euro. For the segment's operating margin, our full-year guide forecast is now between 16% and 17%, also reflecting the impacts of currency fluctuations. Slide eight shows our forecast for the small ag and turf segment. We expect net sales to remain down around 10%. This guide now includes a half point of positive price realization and one and a half points of negative currency translation. The segment's operating margin guide remains between 13% and 14%. Shifting now to construction and forestry on slide nine. Net sales for the quarter declined roughly 38% year over year to $1.994 billion due to lower shipment volumes. Price realization was negative, roughly one point. Currency translation was also negative, by more than one point. Operating profit of $65 million was down year over year, resulting in a 3.3% operating margin, primarily due to lower shipment volumes and sales mix as well as unfavorable price realization and higher SG&A and R&D expenses. Lower shipment volumes were primarily due to planned underproduction to retail in the quarter as we reduced field inventory levels in our earthmoving segment. Slide ten describes our construction and forestry industry outlook. Industry sales for earthmoving equipment in the US and Canada are expected to be down around 10%, while compact construction equipment in the US and Canada is expected to be down 5%. End markets remain sequentially unchanged in 2025, with equipment demand tempered by uncertainty across both construction and compact construction equipment. US government infrastructure spending remains at historically high levels, while single-family housing starts continue to increase as a result of low levels of existing home inventory. These tailwinds are offset by subdued multifamily housing starts and a softening commercial real estate market as high interest rates continue to weigh on overall investment. Additionally, earthmoving rental reflating remains at low levels. Global forestry markets are expected to be flat to down 5% as all global markets continue to be challenged. Global road building markets are forecasted to be roughly flat with strong end-market demand persisting amid a return to more normal ordering seasonality. Moving to the CNF, showing an outlook on slide eleven. For 2025, net sales remain forecasted down between 10% and 15%. Net sales guidance for the year includes flat net price realization and one and a half points of negative currency translation. The segment's operating margin continues to be projected between 11.5% and 12.5%. Now transitioning to our financial services operations on slide twelve. Worldwide Financial Services net income attributable to Deere & Company in the first quarter was $230 million. Net income was favorably impacted by a decreased valuation allowance on assets held for sale of Banco John Deere. Note that Deere completed this transaction with Bradesco for the sale of 50% ownership in Banco John Deere subsequent to the quarter in February. Excluding this special item, net income decreased due to a higher provision for credit losses, partially offset by lower SG&A expenses. For fiscal year 2025, our outlook remains at $750 million as benefits from a lower provision for credit losses are partially offset by less favorable financing spreads. Finally, slide thirteen outlines our guidance for net income, effective tax rate, and operating cash flow. For fiscal year 2025, our outlook for net income remains between $5 billion and $5.5 billion. Next, our guidance now incorporates an effective tax rate between 20% and 22%. Lastly, cash flow from the equipment operations remains projected between $4.5 billion and $5.5 billion. Note that during the quarter, we made a voluntary 401(h) contribution of $520 million to fund our salaried post-retirement healthcare plan. This will impact our cash flows for the full year; however, our guidance range remains unchanged. This concludes our formal comments. We will now shift to a few topics specific to the quarter. Let's begin with Deere's performance this quarter. We saw net sales decline roughly 35% year over year and margins come in just under 8%, but we held the majority of our guides for the full year, notably net income. Josh Jepsen, could you break down what happened this quarter and then walk through what this means for the rest of the year?

Sure. Happy to. I think it's important to start with a few thoughts on what our plans were for the quarter. In North America large ag, our focus was continuing to work down used inventory levels while returning to normal production and shipment seasonality, albeit at lower volumes this year due to the projected industry decline. In Brazil, we targeted further reduction in combined field inventory, which was the one product line where we still had a little more underproduction to follow the significant inventory declines we achieved across all product lines in 2024. Lastly, in construction and forestry, recall that our plan was to shut down North American earthmoving production for roughly half the first quarter, significantly underproducing retail demand and positioning our field inventories well for the remainder of the fiscal year. We feel great about the progress that we made across all three fronts. The plans that we executed, while contributing to the 35% year-over-year decline in sales that you mentioned, reflect our ongoing focus on proactively managing our business through this downturn. There were a few variances this quarter that caused sales to decline slightly more than we had anticipated, specifically the timing of shipments and currency translation. Within our ag and turf divisions, we saw the timing of certain product deliveries get pushed out into the second and third quarters as we work to optimize schedules for the full year. Similarly, in road building, a shift to more normal seasonality in that industry pushed some shipments into future quarters. As a result, we expect to see these sales occur across the remainder of the year for all three divisions. Regarding currency, over the quarter, we saw mid-single-digit strengthening of the dollar against nearly all our foreign currency exposure, which lowered our top-line results, particularly in production and precision ag, due to the translation impact on non-US dollar sales. The currency impact on operating profit was relatively minimal in the quarter due to currency hedges. For the full year, the reduction in both our net sales and operating profit guides for large ag are primarily driven by currency changes as we extend the impact of the stronger US dollar to the rest of our projections, including our unhedged currency exposure in the latter quarters of the year. Shifting to cost management, we had a relatively strong quarter. In both of our ag and turf segments, we saw favorable production costs primarily due to reduced material costs and muted overhead headwinds. Additionally, lower SG&A expenses this quarter reflect our focus and commitment to operational efficiency throughout the business. Turning to the full-year guide, our market demand outlook remains relatively unchanged this quarter. Outside of the FX impacts that moved our PPA guide slightly lower, this quarter was really a story of continued production and inventory management. One last item of note, we did benefit from a favorable tax rate this quarter, resulting from two non-repeating discrete items totaling $163 million. Therefore, when netted against the negative currency impacts and other quarterly items, our full-year net income forecast remains unchanged from our original 2025 guide.

Great. Thanks for that breakdown, Josh. So overall, it was really a quiet quarter once you back out the timing, FX, and tax items. I guess moving then to the broader ag industry, I'd like to talk through Farm Fundamentals. The USDA just updated their 2025 forecast for net cash farm income. While US net cash farm income is now forecasted to be up 22% year over year, crop cash receipts are still expected to fall 2% driven by lower commodity prices. The difference then would be the significant government support expected for farmers this year. Obviously, it's still early in the year, but this seems to be a somewhat positive proof point for our customers following a tough 2024. Can you add any additional color to what this means for farmers and equipment demand over the rest of the year?

Yeah. Sure thing, Josh. And clearly a positive headline with the forecast up year over year. It's important to break down how we get to that point. There are a number of positive data points this quarter, keeping in mind this is all within the context of a trough level outlook for 2025. For starters, the recent rally in commodity prices has been fueled by both cuts in last season's US yield forecast along with dryness in South America. Additionally, the USDA forecast for global ending stocks of corn, soy, and wheat declined over 10% during the quarter as stocks-to-use retreated. This provides some benefit for our customers as they market last year's strong harvest. On the input side, farmers are continuing to see a decline in input costs for the third consecutive year. Further tailwinds this quarter came via $10 billion in additional US support for farmers as you noted. This assistance will offset some of the margin decline farmers saw in 2024, while potentially helping to relieve concerns around macro risk and high interest rates. But ultimately, we don't expect this to translate into immediate order velocity as general uncertainty continues to persist and customers remain cautious across all markets.

Hey. This is Josh Jepsen. So I think the takeaway here is the additional support from government payments will help buffer downside risk to farmers' balance sheets as well as the overall industry outlook following a multiyear decline in both farm net income and industry equipment demand.

Yeah. Definitely, Josh. And if we look globally, Brazil is another geography where farmer sentiment continues to improve. Currency movement has been favorable as a weakening real helps improve farm net incomes in the country. This is because commodity sales are primarily US dollar denominated while typically around half of producer costs are in local currency. It's still too early to call a market shift there as we've yet to see the sentiment convert to a meaningful change in order velocity, but it's a positive sign nonetheless. Finally, turning to Europe, the continued favorability we've seen in dairy and livestock is now supported by moderately better wheat prices and slightly lower input costs. While markets overall remain contracted and pressured by lower yields and macro uncertainty, we've seen this improved sentiment translate to further stabilization in our order books.

Perfect. Thanks, Josh. Clearly a dynamic global market, but overall sentiment seems to be improving a tinge. Given this macro, this market backdrop, can you update us on the business and how we're managing through inventories and order books?

Absolutely. As we discussed earlier, this quarter has really been about executing the plan as we continue to manage through the downturn. Our setup entering 2025 was solid as the underproduction of retail that we executed last year drove down field inventories and positioned us well across the globe for another challenging year in terms of end market demand. As we walk around the world, let's start in North America. On the new inventory side, we ended the calendar year with large ag field inventory down 25% year over year and roughly 15% below pre-2020 averages. In fact, we saw our 220 horsepower tractor inventory decline by nearly twice as much as the industry the past year, allowing us, in partnership with our dealers, to continue our focus on reducing used tractor inventory. The industry backdrop remains challenged, and we continue to expect demand declines across all large ag product lines in North America. Our combine early order program closed a couple of weeks ago, and compared to last year's EOP, was down more than our industry guide. Additionally, our rolling tractor order books continue to provide roughly five months of visibility as they're now full late into our fiscal third quarter. As a result, we are targeting to finish the year with new inventory in the US roughly unchanged year over year, reflecting our plan to produce in line with retail demand in the region. Shifting our focus to North American used equipment, we're starting to see early proof points supporting the operational and marketing decisions we've made over the past quarters. Here, high horsepower tractor used inventory peaked in November, and we've since seen two consecutive months of moderate unit declines along with compression in auction to asking price spreads. Notably, we've also seen two consecutive quarters of improvement in the percentage of late model equipment that makes up Deere's used high horsepower tractor population. Deere combine used inventory was up this quarter in line with normal seasonal build, but down over 10% from the recent peak in spring 2024 and is currently sitting at around 60% of the prior cycle peak. While progress has been made, normalizing used inventory levels in North America, particularly in high horsepower tractors, remains a top priority for the fiscal year. This is Josh Jepsen. Maybe one thing to add. I spent time last week with our dealer principals from the US, Canada, Australia, and New Zealand. We have a high level of alignment and focus on reducing used inventories, and they feel confident in how we, collectively, Deere and dealers, have managed this downturn differently and note our more proactive response to get ahead of the market turning in 2024. This enables them to continue investing in their ability to support customers' needs today and tomorrow.

Thanks, Josh. Great to hear that feedback from the channel. Now continuing outside the US, we're seeing some bright spots in Brazil as the work we put in last year to bring down inventory levels has also resulted in a return to production levels in line with the industry demand. As previously noted, the one exception is combines, where we had a little more work to do in the first half of this fiscal year. With the Brazilian harvest in January, the end of the calendar year is typically our strongest combine selling season. And to that end, we saw great progress on our combine inventory this quarter. The level is down over 25% in the past three months and down nearly two-thirds since the end of fiscal 2023. Along with improving customer sentiment in the region, our strategic focus on tech adoption has been met with strong customer interest. During the quarter, over 1,500 Precision Ag Essentials kits were ordered in Brazil, along with over 1,200 orders for JDLink Boost, our Starlink-supported satellite connectivity solution, which was just made fully available to the market for order a few weeks ago. We expect to see continued tech adoption in Brazil as connectivity expands within the region, and customers are able to maximize the value of John Deere's precision ag solutions and the John Deere Operations Center.

Hey. This is Josh Jepsen again. One thing to add on top of the great progress Bill noted is our continued focus on investing in Brazil for Brazil. During the past quarter, we officially opened our technology development center in the country, which we announced last year. This space will enable us to develop and deliver solutions specifically suited for Brazil's tropical agriculture environment. We also continue to enhance both dealer and customer support in Brazil. Brazilian farmers are ramping up the horsepower curve while simultaneously integrating advanced technology and digital solutions into their operations. We recognize this and are committed to supporting them on this journey. A quarter ago, we discussed the growth in engaged acres and highly engaged acres in South America. The combination of the equipment, technology, and connectivity we're delivering will support further growth in these metrics and, more importantly, lead to better outcomes for our customers.

Hey. Great call, Josh. Okay. Let's shift now to construction and forestry, which had a few unique aspects this quarter. As you mentioned earlier, we discussed the roughly 50% production shutdown days we had planned in earthmoving as we proactively work to reduce inventories and build order banks. Josh Jepsen, could you provide an update on how that turned out, along with any broader market commentary for the year?

Yeah. No problem, Josh. As you rightly noted, our first quarter in C&F was all about right-sizing inventories to ensure strong execution throughout the remainder of the year. To that extent, we underproduced retail demand by approximately 35% in the first quarter, resulting in an earthmoving inventory reduction of more than 15% over the past three months and nearly 30% in the prior two quarters combined. In fact, this was more than we had initially anticipated as retail sales for compact construction were even better than expected at the end of the calendar year. We're encouraged by these results as they provide us with operational flexibility as earthmoving demand evolves throughout the remainder of the year. Turning to the broader industry, we remain focused on supporting sales in a highly competitive North America market. End markets remain strong with only around 50% of IIJA funds committed, and equipment utilization reflecting the fact that construction employment is at record levels and continuing to rise. However, equipment purchases remain constrained given macro uncertainty and persistently high interest rates. That said, we found success with selective incentive programs targeting specific products to drive sales. Our road building business continues to bolster the C&F segment as road building is experiencing another year of strong market demand. Tech investment and integration in this market continue to drive further customer value on top of an already robust value proposition. We are excited to showcase our latest innovations in road building at the upcoming Bauma Show in April. One final thought on the broader C&F segment. Headwinds from strong price competition and unfavorable currency impacts are putting pressure on sales. This has resulted in a point reduction to our net price realization forecast, although that negative margin impact is being offset by strong cost execution, leading to expectations for more favorable production costs this year than initially expected. It's important to note, however, that intra-year, we will see an atypical quarterly cadence as price actions taken in the first half of the year will moderate in the third and fourth quarters as we ramp production in the back half of the year.

That's great color, Josh. Good insight on the unique seasonality of the business this year. Okay. Shifting gears now, the last topic I'd like to cover is tariffs. Obviously, a dynamic and rapidly evolving situation. What details can you provide on the issue, Josh?

Yeah. I'd start by reinforcing the statement you made. The situation is certainly fluid, and we continue to monitor changes in policy as they occur. Teams across the organization are continually running potential scenarios to understand risks along with opportunities to mitigate these impacts. But our primary focus remains on understanding how proposed tariffs may impact our customers' operations as we recognize their need for free and fair trade in ag commodities. This allows them to concentrate on growing crops that feed, fuel, and clothe the world. We remain committed to delivering the products and solutions they need to be productive, as we've done for nearly two hundred years. Within Deere's business, first a reminder about our operational footprint. As you'll recall, we are a net exporter of ag and turf equipment from the US, and more than 75% of our domestic US sales are assembled at US manufacturing locations. Less than 5% of our US complete good sales come from Mexico, and of the remaining products produced outside the US, the majority come from Europe, notably our six series tractors. From an export perspective, over half of our exports serve our Canadian customers, with the remainder going to Europe, Brazil, and Australia. In terms of component sourcing, about 10% of our US manufacturing cost of goods sold come from Mexico, with less than 2% coming from China, and approximately 1% from Canada. For the last several years, our teams have focused diligently on both supplier resiliency and cost management. The actions taken by our supply management team in response to pandemic disruptions, such as dual sourcing and strengthening relationships with key suppliers, are prime examples of the step function change our organization has to build a more resilient and adaptable business. This group works to manage and optimize our global trade flows, which position us well to navigate the current environment. And given the rapidly evolving nature of these tariffs, our guide does not contemplate the direct cost or economic benefit impacts resulting from potential future tariffs. It is important to note, however, that our exposure to the recently enacted China tariffs is expected to have an immaterial amount on our business.

Thanks, Josh. Great update. And before we open the line to questions, do you have any final comments you'd like to share?

Yeah. Certainly. The first quarter was reflective of the focus that we've maintained as a business despite significant internal pressures ranging from weak market demand, a more competitive environment, and macro uncertainty. Despite all the noise, we maintained discipline, executing to plan as we successfully brought down inventories while managing costs and operational expenses. We maintained our investment in the business, continued to yield results as evidenced by our recent successes in Brazil, our autonomous solution announcements at CES last month, and our upcoming product launches at Bauma in April. I'm as excited as ever about the value we're unlocking for our customers across the world. We also returned over $800 million in cash to shareholders through dividends and share repurchases during the quarter, reflecting the structural improvements we've made this cycle over the last few years. I want to reiterate my utmost thanks to our entire team here at Deere, from employees to dealers to suppliers. It takes dedication and hard work from every facet of the business to demonstrate this level of discipline. We'll continue to execute to plan as we manage throughout the rest of the year and across the cycle. We're as focused as ever on our steadfast commitment to our customers. We'll continue prioritizing investment in the most value-added solutions for them. We'll continue to expand our precision offerings across both product lines and geographies while ensuring we meet the basic needs of quality, uptime, and productivity for our customers.

Our focus is on solving our customers' toughest problems so they can focus on what matters most: building critical infrastructure and growing the crops that feed, fuel, and clothe the world.

Thanks, Josh. Now let's open it up to questions from our investors. We're now 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.

Thank you. We will now begin the question and answer session. If you need to withdraw, press star two. Our first question comes from Tim Thein from Raymond James.

Hi. Good morning. Maybe just some help in terms of large ag production cadence given the push out that you call out for the first quarter. How do we think about kind of that normal seasonal ramp-up that you typically see in the second quarter and third quarter? Is that going to be more weighted to the third quarter than usual? And just as we think about kind of segmenting the remaining quarters, this would be a PPA question. Thank you.

Yeah. Hey, Tim. Thanks for the question. I mean, I think, yeah, as you think about large ag demand and, you know, shipping some of those shipments out to future years, it's still going to more or less follow normal seasonality, you know, for the business. You know, as we look at the second quarter, you know, it's still we'd anticipate being, you know, the highest quarter for us in terms of sales. You know, full-year guide for large ag being down 15% to 20%, you know, quarter over quarter, we'd expect that second quarter year over year comparing the last quarter or last year's quarter to be down more than the guide. So probably down more than the 15% to 20% that you're seeing in the full year. And that gets sequentially better as you go to Q3 and Q4 in terms of the year-over-year comps.

Tim, this is Josh Jepsen. Maybe one thing I'd add too. You know, as you think about those sequences, you know, Bill laid out kind of how that plays out. I think for production precision ag as well as for the rest of our business, we would expect the fourth quarter where we're actually growing year over year, you know, because of some of the comps and actions we took, but we actually start to see increases year over year as we get to Q4 as well. Thank you.

Our next question comes from Stephen Volkmann from Jefferies.

Hi, good morning, guys. Thank you. I'm curious. I think one of you, Josh, mentioned that the early order program was kind of below your industry forecast. And, obviously, we saw some pretty weak numbers from AEM yesterday. And I'm just curious how you're thinking about sort of having confidence in the bottoming process for the end market activity because, obviously, that'll drive what you need to do on the inventory side.

Hey. Hey, Steve. Thanks for the question. And maybe, you know, I'll talk combines and then walk a little bit around the other product lines as well. Yeah. As you recall for North America, you know, our guide for the industry is down 30%. You kind of take product line by product line, you know, sprayer EOP came in pretty close to, you know, that industry guide. We're expecting tractors to be down a little bit less year over year. Row crop tractors. And then four-wheel-drive tractors will be a little bit more than the guide. And then as you mentioned, you know, given the results of the combine early order program, we'd expect that to be down a little more than the guide as well. So, you know, a way to get to that industry down 30%, but a little bit of difference, you know, by product line. Yeah. You know, as you saw in the quarter, this is consistent with the shipment timing that we talked about. You know, the EOP for combines is both a little more slowly this year than it has in prior years, and that resulted in a little bit lower ramp-up for us in terms of combine shipments in Q1. I think that's reflective of the inventory levels, you know, that you're seeing for us. We talk about 11% inventory to sales, you know, for combines as it pulls out the quarter, that's a little lower than normal and really reflective of some of those delayed shipments. You know, as you look to the full year, you know, I think what gives us confidence is, as you know, you know, the combine early order program typically represents, you know, 90% plus of what we're going to build in a year. So we have those orders locked in. It's just a matter of when we laid those in the schedules, and so, you know, pretty good visibility there. Again, it was just a timing issue in Q1.

Steve, this is Josh Jepsen. Maybe one thing to add on the use side. Your combines, you know, we saw combines start to turn earlier, you know, July of 2024 was kind of where we saw the highest inventory level on combines, and that worked down over the course of the year. You know, we see a little bit of seasonal build there, but I think, you know, we were earlier on actions as it related to combines, and I feel good about the progress we're making to pull that down. Thank you.

Our next question comes from Jerry Revich from Goldman Sachs.

Yes. Hi. Good morning, everyone. I'm wondering if you could just expand on the comments that you shared on the Precision Ag update you gave us progress in Brazil. Can you just talk about globally expectations for Ag Essentials and Sense Sprayer kits for this year, what progress was like in the quarter, and also, if you wouldn't mind, just updating us on the engaged and highly engaged acres, if you have that.

Yeah. Great. No. Thanks for the question, Jerry. Yeah. I mean, Precision Ag Essentials, which we think about as our tech stack, you know, Precision Ag Essentials is really the foundation of the tech stack. It's those core elements of guidance, of connectivity, high-powered onboard compute, and, you know, the bundle that we've created with Precision Ag Essentials, a lower cost, and an annual subscription, you know, for the benefit of that technology. Recall we introduced, you know, this package last year in 2024 in North America with really strong reception to that, you know, about 8,000 units that we retailed. The average age of the equipment that those units were being put on, you know, was 2012, so we were going deeper in the fleet in terms of connecting people into the Deere ecosystem. You know, so we were really encouraged this year. I think, you know, we had a limited release in Brazil in 2024 for Precision Ag Essentials, but more fully available in 2025. And we've been really encouraged by the results. You know, as I mentioned, over 1,500 orders year to date in Brazil for that Precision Ag Essentials base. On top of that, you know, just in the middle of January, we made our Starlink-enabled, you know, JDLink Boost solution available, you know, in the region in Brazil. And recall, you know, that's connectivity is a big challenge for our customers in-country there. We estimate about 70% of ag land in Brazil doesn't have, you know, sufficient cell coverage. And we've seen really, really strong take rates, you know, early on. In those couple of weeks since that ordering has opened up. Again, we mentioned, you know, over 1,200 orders. I think there were, like, 500 orders in the first day, you know, for the solution. And so very, very encouraging and excited for the value that's going to unlock for our customers in terms of enabling, you know, that connectivity and enabling, you know, to take advantage of Precision Ag Solutions. On engaged acres, maybe just to talk about the numbers. You know, we're over 455 million globally. Year over year, that's up about 15%. You know, South American growth is greater. It's up about 20% year over year. Really where we're encouraged is on the highly engaged side, you know, where we saw growth over 30% year over year, and highly engaged acres now are making up nearly 30% of our engaged acres are highly engaged. And just a reminder, you know, highly engaged acres is more depth and breadth of utilization, you know, covering more production steps with your technology.

Hey, Jerry. This is Josh Jepsen. Maybe a couple of adds. I mean, we are continuing to see technology as a driver, you know, of competitive advantage and what we're able to do from a perspective. And we had an example from our field team, you know, this quarter of where we put essentially Precision Ag Essentials a year ago on non-competitive machines. Call it 20 competitive machines. Brought them in, to, you know, connectivity, brought them into the digital side from an operation center perspective. And this year, we're converting them. We're converting them from competitive machines with Deere Tech to Deere machines. So I think we're seeing that at a high level, you know, being a difference maker for customers in terms of what is pulling them into Deere and the value they see from that. And I think we're also seeing, you know, even things that may be overlooked a little bit, like remote display access, the ability for our dealers to remote in, not have to go to the machine, but remote in and take care of them. We've seen significant growth in just the instances of our dealers doing that, and we had an anecdote, you know, talking to a dealer a month or so ago, talking about, you know, sitting at home on the couch and actually fixing an issue for a customer because they had remote display. So I think, you know, these are big and small things. They're all making a really important impact as we think about real technology that's having a real impact for the customer, and we're seeing that, you know, start to build even greater.

Just to maybe put a bow on that remote display, you know, in 2024, we had 2.5 million remote display sessions, you know, through the John Deere Operations Center. That was an 85% increase from two years prior. So, again, our ability to better serve our customers through connectivity is huge. Thanks for the question, Jerry.

Thank you.

Our next question comes from Rob Wertheimer from Millis Research.

Thank you. My question is going to be on farmer profitability and demand, and I know that parts of this may be hard to quantify, but I'm just curious as to whatever insight you can offer. Obviously, your early order programs, I guess, are a combination of, you know, your end farmer, professional big professional farmer demand, and dealer trying to balance out trade-ins and all that stuff. I suspect your biggest farmers probably still want to buy more than you're making. I don't know if you have any thoughts on how profitable those, you know, biggest first buyer kind of customers are right now at current corn and soy and cotton prices. And I don't know if you have any thoughts on where your used buyers really need corn to make it easy to be before they're profitable and able to kind of clear out some of the inventory. Thanks.

Yeah. I mean, you know, maybe a couple of points there, Rob. I think, you know, it's hard to pin an exact number on this because every operation is a little bit different. And, you know, it matters whether you own all your land or whether you rent all your land. And as you look at, you know, breakeven prices, you know, compared to, like, a hundred percent owned versus fifty percent, that can, you know, it's like a fifty cent per bushel difference, you know, on corn breakeven depending on if you fully own or you're renting fifty percent. Similarly, the amount of technology, you know, that you're utilizing on the farm can matter a lot in terms of profitability as well. We recently published our business impact report, and in that report, we did an update on, you know, the value that if you employed all Deere available solutions, you know, in a typical corn and soy operation in the Midwest, you know, what value that would bring. And it was just under fifty cents a bushel of improved profitability by fully employing the Deere production or the solution set. So, you know, there can be some pretty massive differences in terms of breakeven in terms of the size of your operation, how much you rent to own, how much technology you're using. So it's hard to put a number on it. I think what I would say is over the course of the quarter, you know, we feel good about the positives that we saw. You know, certainly we saw a rebound in commodity prices. You've got corn futures, you know, hanging around five dollars now. You know, certainly the government support that was announced prior to the holiday is beneficial as well. So net-net, you know, quarter over quarter, you know, we've seen some pickup in the fundamentals.

Yeah. Rob, this is Josh Jepsen. And I think just to add, and maybe don't click into what Josh mentioned. I mean, quarter over quarter, we've seen the ag fundamentals improve. You know, global consumption is outpacing global supply for grains and oilseeds for the first time in four years. If we look at grain stocks-to-use, in particular, if you take out, you know, the stocks in China, the lowest level in twenty years. So we're seeing, you know, a really tight stock. As you look at corn and wheat in particular, I think, you know, that's a favorable setup. And then, you know, on top of that, you talk about some of the things that Josh mentioned in terms of, you know, an increase in net income expectations from USDA. I think the backdrop and the sentiment, you know, is improved. I think you still have an impact of uncertainty as it relates to macro, uncertainty as it relates to trade policy. But I think the underlying business and then as you look at dairy and livestock, which we mentioned already, which are at relatively strong levels, are holding in really well and better than what we would have seen just three months ago.

Thanks, Rob.

Our next question comes from Jamie Cook from Truist Securities.

Hi. Good morning. I guess, you know, one question. Just wanted to understand better sort of your view on Deere's performance, margin performance given where we are in the cycle relative to the 20% sort of mid-cycle target? And I guess, Jepsen, just your confidence level, obviously, I think everyone's confident 2025 is the trough. Your view on climbing out of this in 2026. And if you didn't think we were climbing out of this in 2026, do you see the need for incremental restructuring? Thank you.

Good. Thanks, Jamie. I, you know, as it relates to, you know, where we are at, it's difficult to say exactly where we're at. Try to make a prediction on what 2026 holds. I would say, you know, we're really focused on what are the things that we can control as it relates to managing inventory levels, managing production, and keeping our arms around the operating cost of the business while funding the strategically important things. And I feel like we're in a good spot there. We're able to do that. You know, we're essentially flat on R&D, when we're making room elsewhere in the cash structure. So I think those are the pieces that we can control and that we're working to manage. And stepping back, you know, as it relates to, you know, our longer-term goal of 20% mid-cycle, this level of performance, you know, this guide, if you look at the equipment operations where we're at, call it, you know, just below 15%, 14.5% operating margin. Feel good about where that puts us in terms of progressing towards that goal. And, again, just to juxtapose that versus how we performed even in the peak of our last cycle, you know, comparing, you know, at where we are below trough levels, below 80%, you know, by our own math, I call it 14.5%, 15%. You know, that's better than we performed at the peak of the cycle in 2013. So we feel good about that progress, feel good about the ability to continue investing and doing a lot of work on an ongoing basis day to day on the cost side of the business. Thanks, Jamie.

Thank you. Our next question comes from Steven Fisher from UBS.

Great. Thanks. Good morning. Josh Jepsen, I think you mentioned, you know, feeling good about the amount of reductions you've had in the used inventory during the quarter. Is there any way to help us kind of quantify just how much used inventory is out there, how much excess you have relative to sort of the target levels, and how long do you think it would take to manage down to what the target levels would be?

Steve. It's Josh Jepsen. I'll start and, Josh Beal, you can jump in. Yeah. I mean, I think, yeah, as you characterize where we are on the use side, I mean, maybe first, you know, Jepsen mentioned this earlier, but we feel really good about combines. You know, we did a lot of work on combines earlier in the cycle. And they're sitting at a much better position. Yeah. As we think about, you know, high horsepower tractors, you know, where there's still work to do, we feel good about the progress that we saw, you know, in the last quarter. As we mentioned, you know, in the comments, you know, a couple of months sequentially of unit decline, you know, relatively modest declines. I think we're down maybe 3% from the November peak. But I think more important and probably the bigger challenge right now in higher horsepower used is that mix of used equipment. Again, being still somewhat heavily skewed towards, you know, one and two-year-old equipment. And again, you know, we've made progress over the last couple of quarters on improving that mix. We saw some improvement in our fourth quarter 2024. We've seen incremental improvement in the first quarter of 2025. But it's still higher than it should be, you know, probably on a percentage basis, you know, probably 2x the number of one and two-year-old equipment that we would normally want in that population that we normally see. And so continue to work to do there, and we'll continue to focus on that, you know, through the course of the year. I would expect, you know, it'll be, you know, the next several quarters still. We continue to drive that down.

Yes, Steve. This is Josh Jepsen. And I think the other thing that we're looking at is how can we, one, shrink the duration? Like, how can we make this, you know, get through this reduction faster? And, you know, I think the actions we took on the new side are helping us to do that, to get focused on use quicker than we did last cycle. The other thing too, when we look at fleet age, I think this is important as we think about, you know, replenishment or replacement over time. We're still aging out. So higher star tractors, four-wheel-drive tractors, combines are all getting older on a fleet age perspective. And I think that's reflective of we put much less new equipment into the market when things were on the way up in 2021, 2022, 2023. But that aging, I think, will also help us as we think about how do we churn some of that used because replacement needs will continue just because we're seeing, you know, more age, more hours on the fleet. Thank you.

Our next question comes from David Raso from Evercore ISI.

Hi. Thank you. I just want to make sure I understand the North American new inventory commentary. Essentially, you said by calendar year-end, not your fiscal, the large ag field inventory was down 25% year over year. And then you're saying you're targeting to finish the year. I assume that was a fiscal year comment. That the US inventory new will be unchanged year over year. So does that mean do we not plan to reduce any more new inventory from this point forward for the year? Or are we done reducing in North America for new?

Yeah. I mean, I think the takeaway, David, and you're right. I mean, the comment around unchanged relates fiscal year to fiscal year. And so, you know, bookending the fiscal year, our plan and our focus is on building in line with retail demand. And so you should see, you know, absolute units of your field inventory relatively unchanged at the end of fiscal 2025 from where we ended, you know, fiscal 2024. Now there's always normal seasonality in our inventory build. And so as you think about, you know, through the course of a year, you're going to build tractor inventory. You're going to build combine inventory, you know, in the first second quarter of the year, and then you'll start to draw that down. The back half of the year. That's just normal shipping. And, candidly, a lot of in-transit inventory. As you recall, you know, a significant piece of our large ag equipment is already retail sold, and so it's passed through the dealers, and you have that in-transit inventory. But, yeah, the bookings there are we're going to build in line with retail in North America in 2025, and you should see...

I was just trying to... Thank you.

Yeah, go ahead.

Well, I just wanted to make sure that the row crop tractor data in the first quarter and given the seasonality I'm comparing this versus traditional first quarters. I understand the seasonality to build. The row crop inventory does seem a bit high relative to history for where we are in the year. I think four-wheel drives, combines, I appreciate you're probably going to produce at retail the rest of the year. But the row crops, is there not further reduction needed there? I just want to make sure I understand the math of the 34% on trail.

Yeah. David, this is Josh Jepsen. Fair question. And remind you, you know, that number is 100 horsepower and above. So that's a wide category. We think about large, high horsepower above 220. And what we see there is really kind of a tale of two stories or two markets in that regard. 220 above, we feel good about where we're at. We're actually below where we would be on our averages. We look at a ten-year average. We're probably slightly below from an inventory sales perspective. We are higher and probably higher than where we want to be when it comes to, call it, that mid-series mid-sized tractor, 6000 series tractor, that inventory is higher. You know, as a result, we are underproducing that. So, essentially, Mannheim will underproduce North America for those tractors. So I think there's that 100 plus is a big category. The large ag side, the 8R side, we feel good about where we're at. Like I said, you're slightly below the historical IS ratios for where this point in the year. But we got work to do over really the balance of the year on, call it, the 6000 series to pull that down closer to where we want to be. But when we saw the growth, you know, quarter on quarter, that's really where it occurred. And then not necessarily on the row crop side. Thanks, David.

Our next question comes from Kristen Owen from Oppenheimer.

Hi. Good morning. Thanks for taking my questions, guys. Just given some of the positive comments that you had on Brazil, I'm wondering if you can give us a sense of what your expectations are for any sort of improved volume recovery or even price recovery. Just a little bit of a more granular look at what's happening down there. Thank you.

Yeah. Hey, Kristen. Thanks for the question. Yeah. I mean, as you heard in the comments, you know, we're seeing some green shoots, you know, out of the region. You know, I think the profitability is looking better there in 2025. And certainly, we're seeing, you know, favorability on the tech adoption side as well. Recall in Brazil, you know, we have, you know, we have less visibility in terms of the order book. We typically run about a three-month order book. So a little bit less visibility in the full year. So we'll see how it plays out, but there's been some optimism. You know, we've seen some strength, you know, kind of in that small to mid-tractor space as well in the region as Josh Rohleder talked about. You know, some strong sentiment, you know, in the coffee side. And so, you know, there's some positives there that we're seeing. As it relates to price, we're seeing favorability there as well. We had favorable, you know, positive low single-digit price realization in the quarter. We're expecting to be positive full year. That's a good contrast to last year where we had negative prices. We drove down field inventories. Now that we've right-sized, you know, the inventory situation in Brazil and are seeing, you know, some of these positive hints of optimism, yeah, in terms of how that market plays out, we're seeing a lot more strength on the pricing side as well. Thanks, Kristen.

Our next question comes from Angel Castillo from Morgan Stanley.

Hi. Good morning. Thanks for taking my question. Wanted to maybe revisit the price question, but a little bit more broadly for PPA. You reiterated the 1% realization for that segment for this year. I was just wondering as you think about the incentives or maybe what needs to be done to support the continued reduction of used inventories as well as just any other kind of ongoing incentives there. Can you just talk about the level of confidence in that plus 1%? And then similarly on the construction side, you lowered that to flat this quarter or I guess for the full year. Can you talk about there as well the level of confidence in, you know, that actually being flat now versus, you know, perhaps some of the competitive dynamics you're seeing, you know, to kind of drive and move volume in that segment?

Yeah. Sure. Thanks for the question, Angel. You know, starting with large ag, again, as you mentioned, you know, our full-year guide is 1%. And that contemplates additional incentives to help support the used market. You'll recall, you know, North America as an example, you know, list price increases or early order programs on tractors will kind of range from 2% to 3% for the year. The net price realization of 1%, you know, contemplates some additional contributions on incentives to pull funds to help support that used market. We feel good about where pool fund balances are. You know, there's still levels that are supportive of moving that market, getting it back to equilibrium. And so, you know, based on the visibility we have on the order books, based on the early order programs, and that dynamic of that price guide incorporating, you know, those additional incentives for the used market, feel really good about, you know, the price guide in large ag. On the construction and forestry side, yeah, I mean, as you saw in the quarter, you know, negative price in the quarter, we have, you know, seen more price pressure there. Then as a result, we lowered the full-year guide from a point, you know, down to flat. You know, we saw some, and by the way, on those incentives too, you know, we saw that in the quarter translate to some positive retail movement, you know, particularly in compact construction. You know, some lower rate financing incentives were very strong in terms of moving sales, and we had a really, really strong December based on some of those programs. We're going to expect to just given dynamics in the market that we'll probably see some continued price pressure, particularly in the early part of the year. I think if you look at our second quarter, we'd expect price pressures to continue. That moderates some, Angel, as you move through the year. Some of that's comps as well. You know, as we did some price action in the back half of 2025, the comps get a little bit easier on the construction and forestry side. That's what gives us that flat guide.

Yeah. Maybe one thing to add just on the C&F side. You brought up a point, Josh, in terms of a little more price pressure in 2Q where you could see that. We probably have a little more underproduction on the earthmoving side in 2Q there as well. So that'll impact their cadence of margins as we go through the year. They'll actually, we'd expect them to actually build from a margin perspective and improve as we go through the remainder of the year. 2Q probably being the most challenged, and then we start to, to Bill's point, we start to lapse some of the price actions that we took last year. So the comps get a little bit easier in the back half of the year as well. Thank you.

Our next question comes from Megan Durkin from Wolfe Research.

Okay. Alright. Thanks for taking the question. I'm wondering if you can maybe give us a little bit of hand-holding on margins. We're starting pretty slow, obviously, Q1 across all segments. How do you sort of see getting to the full-year guidance? And, again, this is a question that applies across the board, all three segments. Thank you.

Yeah. I mean, I think, you know, as you're seeing, you know, building a few full-year guides, it is a little bit, you know, atypical in some segments. I mean, Josh Beal just mentioned, you know, the construction and forestry side. You know, that's going to be very different than what we normally see in a year just given the underproduction in the first half and a little bit on the price cadence as well. You know, you're going to see, you know, margins gradually improve, you know, sequentially throughout the year on construction and forestry. You know, large ag, as we mentioned, you know, it's going to be a lot more like normal seasonality in terms of sales in that segment. We'll see, you know, we'll see, we would expect to see sales peak in the second quarter in large ag as we typically do. So that will likely be the strongest margin quarter for the year. Now you're going to see, again, from the sales side, you know, year-over-year comps in terms of reduction be different just given the underproduction we did in the back half of the year. But it'll be a lot more normal seasonality on the sales side.

Yeah. Megan, this is Josh Jepsen. And I think from a margin perspective, you know, similarly, you know, we would expect, excuse me, 2Q, you know, as normal to be strong, you know, strongest quarter. Like, you know, 3Q probably, you know, not terribly far off that. And so strength kind of in 2 and 3, which is a little more normal. And then as I mentioned, you know, 4Q, normally lighter on revenue, but we should mark a turn from, you know, from sales being down year over year for the quarter to moving up. We'll go ahead and take one more question. Thank you.

Our last question comes from Tami Zakaria from JPMorgan.

Hi. Good morning. Thank you so much. So the farmer aid package from December, how long would it take for farmers to receive the bulk of the money? So that it can provide some tailwind to equipment demand. If you're able to share any past examples or anecdotes, that would be helpful. What I'm basically trying to understand is whether this could accelerate demand in the back half of 2025 or more like early 2026 of your fiscal.

Yeah. Thanks, Tami. This is Josh Jepsen. I would say, you know, when we saw some of this occur in the past, when we saw some payments come through in, call it, you know, late 2019, generally, what we saw is a lot of those things went to shore up balance sheets, pay down debt, you know, buy inputs, and those sorts of things. So I think our expectation is it doesn't probably drive new equipment demands in 2025. But likely shores up balance sheets, potentially helps move some used inventory. But I think those are good outcomes. But likely, you know, near term, probably not a driver immediately of equipment orders. Thanks, Tami. And thanks all, that's all the time we have for today. We appreciate everyone's time, and thanks for joining us.

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