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    DE
    Earnings call· Feb 2025(Q1 FY25)

    DEERE & CO DE

    Feb 13, 2025 Source

    Executive summary

    Deere & Company Q1 FY25 — Proactive Inventory Management and Cost Control Amidst Market Headwinds

    Deere & Company navigated a challenging Q1 FY25 with proactive inventory management and cost controls, resulting in a 7.7% equipment operations margin despite significant sales declines. While currency headwinds impacted top-line results, the company maintained its full-year net income guidance, supported by strong execution and improving agricultural fundamentals in key regions like Brazil. The focus remains on optimizing production, reducing used equipment inventory, and investing in precision agriculture solutions.

    Highlights

    5

    • Equipment operations achieved a 7.7% operating margin in a challenging quarter.

    • Full-year FY25 net income guidance maintained at $5 billion to $5.5 billion despite Q1 headwinds.

    • Used high-horsepower tractor inventory peaked in November and saw two consecutive months of moderate unit declines.

    • Brazil combine field inventory reduced by over 25% in the past three months, nearly two-thirds since the end of FY23.

    • Strong adoption of precision ag solutions in Brazil with over 1,500 Precision Ag Essentials kits and over 1,200 JDLink Boost orders.

    Concerns

    5

    • Net sales and revenues declined 30% to $8.508 billion.

    • Net sales for equipment operations were down 35% to $6.809 billion.

    • Net income attributable to Deere & Company was $869 million or $3.19 per diluted share, a year-over-year decrease.

    • Production and Precision Ag net sales decreased 37% to $3.067 billion.

    • Currency translation had a negative impact on sales, particularly in Production and Precision Ag (2.5 points negative).

    Guidance & targets

    25
    CategoryTargetConfidence
    Large Ag Equipment Industry Sales (US & Canada)
    down approximately 30%
    high materiality
    High
    Small Ag & Turf Industry Demand (US & Canada)
    down around 10%
    medium materiality
    High
    Ag & Turf Industry Sales (Europe)
    decline around 5%
    medium materiality
    High
    Tractors & Combines Industry Sales (South America)
    roughly flat
    medium materiality
    High
    Industry Sales (Asia)
    down slightly
    low materiality
    High
    Production & Precision Ag Net Sales
    down between 15% and 20%
    high materiality
    High
    Production & Precision Ag Price Realization
    roughly 1 point positive
    medium materiality
    High
    Production & Precision Ag Currency Impact
    2.5 points negative
    medium materiality
    High
    Production & Precision Ag Operating Margin
    between 16% and 17%
    high materiality
    High
    Small Ag & Turf Net Sales
    down around 10%
    medium materiality
    High
    Small Ag & Turf Price Realization
    0.5 point positive
    medium materiality
    High
    Small Ag & Turf Currency Translation
    1.5 points negative
    medium materiality
    High
    Small Ag & Turf Operating Margin
    between 13% and 14%
    medium materiality
    High
    Earthmoving Equipment Industry Sales (US & Canada)
    down around 10%
    medium materiality
    High
    Compact Construction Equipment Industry Sales (US & Canada)
    down 5%
    medium materiality
    High
    Global Forestry Markets
    flat to down 5%
    low materiality
    High
    Global Roadbuilding Markets
    roughly flat
    medium materiality
    High
    Construction & Forestry Net Sales
    down between 10% and 15%
    high materiality
    High
    Construction & Forestry Price Realization
    flat
    medium materiality
    High
    Construction & Forestry Currency Translation
    1.5 points negative
    medium materiality
    High
    Construction & Forestry Operating Margin
    between 11.5% and 12.5%
    high materiality
    High
    Financial Services Net Income
    $750 million
    medium materiality
    High
    Net Income Attributable to Deere & Company
    $5 billion and $5.5 billion
    high materiality
    High
    Effective Tax Rate
    between 20% and 22%
    low materiality
    High
    Cash Flow from Equipment Operations
    $4.5 billion and $5.5 billion
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Production and Precision Ag
    Primarily due to lower shipment volumes and sales mix, partially offset by lower SA&G and R&D expenses and reduced production costs.
    Price realization: +1 pointCurrency translation: -2.5 points
    		$3.067 billiondown 37%—11% operating margin
    Small Ag and Turf
    Due to lower shipment volumes and sales mix, partially offset by lower production costs.
    Price realization: +1 pointCurrency translation: -1 point
    		$1.74 billiondown 28%—7.1% operating margin
    Construction and Forestry
    Due to lower shipment volumes and sales mix, unfavorable price realization, and higher SA&G and R&D expenses. Lower shipment volumes primarily due to planned underproduction to reduce field inventory.
    Price realization: -1 pointCurrency translation: -1 point
    		$1.994 billiondown 38%—3.3% operating margin
    Financial Services
    Favorable impact from decreased valuation allowance on assets held for sale of Banco John Deere. Excluding this, net income decreased due to higher provision for credit losses, partially offset by lower SA&G.
    		———$230 million net income

    Operational metrics

    25
    Net Sales and Revenues
    $8.508 billiondown 30%
    Q1 FY25
    Net Sales for Equipment Operations
    $6.809 billiondown 35%
    Q1 FY25
    Net Income Attributable to Deere & Company
    $869 million
    Q1 FY25
    Equipment Operations Operating Margin
    7.7%
    Q1 FY25
    Currency Translation Impact (PPA)
    -2.5 points
    Q1 FY25

    negative impact on sales

    Currency Translation Impact (Small Ag & Turf)
    -1 point
    Q1 FY25

    negative impact on sales

    Currency Translation Impact (C&F)
    -1 point
    Q1 FY25

    negative impact on sales

    Voluntary 401(h) Contribution
    $520 million
    Q1 FY25

    to fund salaried postretirement health care plan, impacting full year cash flows but guidance unchanged

    Engaged Acres (Global)
    over 455 millionup about 15% YoY
    Q1 FY25
    Precision Ag Essentials Kits Ordered (Brazil)
    over 1,500
    Q1 FY25 YTD
    JDLink Boost Orders (Brazil)
    over 1,200
    Q1 FY25 YTD
    Remote Display Sessions
    2.5 million85% increase from 2 years prior
    FY24

    through the John Deere operations center

    Used High-Horsepower Tractor Inventory Decline
    moderate unit declinesdown maybe 3% from November peak
    Nov-Jan

    two consecutive months of decline

    Used High-Horsepower Tractor Inventory Mix (1-2 year old)
    2x normal
    Q1 FY25

    still higher than it should be

    Combine Field Inventory (Brazil)
    down over 25%down nearly 2/3 since end of FY23
    past 3 months
    Earthmoving Inventory Reduction
    more than 15%nearly 30% in prior 2 quarters combined
    past 3 months
    North American Earthmoving Production Shutdown
    roughly half
    Q1 FY25

    planned

    Capital Returned to Shareholders
    over $800 million
    Q1 FY25
    US Ag Land without Sufficient Cell Coverage (Brazil)
    about 70%
    current
    US Manufacturing Cost of Goods Sold from Mexico
    about 10%
    current
    US Manufacturing Cost of Goods Sold from China
    less than 2%
    current
    US Manufacturing Cost of Goods Sold from Canada
    approximately 1%
    current
    US Domestic Sales Assembled in US
    more than 75%
    current
    US Complete Goods Sales from Mexico
    less than 5%
    current
    Exports to Canadian Customers
    over half
    current

    Industry KPIs

    4
    MetricValueDetails
    Tariff cost impactimmaterial amount
    Dealer inventory months of supplydown 25%%
    Order backlog order intake by segmentdown more than industry guide
    Industry production market size forecastsdown approximately 30%%

    Orderbook & backlog

    2
    North American Combine Early Order Programdown more than industry guideclosed a couple of weeks ago

    typically represents 90-ish plus percent of what we're going to build in a year

    North American Rolling Tractor Order Books5 months of visibilityQ1 FY25

    now full late into our fiscal third quarter

    Product announcements

    2
    ProductTypeDetails
    JDLink Boostlaunch
    Technology Development Center in Brazilmilestone

    Deals & partnerships

    1
    Bradescosale of a 50% ownership in Banco John Deere

    Deere completed this transaction with Bradesco for the sale of a 50% ownership in Banco John Deere subsequent to the quarter in February.

    Risks & headwinds

    6
    Demand constrained by overall uncertainty in the marketcurrent

    order velocities, particularly in North America

    Mitigation: proactive management of business through downturn, production and inventory management

    Elevated interest ratesFY25

    dampened demand in construction and forestry, weigh on small ag & turf purchase decisions

    Mitigation: selective incentive programs targeting specific products to drive sales

    Currency translation impactQ1 FY25 and full year FY25

    negative by roughly 2.5 points for PPA sales, 1 point for Small Ag & Turf, 1 point for C&F; lowered top line results, particularly in PPA

    Mitigation: currency hedges (minimal impact on operating profit in Q1); full year PPA sales/margin guide reduction primarily driven by currency changes

    Competitive environment in Construction & ForestryQ1 FY25, Q2 FY25

    unfavorable price realization by roughly 1 point in Q1; price pressure expected to continue in Q2

    Mitigation: strong cost execution offsetting negative margin impact; selective incentive programs

    High levels of used inventoryFY25, next several quarters

    particularly in high horsepower tractors remains a top priority

    Mitigation: proactive production adjustments, dealer alignment, incentives to support used market

    Tariff uncertaintyongoing

    guide does not contemplate direct cost or economic benefit impacts; exposure to recently enacted China tariffs immaterial

    Mitigation: continually running potential scenarios, focus on supplier resiliency and cost management, dual sourcing, strengthening supplier relationships

    What to watch in Q2 FY25

    5

    Large Ag Sales Year-over-Year Comp

    Q2 FY25, Q3 FY25, Q4 FY25
    CurrentQ2 FY25 expected to be down more than full-year guide (15-20%)
    TargetSequentially better year-over-year comps in Q3 and Q4

    Why it matters

    Indicates the pace of recovery in the largest segment and overall market health.

    Full year guide for large ag being down 15% to 20%. Quarter-over-quarter, we'd expect that second quarter year-over-year compared to last quarter -- or last year's quarter could be 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.

    Q&A highlights

    8

    How will the Q1 shipment pushout affect the normal seasonal ramp-up in Q2/Q3 for large ag, and will it be more weighted to Q3?

    Q2 will still be the highest sales quarter for large ag, but year-over-year sales will be down more than the full-year guide (15-20%). Q3 and Q4 will see sequentially better year-over-year comps, with Q4 potentially showing year-over-year growth.

    “Full year guide for large ag being down 15% to 20%. Quarter-over-quarter, we'd expect that second quarter year-over-year compared to last quarter -- or last year's quarter could be 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.”

    asked by Tim Thein · answered by Josh Beal

    2 min read6 chapters

    Detailed Narrative

    01

    Q1 Performance and Full-Year Outlook

    Deere's Q1 FY25 saw a 30% decline in net sales and revenues, with equipment operations down 35%, primarily due to lower shipment volumes and negative currency translation. Despite this, the company maintained its full-year net income guidance of $5 billion to $5.5 billion, attributing the Q1 shortfall to timing of📎 shipments and FX, which are expected to normalize📎 over the remainder of the year. Proactive production adjustments and cost management were key to navigating the downturn.

    02

    Ag Fundamentals and Market Demand

    Global ag fundamentals showed signs of improvement, with a recent rally in commodity prices and declining input costs. The USDA's forecast for net cash farm income is up 22% year-over-year, bolstered by government support. However, demand remains cautious, with North American large ag equipment industry sales expected to be down 30% for FY25, and small ag & turf down 10%. Brazil and Europe show stabilizing or improving sentiment, but this has not yet translated into significant order velocity.

    03

    Inventory Management

    Deere successfully executed plans to reduce field inventories. North American large ag field inventory was down 25% year-over-year by calendar year-end, and combine field inventory in Brazil was down over 25% in three months. In Construction & Forestry, planned underproduction led to an earthmoving inventory reduction of over 15% in Q1, positioning the company for operational flexibility. The company aims for new inventory levels in the U.S. to be relatively unchanged year-over-year by fiscal year-end.

    04

    Precision Ag Adoption

    The company reported strong adoption of its precision agriculture solutions, particularly in Brazil. Over 1,500 Precision Ag Essentials kits were ordered in Brazil, and more than 1,200 orders were placed for JDLink Boost, a Starlink-supported satellite connectivity solution, addressing connectivity challenges in the region. Engaged acres globally increased by 15% year-over-year to over 455 million, with highly engaged acres growing over 30%.

    05

    Construction & Forestry Dynamics

    The C&F segment experienced a 38% decline in net sales in Q1 due to lower shipment volumes and negative price realization. Industry sales for earthmoving and compact construction equipment in the U.S. and Canada are expected to be down 10% and 5% respectively, tempered by high interest rates and macro uncertainty🌐, despite tailwinds from infrastructure spending and single-family housing starts. Roadbuilding remains a strong sub-segment.

    06

    Tariff and Cost Management

    Deere continues to monitor the fluid tariff situation, noting its exposure to recently enacted China tariffs is immaterial. The company emphasized its operational footprint as a net exporter from the U.S. and its focus on supplier resiliency and cost management. Cost execution was strong in Q1, with reduced material costs and lower SA&G expenses, offsetting some of the negative impacts from sales declines and price pressure.

    AI-generated summary of the company’s earnings call. Not investment advice.