Deere & Company

Good morning, and welcome to the Deere and Company Third Quarter Earnings Conference Call. Your lines have been placed on listen only until the question and answer session of today's conference. I would now like to turn the call over to Mr. Josh Jepson, Director of Investor Relations. Thank you. You may begin.

Hello. Good morning. Also on the call today are Ryan Campbell, Chief Financial Officer, John Stone, President of Construction and Forestry, Jamie Hindman, Chief Technology Officer, and Brent Norwood, Manager, Investor Communications. We'll take a closer look today at our third quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 21. After that, we'll respond to your questions. Please note that slides are available to complement this call. They can be accessed on our website at johndeer.com slash earnings. First reminder, this call is being broadcast live on the internet and recorded for future transmission and use by Deering Company. Any other use, recording, transmission of any portion of this copyrighted broadcast without the express written consent of Deer is strictly prohibited. Participants in the call, including the Q&A session, agree that their likeness and remarks in all medium may be stored and used as part of the earnings call. This call includes forward-looking comments concerning the company's plans and projections for the future that are subject to important risks and uncertainties. Additional information concerning factors that could cause actual results to differ materially is contained in the company's most recent Form 8K and periodic reports filed with the Securities and Exchange Commission. This call may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America, or GAAP. Additional information concerning these measures, including reconciliations to comparable GAAP measures, is included in the release and posted on our website at johndeer.com slash earnings under quarterly earnings and events. I'll now turn the call over to Brent Norwood.

John Deere demonstrated strong execution in the third quarter, resulting in an 18.7% margin for the equipment operations. Ag fundamentals continue to be solid year-to-date, and results from our 2022 early order programs indicate demand to remain strong heading into the next fiscal year. Meanwhile, robust fundamentals for our construction and forestry equipment continued into the third quarter, leading to improved levels of profitability and a heightened outlook for the rest of this year. Slide 3 shows the results for the third quarter. Net sales and revenue were up 29%, to $11.5 billion, while net sales for the equipment operations were up 32% to $10.4 billion. Net income attributable to Deere and Company was $1.667 billion, or $5.32 per diluted share. Now, let's turn to a review of our production and precision ag business, starting on slide four. Net sales of $4.25 billion were up 29% compared to the third quarter last year, primarily due to higher shipment volumes and price realization. Price realization in the quarter was positive by about 8 points, while currency translation was positive by about 4 points. Operating profit was $906 million, resulting in a 21% operating margin for the segment compared to an 18% margin for the same period last year. The year-over-year increase was driven by higher shipment volumes, sales mix, and price realization, partially offset by higher production costs. With respect to price realization, the above-average results for the quarter were primarily driven by a few different factors. The primary driver came from price adjustments made to offset unfavorable currency movements, which resulted in low double-digit price realization for markets outside North America. North American list prices were up slightly above average and benefited from lower incentive spending. Shifting focus to small ag and turf on slide five, net sales were up 32%, totaling $3.147 billion in the third quarter. The increase was driven primarily by higher shipment volumes and price realization. Price realization in the quarter was positive by just over three points, while currency translation was positive by about three and a half points. For the quarter, operating profit was $582 million, resulting in an 18.5% operating margin for the segment compared to a 14% margin for the same period last year. The year-over-year increase was due to higher shipment volumes, sales mix, and price realization partially offset by higher production costs. Results for the current period were affected by a $27 million one-time gain while the prior period included 37 million of one-time losses. Slide 6 shows our industry outlook for ag and turf markets globally. In the U.S. and Canada, we expect industry sales of large ag equipment to be up about 25% for the year, reflecting improved fundamentals in the ag sector. At this point, we anticipate producing in line with retail demand for the year, keeping inventory levels relatively tight heading into fiscal year 2022. As it relates to small ag and turf, we expect industry sales in the U.S. and Canada to be up about 10%. While our shipment schedules imply production roughly in line with retail demand, our net sales for small ag and turf products are up higher than the year-over-year change in retail sales as activity recovers from significant underproduction in 2020. Moving on to Europe, the industry forecasts the industry is forecast to be up about or between 10 to 15% as higher commodity prices strengthen business conditions in the arable segment and dairy prices remain resilient even as margins show some pressure from rising input costs. At this time, we've opened our Mannheim Tractor Order Book through the second quarter of 2022, filling all production slots through that time period. In South America, we expect industry sales of tractors and combines to increase about 20%. The combination of higher commodity prices, strong production, and a favorable currency environment have boosted the profitability of farmers, driving orders through the remainder of the year and into the first quarter of fiscal year 2022, which is as far as we've allowed the order book to grow. Despite limited government-sponsored financing programs, private financing is more widely available this year, supporting continued strength in equipment demand. Industry sales in Asia are forecast to be up significantly, driven primarily by a strong recovery in the Indian tractor market. Moving on to our segment forecasts, beginning on slide seven. For production and precision ag, net sales are forecast to be up between 25% to 30% in fiscal year 21. The forecast includes a currency tailwind of about two points and expectations of nearly eight points of positive price realization for the full year. For the segment's operating margin, our full year forecast is ranged between 20 and 21% and contemplates consistently solid financial performance across the various geographical regions. Slide eight shows our forecast for the small ag and turf segment. Net sales, In fiscal year 21, our forecast to be up about 25%. The guidance includes expectations for nearly five points of positive price realization and a favorable currency impact of about three points. The segment's operating margin is forecast to be ranged between 17 and 18%. Before moving on to the results for our construction and forestry division, Jamie Hindman, our Chief Technology Officer, We'll offer some thoughts around our recent acquisition of Bear Flag Robotics.