Deere & Company

and Josh Rolliter, Manager, Investor Communications. Today, we'll take a closer look at Deere's second quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2025. After that, we'll respond to your questions. Please note that slides are available to complement the call this morning. They can be accessed on our website at johndeere.com forward slash earnings. First, a reminder, this call is broadcast live on the internet and recorded for future transmission and use by Deere and Company. Any other use, recording, or transmission of any portion of this copyrighted broadcast without the express 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 that 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-K, 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, GAAP. Additional information concerning these measures, including reconciliations to comparable GAAP measures, is included in the release. and posted on our website at JohnDeere.com forward slash earnings under quarterly earnings and events. I will now turn the call over to John May for opening comments before we begin with our formal remarks.

Good morning, and thank you for joining us today. This quarter was marked by historic levels of volatility and significant uncertainty across our end markets, given the dynamic global trade backdrop. During times like this, It's important to reflect on and reaffirm our core values and the priorities that drive our teams at John Deere every day, which we've noted on slide three of our presentation. Doing so helps us maintain our focus and resilience, providing a stable foundation that guides our decision-making and actions. Everything that we do at John Deere starts with our customers. who provide food, fuel, clothing, shelter, and infrastructure for the world. We're honored to have served them for nearly 200 years, and we will continue to do so for the next 200. In times of uncertainty, we must remain steadfast in this commitment. Practically speaking, this means being deliberate in every action and keeping customers at the forefront of every decision. We'll continue to honor our commitments from agreed upon prices to delivering the highest level of uptime and reliability expected from our products. It's in times like these that we have the opportunity to foster new and strengthen existing customer relationships that end up enduring for generations. Our second priority is our commitment to executing our plan, which involves taking actions to navigate more uncertain markets while also maintaining investments in value unlocking products and solutions. Our commitment to our smart industrial strategy remains unwavering. The opportunity to make our customers more productive, profitable, and sustainable is tremendous. and we never lose sight of that. In the near term, we'll continue to proactively manage what we can control, cost, production, inventory, and quality to navigate this environment while driving the margins that fuel our investments in the future. Our performance this quarter is a powerful testament to the results that come from this approach. On that note, I'd like to commend our teams for the excellent results they delivered this quarter, despite the difficult macro environment we were facing. Finally, I'd like to reaffirm our investment in the future, a future rooted in innovation that began nearly two centuries ago in a blacksmith shop in Grand Detour, Illinois. Today, that innovative spirit continues with Smart Industrial, our strategy that combines investment in advanced technology with our legacy of manufacturing excellence. We're proud of our storied U.S. history. And with nearly 80% of our U.S. sales and 25% of our international sales built from Right here in U.S. manufacturing locations, we stand by and continue to embrace our American manufacturing heritage as we deliver value for our customers around the world. Smart Industrial unlocks value through the integration of cutting edge technology with premium hard iron equipment. We will continue to robustly invest capital and R&D to bring these integrated solutions to market, enhancing our global competitiveness. I'm proud that this innovative work will build on our American roots, and we are prepared to invest $20 billion in the U.S. over the next decade as we spearhead new product development, cutting-edge technologies, and more advanced manufacturing. These strategic investments are an opportunity to further leverage an already broad base of U.S. assets that include over 60 facilities across 16 states supported by a highly skilled workforce that has built John Deere into the iconic brand it is today. As we look forward, we're more excited than ever about the opportunities ahead and our ability to drive unparalleled value for our customers worldwide by leveraging our rich heritage. It's a testament to our dedication to innovation, excellence, and our customers' success.

Thanks, John. We'll now proceed with our remarks on the quarter. Dundear delivered a better than expected second quarter with an 18.8% margin for the equipment operations, demonstrating exceptional execution amidst challenging market dynamics. Notably, margins exceeded projections despite TeraPed ones due to better than expected sales and favorable production costs stemming from efficiency gains in our material sourcing and factory operations. However, as we look to the second half of the year, global uncertainty continues to weigh on customer sentiment across end markets. And while the top end of our fiscal 2025 outlook remains relatively unchanged from prior guidance, a fluid tariff environment has led us to broaden our guidance range as we actively work to mitigate impacts to both our customers and deer. Slide four opens with our results for the second quarter. Net sales and revenues were down 16% to 12.6%. 763 billion, while net sales for the equipment operations were down 18% to 11.171 billion. Net income attributable to Deere and Company was 1.804 billion, or $6.64 per diluted share. Turning to our individual segments, we begin with the production and precision ag business on slide five. Net sales of 5.23 billion were down 21% compared to the second quarter last year, primarily due to lower shipment volumes. Price realization was positive, but just under one point. Currency translation was negative, but roughly two points. Operating profit was $1.148 billion, resulting in a 22% operating margin for this segment. The year-over-year decrease was primarily due to lower shipment volumes and an unfavorable sales mix. coupled with the negative effects of foreign currency exchange. These headwinds were partially offset by lower production costs and price realization. Moving now to small ag and turf on slide 6, net sales were down 6%, totaling $2.994 billion in the second quarter as a result of lower shipment volumes partially offset by price realization. Price realization was positive by just under one point, Currency translation was negative by roughly half a point. Operating profit was approximately flat year over year at $574 million, resulting in a 19.2% operating margin. Lower production costs, lower warranty expenses, and price realization were offset by lower shipment volumes and an unfavorable sales mix. Slide seven gives our industry outlook for ag and turf markets globally. We continue to expect large ag equipment industry sales in the U.S. and Canada to be down approximately 30 percent due to pressures from high interest rates, elevated late model used inventory levels, and trade uncertainty. These headwinds are slightly mitigated by stable crop prices given tighter global stocks and bolstered farm balance sheets strengthened by the distribution of government funds. For small ag and turf in the U.S. and Canada, Industry demand is now expected to be down between 10 and 15%. While the dairy and livestock segment remains at historically strong levels of profitability, and certain high-value crops like almonds return to profitability, equipment purchases remain subdued due to prevailing uncertainties and elevated costs. Demand has been further restrained by deterioration in turf and compact utility tractor sales due to consumer confidence and high interest rates weighing on purchase decisions. Moving to Europe, the industry is still projected to decrease approximately 5%. Sentiment in the region is trending higher, given strong dairy and livestock margins and an improving arable outlook. Stabilized commodity prices and input costs, along with improving interest rate environment, should provide more planning certainty despite the low average yields in key markets. In South America, industry sales forecasts for tractors and combines remain roughly flat, In Brazil, sentiment continues to improve as crop yields recover and corn and soybean profitability returns. Additionally, continued high margins in coffee production are driving increased demand for small and mid-sized tractors. However, record crop production levels are likely to put pressure on commodity prices, capping overall growth in farm profitability for the region, while high interest rates continue to temper demand. Industry sales in Asia are now projected to be flat as the outlook for tractor sales in India improves, supported by favorable growing conditions, steady crop acreage, and increased availability for agricultural credit. Next, our segment forecasts begin on slide eight. For production and precision ag, our net sales forecast for the full year remains down between 15 and 20%. The forecast now assumes roughly a point of positive price realization for the full year, offset by one and a half points of negative currency translation. Our full year forecast for this segment's operating margin is now between 15.5% and 17%, primarily due to tariff impacts. Slide 9 shows our forecast for the small ag and turf segment. We now expect net sales to be down between 10% and 15%. The guide includes a half point of positive price realization and flat currency translation. The reduction from the prior quarter is primarily due to softening demand in the U.S. turf and compact utility tractor segments, partially offset by improved sales projections for midsize tractors in Europe and small tractors in India. The segment's operating margin guide is now between 11.5% and 13.5%. primarily due to tariff impacts and the reduction in projected U.S. turf and compact utility tractor shipment volumes. Shifting over to construction and forestry on slide 10, net sales for the quarter declined roughly 23% year-over-year to $2.947 billion due to lower shipment volumes. Price realization was negative by just under 1.5 points. Currency translation was also negative by roughly less than half a point. Operating profit was down year-over-year at $379 million, resulting in a 12.9% operating margin due primarily to lower shipment volumes and an unfavorable sales mix, as well as negative price realization. Slide 11 describes our construction and forestry outlet. Industry sales projections for earth-moving equipment in the U.S. and Canada remain unchanged, with construction equipment expected to be down around 10% and compact construction equipment expected to be down around 5%. and markets continue to see high utilization as construction backlogs are steady and construction employment remains at all-time highs. However, trade uncertainty and high interest rates are pressuring order activity for both construction and compact construction equipment. U.S. government infrastructure spending continues to provide support to the industry. However, projections for single-family housing starts are moderating given macro uncertainty and higher mortgage rates. Similarly, Rental sales continue to soften while high interest rates continue to pressure multifamily and commercial real estate markets. Global forestry markets are expected to be flat to down 5% as all global markets remain challenged. Global road building markets are forecasted to be roughly flat with continued strong end market demand globally. In particular, record sales at our Bama trade show in April reinforced uptick we're seeing in sentiment and demand throughout Europe. Moving on to the construction and forestry segment outlook on slide 12, 2025 net sales remain forecasted to be down between 10 and 15%. That sales guidance for the year includes one point of negative net price realization and flat currency translation. The segment's operating margin is now projected to be between 8.5% and 11.5% due primarily to tariff impacts and, to a lesser degree, lower price realization. Now, transitioning to our financial services operations on slide 13. Worldwide financial services net income attributable to Deere and Company in the second quarter was 161 million. That income was flat due to less favorable financing spreads and a higher provision for credit losses, which were offset by lower SANG expenses and a reduction in derivative valuation adjustments. For fiscal year 25, our outlook remains at $750 million as benefits from a favorable compare to special items related to the sale of Banco John Deere and lower SA&G expenses are partially offset by less favorable financing spreads. And finally, slide 14 outlines our guidance for net income, effective tax rate, and operating cash flow. For fiscal year 2025, our outlook for net income has widened to between $4.75 and $5.5 billion Next, our guidance incorporates an effective tax rate between 20 and 22 percent. And lastly, cash flow from the equipment operations remains projected between 4.5 and 5.5 billion. This concludes our formal comments. We'll now shift to a few topics specific to the quarter before we open up the lines to questions from our investors. Let's begin our discussion with Deere's performance in the quarter. We saw net sales increase sequentially, albeit down year over year. Additionally, margins were down roughly two points year over year, but grew sequentially to come in at just under 19% for the quarter. While there are clearly macro headwinds at play, the quarter represents strong operational performance. So Josh Beal, can you kick us off with a breakdown of the quarter?

Sure, Josh. And I think John said it best earlier. This quarter was about resilience through uncertainty, Despite the macro volatility, we executed a plan and achieved better than expected results across all three of our equipment operations segments. Our factories ran well, supporting higher than expected sales volumes, particularly in North American large ag. Additionally, production cost favorability was better than anticipated, reflecting our focus on driving material costs and overheads out of the business as we managed through this downturn. Also, recall that lower net sales in the first quarter reflected a shift of shipments to later in the fiscal year. This quarter, we saw some of those volumes materialize. Turning to construction and forestry, our second quarter results reflected a return to seasonal production in line with retail demand across our earth-moving factories, which were shut down for nearly half of the first quarter as we right-sized inventory levels. Sequential sales and margin improvements were partially offset by negative price realization in the quarter. However, our road-building business delivered another quarter of strong margins amid stable global sales, helping support our overall division financials. Maybe one final point on the quarter. It's important to contextualize that the equipment operations results that we delivered were net of roughly $100 million in incremental tariff headwinds. All in, we feel really good about what we were able to accomplish across all divisions in Q2.

Thanks, Josh. That's a great segue into my next question, which is probably top of mind for everyone, given there's been a lot of fluctuation in trade policy over the last few months. As you noted, we saw roughly 100 million of tariff headwinds in the second quarter. What should we expect going forward, and what have we incorporated into our guide for the rest of the year?

Sure, Josh. As you noted, the trade environment is certainly fluid, evidenced by trade agreements and adjustments to tariff levels announced in this past week. We're monitoring these developments closely while concurrently planning and executing mitigation strategies. To provide context on DEER's potential tariff exposure, we've provided a geographic breakdown of U.S. complete good and component sourcing in the appendix of today's slide deck. As John noted earlier, nearly 80% of U.S. complete goods sales are from products built at our U.S. manufacturing facilities, with over 75% of the components used at those facilities sourced from U.S.-based suppliers. The majority of U.S. complete goods sales sourced outside the U.S. are tied to midsize tractors and road building equipment from Europe. On the component side, our primary non-U.S. sourcing is from Mexico and Europe. As it relates to our forecast, we expect a pre-tax tariff impact in fiscal year 2025 of just over $500 million should these tariff levels continue throughout the remainder of the fiscal year. This forecast is based on the impact of tariffs in effect as of May 13th, including the reductions in reciprocal and retaliatory tariffs between China and the United States announced earlier this week. Using this baseline assumption as a starting point, we've expanded our guidance range to account for scenarios that may evolve as the year plays out. For context on the split by business unit, we would expect 40% of the cost to impact our construction and forestry operations, with about 35% hitting small leg and turf and about 25% hitting production and precision ag.

Hey, this is Jepson. I'd like to quickly call out a few of the mitigation efforts we're taking to minimize the impact of tariffs on our customers, dealers, and deer. Teams across the organization are working diligently not only to understand and quantify risks, as Josh Beal noted, but also to mitigate impacts where they're clear, executable solutions available. One example is the work we've done to certify eligible products for USMCA and ag use only exemptions from Mexico and Canada. These certifications were not required historically as our products were generally duty free. In only a few weeks, we've been able to successfully certify complete goods and components that make up the majority of the potential exposure from these countries. Our supply management team has been working to optimize our global trade flows, actively moving component sourcing where we see no regret solutions. Overall, our teams are doing an exceptional job to position us well as we navigate the current environment. Now turning to potential price action, we don't see much opportunity for price mitigation to impact fiscal 2025, given our order books for most product lines are nearly full for the remainder of the year. That being said, we're contemplating tariff impacts on our cost structure as we look to model year 26 pricing. However, we are doing so being very mindful of the dynamic environment and the pressures our customers have had to deal with over the past few years.

Thanks for that color, Josh and Josh. Going back to the breakdown on tariff costs by segment, can you walk us through why we're seeing such outsized impact on our C&F business? And then more broadly, Can you give us an update on market commentary and how that's impacting our guide?

That's a great call-out, Josh, and an important point to clarify. I'll start by reiterating that the majority of the margin compression seen in our updated CNF guide this quarter was driven by forecasted tariff impacts. That exposure is primarily driven by three areas. First, U.S. sales from our road building business are exposed to the 10% global tariffs, as production is located almost entirely in Germany. Second, we currently operate under supply agreement with our former JV partner for excavators, a product line that makes up roughly 40% of the earth-moving market. This supply agreement applies to both complete goods sourced from Japan, along with Japanese-sourced components for production in our North Carolina factory. It's important to note, however, that this exposure will reduce over the next few years as we begin to roll out deer-designed and U.S.-manufactured excavators. Finally, the earth-moving market is more exposed to China component sourcing than our ag business. given the robust and mature supply base for construction equipment that developed in that region over the past two decades. Looking at the CNF industry, utilization of earth-moving equipment in our end markets remains healthy, while current uncertainty has weighed on new equipment replacement demand. Higher levels of price competition are also impacting the earth-moving market, which is reflected in our revised pricing outlook for the year. It's notable, though, that better-than-expected material favorability is helping to offset some of the margin impact of the additional pricing actions that we're taking.

This is Jepson. One thing I'd like to add here relates to our road building business. Just this past month, we were in Munich for Bauma, the world's largest construction machinery show held every three years. This is an incredible event for our Vertcon team. Not only do we see strong sentiment and record orders, but we had the opportunity to showcase the significant strides we're making in tech advancements for the industry, including the launch of the John Deere Operations Center for road building production systems. This was on top of the integration of John Deere engines, guidance systems, and displays into road building equipment at the show. Given the significant similarities between large ag and road building in terms of repeatable jobs and precise execution to define specifications, we can extend the John Deere tech stack to Vertcon equipment to enable more digitalization, automation, and ultimately value for our customers.

This is John. It's important to highlight that the Virkin tech story is exactly what we envisioned when we launched our smart industrial strategy in 2020. By focusing on the jobs that our customers do in their respective production systems, we can target our development to solve their biggest pain points. Combining that focus with a centralized tech stack which makes leveraging technology across production systems easier and more efficient, we can bring value accretive solutions to our customers faster and with greater impact and better capital allocation.

Thanks, John. It's really exciting to watch as our tech stack expands beyond just our large ag business. Turning now to ag, I'd like to start with Farm Fundamentals. So, Josh Beal, can you walk us through what our farmers are experiencing, as well as what that means for deer in the back half of the year?

Yeah, sure thing, Josh. Trade uncertainty is having an impact on customer sentiment, creating a headwind for the market. However, crop prices have generally stabilized, albeit at lower profitability levels, due to tight stocks driven by better-than-expected consumption and lower-than-expected crop production. Notably, excluding China stock, global grain and oilseed stocks-to-use ratios are roughly at 20-year lows. Additionally, input costs have fallen for a third consecutive year, though they remain above long-term averages. Finally, nearly 75% of the $10 billion in direct U.S. government payments under the Emergency Commodity Assistance Program have been distributed, providing American farmers with liquidity following a challenging 2024-2025 crop year. And so, when excluding tariffs, we've seen some stabilization in the North American ag market, which offers some reassurance should uncertainty levels abate over the course of a year.

It's also worth noting that, as we saw with the trade deal announced last week with the UK, ag commodities and ag-based energy are at the forefront of the U.S. administration's trade policy agenda. Additional demand and market access for U.S. producers is positive, and incremental demand may drive improved prices based on the tight stocks-to-use ratios that Josh mentioned.

Good point, Josh. Shifting to global markets, we are continuing to see early signs of sentiment shift in South America as Brazilian farmers benefit from improved corn and soybean profitability as crop yields recover amid a weakened real. While European markets remain at subtrop levels, we're seeing some green shoots in that region as well. European growers are seeing stability in wheat prices, which, along with a return to trend yields, should support a recovery in key arable crop markets alongside an already strong dairy and livestock segment. Turning to order book, Availability for both North American-produced large tractors and European-produced mid-tractors is into October. And in Brazil, our order books are full through the third quarter. It's worth noting that we have less order visibility in turf equipment and compact utility tractors. The reduction in our small ag and turf guide embeds lower demand in these markets driven by weaker consumer confidence.

Perfect. Thanks, Josh. Shifting to inventory, can you unpack what we're seeing over the last quarter for both new and used?

Yeah, absolutely. The current focus for DEER is centered on used inventory in North America, as actions we took over the prior 18 months helped to right-size new inventory levels in the U.S. and globally. For example, in North America, our new inventory for tractors above 220 horsepower is down over 40% year-over-year on a unit basis, while new combines are down nearly 25%. The story is a little bit different for used inventory, where a higher-than-normal mix of late-model year tractors continues to persist in the North American market. While deer used high horsepower tractors were up slightly quarter over quarter, it's important to call out the seasonal build and use that occurs as pre-planting deliveries of new equipment drive a higher level of trade-in. Despite this seasonal increase, we feel confident in our plan to reduce used tracker inventories, as we've seen the impact of similar actions reduce combine inventory by nearly double digits year over year to below the 10-year average. Notably in combine, late model year equipment has declined more significantly than other vintages. helping return used combines to a more normal distribution of equipment age. Through increased contributions to pool funds for dealer development, new financing options that support customer purchases and make incentive dollars go further, and our dealer network working with every customer to understand their individual needs, we're executing our plan to drive down used inventories.

This is John. It's worth emphasizing that we are tightly aligned with our channel and our focus on right-sizing that secondary market that Josh referred to. We have the best dealers in the industry, and together we're taking the actions needed to bring down tractor inventories. I'm confident that our approach will yield results, and I'm appreciative of our dealers for their support in this effort.

Thanks, John and Joshua. Continuing with large ag, 2025 represents a major milestone in our tech journey as we not only announce the commercialization of autonomous tillage in model year 26, but we're also lapping the first-year cohort of tech offerings like sea and spray and precision essentials. Can you give us an update on the latest progress across our precision ag solutions?

Absolutely, Josh, and I think it's important to frame this across three areas, capabilities, adoption, and utilizations. I'll start with capabilities, which is a part of this tech journey that we don't speak about enough and is underappreciated in terms of its importance. Capabilities are the foundational building blocks, primarily internal to Deere and our dealers, that ensure our customers are maximizing the value of our technology in a seamless and easy to access manner. We've been investing in these capabilities for the last several years and are now beginning to see their benefits come to fruition. For example, We've implemented and scaled a license management system integrated with the John Deere Operations Center to handle hundreds of thousands of licenses, enhancing the customer experience for purchasing and renewing solutions. We've also built out a customer success function that helps ensure our customers are getting the most out of our technologies. For example, this spraying season, we're using automated intervention to ensure that customers are realizing the full value of sea and spray in the field. Our channels align with us in this work, as our dealers are also investing in capabilities through connected support and precision ag specialist roles that support customers as they integrate new solutions and technologies into their operation. These capabilities are a foundational platform that we'll continue to build as we progress on our smart industrial journey. Turning to adoption, we're seeing continued growth in customers choosing precision tech as we expand our suite of offerings and bring them to more geographies across the globe. Furthermore, for many of these technologies, Our solutions as a service business model makes tech more affordable, accessible, and adaptable for our customers. A perfect example is Precision Essentials. In 2025, we're seeing greater adoption as we expand the solution to additional markets. In fact, in the first half of this fiscal year, we've already received nearly 10,000 orders globally, exceeding the entire fiscal 2024 order count in just six months. Brazil alone accounts for over 3,500 of those 2025 orders. and we're seeing strong order activity in North America and Europe as well. Going forward, success for this and other subscription-based technologies will depend heavily on our ability to drive license renewals year over year. 2025 marks our first year of renewals for the 2024 Precision Essentials cohort, where we have a year-one goal of 70% renewal. Nearly two-thirds of eligible machines have renewed thus far, and we expect that to increase as we continue to engage with our customers in the renewal process. Finally, the best way to enable technology growth is through utilization. Continued growth in the number of acres covered by Deere's precision offerings is the best indicator that customers are seeing value in the technology and will continue to use it season after season. We're encouraged by the momentum we're seeing in utilization of sea and spray. As you'll recall, in 2024, we had a few hundred sea and spray units running in North America, with those units ultimately covering 1 million acres during last year's spraying season. In 2025, we have over 1,000 new orders for sea and spray, which significantly increases the population of machines that we'll be running this year. It's worth highlighting, for the customers that ran sea and spray in 2024, we're seeing greater utilization on the same machines in the 2025 season, and those same customers have invested in more sea and spray units this year. Effectively, what we're seeing is a compounding effect. More units with more utilization across more farms. The combination of capabilities, adoption, and utilization is continuing to drive more depth and breadth of engagement with deer precision technologies across the world. Digital engagement is a great fruit point for this, represented by the utilization growth we're seeing in the John Deere Operations Center. Year over year, engaged acres grew by nearly 15% to just over 475 million acres, while highly engaged acres grew by over 25% and now represent nearly 30% of total engaged acres. We are encouraged by the trend lines we're seeing as these numbers validate not only the effectiveness of our technology, but also the strategy by which we are bringing them to market.

This is Jepson. One point to add here, which we increasingly talk about, is the opportunity to extend these technologies to our Brazilian customers, who are, in many cases, just beginning their tech journey. In fact, earlier this month, we had our largest product introduction to date at Brazil's AgriShow. Given this immense opportunity and our commitment to investing in Brazil for Brazil, we are also excited to announce our Brazil Investor Day on June 10th in Indiatuba at our recently opened R&D Center. As we celebrate our 25th anniversary in Brazil, our live stream event will showcase the incredible opportunity that exists, along with the strong foundation we have built over the past quarter of a century, which uniquely positions us to drive differentiated value and sustainable growth for our customers and deer. Additional information can be found in the quarter's presentation and on our website.

Really exciting news, Josh. Shifting now to our last topic, I'd like to walk through our capital allocation strategy. Josh Shepson, given the market volatility and uncertainty, what can you share about the actions we're taking to ensure we can support both customers and shareholders during this time?

Our use of cash policy remains the same. It starts with maintaining a mid-single A or better credit rating to ensure John Deere Financial can continue to provide customers with cost-effective financing. This is even more important in the current environment when many financial institutions are less willing to participate in the ag space. Our next priority is investing in the business. By focusing on value-accretive projects and solutions at all points in the cycle, we're able to exit downturns with a strong pipeline to deliver growth and competitive differentiation. Ultimately, by driving more value for our customers, we can drive more value for our shareholders, which we'll distribute via dividends and share repurchases. All this is predicated on prudent cash management for the business, and even more so during periods of heightened market volatility. And as we have in the past, we've taken steps to solidify our balance sheets and bolster liquidity. I'm confident in our use of cash policy and ability to proactively plan and strategically execute in any market environment.

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

Yeah, thanks, Josh. The second quarter highlighted strong execution across the organization, and I'm proud of what the team has accomplished and the resiliency demonstrated in the face of significant uncertainty. We responded with measured actions to deliver optimal long-term outcomes for all stakeholders. Our near-term plan is focused on how we navigate the cycle. The actions we've taken continue to yield results and position us well for the future. And we're encouraged by the customer value our long-term strategy is generating. Customers are choosing our production system offerings because they understand the outcomes the Deere solution provides. We're excited by the opportunities to expand our technology across business units and product lines, leveraging our investments in one business to drive returns in others. We'll continue to explore and invest in opportunities, both organic and inorganic, that provide strong returns for our customers and deer. In closing, we're committed to our customers and focus squarely on driving long-term value for them as we look to mitigate disruptions and volatility in their day-to-day operations. We take seriously the trust our customers place in deer to ensure they can execute their work, and to do so, We hold ourselves to the highest standards to ensure we can deliver on our promise of providing the highest quality machines, most value-enhancing technologies, and best customer service and support in the industry.

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. Operator, we're ready for the first question.

Thank you. We will now begin our question and answer session. If you would like to ask a question, please press star 1. Please press star 2 if you need to withdraw your question. Again, that is star 1 to ask a question. Our first question comes from Rob Wertheimer from Milius Research. Your line is open.

Thanks, and apologies, everybody. I'd like to start out with a strategic question because I thought your comments on, you know, the SAS and the adoption for the continued rollout on sea and spray were really interesting. Can you kind of talk about how many different SAS models you kind of have currently? I'm not sure I understand fully what the Precision Essentials cohort product line is. And then what does the pipeline look like for that? We obviously all understand your long-term goals. I don't know if you have a bunch of features that you're kind of rolling out this year, next year, the year after, and how many different offerings you're doing in that SAS world now. I know you've worked hard on getting farmers to sort of see the value of it. I'm curious about your progress. Thank you.

Hey, Rob. Thanks for the question. I can start off. I mean, I think if you think about, you know, our SAS offerings, you know, it's fair to put them in really three buckets. You know, first, you know, think about, you know, precision digital technologies, things like precision ag essentials, you know, things like our G5 licenses. You know, many of those are the foundational pieces of the tech stack. So precision essentials, again, is those core elements of precision, connectivity, guidance, onboard compute. For precision essentials, we were offering a much lower upfront cost than an annual license, depending on the level of precision that you have. Precision technologies, you know, precision is kind of foundational digital elements in one. You know, the second one I think you can broadly call as like sense and act technologies, you know, things like see and spray, which are usage-based depending on the savings that you're seeing in the field, things like exact shot. And the third, you know, which is forthcoming will be as we progress towards autonomy, again, with a goal of a fully autonomous corn production system by the end of 2030. You'll see many of those autonomous solutions, you know, as a SaaS model as well. Hey, Rob, it's Josh Epson.

I think one thing to add to is today a lot of those are based on the given solution, a single solution that we have. I think increasingly as we progress and as we drive outcomes and utilization, I think you'll see some of those come together more in bundles to make that easier from a customer perspective and thinking about how do they do their jobs across the production system, so not just on a given machine but across multiple. So I think that will – I think we're very early in that stage, but I think that will give us opportunities to demonstrate the value that we see that comes from an integrated production system. So from, you know, preparing the land all the way through harvest and then leveraging the data across that, that we can provide and demonstrate that value in a different way.

But early, early today from where we are. Thank you. Rob, you had asked about the pipeline too, so maybe just real quick on that. I mean, it's, you know, Think about that in terms of both expanding on additional, expanding on current, you know, foundational platforms. When we think of CN spray like a platform, you know, today we're in corn, soy, cotton, you know, in North America. You have the ability over time to expand that to different crop types, to expand that to different geographies as well. You know, autonomy as it begins to develop and roll out over the next few years. You know, you saw in CES us taking that autonomous platform, you know, beyond large ag to commercial mowing, TO ORCHARDS, YOU KNOW, TO CONSTRUCTION. AND THEN THE ABILITY TO CONTINUE TO BUILD ON THE DIGITAL SIDE AS WELL, YOU KNOW, BOTH IN EXPANDING THE PRODUCTION SYSTEMS. YOU KNOW, WE MENTIONED THAT, YOU KNOW, THIS CALL WHERE WE'VE TAKEN THE OPS CENTER AND BROUGHT THAT TO ROAD BUILDING AS WELL. SO IT'S A COMBINATION OF BUILDING ON PLATFORMS, EXPANDING THEIR CAPABILITIES INTO DIFFERENT PRODUCTION SYSTEMS AND GEOGRAPHIES AS WELL. THANKS, ROB.

THANK YOU. THANK YOU. OUR NEXT QUESTION COMES FROM TIM Sign with Raymond Research. I'm sorry, Raymond James, your line is open.

Right. Thank you. Yes. The question is on the implied profitability in the second half for for the PPA segment and basically how we should be or shouldn't be viewing that in the context of kind of a stepping off point heading into 26. And if I add back, I think called $100 million what you outlined in terms of the tariff impact for that segment, you would imply decrementals of going to like 80% in the back half versus, I think, something like the mid-30s in the first half. So I know that the comparisons get skewed because of just the base of the numbers, especially in the fourth quarter when I assume you're expecting to be growing revenues. But maybe, Josh Jepson, just a comment there in terms of what we should be thinking about in terms of the key kind of elements in that implied profitability in the second half. Thank you.

Yeah, thanks, Tim. I would say there's a few things at play there. I mean, certainly the tariff impact, which you described, which is impactful given the what we see there. I think you also have a mixed impact there. North American, large ag, you know, being down, the industry being down where it is, you know, even producing to retail at a much lower level is impactful as it relates to the decremental. And then I think on top of that, while price is favorable, it's favorable to a less extent than a year ago. So those things, I think, stacked on top of each other drive the vast majority of that decremental. And as you noted, a smaller change on the top line just creates the denominator in that math, pushes those numbers a bit higher than what you traditionally see. Thanks, Tim.

Got it. Thank you, Josh.

Thank you. Our next question comes from Jamie Cook with Truist Securities. Your line is open.

Hi. Good morning and nice quarter. I guess my first question or my question is, you know, just the world we're in with tariffs, etc. Your approach as we enter in 2026 in terms of the early order program, whether there'll be any change there in pricing. And then I guess, Josh, typically, you know, for deer, if we enter a year with flat sales, but we're producing in line with retail demand, that generally means deer can manufacture earnings growth. Do you still see that as potential or should we be less

know optimistic about your ability to fully offset tariffs and and you know looking out into 2026. thank you yeah thanks jamie i mean you know first starting with early order programs and those programs are just getting underway um you know in fact we just launched sprayers yesterday um and planters will be forthcoming you know at the beginning of june yeah you're right i mean the the structure of the early order programs will be similar to the past um you know they will occur in phases you know, over the next several months. Um, I think the beauty of that structure, you know, particularly in an uncertain environment, um, is it gives us some, some price flexibility phase by phase as we see, uh, you know, this, this, this ever-changing, um, you know, tariff environment play out. Um, and, and so we, we do have structured some optionality, um, you know, in, in those programs, optionality to wait as, as we think about, uh, the, the price and discount structure, uh, for upcoming phases, you know, as, as tariffs, um, you know, evolve over the next few months. So we've got that built in. As you think about, you know, what that means for next year and, you know, building in line, you know, with retail, the point I would make is, and we mentioned this, you know, in our comments, you know, we've done a lot of work last year, and then that continued in the first half of this year in some select geographies, you know, to get new inventory to very, very low levels, candidly. We've talked about the work we did last year in the U.S. U.S. is in line with retail this year. You know, combines in South America, we had a little more underproduction to do in the first half of 25. That's complete now. In fact, the back half of this year in Brazil will actually build a little bit of seasonal inventory as we go into the spring selling season in the region. And then, you know, in Europe as well, we mentioned some green shoots there. You know, our plan now with mid tractors in Europe is to build a line with retail, given some of the pickup there. So we feel really good about where new inventories are positioned and that positions us well. you know, to be in line with retail in 26 as well. Thanks for the question, Jamie.

Thank you. Our next question comes from David Rathaus with Evercore ISI. Your line is open.

Hi, thank you. I just wanted to dig into the second half large ag margins again, just so we understand a bit. Again, the implied decrementals are for the whole second half. Don't worry about third and fourth quarter. Just an aggregate. Just seem... to be particularly weak. And I'm just making sure I understand is this pricing that we're price protecting the backlog with retail invoices. And that's sort of, sort of the pain point, but I would have thought you would have baked that into the a hundred million number, right? The 25% of the back half of the year, 400 million total tariff hit. I'm just making sure I understand why the margins would be that low in the second half of the year. It seems just strikes me as very conservative. And at the same time, I don't want to be thinking about 26, that that's really an appropriate low starting point. Just making sure the mix being, the mix shouldn't be that different than what we've seen already. So I apologize to sort of beat the dead horse a little bit, but can you help us understand why the margins are that soft in the second half? It just strikes me as very conservative. Thank you.

David, we'll walk through a couple of things here. I mean, I think if you think about, you know, first and foremost, you know, the impact of tariffs, as we said. If it's $500 million for the full year, we incurred $100 million, you know, in the second quarter, so about $400 million the rest of the year. You know, the full year impact on the equipment operations, you know, for those, you know, for that tariff impact of $500 million is about a point to a point and a half. But again, being so back-end loaded, you know, in back-half margins, that's two to two and a half points in the back-half. So, you know, if you If you account for that, you know, first and foremost, you know, that's a pretty big lift. You know, the decremental math, you know, candidly gets a little bit funny just because the change in sales is relatively small year over year as you look at the second half of 25 versus the second half of 24. So, you know, these changes, these tariff impacts have an outside impact on the decremental math just given the smaller denominator from a sales change. You know, as we mentioned, you know, a little bit – A little bit less price in the back half as we think about that. A little bit less material favorability. It was really, really strong in the front half of the year. And that pulls back a bit in the back half. We expect production cost X tariffs to continue to be positive. They will be positive for the full year, but to a lesser extent in the back half. So I think between all those elements, Dave, I think that's what's driving a little bit of the compare there. Thanks for the question.

Thank you. Our next question comes from Jerry Rivich with Goldman Sachs. Your line is open.

Yes, hi. Good morning, everyone, and congratulations on the strong quarter. I'm wondering, can we just revisit just the philosophically the price-cost conversation and revisit the prepared remarks? I mean, historically, you folks have pushed pricing ahead of inflation with value, and so You had mentioned for 26 list prices are under review to see if that can continue. Can you just expand on that? Because your competitors are facing the same or worse cost pressures than you, and you folks have a really strong track record of pushing through inflation in all forms. So can you just talk about is there any scenario under which you might be priced tariff cost negative in 26? Thank you.

Hey, Jerry, it's Josh Jepson. I guess I would start and maybe reiterate a little bit of what I said earlier. I think one of the unique COMPONENTS THAT WE FACE TODAY IS JUST COMING THROUGH A PERIOD OF SIGNIFICANT INFLATION. I THINK WE'RE VERY MINDFUL OF HOW MUCH PRICE HAS BEEN PUSHED THROUGH THE SYSTEM, YOU KNOW, AS AN INDUSTRY OVER CALL IT THE LAST FOUR, FIVE YEARS. AND AS A RESULT, I THINK VERY MINDFUL OF WHAT DO WE DO HERE AS WE GO FORWARD, YOU KNOW, GIVEN WHERE THE INDUSTRY SITS TODAY. SO DO WE BELIEVE WE'LL GET PRICE? YES. THIS YEAR WE'RE DOING ABOUT A POINT OF PRICE IN A CHALLENGED MARKET. If we look at, in production precision ag, some of the early order programs that are out there with prices, we're in the low single-digit range, 2% to 4% price. And as Josh Beal mentioned, we'll continue to evaluate those as we go forward. But we think that's reasonable. We're trying to take a measured approach there as we think about not only the customer dynamics, but what does it mean from a margin perspective as we march forward. At the same time, we're going to continue to put more and more effort into not only mitigation efforts, but what are we doing on production costs, whether that's material costs, logistics costs. overheads which have been favorable thus far this year we're going to keep pressing on those things which which we have control over so you know too early i think to predict exactly what 26 looks like i think we've got a lot of actions that we can take but but definitely trying to be measured and mindful uh from a price perspective for for customers thanks jerry thank you our next question comes from chad dillard with bernstein your line is open

Hey, good morning, guys. So I guess just to kind of continue with that tariff conversation, just trying to think through how you guys are thinking about sharing the tariff cost across all the constituents with the vendors, yourselves, dealers, customers, just given that your farmers have seen a lot of price increase over the last several years. I'm sure it's like some combination of all of those above, but we'd just love to get a sense of just your philosophical approach.

Yeah, thanks, Chad. I mean, I think it first and foremost, and we've mentioned this, but it's certainly underscoring the dynamic environment. And, you know, through all this, you know, we're trying to understand what the levels are going to be. And again, as we've seen in the last three or four days, you know, that can change pretty quickly. And so I think first and foremost, just reaffirming, you know, we're taking a measured approach in all of this, a measured approach in terms of the decisions that we make, how quickly we react, just because it's changing so quickly. So, You know, with that as a backdrop, you know, certainly as Josh Jepson mentioned, you know, we're going to take price. You've seen that in the actions that we've taken thus far on early order programs, again, you know, ranging from 2 to 4% in the programs that are out there, you know, thus far. And as I mentioned, we've got some optionality, you know, in those phases of the early order programs to adjust, you know, as the environment potentially could change as well. You know, as it relates to sourcing, we certainly work with our suppliers um to uh you know to make sure we're equally sharing um you know what we're seeing and at the same time you know we're continually looking for the the best cost options we do that in a tariff environment and not a tariff environment and that's just a continual you know good good practice good hygiene that we have to look for those lowest cost options we've done a lot of work over the last several years in terms of dual sourcing in terms of supplier resiliency and those efforts are still very much in play right now you know as the environment changes so It's a combination of all the above, and I think the short answer is it'll be sharing across all those stakeholders with the actions that we mentioned. Thanks, Chad.

Thank you. Our next question comes from Kristin Owen with Oppenheimer. Your line is open. Hi. Good morning. Thank you for taking the question.

I wanted to come back to your used inventory comments and your prepared remarks and just get a sense of velocity of movement of that used equipment. You did note some of the ECAP dollars that have started to flow. And how you're thinking about, you know, how that could influence your net pricing capability, whether that's in the back half or as we get into 2026, just that influence of the used market would be very helpful. Thank you.

Chris, thanks for the question. As we mentioned, you know, in the used market in North America, You know, really have seen good progress on combines over the last year or so. So the focus here is really around high horsepower tractors in North America. And, you know, what we've seen in that segment is some stabilization. You know, the year-over-year increases in high horsepower used, you know, are mitigating or moderating, I should say. You know, we saw some seasonal build in the quarter. I think we did see a little bit of growth. a slowdown just over the last three or four weeks of April, just given the volatility in the market. But I think pace to your question, Kristen, is still a bit unknown, and there's a lot of factors in play. There's some stability in ag fundamentals, albeit at lower levels. You mentioned the economic assistance that's coming through. We view that as a good thing for our customers. And again, we're continuing to put those ingredients in place, keeping new inventories low. as well as pool funds that are supporting our dealers as they work on the used market. So very mindful of the pace. It's very much a focus area, and we'll see how it plays out over the back half of the year.

Kristen, maybe a slightly different way to answer that is I think there's an underlying question of kind of what unlocks the ag cycle in North America, and I think used is one part of that as we can move forward. move and work through some of that used. I think that's certainly helpful. I think having a farm bill in place would provide some certainty for our customers, which would be supportive. And then I think there's, given where stocks to use are, there's a few things that could drive, you know, some upside, whether that's trade deals that we talked about, like I mentioned with UK that are driving ag commodities and ag energy, you know, year around E15, as we think about demand for ethanol and And then, certainly, there's always weather impacts that can be impactful. So, I think use is important, certainly. And I think there are a couple other things that we could see that, if occurred, could drive a little bit of a turn in the shape of the cycle where we're at.

Do we have time for one more question?

Thank you. Our last question comes from Stephen Volkman with Jefferies. Your line is open.

Wow. Thank you, guys. Just slid in there. Maybe I'm just going to tug at this thread around tariffs one more way. Is it your ultimate goal to price so that you protect margin? Or is it your ultimate goal to sort of cover the dollars that tariffs might sort of add to your P&L instead?

Hey, Steve. This is Josh Epson. It's a great question. You know, this is something we worked through and wrestled with when we saw some of the inflationary pressures. really over the last five plus years. I mean, ultimately the goal would be, you know, to find ways to, to protect margin. And that's not just price. That's what we're doing from a cost structure perspective and how we can, how we can add value. Now, I think saying that that's, that's, there's multiple pieces of that and the timelines of those probably vary a little bit, but I think overall the view is we want, we want to protect margin, um, both through activities on cost as well as what we do from a price realization perspective.

That's all the time that we have for today. We appreciate everyone's time, and thanks for joining us on our call. Have a great day.

Thank you. That concludes today's conference. Thank you for participating. You may disconnect at this time.