Deere & Company (DE) 2024 Q3 Earnings Call Summary

Optimistic Highlights

• Strong Margin Performance: Despite a challenging market, Deere maintained an 18.5% margin for equipment operations, showcasing disciplined performance and inventory management.
• Strategic Inventory and Cost Management: Adjusted production schedules and focused on cost control to keep the business healthy amidst market challenges.
• Positive Price Realization: Noted improvements in price realization across segments, with specific mention of a slight increase in Brazil, contrary to expectations.
• Technology Adoption and Savings: High adoption rates for precision solutions like See & Spray, with customers experiencing savings that meet or exceed expectations.
• Alignment with Dealers: Strong alignment with the dealer network, focusing on proactive inventory management and customer support.

Pessimistic Highlights

• Decline in Net Sales and Revenues: Net sales and revenues were down 17%, with equipment operations down 20% due to lower shipment volumes and market demand.
• Challenging Ag and Construction Markets: Muted ag fundamentals and tempered demand in construction and forestry segments, alongside price competition.
• Inventory Challenges: Despite efforts, used inventory levels increased across all product lines, with a focus on reducing these levels moving forward.
• Underproduction Impacts: Planned underproduction to manage inventory levels, leading to potential short-term impacts on margins and operational efficiency.

Company Outlook

• Inventory Management Focus: Continued emphasis on aligning inventory with market demand, including underproduction in certain segments to position for 2025.
• Investment in Technology and Growth: Ongoing investment in new products and technologies, particularly in precision agriculture, to enhance customer productivity and sustainability.
• Market Challenges and Opportunities: Acknowledgment of current market challenges but optimism about the long-term prospects, especially in regions like Brazil.
• Financial Guidance: Net income outlook maintained at approximately $7 billion for fiscal year 2024, with strategic actions in place to navigate market conditions.

Q & A Highlights

• Q: Can you discuss the factors behind raising price assumptions for 2024 in precision and production Ag? (Jamie Cook, Truist Securities)

  A: The increase to 2% from 1.5% reflects normalized pricing and improved price realization in Brazil. Incentives are included in this figure, showing disciplined management despite market pressures. (Josh Rohleder)

• Q: Could you elaborate on the underproduction strategy in the Construction segment? (Angel Castillo, Morgan Stanley)

  A: Mid-single-digit underproduction in construction equipment for 2024, with inventory levels at normal but proactive steps taken to align with retail demand. (Josh Rohleder)

• Q: Can you share comments on pricing for the construction side for next fiscal? (Tami Zakaria, JPMorgan)

  A: No specific guide for 2025 yet, but facing increased price competition in the market. (Josh Rohleder)

• Q: How do you view the potential for a shorter downturn in this cycle compared to previous ones? (Jerry Revich, Goldman Sachs)

  A: Actions taken to manage inventory and costs are expected to lead to more favorable cycle dynamics than in previous downturns. (John May)

• Q: How should we think about the fourth quarter as an indicator for fiscal 2025? (David Raso, Evercore ISI)

  A: The fourth quarter is not indicative of 2025 due to significant underproduction and shutdowns impacting margins. (Josh Jepsen)

• Q: Can you provide more details on inventory to sales ratios and how they relate to production cuts? (Kristen Owen, Oppenheimer)

  A: Inventory to sales ratios are flat quarter-over-quarter, with specific focus on reducing inventories in North America. (John May)

• Q: Could you elaborate on the early feedback for See & Spray technology? (Joel Jackson, BMO Capital Markets)

  A: Encouraging feedback on See & Spray's savings and efficacy, with high adoption rates and positive customer and dealer feedback. (Josh Beal)

• Q: How do production cuts flow through to inventories, especially considering current levels? (Mig Dobre, Baird)

  A: Underproduction in specific segments like row crop tractors, with significant reductions expected in the fourth quarter. (Josh Rohleder)

• Q: Can you frame the impact of under-absorption from underproduction in the fourth quarter? (Chad Dillard, Bernstein)

  A: Higher decrementals in Q4 due to underproduction, with a significant impact on margins but not indicative of future quarters. (Josh Jepsen)