Release Date: November 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deere & Co (DE, Financial) achieved better-than-expected fourth-quarter results with 13.1% margins for equipment operations.
- The company generated over $6.9 billion in operating cash flow from equipment operations, indicating strong structural improvements.
- Deere & Co (DE) maintained significant investment in R&D and new product capital spending despite muted sales.
- The company successfully reduced new field inventory levels, positioning itself well for challenging market conditions in 2025.
- Deere & Co (DE) saw record adoption of advanced features, such as harvest settings automation, which is expected to boost productivity.
Negative Points
- Net sales and revenues for the fourth quarter were down 28% to $11.1 billion, with equipment operations down 33%.
- The company expects continued contraction in global ag markets, leading to demand at or below trough levels in 2025.
- Construction and forestry market demand is projected to decline due to uncertainty in equipment purchases.
- Deere & Co (DE) anticipates further underproduction in certain regions, such as Brazil, due to elevated inventory levels.
- The company faces headwinds from high interest rates and elevated used inventory levels, impacting equipment demand.
Q & A Highlights
Q: Can you provide a clearer bridge on the margin expectations for 2025, considering productivity costs, raw materials, and production headwinds?
A: The margin expectations for 2025 are influenced by continued volume declines, with total equipment operations expected to be down around 13% for the full year. Despite this, pricing is expected to be positive across all segments, and production costs are anticipated to be favorable. The large ag business in North America, expected to be down around 30%, will weigh on detrimentals due to its profitability.
Q: Can you expand on the pool funds program and its role in managing trade-ins for late model year equipment?
A: The pool funds program is designed to provide stability in the used market during downturns. Record levels of pool fund balances were achieved due to strong equipment demand in 2022 and 2023. These funds are now being deployed to help reduce used inventory. The pricing guide for 2025 includes a higher incentive rate to support pool funds, ensuring continued positive pricing.
Q: How does the guidance for 2025 reflect potential improvements in retail demand across ag and construction markets?
A: The guidance for 2025 is more related to year-over-year comparisons rather than assumed improvements in retail demand. Greater year-over-year declines are expected in the first half of the year, particularly in construction and forestry, with progressively better comparisons in the latter half.
Q: What are the expectations for dealer used inventory levels throughout the year, and how do you plan to manage them?
A: Used inventory levels are expected to be managed over the next few quarters, with a focus on stabilizing levels seen in the fourth quarter. The first quarter provides an opportunity to drive down used inventory further, aided by year-end tax buying and lower production levels.
Q: Can you elaborate on the pricing dynamics in construction, given the broadening softness in the market?
A: The pricing dynamics in construction remain competitive, with a balance maintained between price and share. The road building segment, which is more stable, provides opportunities for price increases. The overall price guide for construction remains positive, despite the competitive environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
