Q3 2024 Earnings Summary
- John Deere is proactively managing inventory and costs, positioning the company for a better 2025 . They have adjusted production schedules more quickly than ever before to keep inventories aligned with market demand, which they believe will lead to more favorable cycle dynamics than in previous downturns .
- Positive customer feedback on the efficacy of new technologies is driving strong ROI and cost savings, demonstrating the success of their investment in precision solutions . Customers and dealers report that savings are meeting or exceeding expectations .
- Optimism about future opportunities, particularly in regions like Brazil where the market appears more stable, encouraging for 2025 . Deere is committed to supporting customers by investing in new products and technologies designed for specific markets .
- Net sales and revenues decreased by 17%, with equipment operations net sales down 20%, indicating significant declines in demand.
- Lower shipment volumes in both Production and Precision Ag (down 25%) and Small Ag and Turf (down 18%), due to muted ag fundamentals and tempered market demand.
- Increased competition led to net pricing declines, as additional incentives were required amid rising inventory levels in the earthmoving equipment segment.
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Production Cuts and EPS Impact
Q: Are production cuts altering future EPS and seasonality?
A: Management stated that significant underproduction in Q4 due to shutdowns will negatively impact margins and EPS, but this is not indicative of 2025 performance. They emphasized that typical seasonal patterns may not apply and that Q4 is not a good launching point for EPS into Q1 2025. -
Pricing Assumptions Raised
Q: Why did you raise price assumptions for 2024?
A: Despite market fundamentals, they increased price assumptions for precision and production agriculture to 2% from 1.5%. This was due to favorable pricing in North America and Europe, stabilization in Brazil, and reduced need for incentives. -
Inventory Management Strategies
Q: How significant is the underproduction strategy in Construction?
A: They are proactively underproducing construction equipment by mid-single digits to bring inventory levels to the lower end of their normal bands. This positions them well for the coming year and balances price with market share amid increasing price competition. -
2025 Outlook and Earnings
Q: What factors affect 2025 earnings expectations?
A: Management is controlling what they can by underproducing to manage inventory, taking out excess costs, and restructuring for a leaner environment. Cost actions taken, including workforce adjustments, will provide tailwinds into 2025. -
Inventory to Sales Ratios
Q: Is the 10% inventory to sales target still the outlook?
A: They expect to be at or lower than the 15% inventory to sales ratio for 220-horsepower plus tractors, aligning with last year's levels. They are managing inventories proactively and collaborating closely with dealers. -
'See & Spray' Technology Feedback
Q: How is the 'See & Spray' technology performing?
A: Early feedback is positive, with herbicide savings of over 50% for users. Customers are adapting to operational changes, and management is encouraged by the adoption rate, comparable to past product rollouts. -
Seasonality Patterns and Production Cuts
Q: Should we expect normal seasonality with deep Q4 cuts?
A: Due to significant underproduction and shutdowns in Q4, typical seasonal sales patterns won't apply. They caution against using Q4 as a baseline for projecting into Q1 2025. -
Decremental Margins in Q4
Q: How will underproduction affect Q4 margins?
A: Underproduction will cause higher decremental margins in Q4, contributing to a 1.5 to 2 percentage point drag on full-year margins. The majority of this impact occurs in Q4 and weighs on absolute margin and decrementals.