John Deere(DE) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales and revenues increased by 5% to $9.569 billion, with equipment operations net sales up 6% to $8.531 billion [7] - Net income attributable to Deere & Company was $903 million, or $2.92 per diluted share [7] - Equipment operations margin was reported at 11% for the quarter [6] Business Line Data and Key Metrics Changes - Production & Precision Ag segment net sales rose 9% to $3.356 billion, with an operating profit of $296 million and a 9% operating margin, down from 21% year-over-year due to higher production costs [8][9] - Small Ag & Turf segment net sales increased by 5% to $2.631 billion, with an operating profit of $371 million and a 14.1% operating margin, also down year-over-year due to higher production costs [10][11] - Construction & Forestry segment net sales were up 3% to $2.544 billion, with operating profit slightly higher at $272 million and an 11% operating margin [18][19] Market Data and Key Metrics Changes - U.S. and Canada large ag equipment industry sales expected to rise approximately 20% [12] - Small Ag & Turf industry sales in the U.S. and Canada expected to remain flat due to supply challenges [13] - European industry sales forecasted to increase by roughly 5% [14] - South America tractor and combine sales expected to rise between 5% to 10% [15] - Asia's industry sales forecasted to be flat [15] Company Strategy and Development Direction - Company introduced new LEAP ambitions aimed at delivering economic and sustainable outcomes, with a focus on digitalization, autonomy, automation, and electrification [26][32] - The company sees over $150 billion in incremental addressable market opportunities across its three business segments [33] - The goal is to achieve a 20% margin at the equipment operations level by 2030, up from the current 15% [62] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges but noted strong demand with order books mostly full [41][43] - The company expects continued unpredictability in the supply chain throughout fiscal year 2022 [82] - Management remains optimistic about the ability to execute and manage through the year despite challenges [83] Other Important Information - Financial Services net income for the first quarter was $231 million, with a full-year outlook maintained at $870 million [23] - The company raised its net income outlook for fiscal year 2022 to between $6.7 billion and $7.1 billion [24] Q&A Session Summary Question: Top line contribution from the $150 billion TAM - Management discussed the need to consider market share and value share between customers and the company to estimate the impact on top line [71][73] Question: Recurring revenue path and short-term margin trade-offs - Current recurring revenue is less than 1%, with expectations for growth as new products are launched, but not expected to be linear [76][77] Question: Near-term outlook and predictability - Management noted that while there are challenges, the incrementals are strong, particularly in Production and Precision Ag [83] Question: Differences in margin targets across segments - Management indicated that while the 20% margin target is a through-cycle target, there may be differences in how each segment contributes to achieving that goal [85]