Deere & Company (ticker: NYSE:DE), a leading manufacturer of agricultural, construction, and forestry equipment, reported a decline in net sales and revenues for fiscal year 2024, with a cautious outlook for 2025 amid anticipated market challenges. The company's net income for the year stood at $7.1 billion, with earnings of $25.62 per diluted share. Looking ahead, Deere expects a continued market contraction with a net income forecast of $5-5.5 billion for fiscal year 2025.
Key Takeaways
- Deere & Company's fiscal year 2024 net sales and revenues decreased by 16% to $51.7 billion.
- The company delivered a net income of $7.1 billion, or $25.62 per diluted share.
- For fiscal year 2025, Deere forecasts a market contraction with net income projected between $5-5.5 billion.
- North American Large Ag equipment sales are expected to decline by roughly 30%.
- European and South American agricultural markets projected to be down 5-10% and flat, respectively.
- Construction and Forestry markets are anticipated to decline 10-15%.
- The company has proactively managed inventory and focused on technological innovation, expecting positive pricing across all segments.
Company Outlook
- Deere & Company anticipates challenging market conditions in 2025.
- The focus will be on maintaining operational excellence and enhancing customer productivity and profitability.
- The company aims to achieve higher margins at trough levels compared to previous cycles.
Bearish Highlights
- Significant market challenges are expected in the agricultural equipment sector for 2025.
- A notable decline in equipment sales across North America, Europe, and the Construction and Forestry segments.
Bullish Highlights
- Positive price realization is expected across all segments.
- Technological innovations, such as the See and Spray technology, continue to be a focus, with increased adoption and engagement acres.
Misses
- The company missed its previous sales and revenue figures, marking a 16% decrease from the prior year.
Q&A Highlights
- CFO Josh Jepsen emphasized a year of discipline and hard work ahead, aiming for customer success.
- Jepsen also highlighted the goal of delivering higher margins at trough levels than in previous peak years.
- Corey Reed, President of the Worldwide Agriculture and Turf Division, discussed expanding the reach of the See and Spray technology through new business models.
Deere & Company's strategic approach to the anticipated downturn includes proactive inventory management and a strong emphasis on technological innovation, such as precision agriculture technologies. The company has significantly reduced new equipment inventory and is working closely with dealers to manage used equipment inventories. Technological advancements have been substantial, with See and Spray technology covering over 1 million acres and a high adoption rate of automated combine settings. With nearly 455 million global engaged acres, Deere & Company is introducing new pricing models to foster technology adoption.
Despite the challenging outlook for 2025, Deere remains committed to its strategic initiatives, aiming to support its customers' productivity and profitability in difficult market conditions. The company's leadership expresses confidence in delivering higher margins and maintaining its focus on innovation and operational excellence.
Full transcript - Deere and Company (DE) Q4 2024:
Conference Operator: Good morning, and welcome to the Deere and Company 4th Quarter Earnings Conference Call. Your lines have been placed on listen only until the question and answer session of today's conference. I would now like to turn the call over to Mr. Josh Beal, Director of Investor Relations. And thank you, sir.
You may begin.
Josh Beal, Director of Investor Relations, Deere and Company: Hello. Welcome and thank you for joining us on today's call. Joining me on the call today are John May, Chairman and Chief Executive Officer Josh Jepsen, Chief Financial Officer Corey Reed, President, Worldwide Agriculture and Turf Division, Production and Precision Ag Americas and Australia and Josh Rollater, Manager, Investor Communications. Today, we'll take a closer look at Deere's 4th quarter earnings, then spend 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 atjohndeere.com/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 and 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 ks, risk factors in the annual Form 10 ks as updated by reports filed with the Securities and Exchange Commission. This call also may 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/earnings under Quarterly Earnings and Events.
Josh Rollater, Manager, Investor Communications, Deere and Company: I will now turn the call over to Josh Rollater. Good morning, and an early happy holidays to everyone joining us today. John Deere finished the year with a better than expected Q4 that included 13.1% margins for equipment operations. Full year operating margins came in at 18.2%, reflecting solid proactive execution throughout our organization amidst a challenging and rapidly changing market environment. Our ability to generate just over $6,900,000,000 in operating cash flow from equipment operations at shipment volumes below mid cycle levels is indicative of the structural improvements we've made, enabling continued reinvestment in the business and significant cash return to shareholders.
Looking ahead to 2025, we expect continued contraction of Ag markets globally to result in ag and turf equipment demand at or below trough levels. Additionally, construction and forestry market demand is expected to be down as healthy end markets are offset by continued uncertainty in equipment purchases. Slide 3 begins with the results for fiscal year 2024. Net sales and revenues were down 16% to $51,700,000,000 while net sales for equipment operations were down 19 percent to $44,800,000,000 Net income attributable to Deere and Company was $7,100,000,000 or $25.62 per diluted share. Next (LON:NXT), Q4 results are on Slide 4.
Net sales and revenues were down 28 percent to $11,100,000,000 while net sales for the equipment operations were down 33% to $9,300,000,000 Net income attributable to Deere and Company decreased to $1,200,000,000 or $4.55 per diluted share. Diving into our individual business segments on Slide 5, we'll review our 4th quarter results starting with our Production and Precision Ag Business. Net sales of $4,305,000,000 were down 38% compared to the Q4 last year, primarily due to lower shipment volumes. Price realization in the quarter was flat, in line with expectations. Currency translation was negative by about 1 point.
Operating profit was $657,000,000 resulting in a 15.3% operating margin for the segment. The year over year decrease in operating profit was primarily due to lower shipment volumes and sales mix, which was partially offset by lower production costs. As a reminder, we anticipated tougher year over year comps for PPA in the Q4 due to extended factory shutdown days associated with planned underproduction at several facilities. Turning to Small Ag and Turf on Slide 6. Net sales were down 25%, totaling $2,306,000,000 in the 4th quarter, primarily due to lower shipment volumes, although this was partially offset by price realization.
Price realization in the quarter was positive by approximately 2.5 points. Currency was also positive by approximately 0.5 point. For the quarter, operating profit declined year over year to $234,000,000 resulting in a 10.1% operating margin. The decrease was primarily due to lower shipment volumes and mix along with special non recurring items. These items were partially offset by price realization and lower warranty expenses.
Slide 7 details our fiscal year 2025 ag and turf industry outlook. We expect industry sales of large ag equipment in the U. S. And Canada to decline approximately 30% as demand further moderates amid weak farm fundamentals, high interest rates, elevated used inventory levels and short term farmer liquidity concerns heading into next year's growing season. For small ag and turf in the U.
S. And Canada, industry demand is estimated to be down around 10%. The dairy and livestock segment continues another year of strong profitability as elevated protein and hay prices are further enhanced by low input feed costs. This is offset by restrained demand in the turf and compact utility tractor markets as single family home sales and home improvement spending remains stagnant amid high interest rates. In Europe, the industry is projected to be down between 5% 10%.
Farm fundamentals in the region continue to deteriorate. Lingering headwinds include depressed yields from unfavorable weather, reduced regional commodity prices and persistently elevated input costs. Confluence of these issues coupled with high interest rates are expected to keep industry equipment demand at low levels throughout 2025. Within South America, we anticipate industry sales of tractors and combines to be roughly flat as headwinds from 2024 stabilize but persist. Looking forward to 2025, while crop prices are expected to decline, input costs are also decreasing with yields improving as drought concerns abate.
Coupled with continued soybean acreage expansion, overall sentiment has improved, although this has yet to translate into additional equipment demand. Additionally, recent appreciation of the U. S. Dollar against the Brazilian real offers further profitability tailwinds to farmers as commodity prices are typically quoted in dollars while many input costs are denominated in real. Across the rest of South America, strong yields are offset by low commodity prices and elevated interest rates.
Argentina, however, is experiencing some favorable tailwinds as government actions begin to stabilize the currency amid a recovery in the ag industry. Finally, industry sales in Asia are projected to be down slightly. As foundational technology adoption and improving ag fundamentals in India provide moderate demand tailwinds. Moving to our segment forecast on Slide 8. We anticipate production in precision ag net sales to be down approximately 15% in fiscal year 2025.
The forecast assumes roughly one point of positive price realization and 0.5 point of negative currency translation. Segment operating margin forecast for the full fiscal year is between 17% 18%, reflecting strong execution amid tough geographic and product mix headwinds. Slide 9 provides our forecast for the Small Ag and Turf segment. We expect fiscal year 2025 net sales to be down around 10%. This includes about 0.5 point of positive price realization as well as 0.5 point of positive currency translation.
The segment's operating margin is projected to be between 13% 14%. Shifting now to Construction and Forestry on Slide 10. Net sales for the quarter were down 29% year over year to $2,664,000,000 due to lower shipment volumes. Both price realization and currency translation were slightly positive in the quarter by less than 0.5 point. Operating profit decreased to $328,000,000 resulting in a 12.3 percent operating margin.
Lower shipment volumes and sales mix were partially offset by lower production costs and proceeds from special non recurring items. Slide 11 outlines our 2025 Construction and Forestry Industry outlook. Industry sales for earthmoving equipment in the U. S. And Canada are expected to be down around 10%, while compact construction equipment in the U.
S. And Canada is expected to be down 5%. Mixed end markets in 2025 are expected to temper equipment demand across both construction and compact construction equipment. Modest growth in single family housing starts and U. S.
Government infrastructure spending will be more than offset by further slowdowns in multifamily housing developments, still softening non residential building investments and muted CapEx spending in oil and gas. Additional headwinds from historically low levels of earthmovingrentalrefleting and somewhat elevated used inventories will further pressure equipment sales as market uncertainty persists into the start of fiscal 2025. Global forestry markets are expected to be flat to down 5% as challenged global markets stabilize at low demand levels in 2025. Global row building markets are forecasted to be roughly flat as a modest recovery in Europe compensates for modest slowdowns in other geographies. Continuing with our C and F segment outlook on Slide 12.
2025 net sales are forecasted to be down around 10% 15%. Our net sales guidance for the year includes about 1 point of positive price realization and flat currency translation. The segment's operating margin is projected to be between 11.5% and 12.5%. Switching to our Financial Services operations on Slide 13. Worldwide Financial Services net income attributable to Deere and Company was $173,000,000 for the 4th quarter.
The year over year decline was mainly due to a higher provision for credit losses, partially offset by income earned on a higher average portfolio balance, a reduction in derivative valuation adjustments and lower SA and G expenses. Results were also negatively impacted by the increased valuation allowance on assets held for sale of Banco John Deere. For fiscal year 2025, net income forecast is $750,000,000 Results are expected to be higher year over year, primarily due to a lower provision for credit losses, partially offset by less favorable financing spreads. Additionally, 2024 results were affected by the valuation allowance on assets held for sale of Montcalm John Deere. Slide 14 concludes with our guidance for net income, effective tax rate and operating cash flow.
For fiscal year 2025, our full year net income forecast is expected to be in the range of $5,000,000,000 $5,500,000,000 highlighting structural improvements over previous cycles. Next, our guidance incorporates an effective tax rate between 23% 25%. Lastly, cash flow from equipment operations is projected to be in the range of $4,500,000,000 to $5,500,000,000 It is important to emphasize that our implied guidance of around $19 in earnings per share is at sub trough levels, with expected sales for fiscal 2025 below 80% of mid cycle, underscoring our commitment to operational excellence as we focus on proactive management to drive customer value at all points in the business cycle. This concludes our formal remarks. We'll now cover a few key topics before opening the line to Q and A.
Before we get into this detail, John, would you like to share your thoughts on the year?
John May, Chairman and Chief Executive Officer, Deere and Company: Yes. Thanks, Josh. 2024 was characterized by our resiliency in the face of significant challenges. The pullback we experienced in global markets this year provided our organization with an opportunity to showcase the structural improvements we've made since announcing the Smart Industrial Operating Model in 2020. Starting with our financial scorecard, we continued to demonstrate better performance across the cycle.
Notably, our margins in 2024 exceeded 18%, reflecting nearly 700 bps of improvement from 2020, which was the last time we were at this point in the cycle. This margin expansion has enabled us to invest record levels back into the business this year. More important than the numbers, I couldn't be prouder of the resilience demonstrated by our John Deere employee team this year. The velocity at which market slowed tested our discipline and our agility. However, in the face of these difficulties, we emerged more focused than ever on our mission to help our customers do more with less.
Our dedicated teams across factories, engineering centers, dealerships, branches, offices, and in the field showed remarkable fortitude as we made proactive decisions based on hard learned lessons from the past. We maintained our focus on the customer, ensuring we not only retain, but also actively seek out the best talent with the skills and experience necessary to help us solve the significant challenges facing our customers. This year also brought about a range of new and exciting solutions as we furthered our progress on many of our LEAP ambitions, including Connected Machines, engaged acres and autonomous acres. Our flagship Sense and Act technology, See and Spray, covered 1,000,000 acres this year alone, reducing herbicide use by an average of nearly 60%. This solution and many other similar technologies we've developed have not only positively impacted our customers' operations, but the environment as well.
And we've only begun to scratch the surface. Our employees come to work every day, driven by a higher purpose that extends beyond merely solving a problem or completing a task. At the end of the day, we can confidently step back and reflect on the fact that our products are making a meaningful difference for our customers and the world.
Josh Rollater, Manager, Investor Communications, Deere and Company: Thanks, John. I'd like to continue our discussion about the past year before we dive into 2025. This past fiscal year clearly represented a very dynamic market characterized by significant demand declines following peak levels in 2023. Nevertheless, as you noted, John, we ended the year with over $7,000,000,000 in net income. Josh Beal, can you provide a breakdown of what happened during the quarter and throughout the fiscal year?
Yes, happy
Josh Beal, Director of Investor Relations, Deere and Company: to, Josh. And it's best to start off with the quarter, which came in better than expected. We targeted field inventory reductions by pulling back production and shipping at our factories across the globe. Large Ag retail sales of new equipment generally came in line came in as expected across most geographies and product lines, especially in North America. As a result, field inventory of new equipment, particularly North American tractors and combines, ended the year at extremely low levels on both an absolute and inventory to sales basis.
We managed this under production while controlling costs, delivering year over year improvements in production costs and SA and G and R and D. Additionally, we successfully reduced in process inventory levels, which drove much of the cash flow outperformance relative to our Q3 guide. Turning to the full year, John previously highlighted that our performance was marked by resiliency in the face of challenging market conditions, which necessitated tough operational decisions that required significant flexibility and adaptability from everyone, our employees, dealers and suppliers. As a result, we successfully managed operations to lower levels of demand this year. Production costs for the full year came in favorable, primarily due to year over year improvements in material and freight costs across all business segments.
Despite muted sales, we remained disciplined and committed to our investments in the business, maintaining record levels of R and D spending. We recognize that many of the new product introductions this year stemmed from investments that we made throughout the previous cycle, and we will continue to prioritize these value creating investments moving forward. Overall, the decisive actions we took this year resulted in a solid finish. We closed fiscal year 2024 delivering strong returns, while successfully reducing new field inventory levels, ultimately positioning the business to effectively execute what are expected to be challenging market conditions in 2025. Thanks, Josh.
That's great color on 2024. Let's pivot directions now and discuss our fiscal 2025 outlook for Ag
Josh Rollater, Manager, Investor Communications, Deere and Company: and Turf. With commodity prices down albeit partially offset by bumper crops across the U. S, farmer margins have been compressed. Our guide implies a challenging year for farmers in 2025. Josh, could you help us unpack what we're seeing here and what to expect by segment and geography?
Josh Beal, Director of Investor Relations, Deere and Company: Sure. It's definitely going to be another dynamic year across the Ag industry. Let's start with Large Ag in North America. We expect farm fundamentals to remain depressed globally in 2025, putting additional pressure on farm profitability. Given the strong yields from U.
S. Harvest this past year, we've seen a rebuilding of global stocks, with the USDA forecasting global stocks to reach the 4th highest level on record. Anticipated record production in South America, particularly in Brazil and Argentina, is likely to further pressure global commodity prices in 2025. With input costs relatively flat year over year, farm net incomes will remain compressed globally. Conversely, dairy and livestock margins remain elevated, supported by significantly lower input feed costs and positive market demand.
However, machinery demand for this segment has lagged the margin gains and positive sentiment as interest rates and slow herd expansion continue to be the primary headwinds. Broadly across the Ag sector and despite significant macro headwinds, farm balance sheets remain strong with land values supporting healthy debt to equity ratios. That said, as cash receipts have slowed and credit conditions in the industry have tightened, many growers are keeping a greater focus on the liquidity of their operations. As we look at the impact on equipment sales in the coming year, it's important to highlight the varying dynamics across each of our primary regions. As a reminder, our goal for 2024 was to under produce global Large Ag retail by a high single digit.
In North American Large Ag, we successfully achieved our underproduction goals for the Q4, reaching targeted inventory levels on most of our key products. For example, new combine inventory was down mid teens year over year on a unit basis and finished the year at 4% inventory to sales, in line with 2023 year end levels. In 220 horsepower and above large tractors, we reduced field inventory by nearly 50% year over year, resulting in a year end inventory to sales ratio of 10%, a 500 basis point reduction year over year. In the last 10 years, inventory to sales ratios for 220 horsepower tractors per Deere have only been this low twice, in April 2014 just prior to the last down cycle and in January 2022 due to post pandemic supply constraints. Given the inventory reductions we've achieved, we expect to produce in line with retail demand in North America in 2025.
We're encouraged by the progress we've made on this front, particularly as industry inventory to sales ratios for new equipment are more than double Deere's ratios for both 100 horsepower and above tractors and combines. Despite our proactive inventory management, macro factors continue to be a headwind for equipment demand in 2025, resulting in subdued early order program results. As a reminder, during our last earnings call in August, we were partway through the early order programs for sprayers and planters in North America, and our combine early order program had just begun. As an update, our sprayer program concluded down from 2024, declining in line with our industry guide for North American Large Ag and setting 2025 production levels per sprayers below mid cycle. Planters on the other hand experienced a more significant decline, closing with a year over year reduction greater than what we saw in sprayers.
Finally, combines will complete the second of 3 early order program phases next week. And when this program closes at the end of January, we expect the product line to be down in a range similar to the reduction we've seen in sprayers. North American tractors are managed on a rolling order basis with row crop tractor order books full through the middle of the second quarter. Demand for row crop tractors in 2025 is expected to be down less than the overall industry forecast, with Deere shipments decreasing even less as production levels rebound to align with retail demand following our high single digit under production for row crop tractors in 2024. Conversely, demand for 4 wheel drive tractors in 2025 is expected to decline year over year more than the industry guide, but as a reminder, that product line actually saw increased demand in 2024.
It's worth noting here that our order books for our newest tractor, the high horsepower 9RX, which we introduced last February at Commodity Classic are currently full through the middle of Q4, underscoring the value that we're bringing to the market and the importance of continued investment in our core product lines.
Corey Reed, President, Worldwide Agriculture and Turf Division, Deere and Company: Josh, this is Corey. I'd like to jump in here to highlight the efforts of our Canadian team and customers. We've seen significant competitive conversions in this market post our smart industrial redesign, which is focused on supporting the production steps that our customers take over the course of a year in their specific crop types and the geography. In Canada, the majority of broadacre farming occurs in the western half of the country. This primary production system is small grains, which is wheat, canola and barley and the operations tend to be large scale.
Many of the new product introductions over the past few years have been tailor made for solving our Canadian small grains customers' toughest challenges and doing so at the system level from X9 combines to high horsepower 9RX tractors to our C Series air carts. Coupled with our integrated technology solutions in the John Deere Operations Center, these customers are experiencing significant increases in productivity, in profitability and in quality of life. And finally, when you layer in a dealer network that's committed to investing in their customers and ensuring they get the most out of their Deere equipment, while delivering uptime and reliability, the result is exceptional system level value for our Canadian customers.
Josh Rollater, Manager, Investor Communications, Deere and Company: Thanks for that call out, Corey. Clearly, a great story with our team up there that should continue into the next year. And Josh, thanks for the update on EOPs in the North American market. Now can you walk us through what's happening in South America and maybe more specifically Brazil?
Josh Beal, Director of Investor Relations, Deere and Company: Of course. As you recall, Brazil represented our largest targeted underproduction in 2024 as we worked to correct excess new field inventory resulting from the market slowdown at the end of 2023. Our factory and marketing teams in the region worked diligently over the last year to adjust production and shipping in the midst of a dynamic retail sales environment. As a result, we've driven significant reductions in new field inventory units and have reached targeted levels for most product lines, enabling us to produce in line with retail demand in 2025 across most equipment categories. Given our flat guide for industry retails in 2025 and the significant underproduction to retail in 2024, producing in line with retail in 2025 will represent a double digit increase in Deere shipments year over year in the region.
The one product where we still have some work to do is combines, where inventories remain elevated following slightly weaker than anticipated retail sales in the Q4. As a result, we're planning another year of under production for combines in Brazil in 2025, although to a much lesser extent and with the majority of the inventory drawdown occurring in the first half of the year.
Josh Jepsen, Chief Financial Officer, Deere and Company: Hey, this is Jeffson. I wanted to take a moment to express how proud we are of our South American team and the exceptional work they've done to efficiently and resourcefully right size inventory levels, while maintaining strong operating margins. Our optimism in the region's prospects remains strong, demonstrated by our continued local investments focused on developing solutions in the region for the region. A great example is our investment in Brazil in our new R and D center in Indayatuba, which will be open in December. This center will focus on developing the products our Brazilian customers need to tackle challenges specific to tropical agriculture.
That's great, Josh.
Josh Rollater, Manager, Investor Communications, Deere and Company: Now let's finish it out with Europe. What are the dynamics over there?
Josh Beal, Director of Investor Relations, Deere and Company: 2024 was a tough year for the region. We really saw a perfect storm of factors depressed commodity prices, lower yields, regional conflicts and frustration with Ag policy that ultimately drove a retail sales decline much greater than normal for a market that is traditionally less volatile than North and South America. We expect this atypical trend to continue in 2025 with another year of declines as uncertainty, interest rates, pressure on cash crop receipts and elevated field inventory levels weigh on equipment demand. To illustrate this challenge, harvest yields in France, the largest grain producer in Western Europe came in this fall at multi decade lows, placing significant strain on many growers in that region. Similar to other regions, we had success in reducing Deere new field inventory units in Europe in 2024, driving levels down over 20% from the start of the year.
However, due to the ongoing and greater than expected declines in retail demand, our field inventory targets have continued to adjust downward in line with the market softening. We finished 2024 with inventory to sales ratios for both midsize tractors and combines at or slightly above the upper end of our targeted vans, which we feel necessitates further under production in those product lines in 2025. Order books in the region remain healthy with orders from Monheim Tractors extending into the Q2 of the year.
Josh Jepsen, Chief Financial Officer, Deere and Company: One additional point to highlight for the ag outlook broadly is that our implied 2025 decrementals are impacted by product and geographic mix as North American large egg equipment like combines and row crop tractors experienced larger reductions compared to the rest of the world. This is particularly noteworthy in the Q1 given the year over year comparison to strong North American large egg sales into the Q1 of 2024. Now, when we think about the Q1 of 2025, we expect top line sales for the equipment operations to be down 15% to 20% sequentially from 4Q 2024 with margins 300 to 400 basis points lower than the full year guide. Additionally, we are forecasting production costs to be favorable again in 2025 for the equipment operations, driven primarily by improved material costs and lower overhead expenses, all despite significant volume reductions. Overall, we expect to see positive price costs for the full fiscal year, yet another example of the structural improvements our teams continue to deliver.
Josh Rollater, Manager, Investor Communications, Deere and Company: Thanks, Josh. That's a great walk around the world as well as good additional insight into where we're projecting production costs for 2025. Now we've talked extensively about 2025 order books and new inventories. But a significant concern heading into next year is North American used inventories. Last quarter, we discussed the levers we were pulling to return to long term averages.
Cory, this next question for you. Can you give us an update on where we stand in North America and what steps we're taking to manage used inventory levels?
Corey Reed, President, Worldwide Agriculture and Turf Division, Deere and Company: Yes, sure, Josh. As you just heard, our team has done an excellent job proactively managing new inventories and we're seeing the benefits of those decisions play out in 2025. As you noted, our primary focus over the last few quarters and now heading into the new fiscal year is to diligently work to bring down used levels, especially late model harvesting equipment and row crop tractors. Broadly speaking, we're seeing used inventory to new sales ratios starting to plateau just above the long term average. While it's too early to call an inflection point on used equipment, we are encouraged by the slowdown in growth that we saw during the Q4.
As we look at used inventory by model year, we're seeing a similar phenomenon in both row crop tractors and combines. When compared to long term average distributions, the current mix of used is heavier than normal in 1 to 2 year old equipment and correspondingly lighter in model year 'nineteen to 'twenty one equipment. This correlates closely to a trade ladder in which second owners who typically buy late model equipment every 3 to 5 years will be looking to come back into the market for this first time since pre inflationary pricing and significant interest rate increases. This backdrop along with compression in farm net incomes is putting pressure on trade differentials and has slowed in this part of the trade ladder. As a result, we're hyper focused on helping these farmers transition to this next generation of equipment, which is needed based on today's even tighter harvesting windows and transition to precision applications like high speed planning.
In turn, this will help the used market return to a more normal distribution mix by vintage of machine. Our approach to reducing used inventories is 3 pronged. 1st and foremost, we've managed new inventory levels to ensure we don't flood the market as equipment demand moderates. 2nd, we're working closely with our dealers to drive targeted programs and engagement with each customer to understand their needs and what's most impactful to their bottom line. One example of the changes we made in 2024 as a result of this engagement is the offering of new financing programs, which have been greatly appreciated by both our customers and the dealers supporting them.
Finally, we're further elevating pool fund contributions to ensure dealers have the necessary funds to drive used sales. Stepping back, despite the softer end markets, our dealers remain healthy. They're not only focused on managing used inventories in the near term, but are also committed to continue to invest in our technology journey. At the end of the day, our dealers are focused on one goal, consistently delivering greater value to our customers.
John May, Chairman and Chief Executive Officer, Deere and Company: Corey, I wanted to add a comment on the current state of our dealer network. Our dealers are in a structurally better position today versus previous cycles. As we continue to work in close partnership with them to stay ahead of inventory demand changes, We recognize that we wouldn't have made the progress that we've seen in the field inventory without the execution of our dealers. They have and continue to invest in specialized capabilities, while meaning strongly capitalized. This strength and our aligned purpose enhance the level of service and support that our customers receive, which remains our primary goal.
Josh Rollater, Manager, Investor Communications, Deere and Company: Thanks, Corey and John. That's great perspective. Let's shift now to Construction and Forestry. 2024 was a dynamic year and really a story of 2 halves, starting with solid stable demand in the 1st two quarters, consistent with the strong levels that we saw in 2023. The second half, however, gave way to softening retails and tougher competition, which ultimately pressured margins as we proactively shifted to underproducing retail demand in the earthmoving segment in the 4th quarter.
Josh Beal, can you walk us through what happened and how this will impact 2025?
Josh Beal, Director of Investor Relations, Deere and Company: Yes, definitely. As you noted, we saw ongoing strength in retail demand for earthmoving equipment in the first half of twenty twenty four, but that shifted to a softening market in both our 3rd and 4th quarters. We're seeing that trend continue this next year and as reflected in our industry guides for both construction and compact construction, we expect further softening in 2025. Construction work is still robust and government infrastructure spending associated with the IIJA is still less than 50% awarded. Our customers continue to see a strong backlog of work, albeit alongside stiffer competition, which is driving down bids and overall project margins.
Compounded by elevated interest rates in a recently re fleeted rental industry, there's less near term appetite for new equipment purchases. Despite these pressures, it's worth reiterating that we continue to see a robust utilization of equipment in
Josh Jepsen, Chief Financial Officer, Deere and Company: the field. Joshua, earlier you mentioned
Josh Beal, Director of Investor Relations, Deere and Company: our decision to under produce earthmoving retail demand in the Q4 of 2024, which successfully drove downfield inventories over the past 3 months. Given the additional softening in retail demand that we're anticipating in 2025, we've made the decision to continue to under produce retail in the first half of next year to ensure inventory levels are appropriately sized to respond to demand changes in the back half of twenty twenty five. In fact, much like large ag this past quarter, earthmoving lines at our North American factories will be shut down for approximately half of the total production days in the Q1 of the year. This will have a material impact on our quarterly decremental margins as well as overall profitability for the segment in the quarter. Given the steady outlook for road building combined with demand in Global Forestry being flat to down 5%, we expect these product lines to provide stability to our overall Construction and Forestry segment.
This is Josh. Maybe just to summarize here, we feel good about our C
Josh Jepsen, Chief Financial Officer, Deere and Company: and F business. However, we're being proactive, learning lessons from previous cycles as well as our Ag business. It's important to note that even with this under production, we're weathering the demand reduction in the competitive environment better than we have in the past. This is a testament to the efforts of our team to drive structural improvements alongside differentiated customer value as we continue to concentrate our investments in margin accretive opportunities.
Josh Rollater, Manager, Investor Communications, Deere and Company: Yeah, that's great insight into what appears to be a dynamic market right now, Josh. Given the tougher competition and uncertainties surrounding long term end market demand, our end of production should put us in the best position to generate strong returns in the back half of the year. Now for our last topic, I'd like to focus on our technology progress. Josh and Corey, there have been quite a few new product releases and milestones achieved over the last 12 months. Could you walk us through some of those key highlights and what it means for the business going forward?
Corey Reed, President, Worldwide Agriculture and Turf Division, Deere and Company: Sure. I can start. 24 represented a year of significant new product introductions and technological advancements available on our model year 2025 equipment. These releases ranging from our most powerful tractor ever designed to new seeding equipment to the most advanced harvesting technology to date are a testament to the success we've seen in our production systems approach. At the top end of our tech stack, we're seeing record adoption of some of our most advanced features.
For example, over 75% of combine EOP orders have opted for our highest level of harvest settings automation because of the immediate value this technology will bring to their operations. In fact, we expect our customers will experience up to 20% boost on average in harvest productivity from this feature alone. Another great example would be large ag equipment in Brazil. We brought our new inventory levels down to target over the course of the year, while managing to both maintain and grow market share. And this means that we not only grow the share of acres covered by equipment, but also the number of acres connected to our John Deere operations center, which ultimately means more productive, more profitable farmers.
Josh Beal, Director of Investor Relations, Deere and Company: Yeah, that's right, Corey. And to put that statistic in perspective, we saw our global engaged acres grow by nearly 20% this past year, reaching 455,000,000 acres with South America up nearly 30%. And growth in highly engaged acres, which currently make up over 25 percent of our total engaged acres is outpacing the overall growth trend in engaged acres as we see deeper and broader utilization. Global year over year growth in highly engaged acres is over 30% with South America notably up nearly 50%. And while you noted that the adoption of some of our latest technologies has exceeded expectations, we're also continuing to see significant growth and adoption of some of our more established solutions during this downturn, as farmers seek ways to enhance productivity and improve margins.
For example, the adoption of ExactApply technology on model year 25 sprayers increased by over 10% year over year, reaching a nearly 80% take rate in this year's early order program. On See and Spray, as John mentioned, we covered over 1,000,000 acres in 2024 with just a few 100 units in the field. For 2025, across both factory installed options and retrofit precision upgrades, we have currently taken over 1,000 orders for new See and Spray Premium and Ultimate units. As a result, we expect to see a significant increase in the number of acres covered by See and Spray technology in the 2025 season.
Corey Reed, President, Worldwide Agriculture and Turf Division, Deere and Company: Exactly. When you have technology that you know is going to save money for your customers, you want to get that solution in their equipment as quickly as possible. We recognize this is a revolutionary technology that requires our customers to invest time and effort to transform their crop care programs. But we also know that typically we have a customer see it work in their field or in their operation, they see the value. Our goal is to enable more customers to experience the impact of our See and Spray technology by leveraging a different business model to unlock that value, which is more crucial than ever in the current macro environment.
Josh Jepsen, Chief Financial Officer, Deere and Company: Corey, this is Jeffson. Maybe one thing to add on to that. There's been quite a bit of discussion about our pay per use model and if it's the right go to market strategy for some of our latest offerings. The reality is that we're seeing higher levels of adoption using this model compared to our traditional upfront pricing approach, but only when it makes sense. For example, take our precision ag essentials kit, which includes 3 foundational pieces of technology guidance, connectivity and onboard compute needed to run any of our other precision technology solutions.
We recently changed the pricing model from a one time cost to a recurring license that allows customers to access the vital technology at a fraction of the traditional upfront investment. In the 1st year alone, we sold over 8,000 kits and these kits are being installed on equipment with an average model year vintage of 2012. This example highlights the importance of finding new ways to meet our customers at every stage of their precision tech journey. It also emphasizes our commitment to providing cost scaling solutions that enable all customers to adopt precision technology regardless of
Josh Rollater, Manager, Investor Communications, Deere and Company: the size of their operations. Thanks all. It's great to see so many proof points demonstrating how our continuous through cycle investment in the business is driving significant innovation and differentiated value for our customers. Now before we open up the line for questions, Josh Jeppesen, do you have any final thoughts you'd like to share?
Josh Jepsen, Chief Financial Officer, Deere and Company: Yes, it'd be great. I'll start by echoing John's comments from earlier. 2024 marked a year of resiliency. Resiliency in our business and resiliency in our employees who in the face of significant challenges throughout the year still performed at the highest level and with the utmost determination. And as a result, we delivered strong performance including over $25 in EPS, marking the 2nd best level in company history and returned over $5,600,000,000 to shareholders via dividends and share buybacks.
It's noteworthy that our earnings per share and cash returned to shareholders not only surpassed historical mid cycle levels, but also historical peaks. This performance is yet another proof point of the structural performance improvement that we've made in the business and will build upon going forward. And possibly even more important is the fact that we were able to do all of this while maintaining significant investment in the business across both R and D and new product capital spending. As we look forward, we're encouraged by the significant pipeline of opportunities ahead, opportunities that we believe will drive even greater levels of customer productivity and profitability. Whether it's our continued rollout of differentiated high quality hard iron or our increasing breadth of precision technology solutions, our focus is on making sure that each dollar unlocks the most incremental value because at the end of the day, the only way we succeed is if our customers succeed.
As we look ahead to 2025, we're excited and confident as ever that we can perform at step function levels better than previous cycles. Our proactive decisions in 2024 have positioned us well to achieve structurally better margins in what we anticipate will be a sub 80% of mid cycle year for our equipment operations. Said more simply, we expect to deliver higher margins at trough than we did during the previous peak in 2013. We're proud of what we've accomplished this year, but we're never satisfied. We come to work every day focused on solving the challenges our customers face.
2025 will be another year of discipline, hard work and renewed focus to ensure our customers can achieve more tomorrow than they did today. Thanks, Josh. Now let's open up the line
Josh Beal, Director of Investor Relations, Deere and Company: to questions from our investors. We're now ready to begin the Q and A portion of the call. The operator will instruct you on the polling procedure. In consideration of others and our hope to allow more of you to participate in the call, please limit yourself to one question. If we have additional questions, we ask that you rejoin the queue.
Operator?
Conference Operator: Thank you. And our first question is from Kristen Owen with Oppenheimer. Your line is now open.
Kristen Owen, Analyst, Oppenheimer: Hi, good morning. Thank you so much for taking the question. Lots of color commentary, particularly around some of the cadence in Q1. But I'm just wondering if we could get a little bit of a cleaner bridge on what the margin expectations are for 2025? What are the puts and takes in terms of productivity costs that you're carrying over, raw materials and the headwinds from the production in the first half?
Josh Beal, Director of Investor Relations, Deere and Company: Yes. Good to see you, Chris. I'll take a shot and team jump in. I think as we think about margin, there's a few things at play here as you look at 2025. 1st and foremost and notably, I think it's just the continued volume declines that we're seeing in the market.
Expectations, as you look at the individual guides would be that total equipment operations would be down and then kind of around 13% for the full year and certainly that continued level of volume reduction is weighing on the margins. As we mentioned, we expect pricing to be positive across all three segments And Josh Jepsen mentioned favorable production costs as well. So, we're seeing favorable price cost. And in addition to that, obviously, some of the decisions we've made in terms of reducing costs this year will carry over into next year as well, providing a lift. And so overall, it's as we mentioned, margin expectations relative to history, very strong.
I think maybe lastly, if you think about decrementals, probably a little bit higher than normal on the Large Ag business, That's really a mix driven impact as we think about the large ag business in North America being down around 30%. Our sales reduction will be less than that given the comp to 2024 and the under production that we did this year, but still the outsized reduction in one of our most profitable regions and so our most profitable product lines will lay on decrementals next year. Thanks, Kristen.
Conference Operator: Our next question is from Jerry Revich with Goldman Sachs (NYSE:GS). Your line is open.
Jerry Revich, Analyst, Goldman Sachs: Yes. Hi. Good morning, everyone. I'm wondering if you could just expand on the pool funds program and the use of pool funds to help the trade ins for the late model year equipment. I know you can move around pool funds year to year and given the incentives last year from the rebates to dealers, there's quite a bit that you're able to deploy to get those inventory levels down.
Can you just flush it out for us? And if you don't mind, just share the order of magnitude on how much you can put in that direction?
Josh Beal, Director of Investor Relations, Deere and Company: Yes. Hey, Jerry. Yes, as you think about pool funds and maybe it's best to first put in context where we started the year and really the past couple of years, the strong equipment demand that we saw in 2022 2023 and the associated sales there really drove a record level of pool fund balance entering this downturn and that's by design. That's how we structure the program. It provides stability in the used market when we see a downturn and we've seen that play out in 2024 as those pool funds are being deployed by our dealers to help drive reductions in used inventory.
Because of that and again by design, we've seen pool fund balances decline over the course of the year as dealers are using those funds. We put some additional incentives that worked to help support that balance. That's what you saw with pricing in the Q4 for large ag. As we talk about really flat pricing for the quarter, that was really some specific work targeted towards used and to help shore up the pool funds. And that's actually contemplated in our pricing guide for 2025 as well.
We're talking about net price of 1% for the segment. That's inclusive. You think about list price increases for next year in the range of 2% to 3%. We are expecting a little bit higher incentive rate in 2025 and that higher incentive rate is really driven by a focus on continuing to put funds to work in the pool fund area. So again supporting the reduction in used that we're driving towards and we'll continue to do that.
And again, we can continue to do that with positive price.
Josh Jepsen, Chief Financial Officer, Deere and Company: Jerry, this is Josh. The only other thing I'd add, I mean, on top of just the pool funds on used, we had a good finish to the year from a retail perspective on new. Josh Beal laid out where we ended from an inventory perspective, whether it's large ag in North America or South America. We also had a really strong retail October in the construction division. So, we've talked about the trend, which has been pretty negative the back half of the year.
October was a turn for us. We as noted in pricing, we had a little more incremental incentives in the market, but we had a good month and really brought down inventory, upper teens reduction in inventory in earthmoving in 4Q. So, I think overall between deploying incentives in the right places, whether it's for newer use, we're seeing that impact and like how we're positioned as we step into 2025. Thanks, Jerry.
Conference Operator: Our next question is from Kyle Mengis with Citigroup (NYSE:C). Your line is open.
Kyle Mengis, Analyst, Citigroup: Thank you. I was hoping if you could just unpack the full year guidance a little bit. It sounds like it is back half weighted. Would just love to hear if that's kind of baking in any assumed improvement in retail demand in some of these end markets in ag and construction?
Josh Beal, Director of Investor Relations, Deere and Company: It's more so Kyle related to I think year over year comps. You can think about our segments and I'll look at large ag and construction and forestry and just look at it by half. In 2024, Large Ag in the first half of the year was down 10% year over year compared to 23%. In the back half, it was down 30%. And similarly in Construction and Forestry, first half of twenty twenty four, down 4%, year over year, back half down 20%.
So as you look at how that's going to play out in year over year comps for 2025, we would expect greater year over year declines in the first half of the year for both segments, particularly Construction and Forestry where we talked about significant under production in the first half of the year. And then those comps will get progressively better as we move through the year when you're comparing to the back half of twenty twenty four. Thanks, Kyle.
Conference Operator: Our next question is from David Raso with Evercore ISI. Your line is open.
Kyle Mengis, Analyst, Citigroup: Hi. I'm going to slide in
David Raso, Analyst, Evercore ISI: 2 quick ones, if you don't mind. Just a little sort of piggybacking off the last comment. So the Q1, just using midpoints, right, it's around $3 of earnings, sales down over 27%, EPS down about $0.50 But the rest of the year that has implied, sales are only down $9 earnings down about 15. Just curious, I'm not trying to pin you to a quarterly cadence, but just we have a sense of how the underproduction ceasing later in the year, at least how you're interpreting it. Are we back to growth
Josh Beal, Director of Investor Relations, Deere and Company: year over year by the Q3?
David Raso, Analyst, Evercore ISI: And then second, not to get you in trouble, just curious your thoughts, I'll give you the platform to answer. With the new administration coming in, just how are you thinking about the impact of tariffs? You maybe compare it to last time, the immigration question and obviously the appointment of the new Secretary of Health and Human Services, just how to think about framework wise how that could impact how farmers are thinking about their business? Thank you.
Josh Beal, Director of Investor Relations, Deere and Company: Yes. Thanks, David. Thanks for the questions. Starting with the first one on the year. Yes, I mean, as Josh Jepsen mentioned, as we think about Q1 particularly and sequentially, that's going to be down 15% to 20% compared to the 4th quarter.
And as Josh mentioned, if you look at the margin expectations for the Q1, 300 to 400 basis points below the full year guide for equipment ops. So certainly you're going to see more of that decline in Q1, particularly again again, noting Construction and Forestry, which will be at the top end of that range, a top line sequential decline. And then actually margins, if you think about like decrementals for Construction and Forestry in the Q1, it will be higher than the implied guide for the full year, and again, given the underproduction. And then to your question, as you move throughout the course of the year, those year over year comps get better, particularly in the back half, and you get to kind of flattish, if not up a little bit, as you look at 2020 at Q3, Q4 of 2025. On the new administration, I mean, obviously, we're thinking about that in terms of how it impacts our customers, how it impacts our suppliers and certainly how it impacts our operations as well.
I think too early at this point to know exactly what that means in terms of enacted policy and what the impact will be on those 3 stakeholder groups. But certainly we're engaging and we'll monitor that as we go forward.
John May, Chairman and Chief Executive Officer, Deere and Company: Yes. And the other thing I'd like to add is we're this is John May by the way. We're positioned really well. We rely heavily on our highly skilled employees in the U. S.
To design and build high quality, the most technologically advanced equipment in the world. And as a result of that, greater than 75% of all products that we sell in the U. S. Are assembled here in the U. S.
And they're assembled by highly skilled employees, 30,000 employees in the U. S. That are located in 60 different facilities across 16 different states. And a result of all of their hard efforts and frankly manufacturing leadership results in John Deere Ag and Turf Division being a net exporter of our products manufactured in the U. S.
Exporting it to other countries. So we feel really positioned well. We've been at this for nearly 200 years building product in the U. S. And I'm very, very proud of our team and what they're able to accomplish.
Josh Beal, Director of Investor Relations, Deere and Company: Thanks for the question, David.
Conference Operator: Our next question is from Angel Castillo with Morgan Stanley (NYSE:MS). Your line is open.
Josh Beal, Director of Investor Relations, Deere and Company0: Hi. Thanks for taking my question. I just wanted to maybe follow-up a little bit more on the price dynamic, particularly in construction where you noted some bigger under production in the Q1 here. It seems like there's a little bit of a broadening of the softness. I think we had talked about rental fleets as being a factor and now it sounds like it was a little bit broader than that.
So with that in mind, can you just give us a little bit of color on what drives the price guide for the year being positive in construction and or maybe how to think about that in the first kind of half of the year versus the second half? And then, yes, just maybe more color on the trends that you're seeing outside of rental?
Josh Beal, Director of Investor Relations, Deere and Company: Yes. Thanks for the question, Angel. I mean, yes, certainly, as we've mentioned, I think the price dynamic in construction Forestry is competitive. And as we've talked, it's a balance that we're maintaining between price and share as we look at the environment going ahead. In terms of the cadence of price, I mean, really nothing of significance there as you look at the layout of the year.
And the other thing I'd remind you too is that if you think about our Construction and Forestry business, and the different elements of that business, that includes road building, which makes up 35% to 40% of that business as well. That's been a lot more stable and there's opportunity to get price there as well. And so that adds into the mix, which is helpful, but certainly it's dynamic. Thanks, Angel.
Conference Operator: Our next question is from Rob Wertheimer with Melius Research. And your line is open.
Josh Beal, Director of Investor Relations, Deere and Company1: Hi. Thanks, everybody. And thanks for the commentary around so many of the topics including used equipment. I'm curious if you can talk any more about that. I don't know if you're seeing already the kind of early bow wave of people who would be trading up nibbling at some of the higher priced, higher valued used equipment.
I don't know what if anything you can say about where you expect dealer used inventory balances to kind of progress throughout the year? Do we get to mid year and you work them down based on your production levels and how trade ins work? Any further commentary on that would be great because that seems to be a sticking point still.
Josh Beal, Director of Investor Relations, Deere and Company: Hey, Rob. Thanks for the question. Yes, I mean, we feel good about a lot of progress we've made. And I think as you think about where used inventory sits in North America, it's going to be levels that we're going to work on here over the next few quarters. It's not something turn overnight.
I think we feel good about the stabilized level that we saw in the Q4. Keep in mind as you think about quarterly cadence on used, Q4 for us is a big quarter from a retail standpoint of new equipment. That drives trade ins coming into the pipeline. And so to be able to maintain and kind of mitigate the increase we've seen in the quarter, we feel good about. Q1 provides a really good opportunity for us as we think about year end tax buying, production levels are a little bit lower typically in the Q1.
Sequentially, this next quarter in Q1 provides an opportunity to continue to drive that down. But we'll be working over that again over the course of the next couple of quarters.
Corey Reed, President, Worldwide Agriculture and Turf Division, Deere and Company: Yes. Rob, this is Corey. We've seen as we closed out the harvest this year, we saw better than expected yields. Obviously, price has been a concern, but we've seen more profitability than was likely expected. Pricing activity in the market has been good.
We said we're not ready to call the inflection point, but we have seen used levels plateau even though we had strong retail in the Q4. We continue we underproduced the demand and we saw the effects of that on the news side, but it's also showing up in what we do in use. The dealer's tactical focus on being able to right size the value of these machines, right size the value of the trades. We're seeing people come back into the market. The bottom line is, you take a late model used row crop tractor, those products are needed as people expand high speed planning in the market.
We're taking high speed down further into the marketplace as they go out to plant in tighter windows, late model high horsepower row crops are needed and we're seeing people come back into the market for them.
Josh Beal, Director of Investor Relations, Deere and Company: We probably have time for one more question. Thank you.
Conference Operator: Our last question is from Jamie Cook with Truist Securities. Your line is open.
Josh Beal, Director of Investor Relations, Deere and Company2: Hey, good morning and thanks for letting me ask the question. Just back to the decrementals on PP and A, a little worse probably than I would have thought. And so my question is to what degree is pricing I know you said positive pricing for the year, but like with North America down 30%, can pricing be positive in that region? And then just a follow-up, I know you said equipment operations will be 80% of mid cycle for 2025. Just your thoughts are on where large ag is going to be relative to mid cycle as we exit the year and obviously what that means for 2026?
Thanks.
Josh Beal, Director of Investor Relations, Deere and Company: Hey, Jamie, thanks for the question. Yes, we expect to maintain positive price in North America. And again, they're taking production costs as well. So price cost will be positive. More muted than we've seen, we talked about 1% price realization.
And how do we do that? I mean, it starts with the new inventory levels that we talked about. Again, kind of to reiterate, 2 20 horsepower tractors and above, we reduced the units in the field by 50% over the course of the year. Inventory to sales ratios were 220 horsepower above like a 10%. So very, very low combines at 4%.
Because of those tight levels, that allows us to maintain that price. And again, as I mentioned, we've contemplated some increased level of incentives next year. That increased level is going towards used, it's going towards pool funds. As Corey described, we'll continue to work that down, continue to support our dealers and helping to make those trades. But net net, given all those ingredients, we still believe we can deliver positive price in the year.
Josh Jepsen, Chief Financial Officer, Deere and Company: Hey, Jamie, this is Josh. The one other thing I'd point out is Brazil in 2024 given kind of all the challenges there was negative from a price perspective. We see that bounce back and we see positive price in 2025, I think reflective of a flatter environment, inventory is in better shape. So we expect that to turn favorably. So I think as you walk across the globe, we would expect positive price in PPA in every region of the world.
Josh Beal, Director of Investor Relations, Deere and Company: Thank you. Thanks all. That concludes our call for today. We appreciate everybody's time. And for those of us in the U.
S, hope you have a great Thanksgiving holiday. Have a great day.
Conference Operator: As we are concluded, again, thank you for your participation today. You may disconnect please at this time.
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