Deere Stock

Good morning, and welcome to Deere & Company Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Chris Seibert, Director of Investor Relations. Thank you. You may begin.

Hello. Welcome, and thank you for joining us on today's call. Joining me on the call today are Brent Norwood, Chief Financial Officer; Deanna Kovar, President Worldwide Agricultural & Turf Division, Production & Precision Ag, Sales and Marketing regions of the Americas and Australia; and Manager Investor Communications.

Today, we'll take a closer look at Deere's third quarter earnings, then spend some time talking about our end markets and our current outlook for fiscal 2026. 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 at johndeere.com/earnings.

First, a reminder. This call is broadcast live on the Internet and recorded for future transmission and use by Deere & Company. Any other use recording or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited.

Participants in the call, including the Q&A session, agree that the likeness and remarks that 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-K, Risk Factors in the Annual Form 10-K 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.

I will now turn the call over to Dan

Good morning, and thank you for joining us. John Deere delivered a strong third quarter with equipment operations achieving 14.4% operating margin. While conditions vary across our end markets, we continue to see pockets of strength. In agriculture, producers remain focused on managing profitability impacted by fluctuating commodity fundamentals and uncertainty around input costs and crop demand, all of which are influencing capital spending decisions by region. At the same time, construction, compact construction and turf markets remain supported by healthy project activity and steady demand fundamentals, reinforcing the value of Deere's diversified portfolio.

Against this backdrop, Deere's performance continues to underscore the strength of our operating model across our factories, warehouses and offices executed well throughout the quarter, delivering strong performance while maintaining cost discipline. We also made continued progress improving inventory health, positioning Deere, our dealers and our customers to respond effectively as market conditions evolve.

We now begin with Slide 3 and our results for the third quarter. Net sales and revenues were up 5% to $12,608 million, and net sales for equipment operations were up 6% to $10,999 million. Net income attributable to Deere & Company for the quarter was $1,379 million or $5.10 per diluted share.

Diving into our individual business segments, we'll start with production and Precision Ag on Slide 4. Net sales of $3,998 million were down 6% compared to the third quarter last year, primarily due to lower shipment volumes partially offset by favorable price realization and currency translation. Price realization was positive by 2.5 points. Currency translation was also positive by slightly over 1.5 points.

Operating profit was $527 million, with a 13.2% operating margin for the segment. The year-over-year decrease was primarily due to lower shipment volumes and higher production costs, which were partially offset by favorable price realization and the effects of currency exchange.

Next, we'll turn to Small Ag and Turf on Slide 5. Net sales were up 12% year-over-year totaling $3,383 million in the third quarter due to higher shipment volumes and favorable price realization. The price realization was positive by a little over 1.5 points. Currency translation was negative by roughly 0.5 point. Operating profit increased year-over-year to $622 million, leading to an 18.4% operating margin. The increase was primarily due to higher shipment volumes and sales mix, along with favorable price realization, partially offset by higher production costs.

Slide 6 gives our industry outlook for Ag and Turf markets globally for 2026. In the U.S. and Canada, we continue to expect the large ag equipment industry sales to decline 15% to 20% year-over-year, as farm profitability remains muted and producers navigate elevated input costs, commodity price volatility and the ongoing uncertainty around agricultural markets. The Small Ag and Turf industry in the U.S. and Canada remains relatively stable with industry sales expected to be flat to up 5%. Healthy margins within the dairy and livestock sector coupled with steady demand in residential and commercial loaning continue to support the outlook.

Shifting to Europe. We now expect industry sales to be approximately flat for the year, reflecting softer market conditions and continued pressure on arable farm profitability. Favorable dairy margins continue to support the broader outlook.

In South America, elevated production costs and higher interest rates continue to pressure farm economics and impact equipment purchase decision. We now expect the industry outlook to be down 15% to 20%.

Lastly, in Asia, we continue to expect industry sales to remain approximately flat, supported by relatively stable end market conditions across the region following the modest improvements in India we communicated last quarter.

Moving on to our segment forecast beginning on Slide 7. Our Production and Precision Ag, we've trended towards the bottom end of our prior guidance range and now to net sales to be down approximately 10% for the year. This update reflects further industry softening within South America and Europe. The forecast also includes 1 point of positive price realization for the year as well as close to 2.5 points of favorable currency translation. Our full year forecast for the segment's operating margin has been narrowed and is now between 11% and 12%.

Slide 8 covers our forecast for Small Ag and Turf segment. We continue to expect net sales to be up approximately 15% for the full year. This guide includes 1.5 points of positive price realization as well as roughly 0.5 point of favorable currency translation. The segment's operating margin guide has been increased to between 14.5% and 15.5%.

Shifting now to Construction & Forestry on Slide 9. Net sales for the quarter were up 18% year-over-year to $3,618 million, a result of higher shipment volumes and favorable price realization. Price realization was positive by 8 points, reflecting year-over-year impact of lapping retail incentive programs from the prior year, combined with favorable pricing in the current year. Currency translation was also positive by roughly 0.5 point. Operating profit of $436 million was up year-over-year, resulting in a 12.1% operating margin, driven by a favorable price realization, which was partially offset by higher SA&G and R&D costs.

Slide 10 provides an update to our 2026 Construction & Forestry industry outlook. Industry sales for earthmoving equipment in the U.S. and Canada are now expected to be up 5% to 10% for construction equipment and up 5% for compact construction equipment, reflecting strong demand from large-scale infrastructure, data center and energy-related projects as well as continued investment in rental fleet to support elevated levels of end market activity. Within Global forestry, we now expect the industry to be down 10% for the year as subdued residential construction activity and softer log and lumber prices continue to weigh on equipment demand, especially in North America.

The projection for global road building market remained steady at up approximately 10% for the year, supported by favorable infrastructure spending trends, healthy contractor backlogs and continued investment in road construction across key regions.

Moving on to the Construction & Forestry segment outlook on Slide 11. The 2026 net sales forecast remained steady at up approximately 20% for the full year. The guidance for the year now includes 3 points of favorable price realization and approximately 1.5 points of favorable currency translation. The forecast for this segment's operating margin has been tightened to between 10.5% and 11.5% for the year.

Transitioning to our financial services operations on Slide 12. Worldwide financial services net income attributable to Deere & Company in the third quarter was $219 million. Net income was higher in the quarter due to favorable price financing spreads, partially offset by the impact of lower average portfolio compared to the prior year. For fiscal year 2026, our full year outlook has increased to $870 million.

On Slide 13, we outlined our guidance for net income, effective tax rate and operating cash flows. For fiscal year 2026, we improved our net income outlook raising it to a range of $4.75 billion to $5 billion, reflecting the strong results delivered in the quarter and our confidence in the outlook for the remainder of the year. This guidance continues to reflect an effective tax rate between 24% and 26%. And lastly, cash flow expectations from the equipment operations have also improved to now be in the range of $5 billion to $5.5 billion.

This concludes our formal comments. We'll now shift to a discussion to cover a few topics specific to the quarter.

Starting off with Deere's performance in the third quarter. Equipment operations net sales improved 6% year-over-year and we saw equipment operations -- operating margins come in at 14.4%. Chris, can you provide some additional color on the performance for this quarter?

Absolutely, Dan. This quarter's result reflects strong execution across all business segments, amid a dynamic market and evolving operating environment.

Our factories performed exceptionally well and exceeded expectations on production output, combined with disciplined execution across the business and favorable price realization. The strong operational performance drove results above company and consensus expectations for both revenue and profitability.

The quarter also included multiple tariff-related developments. We recognized $110 million of incremental refunds in Q3, slightly above expectations due to the timing of the Phase 2 IEEPA refund approvals. As a result, total refunds recognized in fiscal year 2026 now stand at $382 million. Notably, our current outlook assumes no further refund activity during the balance of the fiscal year.

Looking beyond refunds, following the changes to the section 122, 232 and 301 tariff policies, we now expect direct tariff expense of approximately $1.1 billion for the fiscal year, excluding IEEPA refunds.

Overall, the quarter underscores the strength and discipline of our operating model, strong execution across the business, together with improving tariff dynamics position us well as we close out 2026.

This is Brent. I'd just add one more point on the outlook. I remain very confident in our team's ability to finish strong for the fiscal year. The combination of our performance year-to-date and a strong fourth quarter order book across all segments has enabled us to narrow our guidance ranges and improve our net income and cash flow forecast despite a very dynamic market backdrop.

Thanks for the additional details, both Brent and Chris. Building on that, we had a few adjustments in the guidance ranges. Can you help walk us through the rationale, starting with C&F?

Sure. For C&F, we maintained our sales guidance of approximately 20% year-over-year growth, and we narrowed our full year margin guidance to between 10.5% to 11.5%, reflecting continued confidence in the business and the outlook for the remainder of this year. The order books for 2026 are largely full as demand fundamentals remain favorable across both the earthmoving and road building end markets. Large-scale infrastructure projects, data center construction and pipeline activity continue to support robust customer demand. As a result, customer backlogs now extend well into fiscal year 2027, providing healthy visibility and optimism for next year, and support our increased 2026 industry guide for construction equipment to be up 5% to 10%.

While we have increased production rates across our construction factories, continued order strength and retail momentum now have us producing modestly below retail demand. This puts field inventories at a healthy starting position for next year and enables our dealers to support measured expansion of their rental fleets going into 2027.

We are also seeing strong momentum across our technology portfolio. Factory installed smart grade adoption has increased more than 50% year-to-date, reflecting the growing role of technology and everyday construction operations. At the same time, sales of our job site safety solutions have increased nearly 40% year-over-year as customers increasingly invest in technologies that improve productivity, reduce rework and enhance safety across the job site.

Overall, we remain encouraged by the outlook for the C&F business. With steady end-market demand, healthy customer backlogs and increasing adoption of our technology solutions, we believe Construction & Forestry is well positioned as we close our '26 and move into 2027.

This is Brent. I'd add one final perspective on Construction & Forestry. Chris highlighted the strong growth opportunity we are seeing in both our precision construction technologies and our construction portfolio. As we think about our LEAP ambitions, C&F represents one of the most significant opportunities across Deere, both from a growth standpoint and in terms of the value we can create for customers.

Across both agriculture and construction, labor remains constrained. -- and customers increasingly rely on technology to do more with less. Deere has a long track record of addressing those challenges in agriculture, and we are seeing similar momentum in construction now.

Whether through technology adoption, expansion of our digital ecosystem with solutions like Tina or growth of our equipment portfolio, we see a strong runway ahead. Combined with a favorable end market backdrop, these opportunities position Construction & Forestry to be an increasingly important contributor to Deere's long-term growth strategy.

Thanks, Brent. Chris, can you now walk us through the small ag and turf business?

Yes. While market conditions within Small Ag and Turf vary by end customer and geography, the overall demand environment remains positive and consistent with our expectations, with order books that support the remaining sales outlook for 2026. Our dairy and livestock customers experienced exceptionally strong farm cash flows in 2025 and have been able to maintain healthy margins in 2026, supported by strong beef prices. As a result, they continue to invest selectively in productivity enhancing equipment and solutions that improve operating efficiency and support long-term profitability.

In Turf, we continue to see encouraging trends across both our residential and commercial mowing markets. Demand in these categories has improved year-over-year as the industry progresses toward more normalized levels following several years of inventory and demand adjustments. Outside the U.S. India's small tractor market continues to grow, building on a strong 2025 and supported by solid farmer liquidity following the spring harvest.

From a profitability standpoint, Small Ag and Turf also benefited this quarter from the favorable impact of the IEEPA refund and the adjustment to Section 232 tariff policies. As you combine us with strong execution across the business, these factors resulted in an improved financial performance for the year. We have now increased and narrowed our full year operating margin outlook to 14.5% to 15.5%, reflecting both the favorable policy environment and our confidence in the team's ability to continue executing at a high level as we finish this year.

Before we move on, I'd like to take a moment to recognize the Small Ag and Turf team. Strong results delivered so far this year are the outcome of exceptional execution across the organization from managing costs and production to supporting our customers and dealers, the team has consistently performed at a high level.

Thank you, Chris and Brent. Shifting now to Production & Precision Ag. Deanna, could you share your perspective on the business in the current market environment?

Of course, Dan. Within Production & Precision Ag this quarter, we have seen softer demand conditions in both South America and Europe, while North America has remained stable. Despite those regional differences, overall demand has evolved largely in line with our expectations, and our order books are now effectively full for the year.

As we move through the remainder of 2026, our focus is on executing to our production plans, delivering for our customers and continuing the disciplined management of the business. Let me now break down the dynamics we're seeing across each of our key markets.

I'll start with South America, which remains a challenged region in the near term. Farmers continue to contend with elevated production costs, particularly fertilizer expenses, as well as a higher interest rate environment that has weighed on equipment affordability and purchasing activity. As a result, market conditions remain difficult, impacting retail sales for combines and high horsepower tractors.

Since our order books for the fourth quarter are now closed, we have slightly revised our industry outlook to 15% to 20% down for the year. In response, we have proactively adjusted production levels and are modestly underproducing retail demand in the region, positioning both Deere and our dealers with healthy inventory levels as we enter fiscal 2027.

Looking ahead, modest improvements in interest rates during the quarter, combined with the move agricultural financing program should improve access to capital and help create a more supportive environment for equipment investment as we look ahead to 2027.

Turning to Europe. Improvements in wheat commodity prices have provided some support for customer sentiment, yet profitability across much of the arable farming sector remains pressured. Elevated input costs and uncertainty surrounding crop economics from heat and drought have made customers more cautious about capital spending. As a result, demand trends in the region remain mixed, and are likely to remain dependent on improvements in farm incomes and global commodity markets as we head into 2027.

Demand trends in North America have remained relatively stable throughout the course of the year, albeit at very low levels as market conditions remain challenging for our customers. While a modest increase in commodity prices has improved farm profitability, producers continue to navigate considerable uncertainty around both input costs and trade flows for their crop production.

In general, customer balance sheets remain relatively healthy. Yet many are taking a measured approach to capital spending as they evaluate crop margins, cash flow expectations and the broader outlook for agriculture.

Chris, is there anything you would like to add?

Sure, Deanna. Given the softer demand expectations in South America and Europe, we've adjusted our full year sales outlook to be down approximately 10%. At the same time, we have tightened our margin guidance to 11% to 12%, reflecting the revised sales outlook while continuing to demonstrate the resilience of our earnings. Our ability to generate healthy margins even at sub trough demand levels, allows us to continue to invest consistently through the cycle.

Thank you for all that great color. Let's shift to our model year 2027 early order programs in North America. Deanna, can you give us an update on the progress of those order programs?

Sure, Dan. Let's begin with where we are with regards to timing. The early order program for spares opened in mid-May and is still running through the end of this month. Planters opened at the beginning of June and will close at the end of September, while our combined program just opened. As of right now, we are seeing modest improvements in order intake versus the prior year. Even though the crop care programs are still open, the collective orders for planters and sprayers are already higher than last year. At this time, results are up mid-single digits compared to the completion of last year's program, and we'll provide an update next quarter after they've both closed.

Overall, we view the early order program results as an encouraging signal that reinforces our view that 2026 represents the bottom of the agricultural equipment cycle. At the same time, the underlying fundamentals continue to support a measured recovery rather than a sharp rebound in 2027.

Customer profitability has improved modestly, aided by improved year-over-year commodity prices, moderation in certain input costs and favorable livestock fundamentals within mixed farms. Still, the overall market conditions remain challenging. Foreign income remains pressured, and producers continue to navigate uncertainty around input expenses and crop demand.

Despite these challenges, the building blocks for recovery continue to strengthen. Replacement demand is elevating as fleet age increases across equipment categories. We also see encouraging commodity demand signals, including record levels of soybean crush and ethanol production, which provides strong underlying support for our customers' crops. Combined with healthier dealer inventories, we believe the foundation is in place for a recovery. So its pace will ultimately depend on improving farm economics, supported by higher commodity prices, stability and input costs and growing renewable fuel demand.

Thanks, Deanna. We cited healthier dealer inventories is a key building block for recovery. Can you expand on that?

Throughout this downturn, we have remained highly disciplined in balancing production with demand to support channel health. Those proactive decisions have resulted in meaningful improvements across equipment inventories.

Within North America, new inventories remain tight and well positioned to support customer demand, while late model used inventory continues to improve. The model year distribution of used combines is now in a healthy position. In model year 2023 and 2024 high horsepower tractors are down nearly 40% from a year ago.

Just as importantly, the spread between new and used equipment values has largely normalized, improving replacement economics and creating a healthier environment for equipment trade cycle. Taken together, these trends reinforce the progress made across the channel and leave Deere, our dealers and our customers better positioned for the next phase of the cycle.

Thanks for the additional perspective. Let's pivot to Precision Ag technology. Can you talk to us about how customers are using our solutions this season and what we are seeing in adoption trends?

We continue investing through the cycle in technologies that improve customer profitability across market conditions with a focus on lowering costs, increasing productivity and maximizing yield. Utilization and adoption continue to reinforce the value we bring with our Precision technology portfolio.

It also shows the importance of staying committed, particularly in a challenging farm economy. Customers are using See & Spray on significantly more acres year-over-year, while achieving more than 50% herbicide savings. At the same time, current EOP trends suggest factory adoption of See & Spray will nearly double with the technology included on about 1/3 of North American sprayers on order.

We also see strong momentum and consistent adoption patterns in our next generation of planter technologies. You'll remember that we launched our industry-leading exact emerge planters over a decade ago, and are seeing continued pull for this technology. On these planters, customers are choosing even more advanced offerings to support input cost savings, productivity and yield benefits.

For model year '27, we are seeing more than 40% of North American planters, including our next generation of advanced offerings such as exact rate, exact shot and FurrowVision.

I would also highlight the continued growth of our digital ecosystem and the increasingly important role the John Deere Operations Center plays in helping customers turn data into better decisions. We now have more than 520 million engaged acres across nearly 1.2 million connected machines. Just as importantly, highly engaged acres have grown to more than 190 million acres, representing double-digit growth for the year.

Through the John Deere Operations Center, we are turning this growing stream of operational data into actionable insights that help growers better understand performance across their operations. We will soon build on that foundation with AI-enabled capabilities designed to unlock even more value from the data within operation center. Today, more than 450,000 unique active monthly digital users are engaging with our tools, reinforcing the growing importance of data-driven decisions across the farm.

All of this emphasizes our excitement about the value of our Precision technologies and digital offerings are creating for customers, especially as farm profitability remains under pressure. With seed, fertilizer and crop protection products representing roughly 70% of our farmers' operating costs, technology that help optimize those investments play an increasingly critical role. When deployed as an integrated system, our Precision agriculture solutions can materially improve farm economics, delivering double-digit savings in variable operating costs and meaningful yield improvement. As input costs rise over time and volatility remains a reality for producers, the opportunity to create value through these technologies will continue to grow as we bring new innovations to market.

Thanks, Deanna. Brent, before we open the line for questions. Would you share a few closing thoughts.

Yes. Thanks, Dan. As we wrap up, I want to take a step back and highlight where we are today, how the business is positioned and why we remain confident in the opportunities ahead. As we discussed, the agricultural environment remains challenging, but we continue to believe that 2026 represents the bottom of the ag equipment cycle. While the recovery is likely to be measured and is expected to vary by region, the underlying trends are moving in the right direction.

I also want to recognize the proactive and disciplined actions taken by our employees and our dealers throughout this downturn. A particular note are the actions taken around inventory management. Those actions have strengthened the channel health -- or have strengthened channel health and better position Deere, our dealers and our customers for the recovery ahead.

At the same time, the benefits of Deere's diversified portfolio remain clear. While production in precision agriculture has managed effectively through the trough of the cycle, Construction & Forestry business and our Small Ag and Turf business continue to demonstrate strong performance and profitability. That diversification, together with disciplined execution has enabled Deere to deliver resilient earnings and improve our full year net income and cash flow outlook. Furthermore, our performance has enabled us to maintain industry-leading investment through the cycle and solutions that help our customers do more with less.

As we look ahead to 2027, Deere is well positioned as it enters the next phase of the cycle. We'll start the year with healthy inventory channels, a differentiated portfolio and a resilient business model. Most importantly, our team is focused on creating value for customers remains at the center of everything we do and will continue to support long-term success for all stakeholders.

Thanks, Brent. We will now open the line for analyst questions.

Now we are ready to begin the Q&A portion of the call. The operator will instruct you on the procedure. In consideration of others and to allow more of you to participate in the call, please limit yourself to one question. If you have additional questions, we ask that you rejoin the queue.

[Operator Instructions] Our first question comes from Jamie Cook from Truist Securities.

Congrats on a nice quarter. I guess just my first question, just on the set up for 2027. How are we thinking about production versus retail by region? And then just with regards to the early order program up mid-single digit. Can you just talk about what the pricing expectations are just in 2027, just giving concerns about inflationary costs over the past several years on farm equipment?

Jamie, this is Chris. Thanks for the question. Maybe I start first with the production to retail type environment. I mean you had to talk about specifically for PPA now and for Construction & Forestry, modest underproduction this year. Call it a couple of percentage points for each of these segments. The drivers there, certainly, our shipping plans are set for the full year, and the changes we have seen in South America just drive a little more caution for us in that market.

And then on the Construction & Forestry side of things, the continuous pace and growth in retail. And given where we are with our order position being 4 to 5 months, I'll basically lead to a minor level of under production in 2026.

Yes, this is Deanna. From an EOP pricing standpoint, we, of course, rolled that pricing out several months ago as we started our EOP process, and our focus remains on covering inflation with our pricing. And we've done that across the EOP products and also across all of the PPA portfolio as we roll towards 2027.

Our next question comes from Tami Zakaria from JPMorgan.

A question on tariffs. I wanted to clarify. I think you expect now $1.1 billion of impact, which I think is probably $100 million lower than what you had anticipated originally. Is that a function of the tariff relief that ag equipment got back in July or is that reflective of some refunds you expect? So can you help us understand what's driving that expectation changed?

Yes, Tami. I can take a shot at that. Yes, so the numbers you mentioned previously, we communicated an annual run rate for fiscal year '26 of $1.2 billion, that has been updated to $1.1 billion. That excludes any of the positive impact we have seen from refunds. Now the driver from $1.2 billion to $1.1 billion is mainly attributed to the changes in Section 232 tariffs. Remember, previously on imported goods, we had a tariff rate of roughly 25%. That kind of dropped to 15%. And given our imports from Europe, specifically that drove that change for the year. Keep in mind, these changes have been effective 1st June. So the impact we see for this year are 5 out of 12 months. So you can expect another, call it, tailwind for fiscal year '27 as a result of these changes. Thanks for the question.

Understood. And my second question is on your expectation for the excavator launch. I know it was going to long. So could you give us some updates on how that's trending and what you're seeing in terms of when the broader adoption would happen?

Tami, this is Brent. With respect to the excavator launch, we did launch the first models of our excavator, our Deere designed excavator earlier this spring, and we're really just in the process of getting those shipments out and getting those into the hands of customers. I think we've got three models in the market today, the feedback we've gotten to date has been very positive. So we're really excited about the impact that we'll continue to have in 2027.

Keep in mind, our excavator portfolio has a number of models in it that we will begin to roll out again, starting this spring through the next 3 to 4 years. So we're just early days in the release of the Deere designed excavators. But so far, we've had very positive reception from customers and we're eager to get to more of these in the hands of more of these at the job site here over the coming months. Thanks, Tami.

Our next question comes from Kristen Owen from Oppenheimer.

Just wanted to follow up on some of the inventory comments and your comments for 2027. I'm looking here at 3Q, 4Q. I'm just wondering, did something flip between those quarters, maybe pushed a little bit into 3Q from 4Q. When I look at your inventory to sales ratios, it looks like you actually built some tractor inventory in 3Q ahead of the industry. Is that because the demand signals that you're seeing, is that being offset by you and South America? Just want to understand some of that cadence exiting the year.

Kristen, this is Chris. I would not read too much into the recent changes here in Q3. I mean our shipment plans have been largely set for the full year, and we have the orders on hand. And as you have seen, this quarter specifically, we pulled ahead some demand to kind of manage some risk here in Q4, but nothing in particular on the inventory side of things, you need to be concerned about.

Deanna, anything you would add here?

Yes. Our factories continue to deliver and hit the forecast. And on top of that, as we look at our sold-ahead positions and our retail pace across the Americas, we continue to be on trend with historical averages and have high expectations that we'll be able to move through that inventory as expected. If you remember, in North America, we slowly entered 2027 relative to tractor shipments. And so we're making up time, but our retail activity hasn't missed that pace at all.

Kristen, this is Brent. Just as you think about the 3Q, 4Q bridge, maybe a couple of notes. For PPA and C&F, we would expect a similar sales level, Metals level in the fourth -- the fourth quarter as we saw in the third quarter. Now keep in mind, from a margin perspective, we won't get the benefit of refunds in the fourth quarter like we had in the third quarter. And then specifically for PPA and SAT, both of those divisions typically have a seasonal high of R&D and SA&G that hit in the fourth quarter. So as you think about bridging 3Q to 4Q, again, net sales is going to be more or less the same for PPA and C&F, but margins will come in a little bit on PPA and SAT as they incur slightly higher load of R&D and SAG coming out of the year.

Our next question comes from Tim Thein from Raymond James.

So my question is just on the role that mix could potentially play in thinking about in '27. Obviously, there are a number of things that go into that. And I assume you want to stay away from the kind of forecasting the different geographic how the markets go out geographically. But just in the comments alluded to technology, both on the C&F side, and then obviously, that the strong underlying contribution in the spring early order program in terms of the take rates on some of those precision offerings.

So -- again, just high level, we had talked about in the years past that maybe kind of a 2- to 3-point benefit of impact permits, obviously, when markets were a bit stronger. But just maybe wanted to come back to that, how you're thinking about the potential impact from these higher technology sales and how that could influence that mix component in '27?

Maybe when we talk about mix first, I think we need to recognize the industry environment we are in right now. I mean there is still some uncertainty out there. I mean you think about agriculture, obviously, the volatility we have seen in inputs and commodities is driving some caution there, but also some shipment disruptions, you think about the Black Sea and other things. I mean we continue to focus on controllables here, inventory management, Deanna made these comments, we feel pretty good about that. And certainly, if you think about other kind of movers here, the recent softness in the EU and Brazil. I mean, we need to see how that kind of plays into 2027. I think it's too early to tell. As you know, specifically in South America, things can turn quickly.

Construction, mean -- we see good fundamentals there. But obviously, depending on the growth there, that could have a mix impact, too. The EOP signals, we see not only the tech adoption there, but also kind of the where they sit right now and depending on how they wrap up? I mean that will drive some mix. Will we see somewhat a modest recovery here? Yes or no? And what will combine to later this year. So I think it's too early to tell, but certainly encouraged by the signals we are seeing right now.

Our next question comes from Jerry Revich from Wells Fargo.

I'm wondering if you could just unpack the comments on the early order program. Deanna, if you don't mind just commenting on what variability in demand you saw depending on region because it came in, I think, better than most of us expected in aggregate. And as the early order program eventually winds down the mid-single digit growth that you're seeing now, I guess, based on progress would suggest you could wind up in the high single-digit range. Can you just comment on the moving pieces there, if you don't mind, around those two items?

Yes. Thanks, Jerry. I appreciate the question. And I think dynamic is certainly part of this is we're still in the middle of these early order programs with a couple of weeks to go on our sprayer early order program and then a little bit longer on our planter EOP. I would say, as we look regionally, the U.S. is trending slightly better than Canada. But remember, in these products, especially planters, Canada is a very limited part of our portfolio. So we continue to see solid expectations from our customers that they want the latest and greatest technologies in planting and spraying. And I think some of the best signals that we're seeing is, of course, an increase. We're talking mid-single digit. And time will tell whether that turns even more positive as we close out the EOP. But to me, some of the best signals that customers are looking for ways to increase their yields and lower their cost is the technology take rates we're seeing and seeing a doubling of See & Spray on factory installed sprayer orders and seeing 40% of our planters, taking some of the most advanced technologies on planting really gives us confidence that we're headed in the right direction relative to our portfolio. And that customers are looking for ways to maximize everything they can going into '27.

Our next question comes from David Raso from Evercore ISI.

I'm curious on the EOP programs. Given the books have been open for a little while, especially sprayers and then planters open up not too long the cadence of the orders being up mid-single digits. I'm just curious, was there anything you can note around has it been maybe some of the recent improvement in grain prices? Was it maybe decisions people were making on technology that the orders were actually up 1 month, 1.5 months ago? Just curious what you're seeing on that cadence.

Yes. Thanks, David. From a cadence perspective, I wouldn't read much into it. I think we've seen as expected cadence. We've made some tweaks to our early order program this year to give dealers more choice as they go through, and they've come through as expected. I think -- again, we're pleasantly surprised with the technology take rates. And of course, we're hopeful that the mid-single-digit increase extends well into the year.

Our next question comes from Rob Wertheimer from Melius Research.

I had two, and I'll just ask them both at once. Any comments on the A-Series tractor orders? Is that kind of following in line with early order programs trending a little bit better especially in North America. And then Deanna, I'm not really sure how to think about Europe. The farmer economy is experiencing lots of heat stress and input cost lots of different things. In North America, it seems like if you get commodity price response that outweighs everything. Europe is a bit more diverse. So I wonder if you could think comment on anything you can on whether crop prices are starting to reflect some of the stress they're feeling, whether you expect Europe to react similarly to the U.S., if we do get a price response?

Yes. Thanks for the question, Rob. I would say if we kind of quickly walk around some of the geographies and starting with your questions on 8R. I would say 8R orders right now are as expected. Keep in mind, we have orders kind of being 4 to 5 months out, our model year '26 shipment schedule is basically closed. So we're kind of collecting orders here for the first quarter. I think we are encouraged by the recent changes in development in commodity prices specifically. I mean, if you look today, I mean, we're talking corn future is about 5.05, which is definitely, call it, a good signal for a lot of these growers out there. .

In other geographies, you touched on Europe a little bit in Brazil. I mean, in Brazil, we typically take a 3-month order book kind of to manage the volatility in that market. So we have others for fourth quarter on hand, and you've seen us change our industry guide given the circumstances we see there. But I think it's too early to tell for how we kind of enter 2027. Certainly, the move financing program, Deanna mentioned, at single-digit financing rates. Hopefully, that drives some momentum here as we enter 2027.

I think in Europe, it's a little bit of a mixed picture. That region has solid Small Ag and Turf, but also PPA exposure. Certainly, arable farmers are a little more challenged right now in Small Ag and Turf producers still benefiting from dairy and livestock cash flows, which are relatively strong and stable. So more to come on that front. But I would say overall order pace is currently as expected, and we haven't seen kind of a step-up here in the last 1 or 2 days or so.

Thanks for the question, Rob.

Our next question comes from Steve Volkmann from Jefferies.

Maybe switching back over to C&F. I'm curious, you sort of put some book in numbers around the earlier program on ag. Any sense of sort of how the C&F programs are shaping up? And you can just add in any more granularity about how much of that you think is kind of dealer rental fleet loading and sort of the outlook for that theme?

Steve, this is Chris. For Construction & Forestry, order trends have been very positive. We have about 4 to 5 months of orders on hand, which is, quite frankly, a little more than we would want to have typically talk about 2 to 3 months. But yes, industry has been growing, retails have been growing, and that basically supported our order banking positively. I would say from -- if we think about the drivers, certainly, large infrastructure projects and data center starts and our participation in the independent rental channel as well since we kind of work with these players in there, but also the opportunity we have on dealer-owned rental fleet. I think that's all driving momentum. As we enter '27, keep in mind, I talked about that setup for the underproduction, so that will give us a little bit of an opportunity as well. So I think we feel good about the current situation here in C&F.

Our next question comes from Steve Fisher from UBS.

Congrats on the good execution in a challenging environment. Just maybe to clarify the tariff dynamics. You mentioned there's still some benefit from 232 to come in 2027 because it's only really kind of a half year benefit this year. And it sounds like you have no other refunds embedded in Q4. So really just trying to think about when all is said and done and comparing '26 to '27, is that -- roughly $800 million net impact that you have this year? Kind of if all else were to be equal, would that be a headwind going into next year or a tailwind or neutral? I know all of this is not going to be equal because you already have sounds like some higher plans in large eye. But just kind of curious, trying to think about headwind or tailwind on that net tariff impact for '27?

Steve, this is Brent. As you think about our tariff expense this year versus next year, net tariffs, so direct tariffs paid, less any refunds will be a headwind going into next year. We'll end up paying about $1.1 billion in direct tariffs this year, less $382 million of refunds. So our net tariff exposure this year is approximately [ 750-ish ]. Going into next year, we would expect a run rate that is going to be closer to right around $1 billion for the year. So there will be a bit of a step-up in our tariff expense next year as we compare it to this year.

Our next question comes from Chad Dillard from Bernstein.

So a couple of quick questions for you on C&F. First of all, just on pricing, it looks like the guys implies a 50 basis point positive price versus plus 8 in the third quarter. I just want to understand some of the moving dynamics behind that? And then the second question is maybe a bigger picture one on rental and I'm talking about Deere's dealer rental aspiration. I guess are you guys thinking about the size you want to grow? And then maybe just give a rough sense for how you're thinking that changes the economics of the business.

Got you. You were cutting out a little bit, but I think your first part of the question was related to pricing in C&F and what we expect maybe to give you a little bit of a run-up there. I mean we had -- we started the year with 2.5% and then basically with 3%, then we kind of rounded it down to 2.5%. Now we are back up at full year guide. The quarter came in pretty good. I mean at 8%. That was quite frankly -- one part was an easy comp compared to last year. Keep in mind, Q3 in 2025, we had about 5% negative price in C&F, which was a result of some of the insights we deployed in the market given the competitive environment at that point. So a pretty good quarter there. But I think in Q4, I mean you've seen the guide. We have the orders on hand there. nothing outsized there from a year-over-year comp perspective. So pricing right now is going well in C&F. Road building certainly contributes to that as well too, given our position there, but we feel good about the pricing there.

Chad, with respect to rental, we think there is an opportunity to further increase our exposure there. We participate both through our sales to the independent rental houses, but also our dealers participate in that market as well. We've seen rental just grow as a percentage of the overall earthmoving business today, anywhere from 30% to 35% of earthmoving transactions start as a rental, and we continue to see that grow.

So in part, our dealer on rental fleets have grown just as the market has grown. And then on top of that, we've also seen an increased appetite for some of them to invest in expanding their rental fleet and serving their customers even more in that space. So we think there's a meaningful opportunity to come, and it could help boost a little bit of the inventory fill that's to happen next year. So we'll wait and see to see how that progresses going into 2027.

Our next question comes from Angel Castillo from Morgan Stanley.

Just wanted to go back to the EOPs. I think there was a comment about pricing covering inflation. And I'm just -- I guess I'm trying to understand, first, could you comment on some of the -- any incentive merchandising incentives you might be doing? And just what is the implication of that? And any kind of pricing trends that you're seeing in your EOPs on margins as we go into next year? Just -- meaning all equal, I guess, is your backlog implying margins up, down neutral any kind of directional commentary there.

And then maybe a little bit of a bigger picture question. On the FTC settlement, could you comment on that just on the right to repair issue? And just what, if any, implications that might have on your aftermarket business and the $2 billion to $3 billion, I think that was related to life cycle parts over the next 5 years.

Angel, I start. Thanks for the question related to EOP pricing. I think there's two components of that, right? So one, overall, we are taking inflationary price in a very a challenging environment right now for many of our producers. So we're taking a measured approach there. But we are committed to cover inflation here over time. So nothing outsized there. From a pricing perspective, keep in mind, we have several point and time in the year where we take pricing when it's attractive order book, whether it's our combined EOP, so it's a composition of a few different decision points during the year.

Now the inflationary environment, I think I don't need to tell you that it's dynamic right now. You think about oil prices, how they move and what that means. And also from a tariff perspective, suppliers experiencing tariffs, too, they pass that on to us and negotiate with us around these. So still, I would call it, a dynamic inflationary environment, but we're kind of committed to cover that.

And Angel, this is Brent. As it relates to our life cycle solutions business, what I would say is, first and foremost, John Deere has always supported our customers' ability to repair their own equipment or themselves or use whatever third party they trust the most. And so that hasn't changed at all. I think the agreement does formalize some of the products and tools that we have and offer to the market, we think are industry-leading in particular, John Deere Operations Center ProService enables our customers if they choose to have access to diagnostic tools, digital manuals, and maybe most importantly, be able to do software updates on their own or through independent service advisers that they like.

And so -- we think this is industry leading. I think the agreement helps formalize some of the things that support our principles of allowing our customers the ability to maintain their own equipment, and we're really pleased with the tools that we have out there. And again, we think they're industry-leading. So I think it will help support long term our aspirations and our life cycle solutions business overall. Thanks for the question, Angel.

Our next question comes from Mig Dobre from Baird.

This is Peter Kallikrein on for Mig this morning. I actually have a quick one here on Europe. Given the cap budget change that policy change that's set to take place in '28. Do you think there's a chance that we see demand being pulled forward here in '27? Are your dealers maybe giving you any indication that, that might be the case? Or perhaps the opposite where we might actually see farmers delay purchases in Europe until there's some certainty with the new policy in '28? Just any color on what you're seeing in Europe would be great. And if you're willing, and I understand that it's early to provide any directional forecast for that market in '27, that would also be great.

Yes, I think the short answer is probably, it's too early to tell right now. I think Europe, the environment over there -- yes, there's also some policy movement going on there. But again, we typically have an order book, which is 4 to 5 months out. So kind of just starting collecting orders for Q1. I talked about the difference in the arable segment and between dairy and livestock producers. So certainly, when it comes to the next year's crop, we need to see where input costs are, how commodity prices continue to trend and that will probably shape sentiment here for PPA and the arable cost producers in Europe.

I think on dairy and livestock, it looks fairly stable right now. So we feel good. But again, too early to tell where the policy impact will pull demand forward or kind of delay it. thanks for the question. We appreciate it.

Maybe we have time for one more question here.

Our last question comes from Sabahat Khan from RBC Capital Markets.

Just a quick one. I guess, just based on the current outlook, what you're seeing in the EOPs, obviously, the input costs are a big factor in the farmer decisions. Can you just share some early commentary on kind of the positioning the Brazilian farmers are taking and sort of what the U.S. farmers are thinking from what you're hearing on how the input costs may trend and that ultimately affecting sort of the crop and their decision? Anything you're sort of hearing in those markets.

Yes. Thanks for the question. Certainly, there is uncertainty around input prices, no matter where in the world you're farming. Certainly, the impact of fertilizer is different for a Brazilian farmer than it is for a U.S. farmer. But I would tell you that markets are reacting and look -- and farmers are looking for alternatives. Those alternatives might be in the types of products they're applying, the amount they're applying, or even at the broader scale, how markets are serving through alternative sources. So overall, I would say farmers continue to remain resilient as they think about fertilizer, not necessarily are we seeing a huge reduction and farmers are intending to apply and they're out looking for yield, just as much as they were prior to these fertilizer challenges. Certainly, farmers are keeping an open mind and considering how they might book future years. As we look at some of our larger farmers, they've got multiple years of inputs contracted. So they're also considering how they might change that going forward. But overall, I think markets are reacting. Farmers are staying nimble and considering how they might adjust their portfolios, but they still remain focused on driving yield and getting the best outcome they can.

That's all the time we have. We appreciate everyone's time, and thanks for joining us today.

That concludes today's conference. Thank you for participating. You may disconnect at this time.

Good morning, and welcome to Deere & Company's Second Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Mr. Josh Beal, Director of Investor Relations. Thank you. You may begin.

Hello. Welcome, and thank you for joining us on today's call. Joining me on the call today are Brent Norwood, Chief Financial Officer; and Chris Seibert, Manager, Investor Communications.

Today, we'll take a closer look at Deere second quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2026. 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 at johndeere.com/earnings.

First, a reminder, this call is broadcast live on the Internet and recorded for future transmission and use by Deere & Company. Any other use, recording or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited. Participants in the call, including the Q&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 contained in the company's most recent Form 8-K risk factors in the annual Form 10-K 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, if any, 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.

I will now turn the call over to Chris Seibert.

Good morning, and thank you for joining us today. In John Deere's second quarter, we delivered year-over-year net sales growth of 5% and an equipment operations margin of 16.9% reflecting solid execution and a strong diversified portfolio of businesses, spanning multiple industries and geographies. The quarterly results also benefited from recording a recovery for refund claims relating to our EPA tariffs which we'll discuss in more detail later in the call.

Our construction and small ag and turf business units continue to benefit from supportive industry fundamentals. Notably, robust infrastructure spending and rental fleet replacement are driving increased demand for construction and road building equipment while small ag and turf is benefiting from a recovery in turf end markets and healthy cash flow in the dairy and livestock sector.

Our large Ag business, consumption of ag commodities continues to grow, supported in part by increased biofuel use and higher energy prices. And we see the potential for tighter a commodity supplies in upcoming crop years as higher fertilizer costs potentially impact production levels. However, customer sentiment remains muted. Despite recent grain price increases as grower margins face headwinds from elevated and volatile input costs and high interest rates.

Amidst this backdrop, Deere continues to strengthen its position in advance of the large ag cycle recovery with low levels of new field inventory, continued improvement in used inventory and robust introductions of new products and technology solutions that are driving market share gains, and are expected to enable future growth as markets recover.

As an enterprise, we remain confident in our ability to bring increased value to customers and deliver structurally higher performance for Deere across the cycle. The diversification of our business segments, evidenced in 2026, with all 3 operating at different points in the cycle provides increased resilience and enhanced growth opportunities for the organization. As a result, this quarter, we maintained our overall net income outlook for fiscal 2026 while continuing to progress towards our 2030 LEAP ambitions.

Slide 3 opens with our results for the second quarter. Net sales and revenues were up 5% to $13.369 billion, while net sales for the equipment operations were up 5% to $11.778 billion. Net income attributable to Deere & Company was $1.773 billion or $6.55 per diluted share.

Turning to our individual segments. We begin with the Production and Precision Ag business on Slide 4. Net sales of $4.503 billion were down 14% compared to the second quarter last year, primarily due to lower shipment volumes that were partially offset with favorable currency translation impacts. Price realization was positive by about 1 point. Currency translation was also positive by roughly 3 points. Operating profit was $706 million, resulting in a 15.7% operating margin for the segment. The year-over-year decrease was primarily due to the lower shipment volumes and higher production costs that were partially offset by the favorable effect of currency exchange.

Moving now to small ag and turf on Slide 5. Net sales increased 16% to $3.485 billion in the second quarter driven by higher shipment volumes and favorable currency translation. Price realization was positive by around 1.5 points. Currency translation was also positive by roughly 2.5 points. Operating profit of $719 million was also up for the quarter, resulting in a 20.6% operating margin. The improvement in operating profit was primarily a result of the higher shipment volumes and the effects of favorable price realization.

Slide 6 gives our industry outlook for ag and turf markets globally. We continue to expect large ag equipment industry sales in the U.S. and Canada to decline 15% to 20%, driven by elevated input costs and ongoing global market uncertainty. However, robust commodity demand and projections for tightening supply have supported improvements in crop prices, while U.S. government programs continue to provide liquidity support for farmers.

Recent biofuels policy support, including approval of the RVO and potential year-round E15 should help provide greater stability and support future demand for U.S. growers. For small ag and turf in the U.S. and Canada, industry demand is expected to remain steady, ranging from flat to up 5%. We're projecting modest strengthening in the turf market as demand has expanded following several years of industry decline. The dairy and livestock sector also continues to main strong margins, supporting ongoing product demand.

In Europe, industry demand remains relatively stable and is expected to range from flat to up 5%. While elevated interest rates continue to affect purchasing decisions, customer profitability and replacement activity are relatively stable. Although the arable sector remains a bit muted, favorable dairy margins continue to support the broader industry outlook.

Moving to South America, industry sales of tractors and combines are now expected to decline about 15%. While production and yield performance remained strong alongside improving crop prices, elevated interest rates, higher input costs and a stronger Brazilian real are pressuring customer profitability and reducing equipment demand in the near term. Industry sales in Asia are now projected to be roughly flat year-over-year, mainly driven by modest improvements within the India market.

Next, our segment forecast begins on Slide 7. For Production and Precision Ag, our net sales forecast is unchanged and remains down between 5% to 10% for the full year. This forecast now reflects roughly 1 point of positive price realization for the full year as well as just under 3 points of favorable currency translation. Our full year forecast for the segment's operating margin is also unchanged and remains between 11% and 13%.

Slide 8 shows our forecast for the small ag and turf segment. We continue to expect net sales to be up approximately 15% for the full year. This guide includes 1.5 points of positive price realization, as well as roughly 1 point of favorable currency translation. The segment's operating margin guide remains between 13.5% and 15%.

Shifting over to Construction & Forestry on Slide 9. Net sales for the quarter increased by 29% year-over-year to $3.79 billion as a result of higher shipment volumes and favorable currency translation. Price realization was favorable by more than 2.5 points. Currency translation was also favorable by a little more than 3 points. Operating profit of $561 million was also up year-over-year. resulting in a 14.8% operating margin. This improvement was a result of higher shipment volumes and favorable price realization, which were partially offset by unfavorable production cost.

Slide 10 describes our Construction & Forestry industry outlook. Industry sales projections for earthmoving equipment in the U.S. and Canada remain unchanged with both construction equipment and compact construction equipment expected to be up around 5%. The fundamentals behind the construction industry remained favorable with healthy customer backlogs being supported by infrastructure and large project spending that is more than offsetting softness in residential construction.

Global forestry markets are expected to decline 5% and reflecting continued pressure from weak residential construction activity and low log and lumber prices. We now expect global road building markets to grow approximately 10% year-over-year. supported by elevated road construction spending across multiple geographies.

Moving on to the C&F segment outlook on Slide 11. The 2026 net sales are now forecasted to be up approximately 20% for the full year. This net sales guidance for the year includes 2.5 points of favorable price realization and approximately 2 points of favorable currency translation. The segment's operating margin has also been increased and is now projected to be between 10% and 12% for the full year.

Now transitioning to our financial services operations on Slide 12. Worldwide financial services net income attributable to Deere & Company in the second quarter was $190 million. The year-over-year increase is a result of favorable financing spreads and favorable derivative valuation adjustments partially offset by the impact of a lower average portfolio. For fiscal year '26, we raised our full year outlook to $860 million, primarily driven by favorable fair value adjustment and improved provision for credit losses.

And finally, Slide 13 outlines our guidance for net income, effective tax rate and operating cash flow. For fiscal year '26, our net income forecast remains unchanged between $4.5 billion and $5 billion. Next, our guidance now incorporates an effective tax rate between 24% and 26%. And lastly, cash flow from the equipment operations remains projected between $4.5 billion and $5.5 billion.

This concludes our formal remarks. I will now turn the call over to Brent Norwood for opening comments before we cover a few quarter-specific topics.

Thanks, Chris. I spent several years on Deere earnings calls in my prior time in Investor Relations, but I've been away for a while working in our Construction & Forestry business. So it's great to be back, and I look forward to reengaging with our investors and analysts in my new role.

As you noted earlier, we continue to operate in a highly dynamic business environment. However, the resilience of our team and the diversification of our business has enabled us to maintain our financial expectations for the current fiscal year while also setting us up well for the years to come.

As mentioned, our business segments are performing at different points in the cycle. While large ag is operating below trough levels, small agriculture and turf is progressing towards mid-cycle and Construction & Forestry is slightly above mid-cycle. Even so, it's important to keep in mind that we are delivering double-digit margins across all segments and we expect to grow our top line by more than 5% this year as we progress towards the 2030 growth targets outlined during our investor event at the New York Stock Exchange last December.

In the near term, a lot has transpired over the past quarter in the global economy, most notably, the conflict in Iran and the associated impacts. However, our baseline view remains that 2026 will represent the bottom of the ag cycle. We've managed field inventories tightly of new equipment and made significant progress on used. And all the while, machine hours continue to accrue, aging out the fleet and driving a base level need for replacement.

The pace of recovery from that point on will, of course, depend on several factors, including geopolitical developments, underlying ag fundamentals and policy outcomes. At the same time, our customers continue to navigate persistent challenges, including labor scarcity, input cost pressure and tight operating windows to get critical jobs done.

Regardless of the cycle or macro environment, our focus remains steadfast, helping them to do more with less and supporting them efficiently and profitably to overcome these challenges. And what gets me really excited is the way we've structurally improved the performance of our business from cycle to cycle. We are delivering structurally higher levels of profitability compared to the last time we were at a similar point in the cycle despite the headwind that comes from tariffs. This enables us to sustain record investment across cycles to make these value-generating solutions a reality for our customers and the industries they serve.

Thanks a lot, Brent. We're excited to have you back. Pivoting to a few thoughts about the business. Let's begin with Deere's quarterly performance. Net sales increased sequentially as expected, given seasonality, and we are also up 5% year-over-year. Equipment operations margins came in just under 17% in Q2.

So Josh Beal, can you lead off with the breakdown of the quarter?

Yes, sure, Chris. First and foremost, it's important to mention the unexpected item for the quarter which was IEEPA tariff refunds. As you noted earlier, we recognized a recovery of $272 million related to refund claims associated with IEFA tariffs that were filed and accepted by U.S. Customs and Border Protection which benefited our production cost this quarter and lifted margins by nearly 2.5 points.

Outside of tariff refunds, our second quarter came in largely in line with expectations for both top line and margin across all business segments with the overall equipment operations achieving margins of 16.9%. Noting the diversification comment you made earlier, small ag and turf delivered margins over 20% in the quarter. and the relative strength in SAT end markets is helping to offset some of the pressures being felt by large ag producers.

Shifting to some of the larger year-over-year changes for the quarter, let's start with price. As you noted, Chris, price realization was positive for all 3 business segments in Q2. We saw particular strength in C&F price realization, which came in stronger than we had forecasted, particularly in the road building business. Foreign currency was also a tailwind in the quarter versus last year, largely driven by a weaker U.S. dollar, which favorably impacts the margins on U.S. products exported to overseas markets.

Regarding headwinds, we did see higher year-over-year production costs in the second quarter, excluding the impact from tariff refunds. Without accounting for tariff refunds, year-over-year direct tariff expense was approximately $200 million of the headwind with the remainder largely driven by higher material and freight costs.

Thanks, Josh. That leads to my next question, which is likely top of mind for many given trade policy dynamics following our Q1 earnings call. As you noted, we benefited from a onetime tariff tailwind in the second quarter. So what should we expect from here? And how is that reflected in our guidance for the rest of the year?

Yes. First, I'd start by reminding everyone of the timing of our Q1 earnings release, which occurred just prior to the Supreme Court ruling on IEEPA. Since that decision, we've seen the invalidation of IEEPA tariffs, the introduction of new Section 122 tariffs and adjustments to Section 232 tariffs. The cumulative impact of these changes is that on a full year basis, our direct tariff exposure remains essentially unchanged at approximately $1.2 billion which is approximately a 3% margin headwind. So net of the refunds, our forecast now includes approximately $900 million of tariff costs for the year.

Brent, anything additional you'd like to add there?

Sure, Josh. I'd start by recognizing the tremendous effort across the organization to manage what continues to be a very dynamic trade environment. It's worth noting that we've been disciplined and measured regarding net price realization given this backdrop, keeping in mind the inflationary pressures that our customers are experiencing.

Recall that last fiscal year, we did not take additional price actions or introduce surcharges following the tariff orders. For fiscal year 2026, our implied net price realization for the equipment operations is between 1.5% and 2% for the year, which is consistent with general inflation levels that we are experiencing, excluding the impact of tariffs.

To help manage the impact of tariffs, we continue to have teams across the organization, working diligently to quantify exposures and identify mitigation opportunities. These actions include product certification and exemption submissions as well as identifying cost reduction opportunities and sourcing adjustments where clear, no regret solutions exist. Overall, we believe we are executing well against these opportunities and remain confident in our ability to manage through the current tariff environment effectively.

Lastly, as a reminder, approximately 80% of of John Deere's U.S. complete good sales are produced at our U.S. manufacturing facilities, and roughly 75% of those components used at those facilities are sourced from U.S.-based suppliers. We remain deeply committed to U.S. manufacturing and continue to invest in and expand upon our domestic footprint.

For example, this quarter, we recently started building Deere-designed excavators in Kernersville, North Carolina following a $70 million expansion investment to bring U.S. designed and manufactured excavators to the market, and we continue to stand behind our commitment towards $20 billion of investments in U.S. manufacturing over the next 10 years.

Thanks for that context, Josh and Brent. Let's turn to the current market environment. Since our last earnings call, we have seen the start of the conflict in Iran and the associated inflationary impacts on products like oil and fertilizer. Considering that in your response, can you provide an update on broader ag market conditions and how they are reflected in our industry guidance? Maybe starting with South America.

Yes, sure, Chris. As you mentioned earlier, we revised our South American ag industry outlook to down 15% from down 5% and primarily reflecting incremental softness in Brazil. Since the start of our fiscal year in November, Deere retail sales in Brazil have declined less than the broader tractor and combine industry, which has a decline of about 15% in 6 months in the country in line with our revised industry guide. Small and midsized tractors have been more resilient, while large tractors and combines have declined more than the industry overall.

The situation in Iran is affecting Brazilian growers at a particularly sensitive point in their production cycle as they prepare to plant a new crop in the September time frame. While farmers and other parts of the world have largely locked in inputs for this growing season, Brazilians have more exposure to current spot prices. Interest rates in the country remain high. And despite recent easing expectations for additional cuts later in the year have been reduced given the anticipated inflationary environment.

At the same time, the strengthening of the real against the U.S. dollar is adding incremental margin pressure for growers. Improved crop prices and strong production are positive, but overall, the margin outlook for Brazilian growers has been pressured due to these headwinds. As a result, we expect the market to remain cautious through the remainder of the fiscal year.

This is Brent. One comment, while the industry in Brazil is certainly challenged in the near term, I would like to add a few points about our performance in this market. Our team in the region continues to do an excellent job navigating volatility and improving the business. we continue to see year-over-year market share growth across all tractor categories, while also maintaining our strong position in combines.

At the same time, we are delivering positive price realization. We are accelerating portfolio innovation, and we are generating double-digit margins in Brazil even at trough levels. To be clear, we could not do this without the outstanding work of our dealers who have also managed the cycle and the high interest rate environment very well and very profitably, supported by strong owner equity.

Machine hours are building and fleets are aging, which should support replacement demand once the market stabilizes. Collectively, these results highlight the strength of our team and the quality of our portfolio and channel and they reinforce my confidence in the long-term opportunity in Brazil.

Thanks for the additional color, Brent. It is really exciting to think about the growth prospects for Deere in South America. Josh Beal, could you share some thoughts on the ag markets in other geographies?

Absolutely, Chris. First, input costs, particularly fuel and fertilizer have increased globally and will contribute to higher inflation across the ag economy. As we noted earlier, our customers in North America and Europe largely purchase these inputs ahead of the spring planting season when costs were lower. At the same time, commodity prices have moved higher over the past few months, which helps relieve some near-term pressure.

We've also seen encouraging developments on the policy front in the U.S. Higher renewable volume obligations have been approved, which supports incremental consumption of soybeans. In addition, supplemental disaster relief program payment factors have been increased from 35% to 70% and the House recently passed year-round E15, which we view as a positive step forward.

Today, roughly 1/3 of U.S. corn production goes to ethanol and broader E15 adoption could over time meaningfully expand corn demand as blending infrastructure comes into place. Overall, we don't expect these developments to meaningfully adjust demand levels this fiscal year and as a result, our ag industry guides outside of South America remain largely unchanged.

Brent, maybe moving beyond ag, any thoughts on construction markets?

Yes, absolutely. Construction demand remains robust, supported by infrastructure spending, rental activity and accelerating data center investments. Reflecting that strength, we've increased our year-over-year net sales guide to up about 20%. In the U.S. and Canada, our order book continues to strengthen up more than 60% since November, now at its highest level since April of 2024 with over 80% of production slots filled for the year.

At CONEXPO in 2026, we generated a lot of buzz around the new John Deere excavator and a fully integrated job site vision with Tina virtual superintendent and the operation center, enabling a smarter and safer job site. We had over 140,000 contractors in attendance, and I'm proud to report that nearly all of the production slots for the new John Deere excavator are spoken for at this point.

During the second quarter, we visited with numerous customers and have confidence -- numerous customers who have confidence that incremental demand will extend into 2027. Data center construction is expected to top $100 billion in 2026, with additional double-digit growth into 2027. This is great for our customers in both large-scale site prep but also water and utility contractors who also support these projects. Beyond data centers, we are also seeing infrastructure funded by IIJA, robust activity in oil and gas and continued investment in warehousing.

Lastly, road building performance also remains stellar, driven by higher year-over-year infrastructure spending. Notably, we increased our industry guide for the segment given the strength that we've seen year-to-date.

Thank you both. Maybe let's turn to inventory management. Can we talk about what we've seen this quarter for both new but also used ag inventory?

Yes, definitely, Chris. As you may recall, last quarter, we discussed improving inventory trends across all regions, particularly in high horsepower tractors. I'm pleased to share that those trends have continued this quarter with inventories remaining favorably positioned and order books healthy.

Starting with large ag in North America, our new inventory levels remain favorable. Inventories for both high horsepower tractors and combines are down more than 50% from their mid-2024 peak, with inventory to sales ratio is in line with historical averages. With these improvements, our plan for the year is to continue to manage production in line with retail demand.

We've also made meaningful progress on North American used inventories. Combined inventories are now down by mid-teens from their March 2024 peak reflecting the benefits of proactive inventory management throughout this industry cycle. Here's North American high-horsepower tractor used inventories are similarly improving. Used tractor inventory is down mid-teens from this cycle's peak down low single digits sequentially during the quarter, which has appeared that we typically see seasonal inventory builds.

Notably, model year '22 to model year '23 [ ADAR ] tractors are now down around 45% from their peak levels last year. Other North American product lines, including sprayers and planters have also seen meaningful used inventory improvement. But sprayer inventory is down approximately 30% and planner inventory is down roughly 50% from recent peak levels.

Shifting to our order books in North America, order velocity continues to track in line with our expectations. Model year '26 production of seasonal products is largely set by our early order programs, which have been closed for several months now. We're just launching EOPs from model-year '27 spring products, which will begin production in the last few months of the fiscal year.

Regarding widely large tractors, order books are well into the fourth quarter, and we look to close out -- as we look to close out our model year '26 production. Overall, order books remain healthy and consistent with our retail-driven production plans.

Within small ag and turf in North America, favorable inventory levels are being maintained, following last year's under production and we continue to execute against our plan to build in line with retail demand this fiscal year. Outside of North America, inventory levels in Europe and South America are in good shape following significant reductions in fiscal '24 and fiscal year '25. In Europe, 2026 production is largely aligned with retail demand, while in Brazil, we expect to underproduce retail demand, most notably in combines. Order visibility in both regions now extends through the third quarter and into the fourth.

Thank you, Josh. We've covered a lot of different aspects of the business from quarterly results to tariffs to market conditions around the world. Can you help us to put this all together for us in terms of what it means for adjustments to the sales margin and income guidance for the fiscal year?

Yes, absolutely. While the outlook reflects a mix of tailwinds and headwinds, overall performance remains well balanced, supporting an unchanged enterprise net income guide. All 3 business units benefited from a onetime lift from tariff refunds, which helped to offset ongoing inflationary pressures on materials and freight. As discussed, within ag, the dynamics continue to vary by segment.

Within large ag, the Brazilian market is navigating elevated uncertainty driven by higher input costs and political factors. And at the same time, our small ag and turf business continues to show solid momentum with sustained strength in underlying demand and modest growth in turn. Both PPA and SAT modestly adjusted full year price realization expectations by approximately 0.5 points, primarily reflecting slightly lower expectations for overseas markets.

Construction & Forestry continues to perform well with increased strength in end market demand resulting in an increase in both the net sales and margin expectations for that segment. Taken all together, these dynamics highlight the resilience and balance of our portfolio, supporting a stable and consistent overall net income outlook for the company.

Thanks, Josh. One thing I would add is that as you consider the financial outlook for the year -- for the rest of the year, I should say, we would expect slightly higher revenue in the back half with the fourth quarter being higher than the third quarter. In addition, we would expect to see our most favorable cost comparisons in the fourth quarter as well.

That's a good point, Brent. One final topic. Last quarter, we've highlighted innovation in our C&F business through the launch of our new excavators and the Tenna acquisition. But we didn't spend much time on ag innovation. Can you update us on the latest progress across our portfolio in Precision Ag Solutions?

Yes. It's an exciting topic, Chris. We've continued to strongly invest in the ag business, and we're delivering meaningful portfolio expansion, product enhancements and the continued build-out of our technology stack. As customers navigate a challenging market environment, it only further reinforces the importance of our commitment to through-cycle investment, advancing innovation and delivering customer value when it matters most.

Over the past year, we've launched multiple new products and solutions to strengthen our leadership across each major step of the ag production cycle. Just highlighting a few of these, within tractors, we've launched 6 new ADAR and ADAR X tractor models reaching additional high-horsepower options. These were developed through a ground-up redesign focused on improving performance, maneuverability and versatility for large-scale operations.

The new lineup expands the 8 series with 440, 490 and 540-horsepower offerings, each powered by a JD 14 engine and enhanced intelligent power management. These tractors are autonomy ready and fully integrated with advanced precision technologies and connectivity solutions and our design to help farmers cover more acres efficiently throughout the crop cycle.

In planting, new offerings have enabled burrow optimization through our exact depth solution, which is designed to provide individual row unit depth calibration from the cab while on the go and also through downforce automation, which is enabled by our recently released FurrowVision technology. When these Furrow optimization solutions are paired with our automated fertilizer replacement solutions of Exact shot with an exact rate, farmers can be better positioned to maximize yield potential while reducing rising input costs within tight planting windows.

Our job -- for the application job step, our senspray technology continues to advance. Recent software enhancements have expanded the targeted application capabilities across a broader range of crops for both new and existing systems including the notable additions of wheat, barley and canola. In addition, our recently announced See & Scout capabilities leverage the same camera platform to capture field level data and generate new agronomic insights for growers, such as weed pressure and stand count maps.

As weed resistance continues to be a challenge across various crop production systems, precision and flexibility are critical for farmers, and we're excited to have the preeminent solution to help our customers manage these challenges cost effectively while also improving yield outcomes.

This expansion of portfolio and technology offerings is making a global impact as well. Earlier this quarter, we held Casa John Deere in Brazil. This event brought together over 3,000 customers from over 25 countries and marked the largest product launch ever held by Deere in Brazil. with over 20 new product and technology solutions being released across both ag and construction. Recall that just a year ago, in the spring, we were talking about our largest product launch in Brazil ever, and we've exceeded that product introduction this year.

Importantly, all of these product enhancements are underpinned by our industry-leading precision guidance technologies with products such as Precision Essentials and connectivity solutions. To provide reliable data access in areas with limited or no cell coverage, we continue to leverage our partnership with Starlink for satellite-based connectivity across our global footprint.

Since launching that solution in the second half of 2024, we sold more than 12,500 JDLink Boost kits and achieved 25% growth within the last quarter alone, expanding our connected fleet and increasing the value of our digital and SaaS offerings. Taken together, this combination of job step innovation integrated technology and expanding connectivity positions us well to continue driving productivity for our customers while supporting recurring high-value revenues across the ag cycle.

I'd also note that while engaged acres in John Deere operations center increased about 10% year-over-year, highly engaged acres have grown at an even stronger pace. Additionally, the quantity of monthly active digital users continues to grow, now reaching nearly 440,000.

Brent, before we open the line for questions, do you have any final comments?

Yes. Thanks, Chris. In the second quarter, our organization demonstrated strong execution, resulting in nearly a 17% margin for our equipment operations division. For our large ag division, we made meaningful progress in improving used inventory levels while diligently managing new inventory across the business.

For small ag and turf and Construction & Forestry on the other hand, we've capitalized on favorable demand trends driving growth for the enterprise. These results reflect the discipline of our operating teams and the focus they continue to bring each day, and I'm incredibly proud of what they've accomplished. Over the course of the fiscal year, we launched a significant number of new products and technologies, reinforcing our commitment to innovation and long-term customer success.

Looking ahead, we will continue to invest across the portfolio and in technologies that matter the most to our customers. With sustained levels of R&D and capital investment through the cycle, we are positioning the better that we are positioning the business to help customers reduce inputs, improve productivity and ultimately drive stronger outcomes in their operations.

We also remain committed to disciplined capital allocation. During the quarter, we returned $635 million to shareholders through a combination of share repurchases and dividends, reflecting both the strength of our financial performance and our confidence in the business. As I mentioned earlier, we expect our business to continue growing this year while delivering strong returns. More importantly, we believe we are building a stronger foundation for the future, one that positions us well not only for the remainder of this year but for the years ahead.

Thank you, Brent. Now let's open the line to questions from our investors.

We're ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. In consideration of others and allow more of you to participate in the call, please limit yourself to 1 question. If you have additional questions, we ask that you rejoin the queue. Operator, ready for our first question.

[Operator Instructions] Our first question comes from Paddy Bogart from Melius Research.

This year, obviously, construction has been starting out strong. And I know Deere had some tailwinds from past under production, but the industry forecast at up 5% compared to your sales growth thus far is a pretty big gap. Are you guys seeing healthy industry growth? And do you see Deere gaining a lot of share?

Yes. Thanks for the question, Paddy. You're right, and you set up the question correctly. We did some underproduction last year in our earthmoving segment, really in the front part of the year, particularly. And as we build in line with retail demand, this year, you do get that natural lift just from that change.

On top of that, we've talked about our industry guides up 5% in the earthmoving segments, continued strength in road building as well. So that industry is lifting us. Then on top of that, we have seen some pickup in share over the past 12 months particularly in the last 6 or so as we've made some pricing adjustments during the last year, we're seeing some share gains as well.

Our next question comes from Steve Volkmann from Jefferies

It's actually sure Chirag Patel on for Steve this morning. Just wanted to kind of touch on the tariff piece of the pie here, just quickly. I wanted to get a better sense of the baseline kind of margin in each of the businesses. If you could break down that $272 million a little bit, between the segments, that would be super helpful.

Yes, happy to. There's obviously a lot of moving pieces there, and I'll start with tariff expenses as we move through the course of the year. As we said in our comments, there were some moving pieces over the course of the quarter with IEEPA going away, Section 122 coming back -- coming in and then some adjustments to 232.

If you kind of net that our overall run rate for tariff expense really remains unchanged at about $1.2 billion for the full year. And those splits that we provided in the past really haven't changed as well. So it's about 45% from the Construction & Forestry division, about 1/3 or so for small ag and turf and the remaining piece in kind of round number is about 20% for large ag. So full year impact of that, the tariff expense is about 3 points, and then you can do the math for the individual business units.

We did recognize as we talked about the tariff refund in the quarter, $272 million. On a full year impact, that's about 1 point of tailwind for the equipment operations so you kind of net out the run rate on tariffs versus that onetime refund of 1 point. To give you some sense of splits, they're pretty close to the tariff exposure as well. About 50% of the refund went to the Construction and Forest division, about 30% to small ag and turf and then the remaining 20% into the large ag business.

Our next question comes from Kyle Menges from Citigroup.

This is Randy on for Kyle. Just following up on my last question around tariffs. I know you mentioned that you haven't really taken any pricing to offset these tariffs. So I'd just be curious to hear more color on what some of the mitigation strategies you've been taking are? And I guess, what kind of progress you've made on that front over the last 12 months or so since tariffs first came into the picture. And then what could be more to come?

Yes. Thanks for the question. This is Brent. With respect to our price realization and then how we are thinking about treating tariff costs, it's important to note that our price forecast for the year is ranging between about 1.5% and 2% for the equipment operations overall. I would say this compares to our general inflation rates, excluding tariffs of also about 1.5% to 2%.

So when you stack on tariffs, our incremental costs are a bit margin dilutive relative to price. But as we've said before, we are not surcharging our customers on tariffs. I think especially given the fact that tariff rates have been somewhat inconsistent and been very dynamic here in the recent months. So instead, we are focusing on reducing our tariff exposure through cost actions, so things like resourcing, reshoring, exemption submissions, ensuring USMCA compliance and I have full confidence that we will largely counter the negative financial impact of tariffs over the coming periods, largely through cost measures without ever having to rely on any surcharges to our customers.

And maybe, Randy, just kind of knock on there, thinking about price cost and there's some dynamics first half, back half of 2026. As we get to the back half of '26 and start to lap, not only the tariff expense that came into the organization in the back half of last year, but also the associated inflation that we've seen towards the back half you start to see more favorable comps from a gimbal to tariff standpoint and a material cost standpoint in the back half. And actually, our price kind of works on the opposite side, where we took some incentives last year in the back half in both Construction and Forestry and large ag that we're lapping as well.

So actually price gets more favorable in the back half. And then on the production cost side, including tariffs and material costs. that gets more favorable as well. So price cost will improve as we move through the balance of the fiscal year.

Our next question comes from Angel Castillo from Morgan Stanley.

This is Esther on for Angel. Can you talk a little bit more about the global ag cycle broadly, we're kind of bouncing along the bottom in most of the markets that how would you frame the downside risk on -- risk to the regional outlooks given the abnormal geopolitical environment? And also, is there any periods we can look at just to have a point of reference to understand farmer behavior during this time.

Yes. Thanks for the question, Esther. I think first and foremost, maybe stepping back as we think about the setup for where the large ag industry is, we're a couple of years into the downturn. We've seen less replacement and we're seeing age of fleets continue to grow. As we track this in North America, we're at very elevated levels for high horsepower tractors, very elevated levels in terms of fleet age for combines as well. So you have that underlying replacement demand.

And then on top of that, sort of structurally, we've seen the used inventory market, which has really been a governor slowing down replacement demand, getting a lot healthier in particularly that late-model equipment, that was at a higher percentage in the system. I mean we mentioned the statistics on the call but that high-horsepower tractors [indiscernible], which were our peak years. in the most recent cycle, the down like 45% from their peak a year ago. So some significant structural improvement just in terms of the setup for replacement.

Now that being said, obviously, we're -- our customers are experiencing pressure on their margins. that was heightened a bit over the past quarter as we've seen fertilizer levels increase. And that's been particularly acute like we mentioned in our comments in the Brazilian market, where they're closer to the planting season, they're also facing headwinds from a currency standpoint.

So where we did make the adjustment in Brazil down this year. But as we look to the setup of recovery, our expectation still as a baseline that Brent mentioned earlier, is that we see recovery in 2027. That pace, and again, this gets to your question on sort of indexing in the past will depend on a number of factors. We've seen some policy improvements that will help support consumption. Obviously, we keep an eye on what's happening with ag fundamentals, the geopolitical situation, but as a base set up, our expectation is that we'll see some of replacement come back in next year.

This is Chris. I would just add a few points here. If you think about -- Josh talked about the global situation. I think it's very different between like Europe, the U.S. and Brazil. We talked about Brazil where pharma certainly will see that input cost coming in earlier because of their crop, their plant in the fall. But for the U.S. farmer, if you think about commodity prices since August, both for soybeans and corn, they have been up like 20%, and they secured their inputs ahead of the planting season. So actually, this year, probably for them is actually looking probably a little bit better compared to the peak uncertainty in August. So I think that's an important point to make here.

Our next question comes from Kristen Owen from Oppenheimer.

This is Mason [indiscernible] on for Kristen. I just want to double-click on the order trends you're seeing in large ag, specifically your seasonal products and maybe trends by region, et cetera, standing out?

Yes, on seasonal products, Mason, as you know, we manage that through our early order programs. demand and that production plan for 2026 is set at this point. Our EOPs for this year have closed, and we know what we're going to build in combines, sprayers and planters. We're just on the threshold of getting an indication on that demand for next year. We opened up EOP for sprayers just a couple of weeks ago. So we're a couple of weeks into that program.

Just to maybe give you a sense of structure. It will be a similar 2-phase program that we've had in the past. We opened up at the beginning of May. It will run through the end of August. Planters will be out of a month lag of that opened up at the beginning of June and running through the end of September.

So again, we're very, very early in terms of some of the indications we're getting on trends for EOPs for next year. What I would tell you is what we've seen thus far, and you don't want to extrapolate too much into this, just given it's early, but everything we've seen thus far would support our view that 2026 still marks the bottom of the ag cycle.

Our next question comes from Jerry Revich from Wells Fargo.

Brent, congratulations again. I wanted to ask on Precision Ag. Can you folks talk about your expected See & Spray acreage covered this year, a retrofit orders are tracking and precision essential renewal rates for the '25 cohort? And any comments you can make on the list price increases for the advanced features that you're rolling out as part of BOP, please?

Yes. Happy to Jerry. Thanks for the question. See & Spray, we're encouraged by the progress that we're seeing this year. Again, just maybe starting with acres and how many we're going to cover. Recall, year 1, we covered 1 million acres last year globally. It was 5 million acres. We're early in the spring season. But again, the kind of -- similar to my comments on the EOP, as we look at those same customers from a year ago, they are year-to-date, spring more acres with See & Spray than we saw last year.

So we're encouraged. We're encouraged by that pace. And again, what's given us a lot of confidence is the technology is working. We're seeing an actual demonstrated 2 years now, 50% to 60% savings on herbicide using the technology and that is resulting in increased utilization for customers. So that's been fantastic. And on top of that, there's a lot of talk about talking about Brazil as an example, we introduced at Casa John Deere, See & Spray Green on Green for next year, so that will continue to expand that growth as well. And I mentioned in my comments that on the technology itself. We're now able to cover more crop types moving into wheat, barley, canola. So that continues to ramp.

And maybe last point on See & Spray again, early in the EOP, but take rates that we're seeing thus far and See & Spray for '27 would exceed what we saw for this year as well. So on that technology, some good growth.

Chris, you want to hit some others?

Yes. Maybe, Jerry, you asked on Precision Ag essentials to Precision Essentials. I think order is trending well here and what we see kind of year-over-year. But more importantly, the point I would like to make here is if you think about the customer organizations we get as a result of that into our John Deere operations center. We have more than 4,000 new customer orgs as a result of that, actually closer to like 5,000. So I think that's another important point which -- and a big benefit, quite frankly, for us.

Maybe one more thing I talk about or maybe a [ couple ]. You asked about renewal rates on Precision Essentials. We're still in that 70% range overall for renewals. But I think what is really giving us encouragement is we're now getting those customers who are in their second year of renewal. And if you look at that cohort, their renewal rate is over 90%. So for those folks that have been in it now for 2 years, we think that's going to be a lot stickier and are encouraged about that.

Maybe one last point on technology. Harvest settings automation, which you didn't ask about, but I just did want to mention utilization there has continued to be very strong. Last quarter, we talked about over 60% utilization of harvest automation in the sort of the Northern Hemisphere harvest. As we've looked at Brazil and their utilization and their most recent harvest, it's over 80%. So given Brent talked about our excitement in the region, it's not only tech adoption but utilization as well. It continues to scale and what gives us great excitement for growth prospects in South America.

Our next question comes from Tami Zakaria from JPMorgan.

This is [indiscernible] on for Tami. I was wondering if you guys could talk us through the cadence for 3Q and 4Q on both sales and margins and whether there are any items by region or segment that could cause the second half to deviate from normal seasonality?

Yes. Brent mentioned that in overall that we expect back half to be higher than the front half. And Q4 would be a little bit higher than Q3 overall. Maybe just stepping through the businesses. As you look at large ag and looking at sort of rest of you, you can do the math, on the margin given the guide.

Q4 a bit stronger than Q3. We talked about at the beginning of the year, some differences in normal seasonality. We've got more water large tractor shipments shipping to North America in the back half in the front half of the year. That's abnormal for us, but reflected how the order book built for the course of the year.

On the small ag side, it's pretty normal seasonality. You'll get a little bit of a step down in Q3 and another step down in Q4 just on a normal seasonal basis. And then construction and forestry, fairly balanced between the 2 both top line and margin in the back half, maybe a little bit stronger in the fourth quarter than Q3, but overall pretty close. And I wouldn't call out anything specifically abnormal as you look at that cadence.

Our next question comes from Chad Dillard from Bernstein.

This is [indiscernible] for Chad. I'm trying to understand your pricing expectations that look more conservative than peers. Is that a reflection of higher discounting?

Repeat the past -- the last part of that, sorry, I didn't quite catch that. Expectations versus peers?

Yes, your pricing expectations look more conservative than peers. Is that a reflection of higher discounting?

And just confirming, are you asking about the large ag business or which business?

Yes, exactly. Large ag.

Yes. Yes. I think you did see us make a adjustment this quarter to our pricing. That was really driven by -- we talked about what we've seen in Brazil. We took that price a bit down quarter-over-quarter. I think importantly, I would call out that all of our regions are expected to be price positive in the large ag business. We had a 1% price guide for the full year. North America could be a bit better than that. The other 2 are a little bit lower kind of average out to that one. We're pretty close to one really across all the businesses.

This is Chris, a point to add here. I mean you've seen that in the second half, specifically, price will look a little better than the first half, given the comments we made earlier around discounting. But if you think about the progress we have made on used to the incentives we put into play, I think that positions us very well. We see continued progress even in the quarter where we typically see a seasonal build. So I think we feel good about the pricing mechanics we have put in place.

Our next question comes from Mig Dobre from Baird.

Yes. It from Baird. First, a quick clarification. So on the IEEPA, $270 million that you kind of clawed back, are we to understand that you have incremental headwinds from other types of tariffs that bring you back to the $1.2 billion? Or is this kind of a true benefit relative to the initial guide? And then related to all of this, as I think about margins, I mean, you talked about improvement in price cost as the year progresses. But everything that I'm kind of seeing on the cost side, whether it's raw materials, whether it's components or energy prices, it all suggests that can get tougher going forward rather than easier on that front. So can you maybe square these 2 items for us?

Yes. Sure, Mig. Thanks for the question. Just clarifying on the tariffs. So the $1.2 billion of tariff expense was our run rate last quarter. And not talking about refunds here, but just run rate on tariff expense, that's unchanged. So really $1.2 billion quarter-over-quarter, again, some puts and takes in terms of what's driving that, but the overall ongoing expense remains the same.

The $272 million refund was new in the quarter. And so if you net that against $1.2 billion, it will be more like $900 million this year. That will pay in net when you put the refund in, but again, that run rate didn't change.

From a material standpoint, we have seen some inflation come in. We saw some come in over the course of the quarter. As you mentioned, given what's happened around the globe over the last 2 or 3 months, as we talk about back half though, recall that we're -- and there's a lot happening in the production cost bucket that we show you in the waterfall, but we're lapping tariffs that we start to see come in the business last year, and we're starting to lap the indirect inflation that we saw come in from tariffs in the back half of the last year as well. So the comps become more favorable, but I would agree with you that we are seeing some higher levels of inflation over the last 2 or 3 months.

Mig, this is Brent. Just to add on to that, I think Josh has covered this already, but our pricing is much more favorable in the back half as well. So as we think about price cost ratios, those do improve meaningfully. And I think Josh has covered the commentary on inflation quite well. But the other thing that we'll see, particularly for our large ag factories is a little bit of better absorption in the fourth quarter as production rates are significantly higher.

And Josh noted, that's just the way the order book built this year for a much heavier fourth quarter with respect to our large tractors that are going to be settled here in the U.S., and so that's going to help on the overhead absorption as we move a little bit later in the year.

Our next question comes from Tim Thein from Raymond James.

My question is just on the kind of the sentiment and the feedback that you and a dealer base is hearing in North America with respect to large ag. I guess you don't try and make it a habit to forecast what happens with the spring EOP. But I'm just curious, I mean, your own expectations or the feedback you're hearing from dealers, how you expect that may play out.

Obviously, there's a lot of crosscurrents in the market but coming from a low base, et cetera. So I'm just curious like to the extent you can kind of think about how you expect that or how the dealers are expecting that plays out. Obviously, that will give us a lens into -- first lens into how CapEx is looking into '27. But maybe just any thoughts, comments that you've gathered for the dealers in North America.

Yes. Thanks, Tim. As we've thought, our baseline is we expect to see some level of recovery in the next year. And again, it's really driven by the setup, the core age of the fleet, what we've done from an inventory standpoint, both on new and used. And I think our dealers are feeling that as well. They've seen the reductions in their lots. Just maybe to give you a data point, year-over-year, our JDF, our general financial business, our trade wholesale. So those that used equipment that's getting financed on the lots of dealers is down over 15% just in terms of the portfolio size. So that's less on their balance sheets that they freed up and making more opportunity for new sales.

Now certainly, with what's happened in the dynamics of fertilizer, customers are watching that. I mean Chris rightly said, the setup on old crop, that I think it's about 1/3 or so of that still needs to be sold. Actually, the increase you've seen in commodity prices supports that. So there's some puts and takes maybe a little bit more caution in terms of input costs for next year. But our baseline, I think, share with the dealers that we expect to see that recover some next year.

Tim, this is Brent. I would say the feedback from dealers has varied a little bit. We have some dealers who took action early on used. And not surprisingly, those are the dealers who are most optimistic about next year. I would say we even -- this is a bit anecdotal. We have a couple of dealers who are actually looking to add in select cases to their used fleet. So I think for those who have worked themselves into a pretty good situation, they're the most positive.

We have others who are maybe a little bit more moderate on next year. But again, it's a little bit dependent on how aggressive they've been managing their inventory. And so I think that's -- that will dictate a little bit of how the season progresses over the next couple of months.

We probably have time for one more question.

Our last question comes from Avi Juraslisk from UBS.

So you noted that you're continuing to see market share improvements in South America but also have continued to introduce new products there. So just kind of wondering, are you gaining share within the existing product portfolio? Or has it really been driven by these new products that you've been rolling out down there?

Yes. I mean it's -- and you've heard us talk about this before. If you look over the last really 1.5 decades, we've been on a really steady and fairly linear increase in share, both in terms of tractors and combines in the country. And that's been supported by a number of fronts. It's new products, new technologies that we brought to the market it's an outstanding dealer channel that supports our customers in the region. It's more localization of products.

And so it's a number of fronts. And I think what gets us excited as we continue to support that and amplify that with more and more product introductions we had what we called a record introduction last year, last spring, we topped that this year with more and more products, new combined. We brought new sprayers, new planters, new technologies like sea and spray, connectivity through StarLink and all of that is driving an experience for our growers that helps them save on inputs, drive more value in their operations.

I mentioned earlier, but harvest settings automation for combines is the highest utilization in the globe in Brazil, reflecting the value that our customers see in that region as well. So Brent said it earlier, but we're extremely bullish on the region as a result. We see opportunity for more growth going forward.

Thanks very much for the time. We appreciate everybody's time today on the call.

That concludes today's conference. Thank you for participating. You may disconnect at this time.

Good morning, and welcome to Deere & Company First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Josh Beal, Director of Investor Relations. Thank you. You may begin.

Hello. Welcome, and thank you for joining us on today's call. Joining me on the call today are Josh Jepsen, Chief Financial Officer; Brian Campbell, President Worldwide Construction & Forestry and Power Systems; and Chris Seibert, Manager, Investor Communications. We'll take a closer look at Deere's first quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2026. After that, we'll respond to your questions. Please note that slides are available to complement the call this morning that can be accessed on our website at johndeere.com/earnings. First, a reminder, this call is broadcast live on the Internet and recorded for future transmission and use by Deere & Company.

Any other use, recording or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited. Participants in the call, including the Q&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-K, Risk Factors in the Annual Form 10-K 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. Initial 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.

I will now turn the call over to Chris Seibert.

Good morning, and thank you for joining us today. John Deere completed the first quarter with a 5.9% operating margin for the equipment operations. Our results reflect the strength and resilience of a diversified portfolio spanning multiple end markets and geographies. All business segments delivered higher net sales year-over-year with both Small Ag and Turf and Construction Forestry top line growing by over 20%. Our results for the quarter exceeded our forecast, driven by shipping volumes that were ahead of our initial plan.

Importantly, over the course of the quarter, we saw continued strengthening of our order books across several product lines, most notably in small ag and turf as well as construction. In earthmoving, double-digit year-over-year growth in retail settlements and the growing order bank have prompted us to increase our industry outlook for both construction and compact construction equipment in North America.

In small ag, [ order ] activity for midsized tractors supporting the Dairy and livestock production system has remained solid. Order Velocity for North American turf equipment and compact utility tractors has increased. Global large ag fundamentals while still challenged, were largely stable over the quarter. This stability has enabled a modest improvement in our net sales forecast for North American large Ag this year as our combine early order program finished better than expected and large tractor order activity has increased. These improvements have helped us to offset softer projections for the South American ag equipment market in 2026.

The developments over the course of the past 3 months has strengthened our belief that 2026 marks the bottom of the current cycle as we project mid-single-digit net sales growth for the equipment operations this fiscal year.

Slide 3 starts with the results for the first quarter. Net sales and revenues were up 13% to $9.611 billion, while net sales for the equipment operations were up 18% to $8.001 billion. Net income attributable to Deere & Company was $656 million or $2.42 per diluted share.

Turning to our individual segments. We begin with the Production & Precision Ag business on Slide 4. Net sales of $3.163 billion were up 3% compared to the first quarter last year, primarily due to positive effects of foreign currency translation. Price realization was roughly flat. Price realization in North America was positive, though was offset by additional incentives for the South American market.

Currency translation was positive by nearly 4 points. Operating profit was $139 million, resulting in a 4.4% operating margin for the segment. The year-over-year decrease was primarily due to higher tariffs, unfavorable sales mix and higher warranty expenses.

Moving on to Small Ag & Turf on Slide 5. Net sales were up 24%, totaling $2.168 billion in the first quarter because of higher shipment volumes and positive effects of foreign currency translation. Price realization was positive by 2 points. Currency translation was also positive by just under 2.5 points. Operating profit increased year-over-year to $196 million resulting in a 9% operating margin. The increase was primarily due to higher shipment volumes, favorable sales mix and price realization, partially offset by higher tariffs.

Slide 6 gives our industry outlook for Ag and Turf markets globally. We continue to expect the large ag equipment industry in the U.S. and Canada to decline 15% to 20% this year. However, we are seeing encouraging developments that should provide stability to this segment in the near term, while also improving the setup for a return to growth. While global row crop production remained strong, robust demand for commodities and [ normalization ] of trade flows are providing support for prices at current levels, which are above the lows that growers experienced last summer.

Additionally, government programs are supporting farmer liquidity in the short term. Ongoing improvement in the used inventory market is providing a better environment for machine replacement, while the age of the fleet continues to grow. Additionally, proposed government policy actions, including additional support for biofuels provide potential tailwinds for growth. For Small ag and turf in the U.S. and Canada, industry demand estimates remained flat to up 5%. Dairy and livestock sector remains profitable due to strong beef prices, while the turf market is seeing a modest return to growth as that sector normalizes after several years of declines.

Moving to Europe. The industry is still projected to be flat to up 5%. The underlying fundamentals of the ag sector are largely unchanged with no near-term material impact expected from newly negotiated EU trade agreements or recent declines in milk prices. Interest rates are steady, long-term financing costs are manageable and the region continues to show resilience across key arable markets.

In South America, industry sales of tractors and combines are now expected to be down approximately 5%, driven by the Brazilian market where [ subdued ] commodity prices, high interest rates and a stronger real are putting pressure on producer margins. Industry sales in Asia are now projected to be flat to down 5%. The Indian market is now expected to only be down slightly from the strong level seen in 2025.

Next, our segment forecast begin on Slide 7. for Production & Precision Ag, net sales are still forecasted to be down between 5% and 10% for the full year. The forecast assumes roughly 1.5 points of positive price realization and about 3 points of positive currency translation. For the segment's operating margin, our full year forecast remains between 11% and 13%.

Slide 8 shows our forecast for the Small Ag & and Turf segment. We now expect net sales to be up about 15%. This includes 2 points of positive price realization as well as 2 points of positive currency translation. The segment operating margin guide is now between 13.5% and 15%.

Shifting now to Construction & Forestry on Slide 9. Net sales for the quarter increased roughly 34% year-over-year to $2.67 billion due to higher shipment volumes and positive effects of foreign currency translation. Price realization was negative by just under 0.5 point. Currency translation was positive by 3.5 points. Operating profit of $137 million more than doubled year-over-year, resulting in a 5.1% operating margin due primarily to favorable shipment volumes as well as production efficiencies, partially offset by higher tariffs.

Slide 10 describes our Construction & Forestry industry outlook. Industry sales for both construction equipment and compact construction equipment in the U.S. and Canada are now expected to be up around 5% year-over-year. Construction markets remain solid, supported by U.S. government infrastructure spending declining interest rates, strong rental demand and data center construction starts. Our year-to-date retail settlement activity is running ahead of our expectations and our order books continue to grow.

Global forestry markets are still expected to remain flat. Global road building markets are now expected to be up around 5%, driven by market increases in both North America and Europe.

Moving to the C&F segment outlook on Slide 11. 2026 net sales are now forecasted to be up around 15%. Our net sales guidance for the year includes about 2.5 points of positive price realization and just over 2 points of positive currency translation. Our projection for the segment's operating margin also increased and is now estimated to be between 9% and 11%.

Now transitioning to our financial services operations on Slide 12. Worldwide financial services net income attributable to Deere & Company in the first quarter was $244 million. The year-over-year increase was mainly due to favorable financing spreads and a lower provision for credit losses, partially offset by favorable special items recorded in the first quarter last year.

For fiscal year 2026, our outlook increased to $840 million, primarily driven by lower provision for credit losses. Finally, Slide 13 outlines our guidance for net income, effective tax rate and operating cash flow.

For fiscal year '26. Our updated outlook for net income is now between $4.5 billion and $5 billion. Next, our guidance continues to incorporate an effective tax rate between 25% and 27%. And lastly, projections for cash flow from the equipment operations increased by $500 million at both ends of our range and is now expected to be between $4.5 billion and $5.5 billion. This concludes our formal comments. We'll now shift to a few topics specific to the quarter.

To start, let's review Deere's results this quarter. Net sales increased by about 18% year-over-year and margins were just under 6%. Although the first quarter of fiscal year '25 had an easier top line compare given last year's underproduction in Small Ag & Turf and Construction & Forestry, it still performed ahead of our plan. Josh Beal, could you explain what happened this quarter and how it affected our full year outlook.

Yes, absolutely, Chris. Let's start with our expectations for the quarter. Overall, we were projecting double-digit net sales growth in the equipment operations, driven by estimates for over 20% growth in both small ag and Construction & Forestry while large ag sales were expected to be flat year-over-year. Despite the projected net sales increase, we were expecting lower equipment operations operating margin year-over-year due to incremental tariff expenses and an unfavorable product and regional mix in large ag. .

Across all 3 business units, we executed ahead of our plan for the quarter, and as a result, our performance reflects better top line and margins than originally forecasted. Better-than-expected shipment volume was the primary driver of both the top line and margin beat. In PPA, shipments of North America large tractors were ahead of plan, while C&F benefited from higher road building sales in Europe and North America, as well as ahead of planned shipments of both construction and compact construction equipment in North America.

On the pricing front, C&F pricing was slightly negative this quarter, although competitive price pressures have started to show signs of easing. The results from the quarter in C&F had a slight impact on the timing of our expected price realization in the segment. And as a result, we've revised our full year forecast down by 0.5 point. PPA pricing was neutral during the quarter, primarily due to discounts implemented in South America, responding to FX movements as well as targeted field inventory reductions.

Our PPA price guidance for the full year remains unchanged, and we still expect positive full year price realization in South America. Foreign exchange was also impactful in the quarter. The U.S. dollar was weaker year-over-year against several relevant currencies for Deere, particularly the euro and Brazilian real. The translation impact drove year-over-year net sales gains for all 3 business units.

Transitioning to cost management. Excluding tariffs, production costs were lower year-over-year for all business segments in the first quarter. This was largely attributable to operational efficiencies from higher production and disciplined overhead spending. Tariffs for the year are still projected at around $1.2 billion as mitigation on Section 232 steel tariffs and some relief in India have been offset by volume growth.

As you mentioned in your opening comments, our full year industry demand outlooks for most markets improved over the course of the quarter. We maintained our net sales guidance for BPA even though South America softened due to some incremental improvement in North America, and we increased the net sales ranges for SAT and C&F by 5 points. That resulted in higher projected margin ranges for small ag and C&F, resulting in an increased net income forecast of $4.5 billion to $5 billion.

It is encouraging to see that our teams continue to execute and focus on what we can control while also seeing some pickup in end market demand. Now let's take a moment to talk about the broad ag industry. Since late last year, we've seen several supportive developments in the U.S. market, including the recently announced $12 billion Farmer Bridge Assistance program and renewed purchase commitments for U.S. commodities. Can you add some additional color to what this could mean for U.S. growers?

Sure, Chris. I'll start by reiterating a couple of comments on the global ag economy that you mentioned in your opening. Global crop production remains strong, but so does global demand. At current commodity price levels, producer margins remain pressured in many geographies. Specifically for the U.S., the USDA just updated their 2026 forecast for net cash farm income. While 2026 U.S. net cash farm income is forecasted to be up around 3% from 2025, much of this increase is being driven by more government payments. .

Crop cash receipts are expected to be up slightly this year, but expenses are projected to increase as well. Given this setup, we continue to anticipate a challenging environment for many row crop farmers. However, as you mentioned, we're starting to see some stability for producers as China has resumed purchasing U.S. soybeans and the recently approved government support program looks to provide some near-term liquidity. Additionally, strong farmland values are keeping debt ratios low despite the lower margin backdrop.

Notably, the U.S. fleet age is high and continues to get older as customers put more hours on their equipment. But the stabilization that we're seeing in U.S. ag fundamentals, along with an improving used market, our expectation is that we'll start to see some replacement demand return.

This is Jepsen, Maybe 1 key point to reinforce the government payments should continue to mitigate downside risk for farmers balance sheets, acting as a bridge in an environment where crop cash receipts are under pressure. We believe that future policies around renewable fuels and additional export opportunities should drive demand and provide continued stability.

Great. Thank you both. With the developments over the quarter in North America, it appears that we've moved past peak uncertainty that the market is stabilizing. Building off that, could you also share an update regarding global ag inventories and order books?

Yes, definitely. Let's start with large ag in North America. On the new inventory side, we continue to be in a great position and hold on to our plan to produce in line with retail demand in fiscal 2026. We also continue to make progress in North American used inventories. We saw a typical seasonal increase in used Deere combines during our first quarter. However, current inventory levels for Deere combines remain about 15% below their peak in March 2024, with model year distribution at a normal mix. .

Deere high horsepower tractor units were down mid-single digits in our first quarter and have declined by over 10% from their March 2025 peak. Late model mix is improving, too. It's notable that while total Deere high horsepower tractors are down over 10% for March, model year '22 and model year '23 8R tractors are down more than 40% in that same time period. Just this past quarter alone, model year '22 and model year '23 8Rs, were down over 20% sequentially with model year '24 8Rs also declining by over 10%. While [ continued reduction ] in used tractors remains a focus we're encouraged by the progress that we're seeing.

At the same time, large tractor order velocity for the North American market has picked up, and our rolling order books now provide visibility into the fourth quarter. We also just recently took our last calls for North American combine orders for the year-end. While we still expect that overall North America large ag industry to be down 15% to 20% this year, combines will be down less than that range.

Similar to North America, we feel good about our new inventory positions in both Europe and South America. The one exception is combines in Brazil were a bit higher than we want to be. We'll underproduce retail for Brazilian combines in our second and third quarters to bring those inventory levels down. Despite being higher than our target, our current inventory to sales ratio for Combines is still significantly lower than what we see with competitors.

As far as order visibility, European tractor order books are currently 4 to 5 months out, while South American orders are full through our second quarter.

Turning to small ag and turf in North America. Last year's under production resulted in healthy beginning inventory levels for the segment that remain in place today. For reference, current -- new field inventory for both tractor horsepower categories in this segment. That's the less than 100-horsepower category and the 100- to 220-horsepower category are each about 40% lower year-over-year. Our ability to maintain those lower inventory levels reinforces our plan to build in line with retail demand in small ag this year, and commitment to that plan has been further supported by strength in order activity in the first quarter.

This is Jepsen. Maybe share an additional perspective following Beal's comments, our channel has consistently worked to reduce used inventory levels and our deliberate approach to managing production and inventories set us up favorably both this year and into the next, with growing demand across various other markets and segments, we feel good about how we're positioned to execute for the remainder of $26.

Thank you both. Now let's move on to Construction & Forestry. Josh Beal, we've already touched on C&S performance in Q1. But can you please give us an update on the current business environment and outlook for 2026?

Yes, happy to, Chris. Let me start with the current market environment. And Ryan, please jump in with any additional color you might have. As you noted earlier, construction markets are a bright spot and continue to demonstrate resilience, bolstered by U.S. government infrastructure investments, decreasing interest rates and improved rental demand.

Recall that we underproduced retail in the first half of fiscal 2025, which set us up to produce in line with retail demand this year. We saw strength in our first quarter in retail sales that exceeded our estimates, as settlements of construction and compact construction equipment were both up mid-teens year-over-year in our first quarter. What's perhaps most encouraging is that our order bank has risen by over 50% in the past quarter, reaching its highest point since May of 2024. This provides us with clear visibility into the second half of the fiscal year, allowing the Construction & Forestry team to optimize their production plans accordingly. Overall, we're very encouraged by the momentum that we've seen to start the year. Ryan, is there anything you'd like to add?

Absolutely. I share your enthusiasm, and I'm excited about what's on the horizon for this business. As I mentioned at our recent investor event in New York, there are numerous reasons for my optimism. At a macro level, the world is facing a growing urgency to upgrade or replace key infrastructure. Investment in single-family housing, especially across the United States needs to increase, and there's a huge demand to support the required infrastructure for AI investments.

To get all this work done, the industry must boost productivity significantly, with machines doing more work with precision and utilizing less resources overall. Meeting these goals require smart machines and data-driven insights to execute tasks and manage job sites efficiently and we believe we can help customers meet these challenges, and we'll continue to invest on our side to ensure success.

Thanks for the recap, Ryan Brian. you remind us of the investments that we're making to meet those challenges?

Sure, Chris. Let's start with excavators. As we've talked about, we are excited to announce our new Deere Design [ 2010 ] class excavators at the upcoming ConExpo Show in Las Vegas. We've included additional information in the appendix of the earnings presentation for those interested in more detail.

Excavators represent about 40% of the North American construction equipment industry. And these models are the first introduction of fully Deere designed and Kernersville, North Carolina built machines to the market. We packed the new units with easy-to-use productivity-enhancing technology while remaining absolutely focused on and making further improvements in quality and durability. This is the first step of what will be a multiyear launch plan for a complete line of excavators.

We couldn't be more excited about sharing these first models with our customers. The ConExpo event will feature 24 product launches, including world premieres of equipment from John Deere and 6 market debuts from the [ Bergen ] Group. The last several years, our efforts have been heavily focused on excavators. However, we continue to innovate across the product portfolio. From new equipment designs, the latest in precision and job site technology, we have never felt better about our complete product portfolio.

Thank you. On the digital side, yesterday, we completed the acquisition of Tenna. Could you please provide your insights on this acquisition and discuss how it aligns with the broader C&F business and strategy?

Yes. We're incredibly excited about bringing the Tenna team and their capabilities into the John Deere portfolio of businesses. It might help to take a step back and talk through our strategy at a high level in the C&F division. We think about the construction industry and how we want to compete in 3 different layers: machines, tasks and job sites. On the machine side, completing our product portfolio of best-in-class earthmoving equipment, both in high-precision machines and those that are more basic is our focus at that level. Second, we're enhancing the task that the machines do individually on the job site through precision technologies like Smart grade, Smart Detect and Smart way. .

The agreements with the 3 survey providers to provide a fully integrated grade control experience to our equipment is an example of what we are working on in this area. Third, it's having the capabilities to help contractors and customers optimize their fleets, operations and job sites. Tenna provides a leading technology platform that automates contractor workflows and gives near real-time insights into equipment operations and maintenance and enhances visibility, planning and coordination to boost productivity and cut costs. Tenna's leading fleet-based products and services, combined with the productivity solutions from virtual superintendent and Tenna who we acquired a little over a year ago, along with the foundational capabilities we've built through the John Deere Operations Center gives us a unique value proposition to offer customers as they work to optimize their fleets, operations and job sites. Importantly, Tenna and Virtual Superintendent are and will continue to be brand agnostic focused on mixed fleet solutions in step with the reality of the fleets and job sites in the industry.

Thank you, Ryan. It sounds like there's a lot to be excited about in the Construction & Forestry segment going forward. .

This is Jepsen. Maybe one thing in addition to the C&F product releases, I'd like to share a quick comment about innovation in our other businesses. At the end of this month, we'll be at Commodity Classic in San Antonio, Texas with several major product launches and updates to our advanced technology solutions. And just last week, at the World Ag Expo in California, we showcased several innovations that are helping drive value for our high-value crop producers as well.

Thank you both for your comments. Josh, do you have any final thoughts before we open the line for questions. .

Yes. Thanks, Chris. The first quarter demonstrated great execution from our teams. All business segments operated efficiently and delivered results ahead of plan. At the same time, we saw a stabilization and improvement in a variety of our end markets. Our channel maintained focus on inventory management, particularly in North American used equipment. Our financial strength has allowed us to maintain high levels of investment throughout the cycle, which positions us well for future growth, particularly as the cycle inflects.

The recent and upcoming product and technology introductions are tangible examples of that outcome and bolster our confidence in our growth aspirations through the end of the decade and beyond. Over the quarter, we returned nearly $750 million in cash to shareholders through dividends and share repurchases, demonstrating that strong through-cycle financial performance supports both reinvestment in the business and shareholder return.

Finally, I'd like to express my sincere appreciation to all members of the Deere team. The commitment and dedication demonstrated by our employees, dealers and suppliers across every area of the business have been instrumental in maintaining this high level of discipline. The Deere team is committed to executing our strategy and focused on solving our customers' biggest challenges.

Thanks, Josh. Now let's open it up to questions from our investors. .

We're now ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. In consideration of others and to allow more of you to participate in the call, please limit yourself to 1 question. If you have additional questions, we ask that you rejoin the queue.

[Operator Instructions] Our first question comes from Kristen Owen from Oppenheimer.

And just briefly, Josh Jepsen, thank you so much for all the help over the years. If I could start maybe with a pricing question. You gave some helpful commentary on PPA pricing. But I'm just wondering how we should think about the bridge from here at neutral in Q1 to the full year guide of 1.5%.

And similarly, if you could help us time your expectation on C&S can you just maybe walk us through what you're seeing on the pricing side there?

Thanks, Kristen, and happy to. Starting with large ag. The first quarter, as we mentioned, we did put some incremental incentives in place in South America. As you mentioned we've seen a little bit of a slowdown in that market. And as a result, we're going to pull down inventory a little bit in that market, just on combines. And maybe just for perspective to you on the combine inventory, while we've come up a little bit, in Q1, we're still about half of the levels on combines that we saw that we peaked out in 2023. So still in really good shape, but want to be proactive there.

And as we've seen a little bit of a slowdown, we've taken some action. We don't expect that to continue through the year. As we mentioned, our expectation is for Brazilian price realization to be positive for the full year. And we've seen positive price in North America. Recall that we did some accruals in the third quarter of last year in large ag for pool funds that should provide some easier comps as you move through the course of the year as well. So our expectation is to still maintain that 0.5 points for large ag price?

Yes, Kristen, this is Jepesen. And I think on the PPA side, that 1.5 point for the full year, and I think we would expect that really as we run through the remaining quarters. So not too lumpy or different as we go [ 2 ] through 4Q.

Yes. Maybe just a bit on C&F. We took the guide down slightly. That wasn't a function of our lack of confidence in us being able to execute price increases really a function of how fast the year started. We announced some price increases in January. And quite frankly, we were surprised to have quickly we have built our backlog in the first couple of months of the year. So the price actions are going to be delayed a little bit. It's important to keep in mind that it's [ Bergen ], it's parts and also earthmoving. And so it's a combination. Each one will do a little bit differently. And then over the rest of the year, we'll start to lap some of the more aggressive pricing actions that we had to take last year. So overall, we still feel very confident in the price realization for the year.

Our next question comes from Angel Castillo from Morgan Stanley.

Just wanted to maybe follow up on that. If you could just talk a little bit more in detail about what's going on in terms of the order strength, in particular, I guess, on the C&F side. To the comment on the pricing and the strength that you've been surprised by, I recognize it might be difficult to unpack. But just curious if you're seeing -- if you're able to split that up between what might be one Big Beautiful Bill kind of bonus depreciation related versus end market-driven versus kind of Deere performance driven by all the portfolio of product innovation you're talking about or just merchandising incentives.

Just curious the puts and takes across the various kind of tailwinds that might be driving some of the strengths? And if you're able to kind of unpack that.

Yes. I'll start, Angel and Ryan, Josh jump in. I mean first and foremost, I would just point to contractor confidence more and more as we have conversations with contractors. They feel good about their backlog and candidly feel good about that backlog growing even as I look into 2027 as well. So I think its strength in their end markets and particularly around larger projects, I mean infrastructure, mega projects, certainly supporting data centers as well, where we're seeing more of that strength.

Housing still subdued to start the year, some expectation that, that will pick up a little bit as we get some easing as we move through the course of the year. But that's still a segment for smaller contractors where there's still a challenge on the housing side. But again, particularly for those larger folks, they're seeing strength in their order book, and I think that's starting to translate into order activity.

Yes. Just to add to that, Angel, We've seen rental refleeting, which has been positive. Our retails were up mid-teens in the quarter. So we're seeing strength there. So not only order activity, but retail more than matching, which has helped as well. So I think that's given us more confidence as we've seen that build.

Yes, just maybe to summarize, kind of all of the above of the things that you identified. I've been out quite a bit with customers, geographic mix and a broad swath of the different types of construction, and it's really broad-based they feel confident. I think the construction activity has been strong in the last couple of years. They were probably a little more cautious with respect to fleet for various reasons.

Last year and the year before that, but now the confidence in their backlog is growing and they need to start making more investments in the fleet.

And maybe 1 last comment [indiscernible], too, we're seeing strength there. We mentioned it's not just concentrated in North America, certainly strong infrastructure investment there. But Europe as well, we're seeing some pickup infrastructure in Germany, as an example, has been positive. So strength in both of those markets as well on the roadbuilding side..

Our next question comes from Stephen Volkmann from Jefferies.

Maybe I'll just stay with this topic. I guess given what your -- you guys are all saying, which sounds very reasonable, the kind of up to up 5%-ish kind of forecast feels pretty conservative. So I'm curious if you think there's some headwinds that we should be keeping in mind maybe as the year progresses or something. And then sort of on that same note, your net sales forecast in C&S is quite a bit higher than your end market forecast, so maybe you could tease that part out as well. .

Yes. I think you're right, Steve, that there's certainly optimism you heard us say that in our prior answer. It is mixed in some segments. Housing has still been subdued. So I think that's part of it. But yes, I mean overall optimistic, and we're seeing strength there. On the sales guide, [ of 15 ], recall that we did some pretty strong under production last year, which has really set us up well for this upturn. I mean it was close to 10%, just high single digits for the segment last year. And so we're building in line with retail this year. So that is helping on top of that. You're getting 2 points of price or getting positive price. And currency has been a tailwind as well. So for all those reasons, we're much closer to 15% now versus those markets we're seeing are up 5%.

Our next question comes from David Raso from Evercore ISI.

So we'll miss you, Josh. When it comes to the large ag commentary, I was intrigued by the order book color. But obviously, you're not willing to change the guide on large ag. I was just curious, that order book -- is it coming in just in a sense earlier than you would have thought in the sense of you have the same view and the order book just came into the level where now you feel you have just better visibility. Are we at the stage where Waterloo or East Moline is starting in kind of increased line rates.

And I'm not just talking seasonality, I'm speaking about versus your original budget. I'm just curious how you're sort of digesting the at least more stable better order book on large ag when, as you pointed out, I mean grain prices, even this morning, some of the USDA corn acre number came in, I thought kind of constructive, but corn is still not reacting positively. I'm just trying to put together how you're thinking about that order book versus corn prices just aren't really supporting the improvement.

Yes, Thanks for the question, David. I mean on the North American side, our guide is still for the industry down 15% to 20% and maybe breaking that down by product lines, our spring seasonal products, things like sprayers and planters. Those EOPs happened over the course of the last summer, wrapped up in August, September, still a lot of uncertainty in the market and prices for commodities were much lower at the time. .

Those product lines are probably at the upper end of that range, closer to 15%. What we've seen over the course of the quarter from a -- I'm sorry, closer to 20, at the upper end of that range for those product lines. What we saw over the course of the quarter on the tractor side was some pickup in order velocity, particularly in the last month or so. So we're probably closer to down 15% or so on tractors, the lower end of that range. And then combines, as we mentioned in our commentary, as we close out that EOP, that will finish better than the range, more like probably down 10 to 15 for combines in that segment.

So yes, what are we seeing? What's driving that? I mean, as you're right, I think from an ag fundamental standpoint, still challenged and haven't seen a whole lot of change there over the course of the quarter. However, we do feel like things are more stable, certainly than where we were in the last summer into the fall. We've seen China come back to the market. We've seen some stability in grain prices, not a lot of upside at this point in time, to your point, even with some of the recent news but we've seen some stability there.

And then I think the other thing to keep in mind is that the age of the fleet is getting older. We haven't seen much replacement over the last couple of years. And you do have some folks that do need to look to replace even sort of despite of what we're seeing with ag fundamentals. And when you see an improving used inventory market and we mentioned some significant improvement even over the course of the quarter. And I think most notably, like model year '22, '23 8Rs down 20% sequentially in the quarter, just gives you a sense of how those are starting to move. That's starting to free up the trade ladder, free up moving there. And so we are seeing a little bit of pickup from a replacement demand, not a massive inflection again, given where the fundamentals are, but replacement does come back over time just given that situation.

Yes, it's Josh, the only thing I'd add to that, David, to your question is, we are seeing some increased build rates in tractors, and that's kind of back half related to these this order activity that we saw come through. As Josh mentioned, we're already out nearly through 3Q. So the back half of the year, we see some of that step up. But that's based on actual orders that we're seeing. And I think really underlying some of the replacement that Josh just mentioned. And as we see us get healthier, I think that's aiding that trade ladder, aiding the ability to move those use. We've seen stability in used prices. And then as you take inventory down, it's facilitating more activity there.

Our next question comes from Timothy Thein from Raymond James.

And thank you for your help over all these many years. Just a question circling back on kind of the outline as we came into the year with respect to price versus production costs given that maybe slower start to the year in some of these segments but you've also mentioned some maybe fluctuations on the cost and tariff side. Has anything changed in terms of the expectation for the full year and how you expect it to play out in terms of price versus cost?

Yes. Thanks, Tim. I mean you're right, some changes over the course of the quarter. We're probably closer now to price cost neutral for the full year, just given a particular little bit of a reduction on the pricing side and C&F tariff costs. And by the way, that price cost neutral is inclusive of the $600 million of incremental tariffs that we're seeing this year. So we're covering that tariff piece coming into the business in 2026. But we've -- tariffs have been roughly flattish quarter-over-quarter. There were some puts and takes there, but the $1.2 billion for the full year guide on tariffs is still unchanged.

We've seen a little bit of change -- maybe a little bit more inflationary pressure on materials but offset by some improvements from the overhead side as we've added volume, we're seeing more overhead efficiency. And so we'll be slightly unfavorable from a production cost standpoint, ex tariffs. But overall, again, price cost neutral with the price actions that we're taking.

Yes. And maybe just one thing. First quarter ex tariffs, we were production cost favorable. So I think it speaks to just the things we can control and how we're operating in an environment with a fair bit of uncertainty.

Our next question comes from Steven Fisher from UBS.

I echo my sentiments. Thanks a lot, Josh, really appreciate the help. In terms of some of the regional dynamics, I think there were expected to be some pretty big differences between North America and Europe in the first quarter. It sounded like maybe North America ended up being a little bit better on the tractor side, perhaps. Anything in particular from a regional production perspective we should be expecting or just general for Q2, how to model that and any of the differences for the rest of the year because I think those can certainly affect the margin progression in large ag. .

Yes. Thanks for the question, Steve. Regional mix was certainly an impact on large ag in the first quarter. I mean if you look at our overall volume in the large ag business in Q1, we were effectively flattish year-over-year in terms of total volume, but that mix was Europe up. Asia, which is a smaller part of our large ag business, but Asia up and then both North America and South America down year-over-year in Q1.

So given the different profitability profile, excuse me, for those different geographies, that was unfavorable mix for us in the first quarter. That starts to change as you move through the course of the year. I mean we'll see a pickup, particularly in North America production here in the second quarter, and as Josh Jepsen mentioned, our order books are for tractors as an example, and now into the fourth quarter. So we've got good confidence that we'll see that pick up. Then we'll revert to more -- a more normal mix going forward, and that will aid margins. I mean you can expect us on large ag to do double-digit margins each quarter for the rest of the year. So it really is a mix that's improving as you move through 2026.

Yes, Steven, I think you see that, too, like in gross margins that really rings through. And when you look at the first quarter versus the rest of the year, where we bounced back and looked a lot more like what do we do for gross margins in PPA in 2025, and the remainder of the year, that's where it operate. And a big part of that is a little bit more normal mix geographically.

Our next question comes from Chad Dillard from Bernstein.

I got a quick question for you on tariffs. So if we get the tariff release, will they get rolled back to farmers? How soon could that happen? Is that something that you need to wait to see until the '27 model year pricing?

Yes. Yes. And so maybe just to break down a little bit, Chad, on the exposure. So like I mentioned, total tariff costs this year in 2026 is $1.2 billion pretax. And if you break that down kind of by exposure, the EPA tariffs is a little less than half of that, a little bit higher [ than 232 ], but a little less than half is EPA. So we'll see what happens on the Supreme Court side. It's been a very dynamic environment. So it's hard to say if those go away if something else doesn't come back. So we'll watch how that plays out. We won't react too quickly. When we saw tariffs going up last year, we didn't take immediate price action, and you could expect a similar approach for us this year in 2026 as well.

Yes, I'd just reiterate, Chad. I mean we were relatively muted. I mean we're well below normal or historical averages for price. I mean last year in PPA, we did just below a point. We're talking about 1.5 points here this year. So we haven't taken outsized price as it's related to tariffs. We're focused on how do we mitigate? How do we work our way through those. We've seen good progress on mitigation on 232. And the teams continue to do a lot of really good work. So I think we're kind of heads down focused on that, and we'll see what -- how the environment changes. But -- we're going to keep working on that and focus on the things that we can manage.

Our next question comes from Jerry Revich from Wells Fargo.

This is Kevin on for Jerry Revich. Just had a quick question about large ag used inventories. Based on our data, we're seeing North America large ag-used inventory destock accelerated over the quarter by 4%. Just trying to understand were there any higher pool funds or other incentives? And is this pace of destock sustainable based on what you're seeing? .

Yes, Kevin, thanks for the question. As we mentioned, we see really good progress in the first quarter and maybe worth repeating again. I mean, particularly late model tractors. We saw a really significant reduction over the quarter. I mean '22 and '23 8Rs down 20% sequentially in the quarter even model year '24s, down 10%. So really good movement there. We've -- we did this -- in 2025, we increased the pool fund contribution rate to keep those levels healthy for our channel. And we'll continue to support the market with pool funds. We did a little bit in Q1, but still positive price for North America.

So like I said, we're seeing good momentum there. We're seeing good movement. That our first quarter tends to be the strongest quarter of the year for [ used ] reduction. You see a lot of year-end calendar buying. So you'll see probably more move into Q1 than you will be as you get to some of these other quarters. But we've seen continued progression quarter-over-quarter really for the last better part of the year or so, and we expect that to continue going.

Our next question comes from Jamie Cook from Truist Securities.

Josh Jepsen, thanks for your help throughout the years. And best of luck to you. I guess just my question in terms of how we're managing large ag. It seems like things are getting better. You talked about the combines coming in better, order velocity improving. To what degree -- I know you have orders through the third quarter, to what degree do you want to limit production, I guess, in 2026 to set yourself up for a better 2027 in terms of how you're managing things?

And then I guess my second question, just with large ag getting better production sort of moving up, surprised your margins and the mix getting better with more North America. Just surprised margins would be more towards the upper end of the range for the year and production in Precision Ag?

Thanks, Jamie. I mean, certainly, as you mentioned, we've seen improvement over the course of the quarter. For combines, as you know, we base our production for the year on that early order program. So that largely defines what we're going to build this year. And so I wouldn't say there's any really much change. It will be pretty level through the rest of the year on combines. I mean tractors, as we've mentioned, order book is now into the fourth quarter. We've seen some increased momentum there. And as Josh Jepsen said, we'll pick up some production towards the back half of the year. Probably not a whole lot of change now at this point, we're getting pretty close to where the full year we'll have the year filled up. We'll see how things play out over the next quarter or so as we build out the book for the rest of the year. But we'll be pretty steady, pretty level now based on with our plans for the rest of the year.

Yes. I mean, margin, certainly, as we see North America come back, that's a good mix. We've seen a little bit of softening in South America. That's a very profitable region for us as well. And so there are some puts and takes there that don't drive the margin too different from what we originally forecasted.

Jamie, it's Josh Jepsen. I think the 1 thing I'd point out is we're still below trough levels for production Precision ag overall. And North America below that. So when you just -- the overall magnitude of North America being down 15% to 20%, and the pull or negative impact on margins is real there. So I think we're glad to see some of that order activity move, but it's not to Josh's earlier point. It's not a bounce. It's not inflecting hard. It's just -- we're seeing some positive progress and momentum.

So that I think, does demonstrate we should see momentum as we go forward. Inventories are in good shape. Factories are running really lean. So as we see demand come back, I think we will see strong incremental, particularly ex tariffs, but we're still kind of coming off of very low levels right now.

Our next question comes from Tami Zakaria from JPMorgan.

My question is on the new excavator, which is quite exciting. Curious whether you can comment on any marketing plans around the launch of this? Are you expecting to put in some promotions to gain share, any financing promotions, incentive for dealers. Anything along those lines to start off on a strong note.

Yes. I think the big splash that we have is out at CONEXPO, and so that will be the big launch event -- we spent a lot of time with a lot of different operators from customers across the country, testing and understanding the capabilities of the equipment. We had a big launch party and a launch event with them. And so I think the capability and the quality of the equipment and what we're going to deliver to the marketplace is pretty well known. We've done more testing than we have in the past. With respect to incentives, the excavator market has been pretty challenging from a price perspective over the last couple of years.

This new model gives us differentiation that we haven't had over the last couple of years. We're not going to significantly take price with that, but the value that we're offering to our customers through this -- and through all the work that we've done, we feel like they really understand it and continue to do that. And again, at CONEXPO, we'll continue to emphasize the message of the value that we're delivering through technology, through improved durability and just the productivity and capability of the new excavator. We think we're in a great spot to launch. And the teams are super excited. The dealers are super excited. They are good products in the market today. We've had a long-standing relationship with Hitachi with good products. This is a truly differentiated product that we're super excited to bring into the marketplace.

Our next question comes from Sabahat Khan from RBC Capital Markets.

Great. Maybe just a 2-parter there. I think the initial comments around some of the shipments during the quarter being a little bit better. I guess based on order book, are you finding that this is more of a structural shift in the outlook that the farmers on the ground have maybe because of some of the trade issues easing and or other factors? And then secondly, just as the trade issues do ease for the U.S. and China starts to order. How are you thinking about the offset in South America where maybe some of the orders for soybean and things might moderate? So how are you thinking about that on a net basis?

Thanks, specific to the quarter, I would say largely, we ran really well in our factories. We talked about overhead efficiencies that we saw in the quarter as we ran so well. Tractors in North America, we shipped a little bit more than we anticipated, just given how the factory ran. And so I wouldn't say in the quarter, that production was so much demand related versus just how we ran in our operations. But yes, I mean, as you think about overall for large ag, we talked about the pickup in North America. We've hit that point already, just on some of the improved optimism we've seen there. Again, it's a minor inflection, but we've seen some positive momentum there. South America, the way I would describe that just a little more caution in the market. I mean there's a few factors play there.

Certainly, the high interest rates that we've seen in the region have been pressuring customers. We saw the real appreciate quite a bit over the course of really the past month, 1.5 months, given the structure of our customers' operations, they sell a lot of their commodities in U.S. dollars. That puts some pressure on their margins. So we've seen a little more caution there as well. And certainly, they're keeping an eye on the election -- presidential election in the country that's coming up at the end of the year as well. So for all those reasons, a little more caution in the market and we've seen just a bit of a cautious ordering as a result.

Saba, it's Jepsen. I think the one thing to your point on trade flows and how is this balanced North America, South America. I think there's a couple of positive things here in and that's domestic consumption in both geographies, North and South America. North America, we're seeing more crush of soybean domestically more used domestically. And conversely, exports of corn and ethanol are higher. And in part, you've seen Brazil actually consume more corn and more ethanol domestically. So I think you're seeing some puts and takes and just shifts in terms of how domestic markets are evolving vis-a-vis what's happening in exports.

So I think positive is we're seeing strong demand, both in country when you go U.S. and South America, Brazil, in particular and then obviously, some shifting as trade impacts that. But I think as things settle there, I think the important part is the strong demand we're seeing that's consuming those greens domestically.

Our next question comes from Mike Shlisky from D.A. Davidson.

I kind of want just maybe into your a little more uplift tone on large ag and some of the order trends that you're seeing, especially in combines. Do you -- are you seeing or do you think you'll be seeing any market share gains this year. And I was curious whether you could tell us about tech attachments on some of your combines or other products, are more farmers taking out the ultimate package or other descriptions this year that might start to benefit you in 2027? .

Yes. Thanks, Mike. Yes. I think overall, larg Ag in North America over the last 12 to 18 months, we've seen a little bit of share. I think as we've been leaner on the new inventory side, more focused, more focused on driving used down, and we've talked about the progress that we've seen there. As a result, we're set up really well. Coming into 2026, our expectation is we've got some opportunity to gain some share as we move through the course of the year.

Yes. On the tech side, on combine, super excited. Last year was our first year of harvest [ settings ] automation, predictive ground speed automation. We saw really good success in the field. I mean, on harvest settings automation, over 60% utilization of operators in the [ cab ] had that tech on while they were harvesting last fall and saw really good productivity gains, really good throughput gains. And as a result, we're seeing a pickup in take rates on that option as well. So 99% of the combines that were ordered this year through the EOP had some level of harvest automation and nearly 80% of that we're taking the highest level the ultimate package. That's 4 or 5 points like better year-over-year. And so we've seen really good gains there and would expect that to translate into good utilization in the fall as well.

Yes. Maybe stepping back to as we think about just overall tech adoption and our conversations around recovering acres with more Deere technology. our engaged acres stepped up again this quarter or 500 million engaged acres. That's over a 10% increase from a year ago and about a 25% increase on highly engaged. So nearly 1/3 of those engaged acres are highly engaged. So we're continuing to see progression there, which speaks to what we're doing on connectivity and making sure we're reaching deeper into the fleet, but we're seeing that progress.

And we're seeing it progress really across the world, which is positive as well.

Our next question comes from Jairam Nathan from Daiwa.

So Justin, you mentioned in your comments about biofuels. If you could just expand on that and what your expectations are medium term. And on construction, I think one of your competitors yesterday talked about bringing back some of the incentives. If you could kind of address that as well.

Yes, starting on the biofuels question. I mean certainly, as Josh said, around the world, we've seen the power of increased consumption of biofuels, I mean, Brazil is a great example, where more and more of their corn production is going into ethanol and that's having a positive impact. Looking forward, we're looking at a number of different areas, certainly in the near term, some of the opportunity around the RVO and what that might mean for 2026 and 2027.

Keep an eye on that. I mean, E15, as that legislation continues to move through Congress as well, we see opportunity there to increase consumption longer term. for corn through E15. So a number of different fronts. We see opportunity there. On the -- switching to the competitive side on Construction & Forestry. I mean, certainly, that's been a competitive market. We've seen that over the last 12, 18 months. We've seen competition, as of late last quarter or 2, take some price increase, signals some price increase. The timing of that, we're keeping an eye on.

Our competitors still have a lot of inventory in the field. So as those price increases for 2026 start to manifest themselves in transaction price, there's a bit of a lag there that [ creates some ] pressure. But overall, as we said, we feel good about the price increases that we've taken and the opportunity to continue to drive increased realization as we move through the course of the year.

Our last question comes from Evan McCall from BMO Capital Markets.

It's Evan on for Joel. Just wanted to talk about your cadence of earnings for the year. If you could just give some color on that? And if you see growth in Q3 is possible? Or would Q4 be the first possible quarter of growth

Yes. I mean, as we look through the balance of the year for equipment operations as a total, our expectation is to see a bit of growth as we move through the entirety of the year it's less evident than we saw in Q1. As we mentioned, Q1, we lapped some significant production, particularly in Construction & Forestry last year, so it was an easier comp in Q1, but you'd expect to see kind of mid-single-digit growth for most quarters for the balance of the year.

Yes. I think PPA, if you look at that one specifically, Evan, and think about that probably the toughest comp is 2Q and then get easier when you get to the back half of the year from a top line perspective. And then you've got kind of the, call it, a pretty equal tariff burden as you move through the year. .

It looks like that's the last call we have for the day. Thanks all for taking the time -- taking time with us today. We appreciate your time, and thanks for joining. Have a great day. .

That concludes today's conference. Thank you for participating. You may disconnect at this time.

Please welcome Director Investor Relations, Josh Beal.

Hello, and good morning to everyone joining us here in person in New York City. And good morning, good afternoon, and good evening to all those joining live via webcast or on the globe. We are so excited for you to be joining us today. My name is Josh Beal, and I'm the Director of Investor Relations for Deere.

In 2020, Deere launched smart industrial. Today, approximately halfway through the decade. We're excited to be here with you to share the tremendous progress that we've made on this journey and highlight where we believe it will take us over the next 5 years.

Before we begin, a quick reminder, today's commentary and discussion includes forward-looking statements concerning the future of the company that are subject to important risks and uncertainties. These include the company's financial and operational goals and deep ambitions, including targeted outcomes, potential benefits of the smart industrial operating model, plans and projections relating to the company's products and services, capital allocation, strategy for customer retention, growth and market position, acquisitions and our subsequent integrations, dealer network and manufacturing footprint. Risks and uncertainties regarding factors that could cause actual results to differ materially are contained in the company's most recent annual report on Form 10-K and subsequent quarterly filings on Form 10-Q filed with the Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update or revise its forward-looking statements.

This event includes discussion of certain financial measures, including shareholder value-add and operating return on sales. Additional information concerning these measures is posted on our investor website at investor.johndeere.com under the Fact Books tab. Now without further ado, let's begin.

[Presentation]

Please welcome Chairman and Chief Executive Officer, John May.

Good morning. On behalf of the entire Deere team, thank you for joining us today, whether you're here with us in person or joining remotely, I want to extend my sincere gratitude for the trust and partnership you've shown our company. We're coming together at a very pivotal time, one marked by significant change and exciting possibilities. Today, we'll highlight how smart industrial continues to position Deere to embrace opportunities, fueling our growth and delivering lapping value to our customers, dealers, employees and shareholders. We'll discuss the process we've made so far in the promising future ahead. We've made lots of progress and we have a really bright future. But above all, I hope you leave here with a clear understanding of why our confidence in Deere's future is stronger than ever.

Let me begin by reflecting on where we started. 5 years ago, Deere took a bold step launching smart industrial. This wasn't simply a matter of repositioning or tweaking a business model. It was a decisive effort to transform our company for the benefit of our stakeholders. The key drivers for this transformation are just as prevalent today as they were 5 years ago. But the challenges have gotten bigger. The resources required to produce food, fuel and infrastructure are becoming scarcer, more expensive with labor shortages increasing, especially among skilled workers. At the same time, increasing energy demands and the worldwide push for energy security, making breakthroughs and sources of power more critical than ever. Pairing that with the global population increases and rising incomes, the demand for agricultural commodities continues to increase. Global population increases also heighten the need for improved infrastructure from more buildings to expanded transportation networks. The solution to this global challenge remains clear. We must help our customers do more with less. Smart industrial is specifically designed to meet this goal by leveraging advanced technology with Deere's portfolio of great equipment to unlock improvements and customer productivity and make their operations more sustainable. In doing so, we're dedicated to building a more resilient and profitable organization, one prepared to meet future challenges and address new opportunities as they arise. Our smart industrial operating model is built upon three foundational pillars that continue to guide our progress and shape our future. First, we restructured our business to focus on our customers' distinct production systems. This marked a fundamental shift in our approach to prioritizing value creation for our customers, which leads to more value for our shareholders as well. Every day, our teams are hard at work, committed to understanding and tackling the unique challenges our customers face each season in the 10 production systems that we serve. Within each of these industries, we're carefully evaluating where the most promising opportunities lie and channeling our investments into the areas that we believe will unlock the greatest value. We expect this targeted approach to not only improve customer productivity and sustainability but also support stronger profit margins for their businesses. As a result, we've significantly strengthened our position within each of these distinct production systems. Over the past 5 years, supported by the strength of a dedicated world-class dealer channel. And this is only the start. We firmly believe that even greater opportunities lie ahead.

Next, we centralized our technology stack, enabling us to rapidly deploy cutting-edge solutions across all of our business units and markets. Our journey into precision technology began more than 25 years ago, and since then, we've developed a fully integrated suite of technologies that addresses real-world customer challenges every single day. We are also empowering our customers to boost productivity by digitizing their operations with the John Deere Operations Center. This platform has experienced remarkable growth. And today, it's providing value to growers on more than 500 million acres worldwide. By consolidating our technology stack, we're positioning to seamlessly extend this powerful blend of integrated technology and data solutions across more production systems and more geographies.

Finally, we've strengthened our commitment to supporting our customers at every stage of their equipment's life cycle. We've built a strong foundation of robust data-driven services and proactive support that allow our customers to get more value from their investments over time. Additionally, John Deere Financial further manifest this through flexible financial solutions. We expect this comprehensive approach will lead to greater adoption, increased utilization and stronger renewal rates for our advanced solutions and support our growth ambition. But it's our people who truly make the difference. By uniting top-tier industrial mechanical, electrical and software engineers with market and functional expertise in the industries that we serve. We are firmly committed to delivering breakthrough innovations and developing advanced solutions that solidify our competitive edge and fuel our ongoing growth. The expertise and dedication of our teams empower us to anticipate industry shifts swiftly, responds to changing customer demands and establish new standards of excellence. This collective talent is foundational to our transformation and continues to unlock greater value for our customers and shareholders year after year. Building on the momentum we've gained through our focus on the three foundational pillars, it's important to reflect on how these strategic shifts have shaped our broader vision. We introduced smart industrial with the belief that it would serve as the foundation for sustainable growth and innovation. Our goal was to empower Deere to consistently deliver outstanding value for our customers, our shareholders and other stakeholders, positioning the company for long-term success. Looking back, it's clear we made the right decision. We believe that smart industrial continues to be without question, the right path forward. Since 2020, our commitment to operational excellence paired with a strategic focus on maximizing our technology investments through disciplined capital allocation has driven significant structural improvements in Deere's profitability. We believe these achievements have truly distinguished us from our peers. We've built a framework that enables us to innovate and invest at higher levels regardless of where we are in the cycle. And our strong operating performance and consistent cash generation provide a solid foundation that fuels sustainable and profitable growth, both organically and through targeted acquisitions. This is far more than just an incremental progress. It represents a true transformation of our company and the industries we serve. We remain confident in our ability to continue to unlock $150 billion of economic value for our customers, fundamentally reshaping how they operate and compete in an increasingly dynamic environment.

Looking ahead, we are well positioned to accelerate this value creation, leading our industries into a new era of innovation, productivity and sustainable growth. As we reflect on our smart industrial journey, both our progress to-date and the opportunities ahead have inspired us to sharpen our focus on the key drivers of success for the remainder of this decade and beyond. Over the last several years, we've talked about our Leap Ambitions. These goals gave us clear benchmarks aligned with our strategic pillars enabling us to effectively track our progress throughout the smart industrial transformation. The -- as highlighted in the video, we believe these ambitions have delivered tremendous results. We've now connected over 1 million machines. Our operations center covers 500 million engaged acres. And our portfolio of solutions and levels of customer adoption have grown across every production system. We've created a robust infrastructure that connects us to our customers, giving us the opportunity to accelerate the benefits of automation and autonomy across production systems. Importantly, we've also laid the groundwork for a new business model that can help our customers adopt and benefit from technology more quickly.

Now as we look ahead to the second half of the decade, we've refined our Leap Ambitions to guide us through the next phase of our journey. Let me briefly outline what you can expect from today's session.

We'll begin with an overview of the key metrics that will define our success for the next 5 years. You'll hear from our business unit leaders about the growth drivers in each of their areas. We'll also take a closer look at key enablers of this growth, including our technology stack, Lifecycle Solutions, SaaS and John Deere Financial. Throughout the morning, you'll see smart industrial in action, demonstrated across production systems, product lines and customer solutions. We reserved time at the end of the morning for your questions.

In closing, I want to reaffirm our commitment to serving our customers and advancing smart industrial. We stand on a strong foundation with passionate teams and a bold forward-looking mission. We're not just ready for the future. We're building the future. Our capabilities and readiness are unmatched in the industry. And our mission is simple, help every customer do more with less. We believe we have the right strategy and team to achieve our goals. And we believe we are positioned to deliver accelerated profitable growth that benefits customers, shareholders and the world we serve.

Now I'd like to welcome Josh to the stage to provide a deeper look into the structural progress we have made and the road map that will guide us into the future. Josh?

Thanks, John. Our original Leap Ambitions established ambitious 4- and 8-year goals, all aimed at achieving better financial and sustainable outcomes for our customers and Deere. These ambitions set the direction of travel for smart industrial. Today, we find ourselves halfway through that journey to 2030. Over the past few years, we've delivered better performance than any time in the past across all points in the cycle. These results have demonstrated the resilience and effectiveness of our strategy, affirming the importance of staying focused on long-term value delivery amidst near-term volatility and uncertainty.

Our original Leap Ambitions included a broad set of goals that spanned all segments of Deere, focusing each of our business units, fortifying building blocks for unlocking customer value in the production systems they serve, whether that be connectivity, digital engagement, automation or autonomy, we've seen progress on all fronts over the past 5 years. And as we turn to the remainder of the decade, we're building on that foundation, shifting our focus to accelerating customer value delivery, and that's expected to fuel growth. We refined and simplified our Leap to enhance focus on achieving these outcomes. Let's begin by reemphasizing what isn't changing. As John mentioned, our confidence in Deere's opportunity to unlock over $150 billion in customer economic value has only grown stronger. You've heard about the need to do more with less. We knew this 5 years ago and it hasn't changed. However, there are a few things we didn't fully appreciate then that we better understand now. First, the need to do more with less has only grown more urgent, just look at corn and soybeans, for example, producers who have the challenges they've seen with rising costs, higher interest rates and volatile commodity prices to name a few. Second, we don't fully appreciate the depth and breadth of opportunity in production systems beyond corn and soybeans. Through the system-level lens that we have brought to value discovery over the past few years, time and time again, we've identified tremendous opportunities across the suite of industries we serve that exceeded our original expectations. From small grains and high-value crop production to commercial landscaping to earthmoving, road building and beyond, which leads us to our third learning. Deere's unique combination of product portfolio breadth, integrated technology, digital solutions and a world-class dealer channel, not only strategically position the company to help our customers address these challenges in corn and soy, but can be efficiently leveraged to other production systems to unlock more value than we originally imagined. All this led to the pivot that John mentioned, our vision of accelerating value delivery and value unlocking solutions, which we expect will turn accelerate Deere's growth over the next few years. This is a natural progression from the foundation, including a broader base of connected machines, unmatched levels of digital engagement, continued introduction, adoption and utilization of advanced technologies and expanded capabilities, both within Deere and our dealer channel to maximize customer value. The north stars that will lead us are reflected in the aspirations of our refined Leap Ambitions. These are efforts that are expected to transform our customers' operations and outcomes, ultimately helping them do more with less. The list of aspirations is small and targeted but highly impactful as they're applicable across all production systems that we support.

To start, we'll continue delivering differentiated equipment solutions tailored to specific operational needs. Furthermore, we'll ignite automation that leads to full autonomy and provide actionable insights to empower better decision-making. Comprehensive Lifecycle Solutions will maximize uptime and reduce total cost of ownership. And the combination of all these efforts is expected to enhance customer profitability and enable sustainable outcomes, making them more efficient, more productive and more resilient. In short, our aspirations position us to deliver on a few targeted outcomes by 2030, with growth as our central focus. We anticipate sustained company profitability and asset efficiency so that our business remains financially robust, while maximizing resource utilization. We also expect continued growth in digital engagement, both on the farm and beyond. The suite of outcomes is designed to measure our progress, foster accountability and guide investments that support long-term success. Ultimately, our strategy is about delivering greater value to customers, shareholders and other stakeholders, fueling innovation and maintaining our leadership position in the industry as we move towards 2030 and beyond. It's important to note that the accelerated delivery of economic value to our customers can continue to support their positive sustainable outcomes. Through technologies like See & Spray, ExactShot or Grade Control, we remain committed to improving our customers cost efficiency, making them more productive while simultaneously minimizing their environmental footprint. We continue to focus on win-win opportunities for sustainability that have positive impacts on people, planet and provide value to our customers and the company. Our biggest impact on sustainability in our customers' operations, which is what we aspire to reduce our customer greenhouse gas emissions through advanced equipment and technology. Furthermore, our greenhouse gas reduction targets remain unchanged. By 2030, we aim to use both upstream and downstream CO2 equivalent emissions by 30%. And operational CO2 equivalent emissions by 50%, in each case compared to our baseline year of 2021. Progress updates will be shared in our annual sustainability disclosures scheduled for release early next year.

Now I'd like to spend a few minutes talking greater depth about our 2030 targeted outcomes. And I'll start with growth. We've demonstrated a track record of consistently delivering superior growth and shareholder value, outperforming world GDP and U.S. GDP benchmarks. From 2000 to 2009, Deere achieved a compounded annual growth rate on net sales or net sales CAGR of about 7%, followed by 5% in the decade from 2010 to 2019. Most recently, during the period of 2020 to 2025, Deere sustained robust performance CAGR of about 4%, despite navigating through significant market volatility. Looking ahead, we've set a new target to grow our business at a 10% net sales CAGR from 2025 to 2030, reflecting our commitment to accelerate customer value delivery. Combined with the growth that we've already delivered since the start of the decade, our targeted sales growth CAGR from 2020 to 2030 would exceed global GDP projections. Our strong sales growth over the years is directly related to the increases we've seen in our shareholder value added metric for the equipment operations. We generated over $6 billion of SVA from 2000 to 2009, followed by nearly $20 billion from 2010 to 2019. Since we launched smart industrial, we've delivered an impressive over $30 billion of SVA in just 6 years, exceeding the total value created over the previous 2 decades combined. Our targeted sales growth through the end of the decade would drive SVA generation even higher, reinforce our commitment to continued shareholder value creation.

Now let's focus on how we plan to deliver our sales growth target. Our incremental addressable market opportunity, the quantified value of enabling customers to do more with less is the driving force that underpins our growth algorithm, serving as the foundation for our strategic initiatives. Later in the presentation, the leadership team will share examples of how we plan to unlock growth above trend line performance. We see 4 primary drivers for this growth. First is product leadership, which is driven by advanced solutions designed for our target markets and drive regional growth opportunities for Deere. While this has always been our focus. The advancements under smart industrial have made these opportunities clearer, more compelling and we believe more achievable.

Second, Lifecycle Solutions, which increased customer value across the entire life of our products and services by maximizing uptime and reducing total cost of ownership via Lifecycle service agreements, aftermarket growth and precision upgrades.

Third, SaaS or solutions-as-a-service, we're accelerating adoption, utilization and renewal will help scale customer outcomes and unlock value more rapidly across more acres, more job sites and geographies. We've seen early successes with this new business model and SaaS remains an important initiative as it enables broader technology utilization. And fourth, we expect to complement these efforts with inorganic growth, expanding our technology capabilities and unlocking value through complementary M&A that broadens our market positions, product portfolio and footprint, further enhancing our ability to deliver value to customers.

I do want to take a moment to address one additional change to our Leap Ambitions and our growth goals specifically. Our previous Leap Ambitions targeted 10% of revenue coming from recurring sources by 2030. While we've seen success with our SaaS business model, the combination of a softer ag market, the time required to build the infrastructure to support a SaaS model and more disruptive solutions taking longer to adopt have shifted out the estimated time frame to reach the 10% threshold. While the time line to achieve the target will extend beyond 2030. Our work in progress over the last 5 years has solidified our belief that this level is attainable in the long term. The customer benefits of a SaaS model remain compelling for a number of reasons. SaaS technology -- SaaS makes technology more affordable for customers by lowering upfront cost, paying only what you need, more accessible via the ability to upgrade equipment with new technology and more adaptable through flexible offerings that meet the unique operational needs and get better over time. While many customers have initial skepticism over a new way to pay for technology, we've seen numerous examples over the past few years of customers embracing the approach once they've seen the demonstrated tangible value that our solutions can provide and how we're sharing in that value creation with them.

As one customer recently said, I'm more than willing to pay Deere, $5 per acre when the technology is saving me $15. Given feedback like this, we continue to be excited about the recurring growth prospects in front of us, which align with our commitment to accelerate overall revenue growth to drive enhanced value for shareholders. Customer engagement with technology grounded in their digital utilization continues to be a key enabler of growth. We've previously shared examples of how we've leveraged our centralized tech stack across the enterprise, and you'll hear more about that today. As we scale and expand, measuring digital engagement remains an important performance metric for both the breadth and depth of precision utilization and value realization.

Engaged acres remains a foundational measure of our customers' use of the John Deere Operations Center, and highly engaged acres continue to be important for evaluating whether our customers are fully utilizing our technology and realizing its value potential to increase efficiency on their farms. Since 2020, we've more than doubled the number of engaged acres, achieving significant growth in all geographies, reaching our 2026 Leap Ambitions target a year early with over 500 million engaged acres globally, of which 30% are highly engaged. Our goal is to continue expanding engaged acres to 600 million by 2030 and to increase the percentage of highly engaged acres to 50%.

As we build out and integrate the John Deere Operations Center platform across our businesses, we expect it to become a core element of how our customers operate. Consequently, we're introducing a new metric, unique active monthly digital users, rolls off your tongue. This metric will expand the John Deere Operations Center engagement tracking from the owner to the fleet manager, machine operator to the accountant and many others across production systems, including construction of forestry and turf. We have about 400,000 unique active monthly digital users today, and our goal is to reach 1 million by 2030. Now how do we make this all happen? Our aspirations and outcomes will be realized through the coordinated efforts of our business units, each of which operates from a unique starting point and set of priorities, yet all are deeply aligned in their commitment and shared mission. By leveraging the strength in our strategy and shared infrastructure to foster deep collaboration and innovation, we can address the diverse needs of our customers more effectively and deliver impactful solutions at scale. All of this is enabled by a centralized tech stack that streamlines technological development, a life cycle organization dedicated to maximizing customer success at every stage, and our financial arm, John Deere Financial, which has steadfastly supported our customers through market cycles over decades, making doing business with easier and more seamless. These assets not only differentiate us in the marketplace, but position us to respond quickly to emerging opportunities and challenges. As we accelerate our revenue growth and expand our share of IAM, or Incremental Addressable Market, we continue to make strong progress towards enhancing our margins.

Before we discuss the OROS target, there's insights to be gained in reflecting on the margin journey of the company, specifically our equipment operations over the last few decades. In the decade of the 2000s, our average OROS operating return on sales was about 6% -- or excuse me, it was about 8%. However, it's important to note that sales more than doubled in the prior 10 years. During this decade, we introduced our structure line concept, defining margin and capital return goals for each point in the cycle with the intent of delivering better through-cycle margins and asset efficiency. Moving to 2010 to 2019, average OROS increased to about 12%, driven by global expansion, the acquisition of the Wirtgen Group and disciplined execution. This decade ushered in the first generation of precision ag automation, solutions like ExactEmerge, ExactApply and the John Deere Operations Center. We also acquired Blue River Technology, which brought capabilities such as machine learning, computer vision and robotics in-house. During this time, our sales grew by over 70% compared to the previous decade. Since the launch of smart industrial in 2020, we've delivered average margins of about 17%, as a result of our focus on customer production systems, our centralized tech stack, capital allocation and our foundation and product leadership and operational execution. This steady improvement highlights our ability to grow, adapt, execute and deliver stronger results over time. In fact, if you look at our sales during this period, the last 6 years compared to the previous 6 years, we're up nearly 50%, and we remain committed to our goal of delivering 20% through cycle OROS by 2030. But to ensure we maintain asset efficiency, we additionally aim for 45% operating return on assets. With the margin expansion we've seen over the past few years, a natural question may be, why not higher? We feel good about our ability to deliver margin. And prior to the headwind from tariffs, the equipment operations had nearly reached 20% at mid-cycle. Post tariffs, we have additional work to do. But our track record, along with the growth prospects in front of us, give us confidence in our ability to further margin expansion while reinvesting in the business to drive growth. Our compensation plan is closely aligned with these financial outcomes. We raised the bar a year ago to ensure our teams are focused on reaching this goal and are incentivized accordingly. Importantly, we believe we can deliver more value in absolute dollars, absolute operating profit, absolute shareholder value add by not only achieving these margins while maintaining asset efficiency, but also meaningfully growing the business at the same time. Furthermore, this is an and proposition, not an or proposition, with the expectation of delivering best-in-class margins and growing at a faster rate than we have in the past or compared to the industry or broader economy.

As we move forward the next hour, we'll dive into the key elements of our growth strategy, providing detailed reviews of each business. We will contextualize the critical impact of how our enabling functions demonstrate -- and demonstrate how our -- they are foundational and giving the strength to drive and generate further customer value. Our intention is for you to leave here today with a deeper understanding of our business and unique position to help our customers do more with less, pushing the boundaries of productivity, sustainability and ultimately enhancing value for our shareholders.

With that, I'm pleased to invite Deanne and Justin to the stage, who will lead you through production and precision ag and small ag and turf, sharing further insights into the opportunities ahead and our plans to make them a reality.

Thanks, Josh, for that great setup. As we contemplate growing the business, let's first talk about the breadth of agriculture. Frankly, the scale of agriculture is often underappreciated. Take, for example, corn and soybeans in the United States. How many individual plants do you believe are planted each year? Often, when we ask this question, our audience says 1 billion or maybe 10 billion, sometimes sheepishly, someone will say quietly, 1 trillion, but more with a question mark than with conviction. The answer is an astounding 12 trillion, 12 trillion individual plants every year in the U.S. alone, probably more than 100 trillion globally. That is the scale of agriculture.

And this massive scale makes agriculture a multi-trillion-dollar industry. The upside to ag optimization is huge. And it's not just about optimizing corn and soybean crops either. It's about bringing precision to all of the major production systems all around the world. And John Deere has the equipment, the technology and the intelligence to make that happen. We talk about this as our incremental addressable market, the value that we can unlock for all of our customers. It's not just a number, it's a direct measure of how our innovations, expanded market reach and continuous improvements make a real difference in our customers' economics. Whether that's Orchards and Vineyards in California, Spain and Italy, the vast fields of the Brazilian Cerrado, Canada and Australia, and dairy and livestock operations tucked into towns across Europe and lawns and golf courses found in every corner of the world and, of course, across the heartland of the United States of America. We've talked about the $150 billion is the value we have line of sight to. However, given the vast scale of our industry and the challenges it faces, we believe this is just the beginning.

The scale of agriculture and the scale of our portfolio of equipment, technology and support systems gives us a unique opportunity to grow our impact on this great industry. We intend to drive growth in the Ag & Turf business through three ways: first, the geographic expansion of our full production system solutions; second, extending our tech stack to more production systems; and finally, when we create more value for growers, it means more revenue and more margin for them and more revenue per unit for Deere. In the next several minutes, we will show you how this comes to life across very different customers in very different parts of the world. While they are all very different, they share similar challenges. Let's talk quickly about what 6 of those common challenges are. First is labor availability. Across the globe, our customers struggle to find the people they need to help do critical jobs. For example, in 2024, the U.S. ag industry was short 2.4 million workers. And the skilled labor gap keeps growing.

Second, rising costs, expenses on everything from seed and fertilizer to feed fuel and labor continue to be elevated. So reducing and optimizing inputs is critical.

Third, growers have narrow operating windows to get important work done, and missing those windows can hurt fields.

Fourth is operation scale and desire for precision grows, our customers face increasing operational complexity.

Fifth, job quality matters a lot. When work isn't consistent, it impacts crop health, yields, costs and deadlines. It often leads to rework and wasted inputs.

And finally, to help overcome all the other issues, our customers increasingly want to make more data-driven decisions. John Deere equipment, technology and services help our customers solve all of these problems and our scale allows us to leverage solutions to customers across many production systems all over the world affordably. We want to show you how we're doing this by taking you through several examples of geographies and production systems across every job step where this is real today. Let's start with one that you're probably familiar with. Soybeans in Brazil, where we all had you together earlier this year.

Thanks, Justin. You'll remember, Brazil's tropical climate lets farmers grow multiple crops a year. But this wrap pace, especially during the rainy season means they need equipment that works efficiently despite unpredictable weather and labor shortages. Crop protection is a major expense there with Brazilian sprayers running, on average, 14 spray passes per year compared to just 3 for corn or soy in the U.S. And crop protection products make up about 30% of total annual costs in the Cerrado region. John Deere is stepping up with advanced equipment and technology to help farmers meet these challenges head on. We're bringing all new sprayer platforms to the market, designed to help ensure the task of nurturing and protecting this vast crop is done with productivity and accuracy. Take the new 230M sprayer. It's designed using global modules and built in Brazil for Brazil's rugged terrain and fast coverage, individual nozzle control leveraged from our existing Sprayer tech stack shuts off individual nozzles to prevent over-spray and overlap, which can save customers 2% to 5% on chemicals. This sprayer is first in a series of launches of new application products and technologies that will deliver value for customers and growth for John Deere.

One of those technologies that will be available for our Brazilian sprayers is See & Spray. See & Spray was launched in the U.S. in 2021, and Brazil in 2025. This product uses cameras to identify weeds and sprays only where necessary. There can be a reduction on average herbicide usage by over 50% while still achieving the same weed hitting rate as broadcast application. This upgrade gives farmers even more flexibility between broadcast and targeted spraying, boosting efficiency.

Connectivity is a game changer, too. With JDLink Boost powered by Starlink, even remote farms get reliable satellite Internet for near real-time machine monitoring and expert support. All of this data flows into the John Deere Operations Center where farmers can easily track performance and manage fleets. Our dealer network in Brazil is also second to none, having the scale and capabilities to sell and support these advanced machines and technologies to maximize uptime. Bottom line, John Deere is helping Brazilian soybean farmers grow more and spend less while making sure every minute counts. If we look at a model farm with 7,400 acres in Mato Grosso, with a double crop operation of soy, then corn, using these technologies, the customer has the potential to experience an incremental profit per acre of $115 annually, $43 in savings and $72 in additional revenue. Considering Brazil has approximately 50 million acres of double crop agriculture. If all of these acres were utilizing Deere technologies, the estimated value creation is over $5 billion.

Just like Brazilian soy farmers are looking to Deere to help them with labor and tight operating windows, our global dairy and livestock producers struggle to find a time to get everything done in a quality way in the right windows of time as well. And our global scalable technology stack can be extended to help them too.

Thanks, Deanna. Dairy and livestock producers across the United States and Europe make up a $1 trillion-plus industry, generated from a herd of over 1.5 billion cows. These producers face challenges with qualified labor availability and optimizing the quality of field -- excuse me, feed, while minimizing costs through job quality. Many farms depend on seasonal or experienced operators, which means owners are often juggling many tasks and many personnel simultaneously. Baling is one of the major jobs. And while it's relatively simple, it's very time consuming and requires constant operator attention to make sure the bale shape and weight are consistent and details on every bale are documented. To support these customers, we're combining existing elements of our enterprise technology stack with targeted investments and customization to support automation and documentation. For example, a driver can use AutoPath to define the optimal way to navigate through the field. Our weave automation technology then creates the perfect bale by using a baler integrated steering mechanism to automatically and precisely fill the bale chamber side to side, which eliminates the need to manually weave while driving. Speed automation automatically stops the tractor when the bale wrapping begins, and gate automation automatically opens and closes the baler tailgate for bale ejection. All of this reduces lags and productivity. This adds up to, on average, more than 75% reduction in the operating activity, which allows for near hands-free baling experience for the operator. It enables inexperienced and experienced operators alike to make the perfect bale every time, all day, every day.

On average, our customers make 8% more bales per hour and increased crop bailed for each gallon of fuel consumed by more than 4%. But we aren't done. Once it is completed, agronomic and operational information is transmitted to the John Deere Operations Center, where individual bale information such as weight and moisture, field totals and yearly totals are available for future decision-making. Now that's a big deal because there's often multiple harvests on the same hay acre each year. This technology whacks up a lot of acre passes in a single year, which brings real farmer value, time after time. Now these same themes apply for our small grain growers. Deanna, can you walk through how these customers are benefiting from our technology?

As we continue, let's stay in Europe, but also add Canada and Australia as we look deeper at small grains production. Given their larger scale operations, small grain farmers across these regions face mounting operational complexity, particularly during harvest. Tight labor markets, unpredictable weather and narrow harvest windows, compound the challenge of managing multiple machines and operators while maintaining green quality and throughput.

John Deere is helping farmers overcome these hurdles through advanced equipment and integrated technology solutions that simplify operations and maximize productivity.

Let's start with advanced equipment. The new S7 and X9 Series combines, deliver unmatched harvesting performance, blending power, precision and efficiency. Both combines feature advanced automation technologies like predictive ground speed automation and harvest settings automation. Combined automation is proving to be a real game changer. These solutions use real-time data and predictive algorithms to adjust settings and speeds automatically. This means more productivity, less grain loss, better quality and fewer manual tweaks. These technology solutions help combines run at full capacity, even with newer operators behind the wheel. And it's only possible because of the technology stack at John Deere. The tech uses satellite imagery ingested into the John Deere Operations Center fused with on-board cameras to proactively operate the combine for the density of the crop that is in front of it. Without the infrastructure of Operation Center and the history it has of the field's terrain, knowing the height of the crop would be much more difficult. This technology lightens the load, reduces fatigue and helps everyone perform at their best, which is critical when skilled labor is hard to find and timing is everything. In fact, this past harvest season, we visited a large customer running the tech, and they saw over a 20% increase in machine productivity in terms of acres harvested per hour when using predictive ground speed automation, compared to when manually harvested. Additionally, they use predictive ground speed automation in the higher-yielding parts of the field, leading to a more optimal harvest and greater than 30% increase in throughput. This notable increase of bushels harvested per hour helps demonstrate the real value of the ultimate technology package to the customer. Deere is sharing in the value by these automation technologies through an annual license model. This enables customers to experience more value season over season as the solution gets better over time. In addition, across our fleet of model year of '25 ultimate technology machines, customers are also realizing over a 10% increase in fuel efficiency in terms of put -- bushels per gallon. This translates to real savings and inputs to get their grain tanks filled with the grain grown throughout the production cycle. The operation center is key to managing operational complexity, giving small grain growers, a digital hub to track machine performance, tweak settings remotely and make more informed decisions. By connecting everything, they can also manage logistics better, including people, equipment and grain.

Operations Center also keeps dealers connected for quick diagnostics and support, minimizing downtime with every minute counting. In short, these innovations are making harvest simpler, more productive and less stressful. And we expect they will support our growth in the combined market globally. Technology is critical on these large-scale grain farms. The same technologies are also helping our other production systems customers that share the same challenges with labor, input, management and time.

Thanks, Deanne. As we highlighted earlier this morning, smart industrial isn't a limited large [ grilled ] row crops, dairy and livestock and small grains production. It's creating measurable value for customers in new segments and new geographies, who face similar challenges and have a shared need for technology, connectivity and productivity. Let me give you three examples.

First, let's go to India. We serve contractors who work across many small fragmented firms and can afford to invest in equipment and technology as they cover many more acres than an individual grower. These contractors are increasingly turning to the John Deere Operations Center which is now used by more than 10,000 Indian contractors to plan and analyze their jobs digitally. When they go into the field, contractors benefit from Deere's connectivity suite, which enables fleet-wide monitoring and remote diagnostics. This reduces downtime and helps machines operate at peak efficiency, even across widely dispersed geographies. It also enables digital fieldwork documentation, which, as a result, lowers the need for infield supervision. Starting later in 2026, every new propelled machine that we sell in India will be connectivity enabled, which will transform how farming is done and who can benefit from it. Now the annual Indian tractor industry exceeding 900,000 new tractors, the combination of our connected digital offerings with the growing adoption of our popular and 5E and 5D Series tractors presents significant opportunity for volume growth in the region.

A second example is professional landscape contractors in the United States. This is a $200 billion plus market that's currently experiencing significant consolidation and professionalization. Leading companies often now operate in dozens of markets across thousands of sites, managing hundreds of thousands of customers, workers and machines. This obviously creates massively complexity and a massive opportunity for optimization. We're helping drive this optimization with John Deere PRO Landscape Operation Center but tailored specifically for landscape contractors. Pro Landscape's Crew Management tools lets managers job progress, equipment usage and crew locations in real time, thanks to JDLink technology. Managers can track how long job take, boost true efficiency and place the right people where they needed the most. It also integrates AI, using publicly available satellite injury to create quick, accurate property measurements, making bids more precise and planning easy without ever having to deploy a team in person. And speaking of not deploying in a team. In CES in 2025, we showed an autonomous stand-on mower. With labor accounting for $50 billion of cost in this industry, autonomy is going to be revolutionary, allowing PLCs to service more properties and scale their business.

And third, let's talk about high-value crops in the United States and in Europe. A few people realize that in many countries, the value of these high-value crops is actually larger than that of grains. And with huge challenges in labor availability, input cost and regulatory pressure, Deere's automation and sensing technologies can create immense value. For example, our autonomous 5ML Orchard Tractor and GUSS autonomous sprayers are setting new standards in productivity and safety. GUSS, our autonomous sprayer has alone logged 600,000 autonomous hours and spread over 2.8 million acres. GUSS customers can significantly reduce the manpower and machinery needs relative to a conventional spraying operation. Even for a medium-sized operation, they can reduce the number of operators from 8 to 2 and generate an ROI in less than 3 years.

Customers using our Smart Apply's LiDAR-based [ See & Spray technology ], along with that traditional Air Blast sprayer and full Operation Center integration in places like pistachio orchards have achieved 60% reductions in chemicals with no loss in efficacy. To put this into perspective, this equals a 36-gallon per acre decrease in chemical application, something we can all be very happy about.

Across these diverse systems, contractors in India, professional landscape contractors in the U.S. and high-value crop growers all over the globe. Deere's connected equipment, automation and software platform are scaling globally, expanding our addressable market and demonstrating the power and adaptability of smart industrial.

Those are great examples of how our teams have been able to extend our technology stack to new areas of growth. But let's return to something most of you are familiar with Deere talking about. Corn growers in the United States. And let's get ready to plant next spring. We all understand that U.S. corn growers are feeling the pinch from rising costs, labor shortages and the push for more sustainable practices. As farmers are preparing for this spring, we are taking our next step in autonomy, autonomous Perception Kits. These retrofit kits are available for delivery and use during the spring 2026 tillage season on current and prior model year 8R and 9R tractors. That's right, retrofit autonomy. For customers, this means reduced labor stress, optimize field prep and more time for other priorities during this critical time frame. That tillage pass is all about preparing the perfect seed bed. And when it comes time put the seat into the ground pairing a John Deere 8R tractor with an ExactEmerge Planter offers corn growers a powerful combination of speed, precision and efficiency. And stay tuned for a big upgrade to this combination coming in February.

As we look at costs, fertilizer prices are a large portion of a corn growers variable costs. That's where John Deere's technology steps in. One standout is ExactShot, which changes the game by applying starter fertilizer right on or near the seed instead of continuously. This targeted method can cut starter fertilizer use by up to 66% and while still keeping yields strong. Farmers see fewer stops to refill and lower costs. Like other technologies sold via a license model, ExactShot creates a foundational technology that will get better over time. Today, it allows us to enable precise placement on or near the seed. We know there will be other uses for precise placement of products at plating. And this flexibility is critical as growers explore alternative products to boost yields. Just like you saw in all of the other examples, John Deere Operation Center is key to the success of corn growers. It helps them make more informed choices with seed and fertilizer decisions. With over 300 industry collaborations, we make it easy for our customers to work with their preferred agronomist, ag suppliers and partners. Work plans allow a farmer or their trusted adviser to seamlessly send customized plans for each field directly to their equipment. Their John Deere ExactEmerge planter equipped with ExactShot, executes in the field, all while the job is documented and synced in real time to the Operation Center account. This results in better data, high yields and lower input costs.

Talking about cost savings. Let's look at our model farm numbers for a representative farm near Central Iowa. throughout the production cycle, a Deere customer farming 6,500 acres of corn and soybeans evenly split using these technologies could experience total cost savings of $48 per acre. Additionally, yield improvements have been observed with estimated revenue of $24 per acre, bringing the total value proposition of our current offerings to approximately $72 per acre. In the United States, more than 300 million acres are planted each year, with about 180 million acres dedicated to corn and soybeans. Based on this estimate, if all corn and soy acres employ Deere technologies in the market today, the projected customer value unlock could be nearly $13 billion in cost savings and additional revenue for the farmer.

As we reflect on these 7 global examples, you have seen the impact that our equipment and technology solutions can have on solving real-world customer problems today and how we are able to leverage the technology across production systems and geographies, making our technology stack even more powerful well into the future. Each of these platforms are foundational technologies, digital tools automation and autonomy are scalable globally and across production systems, all solving similar challenges, our many different customers face.

And as we continue to introduce more customers to our product and technology solutions, we are also working to ensure that every customer experiences the full value of their investment. In fact, customer success at John Deere is a strategic capability that we're building focused on helping customers maximize value from the solutions they purchase. It's a joint effort between Deere, our dealers, built on proactive support, training, life cycle services and digital enablement. And our goals are to close the gap between expected and realized value to empower our customers to make informed decisions and to drive outcomes like uptime, productivity and profitability.

Each one of these examples stands to potentially unlock multibillions of dollars of incremental addressable market. These production systems and geographies offer Deere opportunities for continued growth in both hard iron solutions and technology offerings. This growth will help us fuel the Leap Ambition outcomes shared by Josh. The two model farm examples I gave for Brazil and the United States are only the beginning.

John Deere's commitment to solving customer challenges is the foundation of our success. Through smart industrial and scalable, adaptable technologies, we deliver product and technology leadership that addresses today's needs and anticipates future opportunities for different sizes and different types of operations globally. Our advanced equipment and digital solutions are designed for flexibility and impact helping empower customers worldwide to boost productivity, reduce costs and help them operate more sustainably. And all of this is supported by our world-class exceptional dealer network which provides expert support and training, helping our customers realize the full value of their investments with John Deere.

At the same time, we know that we must use our voice so that commodity growers around the world have strong markets for the crops they grow. That's why we are committed to not only providing them with the best equipment, technology and support solutions, but also simultaneously advocating for expanding markets for their crops. We recently announced that all final Tier 4 engines are compatible with B30-based biofuels. And we presented an ethanol powered tractor at this year's Agrishow in Brazil. We continue our work in advocacy for bio-based renewable fuels that we believe not only create a cleaner future for all, but a brighter future for agriculture. As we've walked around the world, it should be abundantly clear just how massive the scale of our customer base is and the potential yet to be unlocked in agriculture and turf is huge. And based on the foundation of equipment, technology and support solutions that we have and will continue to develop. No one is in a better position to unlock it. This future unlock positions us to drive growth in three ways: first, the geographic expansion of our full production system solutions; second, extending our technology stack to more production systems; and finally, when we create more value for growers, it means more revenue and margin for them and more revenue per unit for Deere. There is exciting opportunity ahead for all of us, and we look forward to capitalizing on the growth we see ahead. We're excited to turn the presentation over to Ryan to discuss Construction and Forestry's opportunity. Thank you.

It's great to be here this morning to review our Construction & Forestry division and walk through the long runway of opportunity for this business. Many in the room are already familiar with the value creation drivers in our ag business. And while the IAM in Agriculture represents a tremendous growth opportunity, sometimes we neglect to highlight the equally impressive opportunity in C&F, which Deere's well positioned to unlock. Today, the world is investing trillions annually in construction and infrastructure projects. Despite that staggering figure, there remains significant unfunded infrastructure projects, likely requiring additional trillions in funding globally between now and 2040, whether it's roads, bridges, airports, waterways and underground utilities, the necessary infrastructure required to maintain our standard of living needs to be replaced or upgraded. Given this, there's an underlying growth trajectory for our business just to get the current work done. In addition to the infrastructure backlog, there are other significant growth drivers. The U.S. is under-invested in single-family housing, since the Great Recession, and at some point, that will have to correct. The massive infrastructure required to build out artificial intelligence capabilities is also driving activity as is the onshoring of certain critical manufacturing industries. All of this suggests that this industry is going to have solid growth for the foreseeable future. To date, our industry has delivered more projects with more inputs, more labor, more machines, more materials. That's because the construction industry has generated limited productivity gains relative to other sectors or even when contrasted against our own ag business. When you compare the backlog of future infrastructure and other construction needs against the backdrop of diminishing inputs like skilled labor, you're left with an industry that has to significantly increase productivity in the coming years, and machines are going to have to do more work and use less inputs. That, coupled with the intelligent use of data to better orchestrate job sites and drive operational efficiency will be necessary to deliver the required growth. Our Construction & Forestry division is well positioned to deliver the much-needed productivity gains for our end markets. Today, C&F participates in 3 primary production systems. Earthmoving, roadbuilding and forestry. Competitively, we hold strong positions in each of these segments as the global #1 in both roadbuilding and forestry and the #2 position in the Americas construction equipment for earthmoving.

Our product portfolio for roadbuilding and forestry is unmatched, delivering a set of solutions required to complete every step in its production system. As it relates to earthmoving, you'll see later in our presentation that we are making a historic investment to complete our portfolio, which will offer as robust lineup of equipment and solutions as there is in the industry. As you saw in ag, we pair our portfolio of equipment with our proprietary software solutions, ranging from our precision construction earthmoving platform to our roadbuilding operations center and TimberMatic Maps in forestry. The equipment and the solutions, paired with our world-class dealer channel, give us a winning formula for strong growth. The size of continued investment in C&F reflects our expectations for industry growth and productivity unlock, both of which can lead to margin expansion over the balance of the decade.

We expect growth for the construction equipment industry to run at a CAGR of about 5% over the next several years, assuming continued infrastructure investment to replace outdated bridges, roads, bridges, airports and utilities and the continued need to accommodate the migration from rural to urban and developing markets. Furthermore, we see spend in construction technology growing much faster at a 12% plus CAGR over the same period of time. Our own history shows, the C&F business has outpaced the industry, inclusive of M&A, new product introductions and expansion into new geographies. This strong expected industry growth, combined with Deere's opportunity to deliver more customer value, increase its market share with new products and utilize M&A position C&F with the ability to grow at a faster pace than the industry. Incremental to that is the opportunity to increase the pace of adoption of technology, which would add both margin and revenue growth potential. Ultimately, the industry opportunity scores perfectly with our mission. We strive to be close to our customers and maximize their job site with a complete portfolio of earthmoving equipment, technology solutions and Lifecycle Services. We wake up every day thinking about how we can best -- be best in the industry and helping our customers do the job right the first time, do more with available labor and maximize their uptime.

Next, I want to cover a few of the main strategic focus areas we have in the division that we believe will allow us to capitalize on the growing need for solutions in the industry. With respect to our product portfolio, we'll be introducing our first Deere-design excavators to the North American market starting in mid-2026. This has been a long journey for us to get to this point, and we couldn't be more excited. Design control allows us to respond quickly to customer needs, capitalize on the latest trends and utilize elements of the Deere tech stack. Excavators represent 40% of the market for earthmoving equipment, and our 2026 introduction is the start of the delivery of a complete line of products from 1 to 50 tons. This is a foundational global design that will allow us to build products in multiple geographies to best meet different customer needs. Different from many in the industry, we will be manufacturing the majority of product for the United States in our Kernersville, North Carolina factory, which has undergone a transformation over the last several years, investing over $300 million in capital and R&D to be ready for this historic event. We are playing a big launch party at this year's coming CONEXPO. We hope to see everybody there.

Even with a large focus on excavators, we have continued to invest in refreshing other parts of the earthmoving product line. With 75% of the products having a significant refresh over the last 3 years. We have allocated more resources to our Earthmoving business in order to accelerate our product development and are building an exciting pipeline of new offerings. For roadbuilding, some of you may have visit us -- visited us at the 2025 Bauma Show in Munich, Germany. There work unveiled over 40 innovations, from the world's most productive milling machine, the [ X 250 ], which contains 2 John Deere 18-liter engines to significant enhancements in our digital solution set, which now has over 3,000 customers on-boarded.

Forestry has recently introduced the 8 Series, Harvesters and Forwarders, bringing increased productivity and precision to our wheeled cut-to-length segment of the forestry business. Customer acceptance of these new machines has exceeded expectations, with order backlogs filling nicely. Today, we have a very good parts and service business. The opportunity is to build a great one. We have a three-pillar strategy to grow this portion of our business and to make Deere and our dealers the partner of choice for customer needs throughout the entire life cycle of our equipment. We're enhancing our predictive capabilities using sensor information and artificial intelligence on machine usage to understand when issues occur and identifying the best course of action to intervene, many times preventing unexpected downtime. We're improving our designs to increase the reliability and durability of our equipment. And when issues arise, we are enhancing the offerings that customers can select from to keep their machines up and running for the long term. The total cost of ownership of a piece of equipment is at the forefront of purchasing decisions in the industry. We are continuing to evolve our offerings of extended warranty, maintenance, monitoring and service contracts to meet customer needs. We see tremendous growth opportunities in delivering flexible options to our customers to manage their overall total cost of ownership of their fleets. Many years ago, we had a vision for creating a unique offering of grade control solutions in the construction equipment marketplace. Historically, grade control was sold as an aftermarket solution with off-board and onboard machine elements created and sold through a third party. These solutions required significant modifications to the equipment and resulted in less robust and precise outcomes for our customers. Over the last several years, we have worked with the 3 major providers of off-board grade control to create an integrated product where we take control of the machine performance, the bucket and the blade while they continue to provide the GNSS location information on the machine. Our solution, SmartGreen integrates the critical machine control functionality at the factory, reducing aftermarket complexity and offering a more precise grade outcome. Taking this a step further, most customers have selected and standardized on an off-board technology, platform for grade control. This has historically resulted in incompatibility for Deere equipment. With our new agreements, we have taken that incompatibility away. Now with some and in the near future with all, a customer can select a Deere piece of equipment irrespective of the upward platform they have chosen. With minimal post factory intervention, Deere machines will be capable of working with any of the big 3 job site platforms and have their grain control interfaces running through our latest Gen-5 display. We're receiving great feedback on our SmartGreen technology in the field. We're at an inflection point in the industry in which precision construction solutions are necessary given the lack of available and qualified labor.

In fiscal year 2025, even with equipment sales down, we have seen a 20-plus percent increase in our revenue from our SmartGrade Solutions and we are early in this journey. Let me walk through a real-world example of the SmartGrade solution delivers. First, imagine the site development for a new big box retail store. A typical construction site for one of these stores consumes about 40 acres. The building itself makes up about 3 to 3.5 acres, but then add parking, access roads and storm water retention and the footprint grows significantly. The site development for a job like this starts with moving dirt, a lot of it. Roughly 300,000 bank cubic yards must be cut or filled for grading, drainage and utilities. The average base cost for this grading work is about $1 million. Traditional grading begins with surveyors, hammering wooden or metal stakes across the site to service physical reference points. Operators rely on these markers and make manual blade adjustments as they shape the land. Accuracy depends on the skill and requires repeated checks. The process often takes multiple passes and frequent rework to meet the precise requirements of the site design. SmartGrade changes everything. The site's grade design is uploaded directly into the machines control system. No stakes required. GNSS sensors and hydraulics automatically adjust the blade to match the design grade. And operators seeing real-time, the grade status on the display in the cab. This eliminates manual checking, reduces human error and increases productivity. And the bottom line result, SmartGrade cuts cost by $0.40 per cubic yard or around $120,000 on a single project like this retail store example, multiply these savings by the number of applicable job sites and you get into the billions of dollars of value creation.

There are many other exciting elements of our precision construction platform, including advanced vision and safety systems, Machine control and productivity measurement solutions. These are all building blocks as we move to a future job site where machines are executing the task autonomously.

For Digital Solutions, I want to start with roadbuilding, which has rolled out a digital platform solution for the industry using the John Deere Operations Center. We have taken the incredible foundation that has been built through the John Deere tech stack and added an application layer for our roadbuilding customers. We've rapidly evolved from the basic machine information such as location, hours worked and fuel consumption to a robust set of tools that give real-time information on the progress to completion on the job.

As I mentioned, we have onboarded over 3,000 roadbuilding customers to the operations center. The future is very exciting for our business and for our customers' business. We have a complete product portfolio and ever-increasing offering of precision tools that increase the productivity of milling, paving and compacting a road, all brought together with an industry-leading digital platform.

On the earthmoving side, we're coming at the digital space for a few different angles. First, we're utilizing the John Deere Operation Center to provide machine data from Deere equipment on any particular job site, telematics data such as location, work status, idle time, fuel consumption and maintenance requirements will be visible to the customer through the op center for earthmoving. To supplement the customers' reality of mixed fleets on almost all job sites, we acquired Virtual Superintendent. Virtual Superintendent has a robust set of tools that allow customers to monitor job site activity on a real-time basis, irrespective of their equipment brand. Given the nature of the earthmoving industry, we're building machine out tools for John Deere Equipment and customer-backed tools that provide job site productivity intelligence on all sites.

Let me summarize a few key points before I turn it over to Jahmy. First, we believe this is a very attractive industry with a solid growth potential given the amount of infrastructure and other construction work that needs to be done. Second, we believe the industry is at the beginning of a trend of increasing investment in precision machines and data insight solutions to drive an increase in productivity. This has played out before in our enterprise with the evolution of the agriculture industry and the adoption of precision solutions. We have built a robust set of foundational tools through our tech stack investments that we can now leverage to point more towards the opportunity within the C&F division. With the investments we have made in product and solution, excavators in our precision construction platform to name a couple of many, we should be well positioned to deliver strong net sales growth and healthy mid-teens margins. And now let me welcome Jahmy to the stage.

Thanks, Ryan, and thanks to you all for being here. I think there's never been a better time to talk about the impact of technology in our business, and there's much truth to that notion that the speed of technology change continues to increase. My intent is to unpack the impact on the opportunity that the tech stack that we've built and continue to invest in has within our business.

Let's start with a quick reminder of the framework through which we think about that technology stack. Our technology stack is built on foundational elements of data, compute, connectivity, control and sensing capability that are designed to create value on the farm or the job site and enable the more advanced technologies that you see higher in the stack. We've been vertically integrated in these core technologies from inception, enabling a high degree of systemic integration and reuse across our production systems. These foundational elements underpin our potential to create tremendous value. We can connect every machine regardless of brand that is involved on the farm or job site and collect operational data that our customers can use to improve their productivity or profitability. Data that they can share with any adviser they wish and data that Deere can use to improve or automate the work of the machine itself. It's a virtuous cycle of data collection driving improved decisions and better products. The automation that these foundational elements enables, allows us to incrementally move each product closer to a fully autonomous future while creating value every step of the way.

Advanced software builds on that foundation to enable even higher performance. That might be increased precision like SF-RTK or increased levels of automation like Advanced Guidance or 3D SmartGrade. It could also be increased levels of data insights like job site efficiency, virtual superintendent, subfield level profitability and harvest profit or better seeding prescriptions from their agronomists with Operation Center PRO. We've learned that the tools we create to add value to the farmer often add value to the farmers advisers as well. The top level of our technology stack is the maximum extension of our capabilities. It's using the full complement of our technology to enable real-time decision-making in our products to make agronomic decisions like spraying the weeds and only the weeds, work optimization decisions like optimizing harvest settings or machine operating decisions like autonomous tillage, mowing and haulage.

It's worth noting that this technology depends on operational data collected to train AI models, data that is made available through the foundation of that technology stack. Just as the data is scaling to new applications, so is the hardware and the core software. In the past 12 months, we scaled our compute and operator interface device, the G5 Display from our agricultural applications into our earthmoving and roadbuilding applications. This has enabled us to introduce guidance technology for example, using Starfire for snow removal applications with a Motor Grader. So technology provides the operator knowledge of where the path of the Motor Grader should be, even the white-out conditions that are common in winter. We will continue to deploy the G5 throughout the product range because it's a key enabler, allowing us to deploy software solutions across the product lines at a pace that we simply couldn't contemplate in the past.

As you would have noted at CES this past January, we've also been scaling our autonomy solutions beyond our large ag applications. It's apparent from the commercial mowing autonomy product that we're leveraging the same hardware as we use in the large ag tillage product. What's perhaps less apparent is the machine learning model that is used for perception purposes in the turf product was sourced from that large ag tillage model to start with, that enables us to reduce the amount of data to be collected to train a model for the commercial mowing purposes. A tree is a tree, no matter if it's in a well-manicured landscape in North Carolina or wheat field in Kansas. The power of the data collection is also bidirectional. The data being collected for the commercial mowing precision model will also be useful to make that large ag tillage model more robust.

Deere's broad portfolio enables us to reinforce model performance with data collected across disparate environments, use cases and industries. We estimate that each new autonomous application for a product could be 50% faster to market then the one that preceded it. I've discussed the importance of our digital technology and data numerous times. So let's spend some time unpacking that aspect of our technology. Our leading connectivity solutions, whether they're terrestrial, cellular or satellite have enabled bidirectional connection to the much of the Deere fleet for the last 14 years. This data platform is already one of the world's richest in the agricultural industry. And given the annual nature of data generation in agriculture, it's very difficult to replicate by anyone, ever. Undocumented growing seasons that occurred in the past are lost forever. In 2024, we processed half a petabyte of data for machines in operation. We achieved scale in this area a long time ago, and now have over 10 trillion agronomic and machine measurements in our training data. The front end of this data platform is the John Deere Operations Center for both the farm and the job site, a digital connection to the work being done is becoming more important, and in many cases, driving equipment acquisition decisions. This statement is supported by the tremendous growth that we've seen in our digital engagement metrics, engaged acres have more than doubled over the past 5 years, highly engaged acres have doubled over the past 3 years and monthly active users are up 33% in the past 12 months. We're continuing to invest in making Operations Center the premier digital solution across production systems. And there's no better example than our leverage of the technology stack and operations center for our road building equipment. We've been able to use the foundational infrastructure that's made operation center, the premier digital ecosystem for agriculture to achieve the same outcomes in roadbuilding.

At Bauma this year, we introduced a seamless workflow and operation center that allows a paving company to send digitized work plans to their roadbuilding equipment. When coupled with our Guidance Solutions and the underlying automation capability of the machines, this work plan automates steering and paving functions, freeing up operators to focus on other important tasks, and it paves the road with greater accuracy than most human operators can achieve. In addition, the work output from the paving job step can be used to improve the efficiency of the rolling or the compacting job step that comes next. It's difficult to overstate the growing importance of a digital connection to the work being done regardless of the industry.

Finally, on top of the data that is served through Operation Center, there's a unique opportunity to surface insights from the data to assist customers and those in their ecosystem in making more informed and data-driven decisions. We do this in a myriad of ways already from logistics models like time to complete a job, to field readiness, to harvest or planting to automated prescriptions for agronomists for any seed products of interest. But with the advent of large language models, our ability to produce useful insights related to both in-season and next season are expanding. We think about this as the language of farming, it's a way to use the latest technology to make it easier for farm and job site managers to leverage data for decision-making. By allowing managers to ask questions of data in human language, we see the opportunity to make data more usable and more insightful for our customers. All of this is enabled by a decision Deere made over a decade ago, to connect machines that are doing real-world work, by doing this, customers started building data sets that are exclusive to their machines and to their operations. This has created a unique position for Deere customers to have years worth of data that will create insights that they can use to drive their businesses into the future. When John started us down the path of smart Industrial, we didn't have a crystal ball to forecast exactly how technology would change and create opportunity. What we did know is that technology was changing rapidly and with that change would come opportunity. We've already begun to capitalize on that opportunity and are continuing to invest in the expansion of our technology stack, and to explore how today's emerging technologies will be tomorrow's customer solutions.

And with that, I'm going to turn it over to Cory.

Five years ago, we made Lifecycle Solutions a central part of smart industrial. This marked a major change in how we support our customers, allowing us to reach more people through enhanced support better solution utilization and precision upgrades. Our focus preserve and increase the economic value of our customers' equipment and technology throughout every stage of its life cycle. We provide access and support for customers no matter what phase their equipment is in, across all geographies, all equipment. Given today's economic challenges, the value we unlock for customers can mean the difference between profitability and loss or between growth and contraction. We won't be successful with technology solutions without the highest possible quality on equipment. This requires the best customer and product support and connected equipment across the industry. We deliver far more than just connectivity and uptime. Our approach centers on driving productivity, maximizing technology utilization, ultimately and ensuring customer success, ultimately returning greater value to the business. Beyond simply connecting equipment, we proactively identify potential failures and forward stock parts, anticipating and preventing downtime before it occurs. This proactive strategy fuels a powerful analytics engine, a flywheel effect where more data leads to smarter technology, which in turn can generate even greater customer value. Artificial intelligence is foundational to thousands of technicians who maintain and repair the most advanced equipment in the industry. Many of these AI-powered solutions such as Operation Center PRO Service, were developed with customers at the center, and it adds to the suite of existing digital tools available to John Deere equipment owners today, including the John Deere Operations Center, Equipment Mobile and shop.deere.com, providing customers with even more control over how they use, maintain, diagnose, repair and protect their machines.

Since we first announced our Leap Ambitions, we laid the groundwork for delivering future technologies to our customers worldwide. First, through flexible technology engagement, the ability to engage next-level technology when they want it, where they want it. Through licensing the technology they need for their operations, making it more affordable, accessible and adaptable to their needs. Our role is not just providing tech to those at the top end of the tech stack. It's about taking anyone from wherever they are in their technology adoption journey and moving them up the curve efficiently so that they can be more effective. Precision upgrades enables the ability to upgrade their equipment with the latest technology. Access to the latest technology isn't limited to new equipment. Even those who haven't bought new equipment in years can benefit from upgrades. And this is not just in the U.S. We're also building the leading retrofit capability in our South American markets. We're using brands like SurePoint, Dawn, SmartApply to expand the reach of our technology solutions. In our Solutions-as-a-Service business, the team advanced foundational capabilities to support a long-term subscription business in 2025, including launching global license management infrastructure and expanding utilization programs for key solutions. These advancements position the organization for streamlined commerce, improve customer engagement and sustainable recurring revenue growth. Products like our premium precision offering and Harvest Automation fueled strong growth in our overall Technology-as-a-Service offerings, and our growing impact is evident with over 5 million acres that were covered by See & Spray in 2025. 3/4 of the See & Spray machines in the field this year were retrofit units. Listen to Nebraska customer, Jake Bachman, talk about the impact of Precision Upgrades and See & Spray on his operation.

[Presentation]

Thanks, Jake, for your business. Our goal advance the capabilities of our customers and their equipment, maximizing their productivity profitability and sustainability. Our ambition put John Deere technology to work across as many acres and job sites worldwide as possible, ensuring every solution, whether iron or tech receives the best support and uptime experience in the industry.

Through new equipment, Technology and LifeCycle Solutions offers, we expect will increase our sales through new solutions and new technologies. We'll launch new product platforms and extend existing product lines. We'll stack advanced sensing and action capabilities on all of our machines, delivering benefits such as lower input costs, improved placement, higher accuracy, and increased safety for operators and buy standards, demonstrated by innovations like SmartDetect. Life cycle remains central to everything we do with over 10 million pieces of active equipment in our installed base. Our greatest growth potential lies in unlocking the potential of customers who own equipment that is later in its operational life cycle.

I want to talk about the Deere tiered portfolio. By mid-2026, we plan to launch a new line of parts called John Deere Essentials, aimed at customers with equipment in the middle of its life cycle. Those who often turn to other suppliers and may rarely visit our dealers. This group represents a significant global opportunity. To support this strategy, we've exited underperforming businesses and markets that didn't align with our goals. We're expanding thousands of part numbers over the next 2 years. We're introducing tiered offerings to better serve owners of mid- and late life cycle equipment. We'll use Deere's distribution network to keep the costs low, and we're investing in brand building to connect with these customers more effectively. This is the first time we're taking a fully integrated strategic approach to this space. Regarding Lifecycle Services, we're great at solving problems quickly, but our next goal is preventing them before they happen. It's about avoiding downtime, not just reacting to it. This is a newer initiative for Deere and our dealers. It goes beyond our global extended warranty. We're using our advanced technology stack to help customers manage their total cost of operation, combining the strengths of our machines with smart solutions. We're extremely well prepared to support our equipment throughout its life cycle. Our machines generate over 30,000 data points every minute. And we're using that data to help customers avoid their biggest enemy, unpredictable downtime. We're expanding our capabilities to manage cost and performance over the full life cycle, sometimes up to 20,000 hours on machines like the 944K Wheel Loader. This brings peace of mind to our customers. This just isn't about warranty or parts. It's about significantly lowering operational and economic risk for our customers and letting Deere do what it does best to keep equipment running. And for the do-it-yourself farmer, we'll continue to offer the most customer-friendly diagnostics available, combining top-tier tech with powerful tools to keep them in control. Technology adoption and utilization is happening faster than ever, but it will take time. We're modernizing agricultural practices that have been established by multigenerational farm families for decades. Additionally, in the current economic environment and down cycle, our customers are implementing familiar strategies to maximize their income and they're not prioritizing process changes. Still, we're confident in our direction. First, because the technology is working. We're seeing strong utilization and renewal rates. Technologies like Harvest Settings Automation and See & Spray are great examples. In 2025, its first year of availability, Harvest Settings Automation had a take rate of over 90% on North American combines and covered over 5 million acres and was used on average by operators over 60% of the time they were in the machine. Similarly, See & Spray technology covered over 5 million acres in 2025 and covering over 1 million acres -- after covering over 1 million acres in 2024, and it delivered average herbicide savings of nearly 50% in the 2025 season compared to broadcast applications. We have the right models and infrastructure to support adoption to deliver customer value and generate returns. We're using different rollout strategies and pricing models to meet customers where they are and adapting our approaches as we learn from the market. For example, with See & Spray, we introduced the application savings guarantee in 2025, where customers only pay Deere when the technology is saving them money. And for 2026, we've introduced an unlimited annual license for high-use operations. When we talk about growth, we talk about technology. But there's a third way we create value, reducing business volatility, smoothing out those highs and lows. And that's a great story for the Solutions-as-a-Service business. It's a great story for the parts business and for life cycle as well for all of them. It's the role that we play in shrinking the peak-to-trough volatility of the business. The SaaS model with lower upfront costs, only pay for what you use, technology that gets better over time, maximizing activation, utilization and renewals for customers. And we combine these innovations with our durable equipment and the John Deere Operations Center, the value proposition is difficult to match. This connected network surrounds customers like Jake, giving them technology that covers more acres, easy to adopt solutions, value that grows year after year. No matter the age or stage of their equipment, our customers know John Deere is behind them, supporting them every step of the way. That's the Smart Industrial in action.

I'd like to now ask Raj to talk about John Deere Financial.

Thank you, Cory. You just heard about how smart industrial is transforming productivity for our customers. John Deere Financial is foundational to every aspect of smart industrial, to providing world-class equipment, advanced technologies and digital solutions because of the trust we've built and the personalized financial solutions we deliver. In the U.S. and Canada, we financed about 2/3 of large equipment purchases and nearly half of smaller items. And John Deere Financial is more than a lender, we're a strategic enabler. So across over 50 countries, we own a $65 billion portfolio with 78% concentrated now in the U.S. So we have 32 million interactions annually with customers -- about 1 million customers who we serve through 1,500 dealers powered by 2,400 employees who, unlike those traditional lenders, combine equipment expertise, decades of understanding customers' operations and a global deal network, and advantage other financial institutions just can't replicate. And John Deere Financial goes beyond financing, we keep customers and dealers moving through every market condition, providing liquidity in downturns when others stop supporting the sector, accelerating growth in tech adoption and markets rose. So we are supporting generations of customers, in some cases, for more than 100 years. Here's what that looks like in practice. Our approval rates consistently exceed 90% in the last few years, about 15% higher than the average of our lender peer group. That means better access to capital for customers, especially when they need it, while maintaining lower losses than industry peers. We maintained strong portfolio quality while delivering financing in 95% of Deere markets, including high-risk regions, where access to capital helps to drive growth. Because we stand by customers in tough times, we earn high customer satisfaction scores and low churn rates. Let's now hear how our customers feel about John Deere Financial.

[Presentation]

So we get to hear this kind of comments from our customers ovre and over again. That's the real impact of JDF, keeping people working and building relationships that last. We also provide stability, generating stable income and cash flow through the cycle so we can keep investing in innovation. And we run highly efficient operations, translating into better margins and dependable returns. And our role isn't just about -- it's not just about today, it's about enabling Deere's future growth. We are committed to support that in a few ways. First, SaaS enablement, financing precision ag and connected solutions, including nearly half of all See & Spray licenses in the U.S. to date. Second, payment infrastructure. Centralizing and modernizing Deere's payment systems for e-commerce point-of-sale and licenses. We are reimagining our processes to drive even greater efficiency and elevate customer and dealer experiences. As an example of the value of JDF's customer insights, in the 2026 Combine and Planter Early Order Program, we utilized our understanding of customers' fleets and technology utilization to identify high potential customers for new equipment and more importantly, secondary buyers were trade-ins. That sell JDF turns data into growth for customers, dealers and Deere. John Deere Financial is an important growth engine for Deere, providing customers with liquidity in tough times and helping accelerate tech adoption for long-term value at all times. And our real differentiator, bearing strong customer relationships with data to create a seamless experience and drive insights into action, creating measurable growth for our customers, dealers and Deere. Now let me bring Josh back to the stage.

Thanks, Raj, and to the entire team for taking time to be with us today. Before we wrap up, I want to just touch on a few more things, and I promise I'll be brief. You heard Justin and Deanna, talk about the tremendous opportunity in production and precision ag and small ag and turf spanning all geographies. Ryan laid out how we plan to elevate Construction & Forestry and take them to the next level, driven by product leadership and increasing productivity and technology. As a key enabler, Jahmy's organization will be at their side to accelerate and unlock this value through advanced hardware, software and data insights. Cory explained the role of Lifecycle Solutions and SaaS will play in this journey and how building an even larger foundation of precision machinery will enable this business to operate at scale. And finally, Raj's organization will continue to support this growth through tailored financing solutions. Ultimately, the work we've done thus far and the structural improvements that we've made enable us to fund all these initiatives and pursue them with confidence.

Earlier, I spoke about the margin improvements that we've made decade-over-decade. Let's take a quick moment to talk about the value we've delivered for investors cycle over cycle. Peak to peak, 2013 to 2023, our net income tripled and diluted EPS was nearly 4x higher. Similarly, if we compare trough to trough, 2016 versus 2025, diluted EPS was nearly 4x higher. And even if you compare 2025 to 2013 peak, EPS doubled. As John said earlier today, smart industrial was not just about tweaking our business model. It was a foundational shift that has and is providing fuel for growth. Now to build on the growth opportunities the team shared today, let's contextualize what this all means for Deere going forward. If we start at the recently reported 2025 net sales for the equipment operations of $38.9 billion and applied 10% net sales CAGR would result in around $63 billion by 2030. Roughly $24 billion worth of growth. Based on our historic track record and plans in place, we expect half to a bit shy of 2/3 of this increase to be traditional growth. coming from a combination of cycle improvement and some inflationary price. We expect the remainder, which can be considered above historical trend growth to come from key drivers we talked about in our Leaps today. These drivers are ultimately grounded in the customer value unlock with around $2 billion to $3 billion expected to come from incremental tech utilization via SaaS and additional Lifecycle sales. The remainder of the incremental growth is expected to come through product leadership, manifested in both higher market share and shared value creation complemented by inorganic growth through M&A. The team today provided you clear examples of each of these drivers. The expected incremental SaaS and Lifecycle growth will continue to build Deere's base of revenue that is less tied to the equipment replacement cycle. Adding revenue from John Deere Financial, which is more stable as well. By the end of the decade, we'd expect this base to represent nearly 1/3 of total revenue at mid-cycle. Let me conduct to this growth aspiration to the shareholder value-add conversation we had earlier, where we reflected on the significant improvements we've made over the past 25 years. And especially since smart industrial, SVA is a measure, we've used internally for 25 years and is a great proxy for profitable growth and asset efficiency. These advancements have not only resulted in impressive financial gains, such as triple net income or quadrupling, nearly quadrupling diluted EPS from peak to peak, but a fundamentally shaped and reshaped our ability to deliver significant value to shareholders. And our goal is to continue to accelerate that.

So based on the financial outcomes we presented today, 10% net sales CAGR, 20% operating return on sales and 45% operating return on assets, that would equate to more than $9 billion in shareholder value add at mid-cycle in a single year. which sets the company up for another step function change over the next decade. If we look at what that could mean from an EPS perspective, we'd estimate $40 to $45 at mid-cycle, roughly $20 to $25 at the bottom and $55 to $60 at the top. We've talked about growth extensively today and how it has the potential to translate into future value. This, in turn, can and will result in higher cash flow. And I'd like to briefly highlight how we intend to prioritize the use of cash going forward. We remain committed to our single A rating and continue to invest in our business while also returning cash to shareholders.

Over the past 25 years, we've returned more than 80% of our remaining free cash flow from the equipment operations to shareholders via dividends and share repurchases. This translates into nearly $60 billion with roughly half of that amount accounted for post the launch of smart industrial in 2020. Looking ahead, we expect this trend to continue. And consequently, we expect to deploy substantially all remaining free cash flow to shareholders over a business cycle. And so as we reflect on everything we've talked about today, I want to come back to John's opening comments and highlight some of the most important points. Our confidence in Deere's future has never been stronger. We've transformed our business over the last 5 years and have established the foundation for a new business model that will enable faster adoption of technology for our customers. Smart industrial could not be more relevant, enabling the business to be more resilient, and we've seen this through the recent environment of uncertainty. And lastly, we are committed to delivering even greater value with increased emphasis on profitable growth that will drive lasting impact for years to come.

To close, I'd like to thank all of you for your participation today, whether you're here in the room, at the New York Stock Exchange or joined us virtually. Your engagement and trust means a lot to us. We're leaping ahead now and for the future. Thank you.

We'll now proceed to the Q&A session. If you have questions, there's QR codes on your sheets there. I'd like to ask Josh Beal and the entire team to join me.

Use QR codes that are at your table. We'll use those. We've got a good repository of questions already, but keep them coming. Those that we don't answer in the time we [ have a lot ]. We're going to take about 15 minutes or so for Q&A. For those that are here, we'll have some more time to interact post the session as well. But please shoot them towards us. We'll make sure that if we don't -- like I said, we don't get to them, we'll answer them in the follow-ups.

I think we're pretty well assembled, so we get started. For the team, we've got a good set of questions, 15 minutes, so we'll be thorough, but shoot to be concise as well.

Maybe to start, we talked about our confidence in our future, $150 billion of incremental addressable market. Cory, maybe I'll direct this one to you to start [indiscernible] you answer this. The question is on the $150 billion of incremental TAM. How much is accessible with technology that's available in the market today? How does that compare with where we were 3 years ago as we built that out? And where does that go to 2030 as we strive towards our operating targets?

Yes, a couple of things to think about the $150 billion is we continuously unlock, but we're also filling into the top of the hopper more and more each day. So the teams continue to find more. The original $150 billion, we talked about, there's about 20% of that that's been unlocked to date. That original $150 billion has about 80% left, but we continue to add to it. Maybe the biggest thing to think about is that's from the reference or the model farm as well. We have significant opportunity in addition to that to take everyone from where they are further up their adoption scale to that model. it's both, the $150 million, which about 20% has been unlocked, more going in every day and also moving people to the model reference farm, if that helps.

Yes. That's perfect. Thanks, Cory. There are several questions that are variation on a theme of the 10% growth. So I'm going to attempt to bundle these and address them to several of you. The question on the 10%, first and foremost is when we get there by 2030, what does that apply? Is that an estimation, that's at mid-cycle?

And what sort of margin will that apply at that level? How much of that 10% growth is going to come from price versus volume, as well as a question on M&A. And so maybe Justin, if you take that.

And then additionally, Deanna, Justin and Ryan, wondering within your individual segments, what is your growth like? Is it in line with that. There are certain areas that are above those growth rates?

And then lastly, Corey, for you, how much of that is retrofit? So we're trying to work through all of that, but I'll keep you all [ on this ] as we go through this, but there's a number of questions on there. So I thought we'd just package them up.

I'll sort of points like A to G.

Thanks, Josh.

I think, first and foremost, what does this imply? We're not trying to predict exactly where we are cycle, but we're assuming, hey, we think that 2030 number, we think that's pretty close to mid-cycle. Our normal calculation math may shift or lag. But generally speaking, we're treating that as if it's mid-cycle or very close, which would imply the 20% margin that as we discussed.

I think the other part of that question, too, is then on price. What is the assumption? Historically, we've talked about 2% to 3% is kind of our historical average on price. We would -- what we've modeled what we'd expect is probably the low end of that range. So relatively modest in terms of what we think comes from price there. The other piece was M&A. We haven't necessarily layered in specifics on M&A. We'll do that as we continue to execute and identify those opportunities, but we haven't -- we expect growth as a result of that, but we don't have a number to specifically lay out.

Deanne, if you want to take large ag?

Yes. Thanks. We mentioned it in the presentation for production and precision ag. We have three focus areas for growth. One is ensuring that our full production system solutions are expanded to more geographies. So think about this as core market share gain in addition to the life cycle opportunity, core price gains in the U.S., but more importantly, outside of the U.S. as well. In production and precision ag, Lifecycle will also play a key role. We mentioned it's part about bringing technology to more production systems. In production and precision ag. We focus a lot of our technology launches production and precision Ag. So this is all about scaling adoption and utilization of our foundational technologies, automation, autonomy beyond just the core U.S. markets, but also globally and across all production systems for production and precision ag. And then finally, it's about delivering more value for customers in the places in which we've been operating and managing for decades and ensuring that they're getting more value. So in turn, we're delivering more revenue and more margin per unit of sales of our equipment as well.

Maybe one point of reference also, if you think about ag, so put together production and precision ag and small ag and turf, one point of share globally is around $2 billion from a revenue perspective. So just as a marker when you think about the opportunity, and we think there's more than just that one point of opportunity across the globe as we step forward.

If I think about the small ag and Turf business and our European, Asian and African operations, one of the most significant product segments in Europe is the versatility tractor sort of the 200 to 300-horsepower range tractor. That is growing very quickly. We have a lot of new product that's coming out, starting to go into market this year and into next year and through the balance of the decade. And I think that will give us a real tailwind to structural growth from a market share perspective, markets like India. So the history with India is over the last years, we've been building a stable, profitable business. But you heard me say earlier in the remarks that the total industry there is 900,000 tractors. We're just a little under 9% market share there today. And so we believe now that we've stabilized the profitability of that business and we've got the right product, the right manufacturing footprint there, we can actually continue to grow and sell significant units, both that market domestically and as an export market.

Then the third one I would highlight would be our Turf business. There's a lot of what we talked about today, operations center and so on, is so valuable for B2B customers. And historically, we haven't, I believe, put as much focus on that B2B segment as we could. And so we think there's a lot of runway to be unlocked there with B2B by bringing and extending our tools from Operations Center and other parts of the tech stack.

Yes, I said in my presentation, excavators 2026 starts the journey of having our own our own product, our own differentiated product. It's 40% of the industry. So we go through that transition overtime. We certainly think there and expect to be in a better market share position. The other part, technology is starting to inflect and C&F for all the reasons that I talked about in my presentation. So we think there's a compounding aspect of our machines are going to go out higher features, and then additional things that we can do on the digital side.

Wirtgen, they're just starting and starting to build this incredible technology foundation. They're also going to be delivering new product portfolio for some of the lower performing. They're still very high performing market share, but they're lower performing market share business. They've got new product coming out that we expect is going to be able to take share and grow that business. And then finally, compact construction, compact construction continues just a really fast-growing part of our business. We delivered a new product in a large frame compact track loader, when we deliver new product, we tend to grow share and grow that business significantly. We're going to accelerate the pace on the large, but also on the mid and the small to deliver updated product and new features. And then I think I need to emphasize. Nobody has a channel like ours. We sell these products in North America through both the Construction channel and the ag channel. So the opportunity for us with new product and to take channel -- take share, delivering products through our channel, we think, is significant.

Cory, as you answered for retrofit, we've got another one that came in around Lifecycle to aftermarket. In addition, how much is that going to contribute to the growth particularly given that we've been at around 20% -- 15% to 20% in our range of sales for a number of years. So if you could group retrofit in parts as part of that?

Yes. I think Josh mentioned in his closing $2 billion to $3 billion coming off of the Lifecycle side in addition to what we'd see in the SaaS-based businesses over this period of time. But I would give you a couple of of things to think about. There's tremendous growth opportunity here. First it starts with our core technologies like the premium precision offerings, some of the most active growth in the tens of thousands of units a year are coming from things like taking our latest technology, displays, position receivers, telematics back against that millions of machines in the fleet, that's in the order of tens of thousands today. It's going to continue to accelerate. But then the additional high-end solutions, the Sense & Act kind of solutions, we're just at the starting point for. We just started a couple of years ago launching the things like ExactEmerge retrofits and we're putting kits out, but we still have less than half of the acres of corn planted that way today, tremendous opportunity for growth there.

And the last one I'd mention is See & Spray, 5 million acres sprayed this year of all the acres we have 3 quarters in the last year of growth came from retrofit opportunities. So just think about the installed base represents a massive portion of our opportunity to accelerate growth of these technologies year-over-year.

Thanks all. Shifting to the topic of digital engagement. I'm going to blend a couple of questions here as well. The question on engaged acres versus highly engaged acres. If we think about customer profile within those 2 segments, the folks that are more highly engaged, they upgrade equipment more frequently? Is it higher margin, more services, better yields?

And then similarly, on the unique digital users. Can you give us a sense of what's that composition about 400,000 or so today? And how do we expect that to grow to 1 million by 2030?

Yes. Maybe I'll start with the engaged takers and highly engaged acres. And I think about this really in two ways. One is a bit backward-looking and the other is forward-looking. As we look at those operations, those ag operations who are engaged and then move into the highly engaged category, it's clear to us that they're more likely to stay in the John Deere ecosystem, they're more likely to buy John Deere equipment and use John Deere technology compared to those who aren't. So that's a great opportunity for us to ensure that keeping customers happy. And that's all because we're supporting them through the tools that Cory talked about with things like Operation Center PRO Service, E-commerce and our dealers who are deeply connected with them to make sure that equipment up and running, but they're also able to see the value that's created from using John Deere equipment and technology.

The second really important part about engaged and highly engaged acres is the future opportunity that those present. Because remember, being engaged in the Operations Center and structuring your farm digitally, creating that digital twin of your farm is what unlocks a farmer's opportunity to move themselves up the tech stack and use much of the automation technology and autonomy technology that is the next 5 and 10 years of value unlock that John Deere will have for the ag equipment industry as we lower inputs, lower labor and help them increase their yields.

Yes. And for the average monthly digital users -- unique users, unique is an important word there. They can walk through the digital door for us in a multitude of ways. Certainly, Operation Center is one of those ways. My Financial is another, Equipment Mobile is another shop.deere.com, et cetera, and so on. So there's a multitude of ways that they can sort of connect with us digitally. We want to measure the unique number of customers that come in that way. I think the growth that we'll see there is predicated upon the opportunity that we have in all the areas, all production systems, but I'd call out a couple that are significant in terms of the numbers the -- and maybe Justin can comment on this a little bit further, but the Turf opportunity is significant in terms of the number of units that we can connect and the number of customers that we can touch. And you talked a little about it a little bit, but the India domestic tractor business is another one. This represents a significant opportunity for us in terms of overall units and number of customers. Justin, anything to add to that?

No, not much. I mean, you're right. It's in the hundreds of thousands of units that we can add on both of those. And as I mentioned in my earlier comments, the professional landscaping, in particular, is professionalizing often getting rolled out by large private equity firms and such, and they are looking for ways to build a technology platform that allows them to run and scale that business. So the more that we can connect those equipment, connect their workers, connect all of the different assets. It allows them to supercharge their growth and obviously, both they and we benefit from that.

We got a little less than 5 minutes left. We'll try to get a couple more here. Ryan, this one is coming to you. Super excited about CONEXPO, what we're going to do with excavators there? Maybe can you talk qualitative opportunity that excavators give to Deere? Does it expand our TAM, share opportunities, both in the Americas and globally and also from the tech side?

Yes. I think certainly, as I said, from a share perspective, we expect to be able to, as we, over time, continue to deliver new products into the marketplace, claim some additional share upside with our products. I think important is when you're working with a partner, the ability to translate customer needs into something in the field through a product, that's inherently slow. We've eliminated that bottleneck plus we have the tech stack that Jahmy and others have built with our displays, our control systems, the look in -- common look and feel across different pieces of Deere equipment across job sites. We think all of those will be able to give us additional incremental market share and give our dealers a product that can differentiate on. From a technology perspective, grade control, safety cameras, payload, all of those things, we can deliver relatively seamlessly through what we've built already.

So I would say significant opportunity with respect to market share, plus each unit is likely going to continue to go out with more technology on top. And so that means margin means revenue. And it means productivity for our customers.

Thanks, Ryan. I think we can squeeze few 2 more in because Jepsen, I think you can be fast on this one. The $40 to $45 EPS by 2030, how much share buyback is assumed between now and then to get to that level?

Yes. intentionally range there. We're not trying to get too finite in what exactly that looks like. But I think if you look at like historically, what we've done over call it the last 5 to 10 years kind of on a run rate of number of shares. We use that for a book end. Obviously, there's some fluctuation there. But generally, it assumes buyback and kind of add a, call it more of a historical average that we've done.

John i'll close this one with you. And I think it's a good way to end just given the [ framing ] of the day. There's a lot of questions that we didn't get to you, so we'll try to do those in the follow-ups. And like I said, we'll try to follow up as well.

The question, John, for you. Looking over the past 1 to 3 years, thinking about our tech capabilities, the pace of change that we've seen in the market, what would you say have been the biggest opportunities that have opened up for Deere over these past several years?

Yes. First of all, thank you all for coming and being a part of this, several of you in the room and then on this journey with us back to 2019, 2020. And to get to that question, I just want to summarize by saying that time in 2020, we majorly restructured our company because we were on the path of continuing to build just the best product. And that was not going to be enough to be successful and lead our industry worldwide going forward. We had to help our customers do the jobs they do better. Instead of the best planter, help our customers plant better. And You can go through all the production systems and have that same sort of story. We knew to do that, we had to get deeper into understanding that our businesses -- our customers' businesses to understand where do we deploy the greatest amount of capital to create the greatest return for our customer, again, making them more profitable, more productive, helping them do the jobs, they do in a more sustainable way. We've centralized our tech stack. We've created some really industry-leading technologies like automation, through advanced sensor capabilities and autonomy. And as well, we built out a world-class industry-leading customer support and aftermarket business that can serve our customers regardless of where they are in their cycle with their equipment. The reason I take you back there is we're at the point now where we have regions, we have customers, we have dealers that are now pulling us pulling us for growth, growth into new regions, growth into new markets, growth into new production systems. So this next chapter, we're all about to go on together is to leverage that strong foundation of the smart industrial, deep knowledge of production systems advanced tech that nobody else in the industry has and strong customer support, now it's time to grow this business and grow it across all of our production systems, all of our regions and do it in an accelerated way. So thank you for your time. I look forward to sitting with you all in our small breakout groups and having further discussion.

Great. Thanks all for joining us today. Thank you very much. We appreciate your support, we appreciate you interest. For those joining us online, thank you for your time. And for those in the room, we're going to transition back through the doors to Freedom Hall. Thanks again. Have a great day.

Good morning, and welcome to Deere & Company Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Josh Beal, Director of Investor Relations. Thank you. You may begin.

Hello. Welcome, and thank you for joining us on today's call, and a happy early Thanksgiving for those of you celebrating tomorrow. Joining me on the call today are John May, Chairman and Chief Executive Officer; Josh Jepsen, Chief Financial Officer; Deanna Kovar, President of Worldwide Agriculture & Turf Division, Production and Precision Ag, Americas and Australia, and Chris Seibert, Manager, Investor Communications.

Today, we'll take a closer look at Deere's fourth quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2026. 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 at johndeere.com/earnings.

First, a reminder, this call is broadcast live on the Internet and recorded for future transmission and use by Deere & Company. Any other use, recording or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited. Participants in the call, including the Q&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-K, Risk Factors in the annual Form 10-K 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. I will now turn the call over to Chris Seibert.

Thank you, Josh, and good morning to everyone joining us today. John Deere's fiscal 2025 results for the fourth quarter and for the full year reflect resilience of our business amidst a challenging and uncertain market backdrop. In the fourth quarter, the equipment operations delivered 9.2% margins. Full year operating margins came in at 12.6%, and we delivered over $5 billion in net income. Financial performance that represents our best results yet at this point in the cycle.

Our teams continue to manage this downturn effectively by focusing on what we can control. And we believe the progress we have made throughout this past fiscal year positions us well as we enter fiscal year 2026.

Looking ahead to 2026, we anticipate that large ag in North America will continue to be subdued. However, there are indications of stabilization, and we also see areas of optimism emerging in other segments and geographies. Notably, we see opportunities for growth ahead in our small Ag and Turf and Construction & Forestry businesses.

Slide 3 begins with the results for fiscal year 2025. Net sales and revenues were down 12% to $45.7 billion, while net sales for equipment operations were down 13% to $38.9 billion. Net income attributable to Deere & Company was $5 billion, or $18.50 per diluted share.

Next, fourth quarter results are on Slide 4. Net sales and revenues were up 11% to $12.4 billion, while net sales for the equipment operations were up 14% to $10.6 billion. Net income attributable to Deere & Company decreased to $1.1 billion or $3.93 per diluted share. Diving into our fourth quarter results for our individual business segments, we'll begin on Slide 5 with our Production & Precision Ag business.

Net sales of $4.74 billion were up 10% compared to the fourth quarter last year, primarily due to higher shipment volumes and favorable price realization. Price realization in the quarter was positive by approximately 3 points. Currency translation was also positive, by about 1 point. Operating profit was $604 million, resulting in a 12.7% operating margin for the segment. The year-over-year decrease in operating profit was primarily due to higher production costs, higher tariffs and special items, which were partially offset by price realization and higher shipment volumes.

Turning to Small Ag & Turf on Slide 6. Net sales were up 7% year-over-year, totaling $2.457 billion in the fourth quarter, primarily due to higher shipment volumes. Price realization in the quarter was positive by approximately 1 point. Currency was also positive by more than 0.5 point. For the quarter, operating profit declined year-over-year to $25 million. The decrease was primarily due to higher tariffs, warranty expenses and production costs.

Slide 7 details our fiscal year 2026 Ag and Turf industry outlook. We expect industry sales of large equipment in the U.S. and Canada to be down 15% to 20%. Row-crop farmers continue to face challenging farm fundamentals, which are pressuring short-term liquidity. Used equipment, while continuing to improve over the past quarter remains a constraint to investment in new machinery. However, strong crop [indiscernible] consumption, new trade agreements, growing demand for biofuels and supportive government payments support potential upside.

For Small Ag and Turf in the U.S. and Canada, industry demand is estimated to be flat to up 5%. The dairy and livestock sector continues to generate profits driven by strong beef prices. Additionally, a modest recovery in Turf is anticipated, following a rebound in the housing market and growth in the overall economy. In Europe, the industry is projected to be flat to up 5%. The outlook for the dairy sector continues to be robust with stabilizing interest rates helping to support investment decisions.

In addition, margin for arable farmers are strengthening as crop yields recover in major European ag markets. Within South America, we anticipate industry sales of tractors and combines will remain flat in 2026. While soybean and corn acreage is expected to grow at trend line pace in Brazil, customer demand for equipment has been tempered due to the high interest rate environment. Additionally, strong global crop yields are weighing on prices, and the recent trade agreement between China and the U.S. creates uncertainty around demand for Brazil exports of soybeans.

In Argentina, industry growth is anticipated to moderate after robust growth in 2025. Industry sales in Asia are expected to be down 5%, following slight gains in India last year.

Moving to our segment forecast on Slide 8. We anticipate production and Precision Ag net sales to be down 5% to 10% in fiscal year '26. The forecast assumes roughly 1.5 points of positive price realization and about 1.5 points of positive currency translation. Segment operating margin for the full year is forecasted between 11% and 13%, reflecting stability in international markets amidst incremental tariff and mix headwinds with large ag in the U.S. declining another year.

Slide 9 provides our forecast for the Small Ag and Turf segment. We expect fiscal year '26 net sales to be up around 10%. This includes 2 points of positive price realization as well as 1 point of positive currency translation. The segment's operating margin is projected to be between 12.5% and 14%, reflecting strength in the dairy and livestock segment.

Shifting to construction and forestry on Slide 10. Net sales for the quarter were up 27% year-over-year to $3.382 billion due to higher shipment volumes. Price realization was negative by about 1 point, while currency translation was positive in the quarter by roughly 1.5 points. Operating profit increased to $348 million, resulting in a 10.3% operating margin. Higher shipment volumes and a positive sales mix were partially offset by increased production costs driven by higher tariffs and special items.

Slide 11 outlines our 2026 construction forestry industry outlook. Industry sales for earthmoving equipment in the U.S. and Canada are expected to be flat to up 5%. And compact construction equipment in the U.S. and Canada is also expected to be flat to up 5%. Construction markets are expected to experience modest growth, supported by employment at all-time highs and construction backlogs at robust levels.

U.S. government infrastructure spending continues to bolster the industry. Additionally, declining interest rates, increasing investments in rental fleets and surging data center construction starts are also providing support. And while U.S. single-family housing starts, are expected to show modest improvement in 2026. Investment activity in the private commercial sector continues to be restrained.

Global forestry markets are expected to remain flat. Global road building markets are expected to remain flat at strong levels. Continuing with our C&F segment outlook on Slide 12. 2026 net sales are forecasted to be up around 10%. Our net sales guidance for the year includes about 3 points of positive price realization and 1 point of positive currency translation. The segment's operating margin is projected to be between 8% and 10%.

As the benefits of higher North American earthmoving volumes and price realizations are tempered by incremental tariff expense. Switching to our financial services operations on Slide 13. The Worldwide financial services net income attributable to Deere & Company was $293 million for the fourth quarter. The year-over-year increase was mainly due to favorable financing spreads, special items and a lower provision for credit losses. For fiscal year '26, the net income forecast is $830 million. Results are expected to be lower year-over-year, primarily due to lower portfolio levels driven by volume, partially offset by favorable financing spreads.

Slide 14 concludes with our guidance for net income, effective tax rate and operating cash flow. For fiscal year '26, our full year net income forecast is expected to be in the range of $4 billion and $4.75 billion. Included in this estimate is projected pretax direct tariff expense of approximately $1.2 billion, with additional inflationary pressures also contemplated from the direct -- from the indirect impact of tariffs.

Next, our guidance incorporates an effective tax rate between 25% and 27%, which is higher year-over-year as a result of fewer discrete items and a less favorable geographic mix driven by projections for a higher percentage of income coming from outside the United States. Lastly, cash flow from equipment operations is projected to be in the range of $4 billion to $5 billion.

We would like to highlight that our implied midpoint guidance of approximately $16 in earnings per share reflects sub-drought conditions in [ PPA ], the projected fiscal year '26 sales at less than 80% of mid-cycle levels. This level of performance reflects the structural improvements we have made to the business over the last several years. Our ongoing efforts to managing the cycle through proactive inventory management and cost control, and the resilience that comes from a more diversified business as both Small Ag and Turf and construction forestry are projected to grow in 2026. This concludes our formal remarks. We'll now cover a few topics before opening the line for Q&A.

But before we get into the details, John, would you like to share your thoughts on the year?

Thanks, Chris. 2025 marked a year of significant challenges and uncertainty. But it also reflected the resilience and strength of the Deere organization as we continue to demonstrate structurally higher performance levels while making substantial progress on our smart industrial journey. Despite the uncertainty, we delivered over $5 billion in net income, and we achieved equipment operations, [ OROS ] of 12.6%, which included about 1 point impact from tariffs.

It's notable that these income and margin levels surpassed our performance in 2020, the year we launched Smart Industrial. Despite being at a lower level point in the cycle that year, continually demonstrating higher cycle over cycle performance, particularly in trough years emboldens us to stay the course as we advance towards our ambitions.

We believe this fuels future growth that positions us to unlock even more value for our customers when this cycle inflects. I also want to take a moment to thank our teams. Our organization is used to managing cyclicality. But this year, we faced an additional headwind of heightened uncertainty in a rapidly changing business environment.

I am so proud of our team's grit and determination to push forward as well as the resulting accomplishments from their efforts. To name a few examples, our sales life cycle and John Deere financial teams worked hand-in-hand with our dealers to keep our customers up and running throughout the year, while at the same time, taking the actions needed to continue driving down used inventory levels.

Our logistics, supply management and finance teams partnered with the broader organization to assess and mitigate tariff exposures, manage disruptions in global supply chains, and maintain sufficient liquidity, all in an effort to ensure our factories continued producing the complete goods and parts that support our customers on a deal basis. At the same time, our design and go-to-market teams sustained their constant focus on bringing cutting-edge innovations to the multiple production systems we serve, efforts grounded in the core principle of helping our customers do more with less.

That fuels customer value unlock and enables enterprise growth. As a result of this focus, we're seeing accelerating momentum in the growth of our tech stack, which is shown on Slide 15 of the presentation. This growth is happening both in the number of solutions that we're bringing to market, and the depth and breadth of customer utilization of those solutions, and it's happening across all layers of the stack from base precision to digital engagement to advanced automation and to full autonomy.

More importantly, this growth isn't confined to large ag. In 2025, we saw an amplification of technology leverage across nearly all production systems. Let's look at 2 examples, one from the base of the tech stack and one from the [ top ]. At the base, we reached new heights in 2025 in terms of connectivity and digital engagement, supported by game-changing connectivity solutions like JDLink Boost, retrofit options like Precision Essentials and the expansion of the John Deere operations center into road building, earthmoving, golf and turf.

At the peak of the tech stack, we began the calendar year at CES in Las Vegas, showing you where we're directly leveraging our autonomy tech stack developed in row-crop farming into solutions for other industries like commercial mowing, Orchards and quarry operations. As we close out the fiscal year, we started taking orders for spring delivery of our autonomous row-crop tillage solution, which should help our customers get the job done at the right time, unconstrained by the challenge of labor scarcity.

In difficult markets, it's natural for people to focus only on the near-term challenges in front of them, but I am incredibly proud of how our organization has delivered exceptional performance in the current environment while also continuing to advance the development and delivery of solutions that have the potential to unlock tremendous value for our customers and serve as the foundation for Deere's growth into the future.

I'm excited for all of you to hear more about this during our upcoming Investor Day on December 8, where we're going to spend a little bit of time reflecting on the past 5 years, of smart industrial, but more importantly, talk about where we expect to take us in the years to come.

Thank you, John. We are really looking forward to hearing more about the future of Smart Industrial in a couple of weeks. Before we move on to questions about the '26 guides, I'd like to focus briefly on our '25 results. This past fiscal year demanded a lot from our teams. But as John mentioned, we still delivered more than $5 billion of net income. Josh Beal, could you please unpack what happened during the quarter as well as the entire fiscal year?

Yes, sure, Chris. I begin with the quarter, overall, the results were in line with our expectations, but there were a few moving pieces that I'd like to briefly go over. Net sales for all segments finished a bit higher than expected, driven by strong execution at our factories, especially in North America. Price realization for PPA in the quarter was nearly 3%, while SAT came in at 1%. .

Notably, large ag price realization in Brazil in the quarter was strong, closing out 2025 with full year mid-single-digit price growth after a challenging 2024. Quarterly pricing in Construction & Forestry was slightly negative due to additional incentives to support retail activity. Turning to costs. Direct tariff expense negatively impacted equipment operations margins in the quarter by more than 3%.

This is Jepson. Touching on the full year for a moment. John already noted how our performance is a testament to the organization's perseverance in a year where we saw industry declines in a majority of major markets that we serve, placing the business below trough levels, the combination of our operational execution and the work that we've done to improve businesses over the last several years continued to yield positive results.

Our margins are a notable example of this. Even with the North American large ag industry declining this year by around 30%, we delivered margins over 450 basis points better than 2016, the last time we were at this point in the cycle. Excluding tariff headwinds, that improvement would have exceeded 600 basis points. A decade ago, the profitability of our business was heavily indexed to North American large ag with other geographies and business segments operating at much lower margins.

Since Smart Industrial, we've significantly raised the level of performance across all our business segments around the globe. While North American large ag continues to be a critical market for Deere, this diversification of profitability has bolstered the company's through cycle resilience. We're seeing the vision we had when we launched the Smart Industrial journey come to life with better performance across the breadth of our businesses.

Thanks for that additional color, Josh. Beyond profitability, this year's results also reflect focused cycle management, most notably in managing inventory. In North America, large ag, we produced roughly in line with retail demand for the full year, keeping new field inventory at the very low levels where fiscal 2025 started. Inventory to sales ratios for [indiscernible] drive tractors both closed the year at 8% while 220-horsepower and above tractors were at 12%.

To put in perspective how low absolute inventory levels are new field inventory for Deere 220-horsepower and above tractors ended fiscal 2025 at the lowest unit level we've seen in over 17 years. For Small Ag and Turf, global retail demand in 2025 by around 10%, and as a result, saw a significant reduction in field inventory levels, particularly in North America.

Notably, inventory for North American tractors below 100-horsepower was down nearly 40% year-over-year, while 100- to 220-horsepower tractor inventory in the region was down by nearly 1/3. Similarly, the underproduction that we did in North American earthmoving at the end of fiscal 2024 and into the beginning of fiscal 2025 has also positioned that business well for next year.

Field inventory levels of North American earthmoving equipment were down around 35% from the end of our fiscal 2024 third quarter, positioning that business to build in line with retail sales in 2026 as that market shows signs of recovery. Cost management is the other hallmark of managing cycles. Our efforts to control production costs for the equipment operations remain successful throughout fiscal 2025.

Excluding the impact from tariffs, full year production costs were favorable driven by strong reductions in material cost. This enabled price cost ex tariffs to be positive as well, inclusive of the price actions that we took in a competitive earthmoving market and the additional pool funds that we deployed in large ag to support used inventory management. The work on costs enabled our future growth, evidenced by the record level of R&D investment that we made in fiscal 2025. .

Thanks, Josh. You mentioned used inventory management. I would like to discuss that topic a little further. Last quarter, we talked about the additional pool funds that we deployed to support used inventory reduction. Could you please provide an update on our current position in North America and share any notable developments or progress observed?

Sure, Chris. Support to these targeted pool funds programs, along with the ongoing commitment and focus of our dealers on improving the health of the trade ladder is generating positive momentum. This is particularly notable amongst late model year, high horsepower tractors, which remain the area of focus in the channel. .

As an example, Deere 175-horsepower and greater tractors in North America have declined by around 7% since they peaked in March 2025, supported by a 4% sequential decrease in the fourth quarter. Compared to the previous cycle peak 10 years ago, current unit levels for this horsepower category are lower by nearly 15%, although the value of inventory today is higher than the last cycle due to a higher population of late-model equipment.

However, that mix continues to improve. Notably, Model Year '22 and Model Year '23 used inventory of Deere [ ADAR ] tractors reduced by a mid-teens percentage in Q4 and is now around 25% below the peak in March 2025. Our used inventory progress in other product categories is also notable. Inventory levels of Deere 100 to 174-horsepower tractors have decreased around 20% from their 2025 peak. While Deere sprayers are down mid-teens and Deere planners are down nearly 30% from their recent highs. Deere used combines declined over 10% sequentially in our fourth quarter, resulting in a nearly 25% decrease from their Spring 2024 peak. Perhaps more importantly, the model year distribution of Deere used [ combines ] in the field has returned to a nearly normal level of distribution.

Thanks for highlighting those inventory reduction progress, Josh. This is Deanna. I'm glad to join everyone today and wanted to provide some additional thoughts. As mentioned, our team has done an excellent job managing new inventory, bringing us to low levels in North America. As we manage inventory through the cycle, considering current industry demand and when that might inflect, we not only think about the total level of inventory in the field but also the balance between new and used equipment. .

Our goal is a healthy product mix and a healthy trade ladder that supports the current level of demand in the market. With that in mind, I'm pleased by the used inventory progress we've made jointly with our dealers. Although there's still work to be done here, the combination of our aligned channel and support provided by higher pool contribution rates and targeted programs in 2026 give me confidence that we have the right tools in place to sustain this positive momentum and position the market well in 2026.

Nevertheless, our customers are still facing headwinds that are driving near-term investment caution. Although there are incremental demand drivers emerging, our priorities remain clear: manage new inventory, carefully avoid oversupply when demand is still dropping and double down on used inventory reduction. These priorities influence our approach to production planning. It's our intent to start the new fiscal year with lean production for North American large ag, while building flexibility in the full year production plan to respond quickly when the market inflects.

This is John. Building on Deanna's comments, I want to take a moment to express my gratitude to our dealers for the work that they've done this past fiscal year in support of our customers and our business. This partnership is critical, particularly when navigating the ups and downs of market cycles. I'm proud to work alongside them and consistently impressed by how they represent our brand through their dedication to customers, their drive for innovation and delivery of world-class support.

Thank you all for your comments and insights. Now let's build on that and talk in more depth about the Ag and Turf outlook for fiscal year '26. The guide varies by segment and geography. Can you please unpack why this is the case?

This is Josh Beal. Happy to, Chris. Let's start with North America. Global farm fundamentals are expected to stay challenged in 2026. U.S. crop yields have been strong, and we've seen robust production this year and in other major markets as well. As a result, the USDA expects stocks of -- global stocks of corn and wheat to rebuild and soybean stocks to remain at elevated levels, putting continued pressure on commodity prices. That dynamic, combined with the persistently high input prices we've seen over the last several years continues to challenge farm profitability.

For the positive, commodity demand continues to climb, Demand for U.S. corn remains robust, with projected U.S. exports to reach an all-time high, up 9% from the previous year. The amount of U.S. corn going to ethanol is approaching record levels with U.S. ethanol exports approaching a new peak for the second consecutive year, supported by recent trade deals and driven by strong shipments to Canada, the U.K., India and the Netherlands.

Meanwhile, Brazil is also allocating significantly more of its corn production for domestic ethanol use. Similar demand drivers exist for soybeans, the projected U.S. soybean [ crush ] for the '25, '26 marketing year is expected to reach an all-time high, marking a 5% year-over-year increase. Similarly, U.S. soybean oil use is also projected to reach record levels, primarily fueled by rising demand for biomass-based diesel.

Broadly, U.S. renewable fuel policies continue to move in a positive direction. The EPA's proposed renewable fuel standards for 2026 and 2027 includes substantially higher targets for biomass-based diesel, while the clean fuel production tax credit was extended via the One Big, Beautiful Bill, incentivizing the domestic production of biofuels. California enacted a law allowing for the sale of E15, providing additional support for long-term growth in ethanol consumption, and we are optimistic of federal solution will be finalized soon to allow the year-round sale of E15 across the country.

In addition to these favorable demand dynamics, U.S. government support for farmers is expected to exceed $40 billion in 2025, with the majority of payments going to Row Crop producers. While farm balance sheets remain healthy with land value supportive of good near term -- good debt-to-equity ratios, additional government support provides help with near-term liquidity challenges facing growers.

Moving to the Small Ag and Turf segment. Dairy and livestock margins remain healthy, supported by ongoing strength of beef prices. With favorable margins, bonus depreciation from the one Big Beautiful Bill is more attractive for customers in this segment and is expected to support modest equipment replacement growth in 2026. And as you mentioned earlier, Chris, we're expecting the turf industry to recover modestly next year as the housing market improves.

Thanks, Josh. With that set up, let me jump in to cover our industry expectations. The backdrop that Josh just laid out, along with our current view of order books, drove our North American industry guides of down 15% to 20% for large ag and flat to up 5% for Small Ag and Turf. Translating that to Deere sales, the low inventory levels that we discussed previously in large ag will enable us to keep producing in line with retail demand in 2026.

We mentioned in last quarter's call that based on the results of the early order program, Deere sprayer shipments would be down around 20% this coming year. Our plan to early order program resulted in a similar year-over-year change. In our [ Combine ] EOP, which closes in mid-December, is projected to fall within our guided range for the industry.

North American large tractors operate on a rolling order book with row-crop tractor availability already pushing into the third quarter. Current order velocity indicates that demand for North American row-crop tractors in 2026 will also be within our forecasted range for the industry. But it's worth noting that velocity can shift as market conditions change, and we're prepared to respond. Preserving this optionality was a primary reason for our lean production approach to start the fiscal year, which will also cause our production to deviate from normal seasonality.

For example, for large tractors produced in Waterloo, we typically see a seasonal build in North American inventory in the first quarter of the year. Given higher levels of uncertainty this past summer and early fall, when we were taking orders for Q1, we decided to limit production slots in the quarter for North America. As a result, we'll have a lower-than-normal level of seasonal production to start the year and won't see the typical earlier inventory build but we've given ourselves flexibility to adjust to demand in subsequent quarters.

Since setting our Q1 production plans, we have seen positive developments in the North American market. For example, the recent U.S. trade agreement with China has lifted soybean prices to their highest levels in over a year, providing marketing opportunities for farmers to lock in more favorable prices.

Turning to South America. Our guide is for a flat industry in 2026. In Brazil, strong commodity production supported by area growth and the potential for interest rate reductions next year are supportive of demand. However, profitability for Brazilian corn and soy growers may be impacted by lower commodity prices and the potential return to more normal soybean trade activity between the U.S. and China. I was just in Brazil a few weeks ago, and it was clear that there is strong enthusiasm for our solutions.

We have many new products and technologies coming to support increased productivity and precision for our Brazilian customer base. We have been investing in our solution development, factory production and channel capabilities in the region, and the extended Deere team is poised to take advantage of it. Brazil is a great market for us today and an even bigger opportunity in the future.

Closing out the Ag walk around the world, we expect the European ag industry to be flat to up 5% in 2026. The outlook for dairy margins continues to be robust, and arable cash flows are showing improvement as harvest results exceeded expectations in key markets such as France, Germany and Spain. With interest rates stabilizing at current levels, the environment in Europe is conducive for growers to move forward with planned investments following a period of caution.

This is Jepsen. A couple of points to add. As we translate these industry outlook to our own sales forecast, we're expecting Small Ag and Turf to return to growth in 2026, with sales up about 10%. This is driven by a combination of improving end market demand as well as the benefit of producing much closer to retail demand compared to under production in 2025. .

For production in Precision Ag, we expect sales down 5% to 10%, which is comprised of the market outlooks noted, Europe up, South America flat, North America down. For large ag in North America, while we see the industry declining in '26, we also see a number of positive factors that lead us to believe this coming year will mark the bottom of the cycle. As noted earlier, consumption of U.S. corn and soy remains strong and is expected to grow, paired with strong support for biofuels and recent improvement in commodity prices, the demand picture on grains feels incrementally better compared to a quarter ago.

Additionally, with new trade agreements driving purchase commitments stability has been brought to the market. Lastly, the continued reductions that we're seeing in used inventory levels are freeing up the market as the trade ladder gets healthier.

This is John. One additional comment. We are encouraged by the administration's support and focus on the ag economy, delivering trade agreements and policies that are driving demand growth and stability for U.S. farmers.

Thanks for your comments. I'd like to revisit Deanna's comments regarding our production plans and product mix. What implications does this have for seasonality as we begin the year?

Sure, Chris, for 1Q 2026, in production Precision Ag, we anticipate net sales will be close to the first quarter of 2025, but margins will be significantly lower in the low single digits. Product and regional mix will be a large driver of the reduction as our lean production plan anticipates shipping fewer large tractors in Q1 versus historical first quarters, absorption of tariffs and lighter price realization, in part due to lower shipment volumes are also a headwind to margins year-over-year.

And as we're talking about first quarter, it's also worth touching on construction and forestry compared to the first quarter of 2025, we expect top line to be up about 20%, while margins at similar levels due to the impact of tariffs.

Building on that last comment, let's pivot to the overall C&F segment. 2025 proved to be a demanding year for C&F as we faced increased competitive price pressure and the highest level of tariff exposure amongst our business units. Despite these headwinds, we have observed some positive trends in both retail performance and order intake. Our outlook suggests that industry demand is expected to slightly improve in the coming year with our sales forecasted to outpace this industry growth. Josh Beal, could you provide an overview of what we anticipate for 2026?

You bet, Chris. As you mentioned, we saw a pickup in retail demand for earthmoving equipment in the back half of fiscal 2025. North American earthmoving and forestry retails were up a mid-single digit year-over-year in our third quarter, and we saw this momentum carry into the fourth quarter, although our numbers require a little unpacking. As you can see in the appendix of our earnings call deck, Q4 North American earthmoving and forestry retails were down to single digit year-over-year.

However, our construction equipment retails were actually up mid-single digits in the quarter. This was offset by a year-over-year decline in [ compact ] construction, which faced a difficult comp as we saw strong activity for this segment in October 2024. Notably, our North American earthmoving order book is up around 25% year-over-year with availability approximately 3 to 4 months out. As previously discussed, our underproduction earthmoving in late 2024 and early 2025 has positioned us well from a field inventory standpoint.

We expect to produce North American earthmoving equipment in line with retail in 2026, which is a significant driver of our 2026 net sales guide of up around 10%. [ road building ] and forestry industry volumes are expected to remain flat year-on-year. Notably, our road building business given its market leadership position and global diversification continues to benefit from strength in infrastructure spending around the world.

This is John. I think it's important to note the impressive synergies that we're seeing in road building, particularly in terms of leveraging Deere technology. As the industry leader, we're now expanding the value proposition to customers with tools like the John Deere Operations Center, which we brought to road building in 2025 and we believe that customers are now benefiting from an advanced digital platform to monitor fleet, logistics and job performance. we've already seen over 3,200 customer organizations engaged with this platform. This is just one of many opportunities we have for delivering more value to customers in this sector.

Thank you both for your comments. Your insights have clarified the dynamics across different segments and geographies and explain why our overall focus suggests net sales will increase year-over-year. Now that harvest is complete, I'm also interested in learning about the technology progress we have made during the past fiscal year. What's ahead? And how these advancements will further benefit our customers. Josh Beal, could you share some updated statistics

Sure, Chris. Just like many of our customers' operations post harvest, we had a good time to take stock of what we did in the past year. As John mentioned earlier, in fiscal 2025, we made significant progress across all layers of the tech stack, both in terms of expanded offerings and utilization but also in greater leveraging of technology across more production systems and geographies.

Let's start with the foundational layer of the tech stack, base precision. We've talked in the past about how Precision Essentials, our retrofit kit brings the core element of precision technology, guidance connectivity and onboard compute, deeper in the installed base of Deere and non-Deere equipment via a low upfront cost with an annual license. Reception of this offering continues to be strong. In the 2 years since it's been on the market, we've had orders for over 24,000 kits and this core technology has brought 3,300 new organizations into the John Deere Operation Center.

Another key example of our growth in base Precision is JDLink Boost, which bring Starlink-enabled satellite connectivity to areas of the world where terrestrial cell is insufficient for machine connectivity. We launched a solution in Brazil in the U.S. in January of this year and expanded the offering to additional regions over the summer. Since launch, we've taken over 8,000 orders for this solution globally.

The next layer of the tech stack is digital, the John Deere Operations Center. John already mentioned how we've leveraged the operations center in the road building business. We've also brought it to earthmoving, commercial landscaping in golf. In agriculture, we continue to see higher and higher levels of digital engagement. The John Deere Operation Center now covers over 500 million in [ engaged acres ], a 10% increase from last year. The number of highly engaged acres rose by 17% year-over-year, reaching 147 million.

More highly engaged acres suggest more customers each day are realizing the value gain from digitally documenting multiple production steps and executing value-enhancing actions using the tool. The next slide of Tech Stack is automation. Deanna, last quarter read shared some early customer feedback related to our newest combine offerings, harvest settings automation and predictive ground speed automation. Now that harvest is wrapping up, would you mind sharing your thoughts on how the season went?

Absolutely. Fiscal year 2025 marked the first year of availability for both solutions. Harvest settings automation had an impressive year 1 take rate of over 90% on North American combines. On average, operators use the technology over 60% of the time, they were in the combine, resulting in over 5 million acres covered by this solution and the adoption of this tech isn't limited to the North American market. The 5 million acres covered and more importantly, value realized from this technology included acres in Brazil, Europe and Australia, predictive [indiscernible] automation, which further enhances the harvest experience, yielded a nearly 30% increase in throughput measured by bushels per hour.

Continuing with automation, I'd also like to highlight the results we saw from See & Spray in 2025. This year, See & Spray technologies also covered over 5 million acres, after covering over 1 million acres in 2024. The average herbicide savings from the technology in 2025 was around 50%. To give you a sense of this value that customers can realize, let me share an example from Agritechnica this month. A customer from the state of Washington approached us at the show and shared that in 1 day, he saved more than $20,000 using See & Spray.

Examples like this give us confidence in the continued growth in both adoption and utilization of the technology. The tech is working. And when customers see that value in their operation, it's anticipated that they will continue to use it passover pass and season over season.

Thanks all. It's great to hear the examples of technology adding real value to our customers. Deanna, would you mind sharing some thoughts on the top layer of the tech stack, autonomy?

Certainly, Chris. As John mentioned, we recently opened up dealer orders for our tillage autonomy kits that are retrofittable onto 8R and 9R tractors. I have the opportunity to visit an early autonomy customer 2 weeks ago in Illinois. He was pleased with their experience with autonomy on a 9RX and a 2,680 high-speed disk this fall. Autonomy is unique because the value to the customer is really more about operational flexibility.

Autonomy certainly addresses labor shortages while also allowing existing resources to concentrate on higher-value tasks within their operations. But to this customer, I visited in Illinois, it was even more than convenience. He said it was invaluable to have the ability to get a job done when there is no one around to put in the seat to just take the tractor to the field and let it go to work. And no matter where I go in the world, labor availability is a huge issue on the farm, especially in busy seasons like spring and fall.

That's why we began by concentrating on our corn and soy production system and started developing a solution that can support customers in those peak activity periods. Since the start of our autonomous tillage journey, we've covered over 200,000 acres autonomously, and we're looking forward to even more next spring. And labor availability isn't unique to the corn and soy production system. It's prevalent across all the production systems that Deere supports, which is why you saw us at CES this year highlight how we're leveraging the technology in high-value crops, turf care and earthmoving.

The value of autonomous solutions can be tremendous, and we're just getting started.

Thank you. It's encouraging to see numerous examples that show how our ongoing tech investments are fueling substantial innovation and creating real value for our customers. Now before we open the line for questions, do you have any final thoughts you'd like to share Josh Jepsen?

Yes. I'll be brief. 2025 was a challenging year for the industry and for our team at Deere as the agricultural sector continued its downturn for a second straight year. As mentioned before, I've never witnessed Deere's resilience more than I did this year, represented by how we took care of customers while achieving performance that exceeded similar points -- other similar points in the cycle. .

From a shareholder perspective, our performance yielded $18.50 in earnings per share that supported continued strong cash generation. Equipment operations cash flow was $5.1 billion, a significant improvement from past downturns and better than any year outside of the period of '21 to 2024, which enabled us to return over $2.8 billion to shareholders via dividends and share repurchases.

We paused buybacks in the fourth quarter due to heightened market uncertainty, but we expect to resume our normal capital allocation activities in 2026. As we look ahead to the next year, we believe our field inventories across all segments are in good shape. We expect to see growth in Small Ag and Turf as well as in Construction & Forestry. And in North American large ag, we will enter the year lean from a production perspective but with flexibility to allow us to respond swiftly as market demand inflect.

The structural improvements we've made empower us to support robust levels of R&D and capital spending. We remain focused on the long-term customer value that we expect to unlock through technology, which should enable future growth for Deere and greater level of value for shareholders and all stakeholders. Finally, the achievements we delivered this year are a direct result of the commitment and hard work of our teams worldwide. I'm truly proud of what we've accomplished together, and we're excited to keep advancing our mission to empower customers to do more with less in 2026 and beyond.

Thanks, Josh. Now let's open the line to questions from our investors.

We're now to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. [Operator Instructions]

[Operator Instructions] Our first question will come from Stephen Volkmann from Jefferies. .

Great. I guess I will focus on tariffs. And you talked about the $1.2 billion, I think, headwind, I think that was your '26 number. But how are you thinking about offsetting that and over what period would you think that that perhaps you'd be able to kind of recapture that. I'm trying to think a little bit about the cadence of the year. I assume you'll improve as the year progresses. But I'm curious how you're thinking about it. .

Yes. Thanks, Steve, for the question. You got the numbers right. So it's $1.2 billion is the pretax tariff hit in 2026. That's about $600 million incremental from the $600 million that we saw in 2025. Run rate of the tariffs by quarter is pretty evenly bread, roughly $300 million per quarter. If you look at our price cost expectation for 2026, inclusive of tariffs in that number, we expect to be price/cost positive. So we'll start to capture back, we'll capture the incremental exposure this year and some of the exposure that we saw in 2025. That won't get us fully there, but it gives us a good chunk along the way. We'll continue to execute activities to mitigate that and expect to take some continued price in the future as well to cover that additional piece.

Our next question comes from Jamie Cook with Truist Securities.

Just a question on production in Precision Ag, just the -- on a 7% sales decline, the implied decrementals, I think, are approaching 60%. So just trying to understand that. I mean I'm assuming a good portion of that is tariffs. So how much is allocated to tariffs. And also just your comments on mix, understanding North American large ag is going to be down a lot, but you've also spoken to improving profitability in other regions, in particular, Brazil. So if you could just unpack the decremental margin on the sales decline.

Yes, yes, your numbers are right, Jamie. If looking at PPA specifically into 2026, it's around [ 60 ] would be the implied decremental margin. Tariffs, for that business, have approximately 1.5 or so margin impact for the full year of 2026. So if you back out that piece, it takes decrementals to kind of the low to mid-50s, so still elevated above normal levels for PPA. And that delta between normal would be the geographic mix that you're seeing. You're right, that profitability levels around the world have improved. We've talked to that. But still, North America, large ag remains our most profitable market. So it is negative mix for the year. And just given the magnitude of decline, that's what's driving the higher level of decrementals next year.

Our next question comes from Kristen Owen with Oppenheimer.

I wanted to double click on the large ag price assumption, that 1.5%. I think when we were talking about early order program that number in North America was closer to 3 to 4. So could you just help us unpack at 1.5%? How much of that is being driven by maybe some of the geographic mix? Just a little bit more color on the underlying assumptions for that number.

Yes. Thanks for the question, Kristen, you're right, early order programs in large tractor pricing, North America for 2026, less price increases are in the range of 3% to 4%, and that's held. What you're seeing with 1.5% price guide is a couple of things. One thing you're spot on is geographic mix. We talked about Brazil in 2025. We did a very strong price in Brazil in '25, mid-single-digit price increase positive. It will still be positive in 2026, but more muted, think about closer to that the guide range, so that is pulling down in some of the list price.

The other thing that's happening in North America is a -- call it, a parts mix versus complete goods. As we go down in the cycle, parts make up a bigger mix of our sales in a given year. And our price -- parts pricing, was a little more muted for 2026. But the combination of those 2 is really what's pulling down that guide versus the list price increases?

Yes. Thanks for unpacking that, Josh. This is Deanna. And as we think about North American pricing overall, we go back to 2 of our priorities. And first is the continued focus on use reduction. So you will see us continue to provide pool fund opportunities to our dealers at a similar level in '26 as we did in 2025. And from an overall pricing standpoint, we remain mindful of where our customers are at in the cycle and maintaining our opportunities for the future.

Our next question comes from Tim Thein with Raymond James.

The question is just on production costs in '26. You highlighted tariffs, but just ex that, you saw kind of a build throughout just in terms of production costs. How are you thinking about that as we look into '26. Obviously, a number of pieces that flow into that. So maybe just some help in terms of for the overall equipment upside we're thinking about production costs.?

Yes. Thanks, Thein, for the question. Yes, if you back off the incremental $600 million of tariffs in production costs, we would still expect to be slightly unfavorable for production costs in 2026. But there's a few moving pieces there. overheads for our business, particularly in large ag are expected to be unfavorable next year. We do have some headwinds in our North American labor from our current contract. 2026 is a step-up year in that contract for production labor.

So that provides a headwind. That's largely offset by some favorability in profit sharing that we'll see next year just on lower income levels. Material ex tariffs will be slightly negative, pretty close to flat. That does include the inflationary impact of indirect impacts of tariffs that we're seeing in the business, but slightly negative when you roll it all together. But again, I think the point to make price/cost, we'd expect to be favorable for the full year. And again, that helps offset some of the tariff costs that we saw in 2025 that we weren't able to mitigate with price that year.

Thein, this is Jepsen. I'd say the other thing is we still have a bunch of opportunity runway as it relates to taking cost out of product and process production costs. So we've -- the teams have done a really good job over the last couple of years, and we think that will continue. So we're by no means done on that journey. That will continue to create opportunity for us to grow margins, particularly as we've seen some of these headwinds here over the back half of '25 into '26.

Our next question comes from David Raso with Evercore ISI.

Given the full year large ag sales guide in the first quarter implied a flat, it's implying the rest of the year down 9%. I was just curious, when you think of PPA for the rest of the year after the first quarter. Are we down every quarter?

And then maybe to help us with the margins for the rest of the year? Any cadence you can give us on the pricing, right? Obviously, the pricing was up. I know it was an easy comp in Brazil. But just 1.5% for the full year, just how to think about that cadence, just so to think how we get over the hump on kind of price cost later in the year if we don't if we don't have any growth in any quarter for large ag.

Yes. Thanks, David, for the question. As Deanna talked earlier, seasonality will be a little different for large ag next year, given our leaner start in Q1. We will see that typical ramp up in the second quarter. And actually, you're going to have a fourth quarter that's going to be particularly strong as well, just given some of the timing of the shipments.

To your question, we would expect to be down year-over-year in all those quarters, just given the level of decline that we're seeing. But you see margin improved quite a bit as you get into the second quarter, and we'll stay at those higher margin levels through the balance of the year. It's really an impact on Q1, given the lean production that's driving that.

David, this is Jepsen. The other thing I'd add is we would expect post 1Q to kind of return to more normal seasonality, highest net sales, highest margin in the second quarter. So a more traditional seasonality as we go from there. And then if you just step back and look at 2Q through 4Q those margins, we would expect based on the guide to be north of 14% or around there. So a pretty big step up and then more even performance through the remainder of the year.

Our next question comes from Jerry Revich with Wells Fargo.

I'm wondering if you would care to provide an update on the expectations for See & Spray in terms of deliveries of retrofit kits into the U.S. for '26 and any expectations on acreage coverage and overall as we look back on fiscal '25, any update on progress on the subscription build-out that you can share?

Thanks, Jerry. Happy Thanksgiving to you as well. I mean, maybe a couple of points there. First, just as we look at take rates of See & Spray on our 2026 early order program at a pretty similar level to what we saw in 2025 in terms of that factory installed piece. We'll need to see what happens with the retrofit orders, which tend to be placed over the course of the winter. But from a take rate standpoint, we're a pretty similar level to what we saw in 2025. I think one point to make on acres covered is the returning customers that add machines in 2024 and moving into 2025, we saw them cover on average about 20% more acres their operation in the 2025 year.

And that's a positive sign to us for a number of reasons. It validates what Deanna said earlier that the technology is working. It's delivering savings. And as a result, we see customers increasing utilization year-over-year. So our expectation is, to continue to grow that number in 2026.

This is Deanna. In addition to the increasing installed base with new model year '26 sprayers coming out of factory and additional retrofit kits, increased per machine usage in their second year, we also know that See & Spray is expanding globally as we see other markets in the world beginning to take up this technology as well. So our expectation is to see growth in acres covered in 2026, and we look forward to seeing our customers have those great savings that we saw in 2025 continue.

Our next question comes from Chad Dillard with Bernstein.

So a question for you on your guidance. So as we think about 2026, to what extent does it embed any additional farm assistance from the government. And then also, just like how do you think about the operating leverage of the business coming out of this deeper-than-the-normal cycle?

Yes, happy to, Chad. I would say our baseline expectation is not for any more assistance. I mean we base our forecast off of what we see in the market today, informed by order velocity and Deanna mentioned this in the comments, that we can see order velocity change. And we've seen some positives over the last, call it, month or so, as an example, the trade agreement with China, and we've seen a pickup in purchases of soybeans and that's been reflected in the soy price as well. So we'll see how the rest of the year plays out. We've intentionally put some flexibility in the back half the response to changes in velocity, and we'll see how that plays out over the balance of the year.

Yes, Chad, this is Jeff. As it relates to leverage your question on kind of what -- as things inflect, I think as we start to see those volumes pick up. And even in Production Precision Ag, as we discussed kind of first quarter versus the rest of the year, you see some of that improvement in benefit as we go through the year.

Clearly, we're seeing that on small ag and turf and construction, even with, call it, 10% increased sales, those -- particularly if you take out the the tariff impact. Those incrementals are really solid. So I think that's a positive reflection of that. I think across the businesses, too, we're seeing more from a technology perspective, whether that's in Construction & Forestry where we saw 20% growth in technology sales there. the opportunities in small ag and turf continuing to present themselves. So I think the combination of the work we've done on the cost structure, obviously, we've got more work ahead of us as we work to mitigate and take out some of that tariffs. But I think the leverage for us as we inflect will be positive from a margin perspective.

Thanks, Chad. We'll go ahead and do 1 more question.

Our last question comes from Steven Fisher with UBS. .

I wanted to just clarify a couple of assumptions that you mentioned in the dialogue. I think there are some folks that were surprised to see the expectation of South America flat in light of some of the sort of incremental caution we've seen there, but it sounds like you cited some potential for lower interest rates. Can you just kind of give us a little more color on your confidence there. And then on the small ag side, you cited some expected improvement in -- or better results as a result of better housing activity. Can you just clarify if you've seen any indications of that already. .

Yes. Thanks, Steve, for the question. A couple of things on South America. We've talked about kind of a mix of caution and optimism in that region and as we've seen, I think over the past quarter, so it's probably a bit more caution there. And interest rates have been a big driver. The benchmark rate certainly having an impact on replacement. As we look at expectations over the last month or so, inflation expectations have eased a little bit. And as a result, you're seeing expectations for that rate to come down by a couple of points over the course of 2026.

So obviously, we need to see how that plays out, and that will be impactful on the market. But well that's -- I think that's embedded sort of in that combination of caution and optimism, which is what's reflected in the flat guide. The only thing I would say is just on our order books in the region, they look really strong. I mean we are about 5 months out in Brazil. So we've got pretty good coverage through most of the first part of the year.

Obviously, we need to see how it plays out in the back half. But from an order velocity standpoint, it looks good.

I think 1 other positive there in Brazil is on high-value crop as we've seen some tariff relief on things like coffee, beef, citrus, particularly if you think about our small and mid tractor business, I think that bodes well for the industry and in turn for S&R dealers as well.

On small ag, Steve, and specific to turf, our forecast is based off of housing starts coming up a little bit next year, not a massive increase, but a low single-digit increase in home sales, I should say, not housing starts home sales in 2026. That's based off of some expectations around easing in the U.S. We'll see how that plays out. But as we see home sales come back, that tends to be supportive of our turf business. And so we've got some modest growth in turf as well, which is reflected in that small ag guide of flat to up 5%.

Yes. One thing I'd add, this Jepsen I think some -- the prospect of a little more -- a few more interest rate cuts and what that could mean for housing, both for our earthmoving, compact construction and turf are all positive, particularly given just the low levels of inventory, we're under inventory from a single-family housing perspective. So I think that a little bit of continued rate easing there would be positive.

Yes. Thanks for the question, Steve. This concludes today's call, and we really appreciate everybody's time with us today. Just as a reminder, I will be hosting our upcoming Investor Day on December 8. You can find additional details for the event in the appendix of today's slide deck. And for all of those of you in the U.S. who are celebrating, we hope you have a great Thanksgiving holiday. Have a great day.

That concludes today's conference. Thank you for participating. You may disconnect, and have a great rest of your day.