
Deere & Co
NYSE:DE

Deere & Co





In the rich tapestry of American industry, Deere & Co. stands as a testament to innovation and endurance. Founded in 1837 by blacksmith John Deere, the company began with a simple yet revolutionary self-scouring steel plow. This innovation paved the way for extensive agricultural advancement in the United States. Today, Deere & Co., often branded under the iconic John Deere name, is a leading manufacturer of agricultural, construction, and forestry machinery. It transforms the farming landscape through its advanced technology-driven solutions, including tractors, combine harvesters, and irrigation equipment. The company has seamlessly woven cutting-edge technologies such as GPS and precision agriculture into its core operations, allowing farmers to maximize their productivity with increased efficiency and reduced environmental impact.
Deere & Co.'s business model revolves around a robust ecosystem of manufacturing, financing, and after-sales services. Its revenue streams are primarily driven by the sales of equipment, with financial services providing a significant contribution through loans and leasing options to customers under the John Deere Financial arm. This integrated approach ensures the company maintains strong relationships with its clients, offering customized financial and insurance solutions alongside equipment sales. Moreover, the persistent focus on innovation and sustainability aligns John Deere with the evolving needs of modern agriculture, construction, and forestry work, enabling it to maintain a formidable market position. By continuing to adapt and evolve, Deere & Co. not only honors its rich heritage but also sows the seeds for a prosperous future in the global machinery industry.
Earnings Calls
In a tough first quarter, Deere & Company saw net sales drop 30% year-over-year to $8.51 billion, largely due to reduced shipment volumes. Despite headwinds, net income remained stable at $869 million, supported by tax benefits. Looking ahead, Deere anticipates a 15-20% decline in production and precision ag sales for 2025, with operating margins projected between 16% and 17%. The company also expects net income to stay between $5 billion and $5.5 billion for the year. Positive indicators, such as improving agricultural fundamentals and government support, bode well for future demand despite continued market uncertainty.
Management

John C. May II is the Chairman and Chief Executive Officer of Deere & Company, a position he has held since November 2019. Born in Massachusetts, May holds a bachelor’s degree from the University of New Hampshire and an MBA from the University of Maine. May joined Deere & Company in 1997 and began his career in the Worldwide Construction & Forestry Division. Throughout his tenure, he has taken on various roles of increasing responsibility, including managing operations in China. He later served as the President of Agricultural Solutions, as well as Chief Information Officer, focusing on the company's technology transition efforts. Under May’s leadership, Deere & Company has continued to emphasize innovation, particularly by integrating advanced technology into its farming equipment to improve efficiency and productivity. His strategic initiatives have been directed towards sustainable agriculture and construction practices. John C. May II is regarded for his expertise in business operations and strategic planning, as well as his commitment to maintaining Deere & Company's leadership in the global agricultural and construction equipment industries.

Joshua A. Jepsen is an executive at Deere & Company, a prominent American corporation that manufactures agricultural, construction, and forestry machinery. He serves as the Senior Vice President and Chief Financial Officer (CFO) of the company. In his role, he is responsible for overseeing the financial operations, strategic planning, and financial reporting of Deere & Co. Jepsen plays a key role in supporting the company's growth initiatives and ensuring financial stability. His career at Deere & Co. spans several years, during which he has held various leadership positions, contributing to the company's financial management and operational strategies. His expertise in finance and leadership has been integral to driving the company's financial success and supporting its vision of delivering advanced technological solutions to the industries it serves.

Ryan D. Campbell is a notable executive associated with Deere & Co, a leading name in the agricultural, construction, and forestry machinery industry. As part of the company's leadership, Campbell has played a significant role in steering the strategic direction and financial management of the organization. Campbell has served in various capacities at Deere & Co, demonstrating his expertise in finance and operations. His roles have often involved overseeing financial strategies, capital allocation, and ensuring the overall fiscal health of the company. This has been critical in supporting Deere's ambitious innovation agenda and its efforts to expand its market presence globally. Known for his analytical acumen and leadership skills, Campbell's contributions have been instrumental in driving growth and efficiency at Deere & Co. His insights have helped in navigating economic challenges and leveraging opportunities in the evolving market landscape. Throughout his career, Ryan D. Campbell has been recognized for his commitment to excellence and his ability to inspire teams towards achieving corporate goals. His leadership is marked by a focus on sustainable practices and fostering a culture of innovation and accountability within the organization. Overall, Campbell's role at Deere & Co highlights his capacity to integrate financial acumen with strategic vision, supporting the company's mission to deliver top-tier products and services that meet the needs of their diverse clientele.

Cory J. Reed has held significant leadership roles within Deere & Co., a leading global manufacturer of agricultural, construction, and forestry machinery. He joined the company in 1998 and has contributed to various sectors over the years. His experience spans across divisions such as marketing, sales, strategic planning, and operations. Throughout his career at Deere, Reed has taken on roles of increasing responsibility. Notably, he has been involved in managing the agricultural solutions segment, where he focused on innovation and enhancing value for customers through the integration of technology in agricultural equipment and services. Reed's leadership is characterized by his commitment to advancing precision agriculture, promoting sustainability, and ensuring the company remains competitive in the global market. His strategic insights have been instrumental in guiding Deere & Co.'s growth and adapting to the evolving needs of the agricultural industry. He has also been active in Deere's efforts to leverage data and technology to improve productivity and efficiency for farmers worldwide, aligning with the company's broader goals of creating a more sustainable and profitable agricultural system.

Justin R. Rose is a senior executive at Deere & Company, an organization known for its agricultural and industrial machinery. As of 2023, he serves as the Chief Information Officer (CIO) of the company. Rose is responsible for overseeing the company's information technology and data efforts, ensuring these align with Deere's overall strategic goals. He is instrumental in driving the digital transformation initiatives within the company, ensuring that Deere remains at the forefront of technological advancements in the industry. His leadership is critical in integrating IT solutions to enhance operational efficiency, customer engagement, and the development of innovative products and services at Deere & Company.

Jeffrey A. Trahan is an accomplished executive known for his pivotal role at Deere & Co., a leading player in the agricultural, construction, and forestry machinery industry. At Deere & Co., he has held several leadership positions that have significantly impacted the company's operations and strategic direction. Throughout his tenure, Trahan has demonstrated a keen understanding of both operational management and strategic planning, contributing to the growth and efficiency of the organization. His insights into enhancing manufacturing processes and customer service initiatives have been crucial in maintaining Deere & Co.'s competitive edge in the market. Trahan's leadership style is characterized by a strong emphasis on innovation, collaboration, and sustainability, aligning with Deere’s commitment to delivering advanced products and solutions to its global clientele. His contributions have not only fostered internal improvements but have also positioned the company to better address the evolving needs of its customers and the challenges posed by the industry. Overall, Jeffrey A. Trahan stands out as a leader who has significantly advanced Deere & Co.'s mission and operational success.

Jahmy J. Hindman is the Chief Technology Officer at Deere & Co., a position he has held since July 2020. Hindman has been with Deere since 1996, beginning his career as an engineer. Over the years, he has climbed the ranks, holding various roles of increasing responsibility in engineering and product development, which have equipped him with a deep understanding of Deere’s technology and innovations. As CTO, Hindman is responsible for overseeing the company’s technology strategy, ensuring the integration of advanced technologies like artificial intelligence, IoT, and automation in their machinery to improve agricultural precision and efficiency. His leadership plays a crucial role in driving Deere’s innovation agenda, focusing on sustainable solutions that meet the needs of modern farming. Hindman holds a bachelor's and master's degree in mechanical engineering from Iowa State University and a Ph.D. in systems engineering from Colorado State University. Known for his focus on leveraging technology to enhance productivity and sustainability, Hindman continues to be a key figure in maintaining Deere & Co.'s position as a leader in agricultural and construction machinery.

Rajesh Kalathur is a notable executive at Deere & Company, where he has held various significant leadership roles. He joined Deere & Co., commonly known as John Deere, in 1996 and has since accumulated extensive experience across different functions in the organization. Kalathur has served as the Chief Financial Officer (CFO) and President of John Deere Financial. As CFO, he was responsible for the company’s global financial operations, including financial reporting, investor relations, and strategic planning. His leadership in financial roles has been instrumental in guiding the company's financial strategy and ensuring sustainable growth. Moreover, Kalathur has been deeply involved in the company's technology and innovation strategies. He served as the Chief Information Officer (CIO), focusing on leveraging technology to enhance operational efficiencies and contribute to the company's overall performance. Throughout his tenure at Deere, Kalathur has been recognized for his strategic vision and ability to navigate the complexities of a global manufacturing company. Under his guidance, Deere & Co. has continued to strengthen its position as a leader in the agricultural and construction equipment industry. His contributions reflect a combination of strong financial acumen, technological insights, and strategic leadership, making him a key figure in shaping the direction of Deere & Co.
Josh Jepsen is the Chief Financial Officer (CFO) of Deere & Co., a leading global manufacturer of agricultural, construction, and forestry machinery. Before becoming CFO, Jepsen held various critical roles within the company, contributing significantly to its financial strategy and operations. His experience at Deere & Co. spans over many years, where he has been instrumental in financial planning, analysis, and reporting. His leadership skills and financial expertise have been vital in helping the company maintain its competitive position in the market. Jepsen is known for his strategic vision and ability to drive sustainable growth. Regarding "Josh Beal," this name does not match the current executive officers at Deere & Co.
Renee A. Mailhot serves as the Chief Technology Officer at Deere & Company, commonly known as John Deere, a leading manufacturing company that specializes in agricultural, construction, and forestry machinery. In her role as CTO, Mailhot is responsible for overseeing the company's technological advancements and innovations, particularly in areas such as precision agriculture, automation, and connectivity. She plays a crucial part in ensuring that Deere & Co. remains at the forefront of technology in the industry. Mailhot's leadership is instrumental in driving technology strategies that align with the company's vision of providing smarter and more sustainable solutions for its customers around the world. Her expertise in technology and engineering, combined with a deep understanding of the industry, enables her to contribute significantly to the company's growth and success. Under her leadership, Deere & Co. continues to explore and integrate cutting-edge technologies, ensuring operational excellence and pioneering advancements in smart farming solutions.
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.
Thank you. Hello, welcome, and thank you for joining us on today's call. Joining me on the call today are Josh Jepsen, Chief Financial Officer; and Josh Rohleder, Manager, Investor Communications. Today, 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 2025. After that, we'll respond to your questions.
Please note that slides are available to complement the call this morning. They can be accessed on our website at johndeere.com/earnings. As 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 10-K as updated by reports filed with the Securities and Exchange Commission.
This call may also 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 our release and posted on our website at johndeere.com/earnings under Quarterly Earnings & Events.
I will now turn the call over to Josh Rohleder.
Good morning, and thank you for joining us today. John Deere completed the first quarter with a 7.7% margin for the equipment operations. Global ag fundamentals generally improved this quarter. However, demand remains constrained by overall uncertainty in the market which has continued to put pressure on order velocities, particularly in North America. Our fiscal 2025 ag outlook remains largely unchanged from prior guidance when excluding the impact of currency movement over the past quarter.
Notably, shipping volumes were lower in the quarter versus expectations as we calibrated full year production schedules to build as efficiently as possible. As a result, we expect to recover the first quarter shortfall over the remainder of the year.
In construction and forestry, end market fundamentals remain supportive of replacement demand, albeit dampened by elevated interest rates, actual uncertainty and a competitive environment. Planned under production in our earthmoving segment during the first quarter drove further reductions in field inventory levels, enabling production optionality as market demand develops over the course of the year.
Slide 3 opens with results for the first quarter. Net sales and revenues were down 30% to $8.508 billion, while net sales for the equipment operations were down 35% to $6.809 billion, Net income attributable to Deere & Company was $869 million or $3.19 per diluted share, which included $163 million of discrete tax benefits related to special items.
Turning to our individual segments. We begin with the production and precision ag business on Slide 4. Net sales of $3.067 billion were down 37% compared to the first quarter last year, primarily due to lower shipment volumes. Price realization was positive by just over 1 point. Currency translation was negative by roughly 2.5 points.
Operating profit was $338 million, resulting in an 11% operating margin for these segment. The year-over-year decrease was primarily due to lower shipment volumes and sales mix, partially offset by lower SA&G and R&D expenses and reduced production costs.
Moving on to small ag and turf on Slide 5. Net sales were down 28%, totaling $1.74 billion in the first quarter as a result of lower shipment volumes. Price realization was positive by just under 1 point. Currency translation was negative by just under 1 point as well.
Operating profit declined year-over-year to $124 million, resulting in a 7.1% operating margin. The decrease was primarily due to lower shipment volumes and sales mix, partially offset by lower production costs.
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 be down approximately 30%, as higher interest rates, macro uncertainty and elevated used inventory levels are slightly tempered by improving ag fundamentals and expectations for farm net income, which is further bolstered by additional government support.
For small ag and turf in the U.S. and Canada, industry demand estimates remain down around 10%. The dairy and livestock segment remains at strong levels of profitability despite reaching the lowest level of cattle inventory in over 70 years.
However, profitability in these segments has not yet translated into equipment purchases. U.S. and Canada demand has been further impacted by continued weakness in turf and compact utility tractors as high interest rates weigh on purchase decisions.
Moving to Europe. The industry is now projected to decline around 5%. Farm fundamentals have stabilized, albeit down, with less volatile commodity prices and stronger dairy margins offsetting macro uncertainty. Additionally, in Central And Eastern Europe, reduced pressure from Ukrainian grain imports is supporting better-than-expected farm net incomes.
In South America, industry sales of tractors and combines are expected to be roughly flat following 2 years of significant industry declines. In Brazil, sentiment is showing signs of improvement as depreciation in the real has pushed local commodity prices higher amidst a year of stronger yields.
In line with softening input costs, farm margins are expected to improve. Additionally, declining production, tight global stocks and strong demand have driven outsized profitability in coffee bean production, supporting equipment demand for small and midsized tractors.
In Argentina, decreased currency risk and export tax reductions will support some improvements in farm margins despite negative impacts of dryness at the beginning of the year. Industry sales in Asia are still projected to be down slightly.
Next, our segment forecast begins on Slide 7. For production and precision ag, net sales are now forecasted to be down between 15% and 20% for the full year. The forecast assumes roughly 1 point of positive price realization for the full year, offset by 2.5 points of negative currency impact.
The reduction to our sales guide from the prior quarter is primarily driven by the strengthening of the dollar relative to nearly all foreign currencies, most notably the Brazilian real, Canadian dollar and euro. For the segment's operating margin, our full year guide forecast is now between 16% and 17%, also reflecting the impacts of currency fluctuations.
Slide 8 shows our forecast for the small ag and turf segment. We expect net sales to remain down around 10%. This guide now includes 0.5 point of positive price realization and 1.5 points of negative currency translation. This segment's operating margin guide remains between 13% and 14%.
Shifting now to construction and forestry on Slide 9. Net sales for the quarter declined roughly 38% year-over-year to $1.994 billion due to lower shipment volumes. Price realization was negative by roughly 1 point. Currency translation was also negative by more than 1 point.
Operating profit of $65 million was down year-over-year, resulting in a 3.3% operating margin due primarily to lower shipment volumes and sales mix, as well as unfavorable price realization and higher SA&G and R&D expenses. Lower shipment volumes were primarily due to planned underproduction to retail in the quarter as we reduced field inventory levels in our earthmoving segment.
Slide 10 describes our construction and forestry industry outlook. Industry sales for earthmoving equipment in the U.S. and Canada are expected to be down around 10%, while compact construction equipment in the U.S. and Canada is expected to be down 5%.
End markets remained sequentially unchanged in 2025, with equipment demand tempered by uncertainty across both construction and compact construction equipment. U.S. government infrastructure spending remains at historically high levels, while single-family housing starts continue to increase as a result of low levels of existing home inventory.
These tailwinds are offset by subdued multifamily housing starts and a softening commercial real estate market, as high interest rates continue to weigh on overall investment. Additionally, earthmoving rental refleeting remains at low levels.
Global forestry markets are expected to be flat to down 5% as all global markets continue to be challenged. Global rebuilding markets are forecasted to be roughly flat, with strong end market demand persisting in [indiscernible] return to more normal ordering seasonality.
Moving to the C&F segment outlook on Slide 11, 2025 net sales remain forecasted down between 10% and 15%. Net sales guidance for the year includes flat net price realization and 1.5 points of negative currency translation. The segment's operating margin continues to be projected between 11.5% and 12.5%.
Now transitioning to our financial services operations on Slide 12. Worldwide financial services net income attributable to Deere & Company in the first quarter was $230 million. Net income was favorably impacted by a decreased valuation allowance on assets held for sale of Banco John Deere. Note that Deere completed this transaction with Bradesco for the sale of a 50% ownership in Banco John Deere subsequent to the quarter in February.
Excluding this special item, net income decreased due to a higher provision for credit losses, which was partially offset by lower SA&G expenses. For fiscal year 2025, our outlook remains at $750 million as benefits from a lower provision for credit losses are partially offset by less favorable financing spreads.
Finally, Slide 13 outlines our guidance for net income, effective tax rate and operating cash flow. For fiscal year '25, our outlook for net income remains between $5 billion and $5.5 billion. Next, our guidance now incorporates an effective tax rate between 20% and 22%. And lastly, cash flow from the equipment operations remains projected between $4.5 billion and $5.5 billion.
Note that during the quarter, we made a voluntary 401(h) contribution of $520 million to fund our salaried postretirement health care plan. This will impact our cash flows for the full year. However, our guidance range remains unchanged.
This concludes our formal comments. We'll now shift to a few topics specific to the quarter.
Let's begin with Deere's performance this quarter. We saw net sales decline roughly 35% year-over-year, and margins come in just under 8%. But we've held the majority of our guidance for the year, notably net income.
Josh Beal, can you break down what happened this quarter and then walk through what this means for the rest of the year?
Sure. Happy to. I think it's important to start with a few thoughts on what our plans were for the quarter. In North America large ag, our focus was continuing to work down used inventory levels while returning to normal production and shipment seasonality, albeit at lower volumes this year due to the projected industry decline.
In Brazil, we targeted further reduction in combine field inventory, which was the one product line where we still had a little more underproduction to do following the significant inventory declines we achieved across all product lines in 2024.
Lastly, in construction and forestry, recall that our plan was to shut down North American earthmoving production for roughly half the first quarter, significantly underproducing retail demand and positioning our field inventories well for the remainder of the fiscal year.
We feel great about the progress that we made across all 3 fronts. The plans that we executed, while contributing to the 35% year-over-year decline in sales that you mentioned, reflect our ongoing focus on proactively managing our business through this downturn.
There were a few variances this quarter that caused sales to decline slightly more than we had anticipated, specifically the timing of shipments and currency translation. Within our ag and turf divisions, we saw the timing of certain product deliveries get pushed out into the second and third quarters as we work to optimize schedules for the full year.
Similarly, in roadbuilding, a shift to more normal seasonality in that industry pushed some shipments into future quarters. As a result, we expect to see these sales occur across the remainder of the year for all 3 divisions.
Regarding currency, over the quarter, we saw mid-single-digit strengthening of the dollar against nearly all our foreign currency exposures. While this lowered our top line results, particularly in production and precision ag, due to the translation impact on non-U.S. dollar sales, currency impact on operating profit was relatively minimal in the quarter due to currency hedges.
For the full year, the reduction in both our net sales and operating profit guides for large ag are primarily driven by currency changes, as we extend the impact of the stronger U.S. dollar, the rest of our -- to our rest of your projections, including our unhedged currency exposure in the latter quarters of the year.
Shifting to cost management. We had a relatively strong quarter. In both of our ag and turf segments, we saw favorable production costs, primarily due to reduced material costs and muted overhead headwinds. Additionally, lower SA&G expenses this quarter reflect our focus and commitment to operational efficiency throughout the business.
Turning to the full year guide. Our market demand outlook remains relatively unchanged this quarter. Outside of the FX impacts that moved our PPA guide slightly lower, this quarter was really a story of continued production and inventory management.
One last item of note, we did benefit from a favorable tax rate this quarter, resulting from 2 nonrepeating discrete items totaling $160 million -- $163 million. Therefore, when netted against the negative currency impacts and other quarterly items, our full year net income forecast remains unchanged from our original 2025 guide.
Great. Thanks for that breakdown, Josh. So overall, it was really a quiet quarter once you back out the timing and FX and tax items.
I guess moving then to the broader ag industry. I'd like to talk through farm fundamentals. The USDA just updated their 2025 forecast for net cash farm income. While U.S. net cash farm income is now forecasted to be up 22% year-over-year, crop cash receipts are still expected to fall 2% driven by lower commodity prices.
The difference then would be the significant government support expected performance this year. Obviously, it's still early in the year, but this seems to be a somewhat positive proof point for our customers following a tough 2024.
Can you add any additional color to what this means for farmers and equipment demand over the rest of the year?
Yes. Sure thing, Josh. And clearly, a positive headline with forecast up year-over-year, but it's important to break down how we get to that point. There are a number of positive data points this quarter. Keep in mind, this is all within the context of a trough level outlook for 2025.
For starters, the recent rally in commodity prices has been fueled by both a cut and last season's U.S. yield forecast, along with dryness in South America. Additionally, the USDA forecast for global ending stocks of corn, soy and wheat declined over 10% during the quarter as stocks to use retreated. This provides some benefit for our customers as the market last year's strong harvest.
On the input side, farmers are continuing to see a decline in input costs for the third consecutive year. Further tailwinds this quarter came via $10 billion in additional U.S. support for farmers as you noted. This assistance will offset some of the margin decline farmer saw in 2024, while potentially helping to relieve concerns around macro risk and high interest rates.
But ultimately, we don't expect this to translate into immediate order velocity as general uncertainty continues to persist and customers remain cautious across all markets.
This is Josh Jepsen. And I think the takeaway here is the additional support from government payments will help buffer downside risk to farmers' balance sheets as well as the overall industry outlook, following a multiyear decline in both farm net income and industry equipment demand.
Definitely, Josh. And if we look globally, Brazil is another geography where farmer sentiment continues to improve. Currency movement has been favorable as a weakening real helps improve farm net incomes in the country. This is because commodity sales are primarily U.S. dollar denominated, while typically around half of producer costs are in local currency.
It's still too early to call a market shift there as we've got to see the sentiment convert to a meaningful change in order velocity, but it's a positive sign nonetheless.
Finally, turning to Europe. The continued favorability we've seen in dairy and livestock is now supported by moderately better wheat prices and slightly lower input costs. While markets overall remain contracted and pressured by lower yields and macro uncertainty, we've seen this improved sentiment translate to further stabilization in our order books.
Perfect. Thanks, Josh. Clearly, a dynamic global market, but overall sentiment seems to be improving a tinge. Now given this macro -- this market backdrop, can you update us on the business and how we're managing through inventories and order books?
Absolutely. As we discussed earlier, this quarter has really been about executing the plan as we continue to manage through this downturn. Our setup entering 2025 was solid as the underproduction of retail that we executed last year drove down field inventories and positioned us well across the globe for another challenging year in terms of end market demand.
As we walk around the world, let's start with North America. On the new inventory side, we ended the calendar year with large ag field inventory down 25% year-over-year and roughly 15% below pre-2020 averages. In fact, we saw our 220-horsepower tractor inventory decline by nearly twice as much as the industry over the past year, allowing us, in partnership with our dealers, to continue our focus on reducing used tractor inventory.
Industry backdrop remains challenged as we continue to expect demand declines across all large ag product lines in North America. Our combine early order program closed a couple of weeks ago, and compared to last year's EOP, was down more than our industry guide. Additionally, our rolling tractor order books continue to provide roughly 5 months of visibility as they're now full late into our fiscal third quarter.
As a result, we're targeting to finish the year with new inventory in the U.S. roughly unchanged year-over-year, reflecting our plan to produce in line with retail demand in the region.
Shifting our focus to North America in used equipment, we're starting to see early proof points supporting the operational and marketing decisions we've made over the past few quarters. Year high-horsepower tractor used inventory peaked in November, and we've since seen 2 consecutive months of moderate unit declines, along with compression in auction to asking price spreads.
Notably, we've also seen 2 consecutive quarters of improvement in the percentage of late model equipment that makes up Deere's used high horsepower tractor population. Deere combine used inventory was up this quarter, in line with normal season build, but down over 10% from the recent peak in spring 2024, and is currently sitting at around 60% of the prior cycle peak.
While progress has been made, normalizing used inventory levels in North America, particularly in the high horsepower tractors, remains a top priority for the fiscal year.
This is Jepsen. Maybe one thing to add. I spent time last week with our dealer principles from the U.S., Canada, Australia and New Zealand. We have a high level of alignment and focus on reducing used inventories, and we feel confident in how we collectively, Deere and dealers, have managed this downturn differently and note our more proactive response to get ahead of market turning in '24. This enables them to continue investing in their ability to support customers' needs today and tomorrow.
Thanks, Josh. Great to hear that feedback from the channel.
Now continuing outside the U.S., we're seeing some bright spots in Brazil as the work we put in last year to bring down inventory levels has also resulted in a return to production levels in line with the industry demand.
As previously noted, the one exception is combines where we had a little more work to do in the first half of this fiscal year. With Brazilian harvest in January, the end of the calendar year is typically our strongest combine selling season. And to that end, we saw great progress in our combine inventory this quarter, with field levels down over 25% in the past 3 months, down nearly 2/3 since the end of fiscal 2023.
Along with improving customer sentiment in the region, our strategic focus on tech adoption has been met with strong customer interest. During the quarter, over 1,500 precision ag essentials kits were ordered in Brazil, along with over 1,200 orders for JDLink Boost, our Starlink supported satellite connectivity solution which was just made fully available to the market for order a few weeks ago.
We expect to see continued tech adoption in Brazil as connectivity expands within the region and customers are able to maximize the value of John Deere's precision ag solutions in the John Deere operations center.
This is Josh again. One thing to add on top of the great progress Beal noted is our continued focus on investing in Brazil for Brazil. During the past quarter, we officially opened our technology development center in the country, which we announced last year. This space will enable us to develop and deliver solutions specifically suited for Brazil's tropical agriculture environment.
We also continue to enhance both dealer and customer support in Brazil. Brazilian farmers are ramping up the horsepower curve, while simultaneously integrating advanced technology and digital solutions into their operations. We recognize this and are committed to supporting them on this journey.
A quarter ago we discussed the growth in engaged acres and highly engaged acres in South America. The combination of the equipment, technology and connectivity we're delivering will support further growth in these metrics and, more importantly, lead to better outcomes for our customers.
Great call, Josh. Okay. Let's shift now to construction and forestry, which had a few unique adds this quarter. As you mentioned earlier, we discussed the roughly 50% production shutdown days we had planned and earthmoving. As we proactively work to reduce inventories and build order banks. Josh Beal, could you provide an update on how that turned out, along with any broader market commentary for the year?
Yes. No problem, Josh. As you rightly noted, our first quarter in C&F was all about rightsizing inventories to ensure strong execution for the remainder of the year. To that extent, we underproduced retail demand by approximately 35% in the first quarter, resulting in an earthmoving inventory reduction of more than 15% over the past 3 months and nearly 30% in the prior 2 quarters combined.
In fact, this was more than we had initially anticipated as retail sales for compact construction, even better than expected at the end of the calendar year. We're encouraged by these results as they provide us with operational flexibility as earthmoving demand evolves throughout the remainder of the year.
Turning to the broader industry. We remain focused on supporting sales in a highly competitive North American market. End markets remain strong with only around 50% of IIJA funds committed and equipment utilization, reflecting the fact that construction employment is at record levels and continuing to rise. However, equipment purchases remain constrained given macro uncertainty and persistently high interest rates.
That said, we found success with selective incentive programs targeting specific products to drive sales. Our roadbuilding business continues to bolster the C&F segment as roadbuilding is experiencing another year of strong market demand. Tech investment and integration in this market continues to drive further customer value on top of an already robust value proposition. We are excited to showcase our latest innovations in roadbuilding at the upcoming Bauma show in April.
One final thought on the broader C&F segment. Headwinds from strong price competition, and unfavorable currency impacts are putting pressure on sales. This has resulted in a point reduction to our net price realization forecast. Although that negative margin impact is being offset by strong cost execution, leading to expectations for more favorable production costs this year than initially expected.
It's important to note, however, that intra-year, we will see an atypical quarterly cadence as price actions taken in the first half of the year will moderate in the third and fourth quarter as we ramp production in the back half of the year.
That's great color, Josh, and good insight on the unique seasonality of the business this year. Okay, shifting gears now. The last topic I'd like to cover is tariffs. Obviously, a dynamic and rapidly evolving situation. What details can you provide on the issue, Josh?
Yes. I'd start by reinforcing the statement you made. The situation is certainly fluid, and we continue to monitor changes in policy as they occur. Teams across the organization are continually running potential scenarios to understand risks along with opportunities to mitigate these impacts.
But our primary focus remains on understanding how proposed tariffs may impact our customers' operations as we recognize their need for free and fair trade in ag commodities. This allows them to concentrate on growing crops that feed, fuel and clothe the world. We remain committed to delivering the product and solutions they need to be productive and profitable as we've done for nearly 200 years.
Within Deere's business, first, a reminder about our operational footprint. As you'll recall, we are a net exporter of ag and turf equipment from the U.S., and more than 75% of our domestic U.S. sales are assembled at U.S. manufacturing locations, less than 5% of our U.S. complete goods sales come from Mexico, and of the remaining products produced outside the U.S., the majority come from Europe, notably our 6 series tractors.
From an export perspective, over half of our exports serve our Canadian customers, with the remainder going to Europe, Brazil and Australia. In terms of component sourcing, about 10% of our U.S. manufacturing cost of goods sold come from Mexico, with less than 2% coming from China and approximately 1% from Canada.
For the last several years, our teams have focused diligently on both supplier resiliency and cost management. The actions taken by our supply management team in response to pandemic disruptions such as dual sourcing, strengthening relationships with key suppliers are prime examples of the step-function change our organization has made to build a more resilient and adaptable business. This group works to manage and optimize our global trade flows, which position us well to navigate the current environment.
And given the rapidly evolving nature of these tariffs, our guide does not contemplate the direct cost or economic benefit impacts resulting from potential future tariffs. It is important to know, however, that our exposure to the recently enacted China tariffs is expected to have an immaterial amount on our business.
Thanks, Josh. Great update. And before we open the line to questions, do you have any comments you want to share?
Yes, certainly. The first quarter was reflective of the focus that we maintain as a business despite significant internal pressures ranging from weak end market demand, more competitive environment and macro uncertainty. Despite all the noise, we maintained discipline, executing the plan as we successfully brought down inventories while managing costs and operational expenses.
We maintained our investment in the business, which continued to yield results as evidenced by our recent successes in Brazil, our autonomous solution announcements at CES last month and our upcoming product launches at Bauma in April. I'm as excited as ever about the value we're unlocking for our customers across the world.
We also returned over $800 million in cash to shareholders through dividends and share repurchases during the quarter, reflecting the structural improvements we've made this cycle over the last.
I want to reiterate my utmost thanks to our entire team here at Deere, from employees to dealers to suppliers. It takes dedication and hard work from every facet of the business to demonstrate this level of discipline. And we'll continue to execute to plan as we manage throughout the rest of the year and across the cycle.
We're as focused as ever on our steadfast commitment to our customers and we'll continue prioritizing investments in the most value-added solutions for them. We'll continue to expand our precision offerings across both product lines and geographies, while ensuring we meet the basic needs of quality, uptime and productivity for our customers.
Our focus is solving our customers' toughest problems so they can focus on what matters most, building critical infrastructure and growing the crops that feed, fuel and clothe the world.
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. [Operator Instructions]
[Operator Instructions] Our question comes from Tim Thein from Raymond James.
Maybe just some help in terms of large ag production cadence given the pushout that you called out for the first quarter. How do we think about kind of that normal seasonal ramp-up that you typically see in second quarter and third quarter? Is that -- can you may be just help us in terms of that going to be more weighted to the third quarter than usual and just as we think about kind of segmenting the remaining quarters? This would be a PPA question.
Yes, thanks for the question. I mean I think as you think about large ag demand and shifting some of those shipments out to future years, it's still going to more or less follow normal seasonality for the business. As we look at the second quarter, it's still -- we'd anticipate being the highest quarter for us in terms of sales.
Full year guide for large ag being down 15% to 20%. Quarter-over-quarter, we'd expect that second quarter year-over-year compared to last quarter -- or last year's quarter could be down more than the guide, so probably down more than the 15 to 20 that you're seeing in the full year, and that gets sequentially better as you go to Q3 and Q4 in terms of the year-over-year comps.
Yes. Tim, this is Josh Jepsen, maybe one thing I'd add, too. As you think about the sequence, deal laid out, kind of how that plays out. I think for production precision ag as well as the rest of our businesses, we would expect fourth quarter were actually growing year-over-year because of some of the comps and actions we took. But we actually start to see increases year-over-year as we get to 4Q as well. Thank you.
Our next question comes from Stephen Volkmann from Jefferies.
I'm curious, I think one of you, Josh, has mentioned that the Early Order Program was kind of below your industry forecast. And obviously, we saw some pretty weak numbers from AEM yesterday. And I'm just curious how you're thinking about sort of having confidence in the bottoming process for the end market activity? Because obviously, that will drive what you need to do on the inventory side.
Steve, thanks for the question. Maybe I'll talk combines and then walk a little bit around the other product lines as well. Yes. As you recall, for North America, our guide for the industry is down 30%. If you kind of take product line by product line, sprayer EOP came in pretty close that industry guide. We're expecting tractors to be a little -- down a little bit less year-over-year, row-crop tractors. And the formal drive tractors will be a little bit more than the guide.
And then as you mentioned, given the results of the comment in Early Order Program, we'd expect that to be down a little more than the guide as well. So weighted to get to that industry down 30%, but a little bit of difference by product line.
As you saw in the quarter, this is consistent with the shipment timing that we talked about. The EOP for combines booked a little more slowly this year than it has in the prior years, and that resulted to a little bit slower ramp-up for us in terms of combine shipments in Q1. I think that's reflective of the inventory levels that you're seeing for us. If you talk about 11% inventory sales for combine as it closed out the quarter. That's a little lower than normal and really reflective of some of those delayed shipments.
As you look to the full year, I think what gives us confidence is, as you know, the combine Early Order Program typically represents 90-ish plus percent of what we're going to build in a year. So we have those orders locked in. It's just a matter of when we laid those in the schedules. And so pretty good visibility there, again, it was just a timing. Timing with Q1.
Steve, this is Jepsen. Maybe I want to add on the used side. We saw combine start to turn earlier. July of '24 was kind of where we saw the highest inventory level on combines, and that worked down over the course of the year. We see a little bit of seasonal build there. But I think we were probably earlier on actions as a related in combines. I think we feel good about the progress we're making to pull that down. Thank you.
Our next question comes from Jerry Revich from Goldman Sachs.
I'm wondering if you just expand on the comments that you shared on the precision ag update? You gave us progress in Brazil, can you just talk about globally expectations for ag essentials? And See & Spray kits for this year, what progress was like in the quarter? And also, if you wouldn't mind just updating us on the engaged and highly engaged acres, if you have that.
Yes. Great. Thanks for the question, Jerry. Yes, I mean, precision ag essentials, which we call -- as we think about our tech stack, precision ag essentials is really the foundation of the tech stack. It's those core elements of guidance, of connectivity and high-powered onboard compute. And the bundle that we've created with precision ag essentials is a lower upfront cost and annual subscription for the benefit of that technology.
Recall, we introduced this package last year in 2024 in North America. Really strong reception to that, about 8,000 units that we retailed. Average age of the equipment that those units were being put on was 2012, so we were going deeper in the fleet in terms of connecting people into the Deere ecosystem.
So we're really encouraged this year. I think we had a limited release in Brazil in 2024 for precision ag essentials, but more fully available in 2025. And we've been really encouraged by the results. As I mentioned, over 1,500 orders year-to-date in Brazil for that precision ag essentials base. On top of that, just in the middle of January, we made our Starlink-enabled JDLink Boost solution available in the region in Brazil.
And recall, that connectivity is a big challenge for our customers in country there. We'd estimate about 70% of ag land in Brazil doesn't have sufficient cell. And we've seen really, really strong take rates early on in those couple of weeks since that ordering has opened up. Again, we mentioned over 1,200 orders. I think there were like 500 orders in the first day for the solution. So very, very encouraging and excited for the value that's going to unlock for our customers in terms of enabling that connectivity and enabling them to take advantage of precision ag solutions.
On engaged acres, maybe just to talk about the numbers, we're over 455 million globally year-over-year, that's up about 15%. South American growth is greater, it's up about 20% year-over-year. Really, where we're encouraged is a highly engaged side, where we saw growth over 30% year-over-year. And highly engaged acres now are making up -- nearly 30% of our engaged acres are highly engaged. And just a reminder, highly engaged acres is more depth and breadth of utilization, covering more production steps with your technology.
Jerry, this is Jepsen. Maybe a couple of adds. I mean we are continuing to see technology as a driver of competitive advantage and what we're able to do from a conversion perspective. And we had an example from our field team this quarter of where we put essentially precision ag essentials a year ago on competitive machines, call it, 20 competitive machines. Brought them into connectivity, brought them into the digital side from an operation center perspective. And this year, we're converting them. We're converting them from competitive machines with Deere tech to Deere machines.
So I think we're seeing that at a high level, being a difference maker for customers in terms of what is pulling them into Deere and the value they see from that. And I think we're also seeing even things that may be overlooked a little bit, like remote display access. The ability for our dealers to remote in -- not have to go to the machine, but remote in and take care of them. We've seen significant growth in just the instances of our dealers doing that.
And we had an anecdote. We were talking to a dealer a month or so ago talking about -- sitting at home on the couch and actually fixing an issue for a customer because they had remote display. So I think these are big and small things, but they're all making a really important impact as we think about real technology that's having real impact for the customer, and we're seeing that start to build even greater.
Maybe just to put a bow on that remote display. In 2024, we had 2.5 million remote display sessions through the John Deere operations center. That was an 85% increase from 2 years prior. So again, our ability to better serve our customers through connectivity is huge. Thanks for the question, Jerry.
Our next question comes from Rob Wertheimer from Melius Research.
My question is going to be on farmer profitability and demand. And I know that part of this may be hard to answer, but I'm just curious as to whatever insight you can offer. Obviously, your Early Order Programs, I guess, are a combination of your end farmer professional -- big professional farmer demand and dealers trying to balance out trade-ins and all that stuff.
I suspect your biggest farmers probably still want to buy more than you're making. I don't know if you have any thoughts on how profitable those biggest first buyer kind of customers are right now at current corn, soya and cotton prices. And I don't know if you have any thoughts on where your used process -- your used buyers really need corn to make it easy to be before they're profitable and able to kind of clear out some of the inventory.
Yes. I mean, maybe a couple of points there, Rob. I think it's hard to pin an exact number on this because every operation is a little bit different. And it matters whether you own all your land or whether you rent all your land. And as you look at breakeven prices, compared to 100% owned versus 50%, that can -- it's like a $0.50 per bushel difference on corn breakeven depending on if you fully own or you're renting 50%.
Similarly, the amount of technology that you're utilizing on the farm can matter a lot in terms of profitability as well. We recently published our Business Impact Report. And in that report, we did an update on the value that if you employed all Deere available solutions in a typical corn and soy operation in the Midwest, what value that would bring, and it was just under $0.50 a bushel of improved profitability by fully employing the Deere production or the solution set.
So there can be some pretty massive differences in terms of breakeven, in terms of the size of your operation, how much you rent and own, how much technology you're using. So it's hard to put a number on it.
I think what I would say is over the course of the quarter, we feel good about what the positives that we saw. Certainly, we saw a rebound in commodity prices. We've got corn futures hanging around $5 now. Certainly, the government support that was announced prior to the holidays and is beneficial as well. So net-net, quarter-over-quarter, we've seen some pickup in the fundamentals.
Yes, Rob, this is Jepsen. I think just to add and maybe double click into what Josh mentioned. I mean quarter-over-quarter, we've seen the ag fundamentals improve. Global consumption is outpacing global supply for grains and oilseeds first time in 4 years. If we look at grain stock to use, and particularly if you take out the stocks in China, it's the lowest level in 20 years. So we're seeing a really tight stocks as you look at corn and wheat, in particular, and I think that's a favorable setup.
And then on top of that, you talked about some of the things that Josh mentioned in terms of an increase in net income, expectations from USDA. So I think the backdrop in the sentiment has improved. I think you have -- you still have an impact of uncertainty as it relates to macro, uncertainty as it relates to trade policy. But I think the underlying business, and then as you look at dairy and livestock, which we mentioned already, which we're at relatively strong levels, are holding in really well and better than what we would have seen just 3 months ago. Thanks, Rob.
Our next question comes from Jamie Cook from Truist Securities.
I guess one question. Just wanted to understand better sort of your view on Deere's performance, margin performance, given where we are in the cycle relative to the 20% sort of mid-cycle target? And I guess, Jepsen, just your confidence level. Obviously, I think everyone's confident in 2025 is the trough, your view on climbing out of this in 2026. And if you didn't think we were climbing out of this in 2026, do you see the need for incremental restructuring?
Thanks, Jamie. As it relates to where we are, difficult to say exactly where we are trying to make a prediction on what '26 holds. I would say we're really focused on what are the things that we can control as it relates to managing inventory levels, managing production and keeping our arms around the operating cost of the business, while funding the strategically important things. And we feel like we're in a good spot there. We're able to do that. We're essentially flat on R&D, and we're making room elsewhere in the cost structure.
So I think those are the pieces that we can control and that we're working to manage. And stepping back, as it relates to our longer-term goal of 20% of mid-cycle -- this level of performance, this guide, if you look at the equipment operations where we're at, call it, just below 15%, 14.5% operating margin, we feel good about where that puts us in terms of progressing towards that goal.
And again, just to juxtapose that versus how we performed even the peak of our last cycle comparing where we are below trough levels, below 80% by our own math, I call it, 14.5%, 15%, that's better than we performed at the peak of the cycle in 2013. So we feel good about that progress. We feel good about the ability to continue investing and doing a lot of work on an ongoing basis day-to-day on the cost side of the business.
Our next question comes from Steven Fisher from UBS.
Josh, Jepsen, I think you mentioned feeling good about the amount of reductions you've had in the used inventory during the quarter. Is there any way to help us kind of quantify just how much used inventory is out there? How much excess you have relative to the target levels? And how long you think it would take to manage down to what the target levels would be?
Steve, it's Josh. I'll start and Jepsen, you can jump in. Yes. I mean, I think, as you characterize where we are on the used side -- I mean, maybe first, Jepsen had mentioned this earlier, but we feel really good about combine. We did a lot of work on combines earlier in the cycle and they're sitting at a much better position.
As we think about high horsepower tractors, where there's still work to do, we feel good about the progress that we saw in the last quarter. As we mentioned in the comments, a couple of months sequentially of unit decline, relatively modest declines, I think we're down maybe 3% from the November peak. But I think more important and probably the bigger challenge right now in higher horsepower used is that mix of used equipment, again, being still more heavily skewed towards 1- and 2-year old equipment.
And again, we made progress over the last couple of quarters on improving that mix. We saw some improvement in our fourth quarter of '24. We've seen incremental improvement in the first quarter of '25. But it's still higher than it should be, probably on a percentage basis, probably 2x the number of 1- and 2-year-old equipment that we would normally want in that population or would normally see. And so continue to work to do there, and we'll continue to focus on that through the course of the year. I would expect it will be the next several quarters still as we continue to drive that down.
Yes, Steve, it's Jepsen. I think the other thing that we're looking at is how can we, one, shrink the duration, how can we make this get through this reduction faster? And that -- I think the actions we took on the new side are helping us to do that, to get focused on used quicker than we did last cycle.
I think the other thing, too, when we look at fleet age, I think this is important as we think about replenishment or replacement over time, we're still aging out. So high horsepower tractors, 4-wheel drive tractors, combines are all getting older on a fleet age perspective. And I think that's reflective of we put much less new equipment into the market when things were on the way up, '21, '22, '23. But that aging, I think, will also help us as we think about how do we turn some of that used. Because replacement will continue just because we're seeing more age, more hours on the fleet. Thank you.
Our next question comes from David Raso from Evercore ISI.
I just want to make sure I understand North American new inventory commentary. I mean, essentially, you said by calendar year-end, not your fiscal, the large ag field inventory was down 25% year-over-year. And then you're saying you're targeting to finish the year -- I assume that was a fiscal year comment, that the U.S. inventory new will be unchanged year-over-year. So does that mean do we not plan to reduce any more new inventory from this point forward for the year? Or are we done reducing in North America for new?
Yes. I mean I think the way, David -- and you're right. I mean the comment around unchanged relates fiscal year to fiscal year. And so book ending the fiscal year, our plan and our focus is on building in line with retail demand. And so you should see absolute units of Deere field inventory relatively unchanged at the end of fiscal '25 from where we ended fiscal '24.
Now there's always normal seasonality in our inventory build. And so as you think about through the course of the year, you're going to build tractor inventory, you're going to build combined inventory in the first, second quarter of the year, and then you'll start to drive that down in the back half of the year. That's just normal shipping.
And candidly, a lot of in-transit inventory. As you'll recall, a significant piece of our large ag equipment is already retail sold. And so it's passed through the dealers and you have that in-transit inventory. But yes, the bookings there is going to build in line with retail in North America in 2025, and you should see absolute levels of inventory relatively unchanged year-over-year.
I was just trying to...
Yes, go ahead.
Well, I just wanted to make sure that the row-crop tractor data in the first quarter, and given the seasonality, I'm comparing this versus traditional first quarter, so I understand the seasonality to build. The row crop inventory does seem a bit high relative to history for where we are in the year. I think 4-wheel drives, combines, I appreciate -- you probably can produce that retail the rest of the year. But the row crops, is there no further reduction needed there? I just want to make sure I understand the math of the 34% on tractors.
Yes. David, this is Jepsen. Fair question. And to remind you, that number is 100-horsepower and above. So that's a wide category. We think about large high horsepower above 220. And what we see there is really kind of a tale of 2 stories or 2 markets in that regard.
220 and above, we feel good about where we're at. We're actually below where we would be on our averages. If you look at our 10-year average, we're probably slightly below from an inventory to sales perspective. We are higher, and probably higher than where we want to be when it comes to, call it, that mid-series, midsized tractor, 6000 Series tractor, that inventory is higher. As a result, we are underproducing that. So essentially, Mannheim will underproduce North America for those tractors.
So I think there's -- that 100-plus is a big category. The large ag side, the AR side, we feel good about where we're at. Like I said, slightly below kind of the historical IS ratios for this point in the year. But we've got work to do over really the balance of the year and call it, the 6000 series to pull that down closer to where we want to be. But when we saw the growth quarter-on-quarter, that's really where it occurred and then not necessarily on the row-crop side.
Our next question comes from Kristen Owen from Oppenheimer.
Just given some of the positive comments that you had on Brazil, I'm wondering if you can give us a sense of what your expectations are for any sort of improved volume recovery or even price recovery? Just a little bit of a more granular look at what's happening down there.
Kristen, thanks for the question. Yes, I mean, as you heard in the comments, we're seeing some green shoots out of the region. I think the profitability is looking better there in 2025. And certainly, we're seeing favorability on the tech adoption side as well.
Recall in Brazil, we have less visibility in terms of the order book. We typically run about a 3-month order book. So a little bit less visibility in the full year. So we'll see how it plays out. But there's been some optimism. We've seen some strength kind of in that small to mid-tractor space as well in the region, as Josh Rohleder talked about, some strong sentiment in the coffee side. And so there's some positives there that we're seeing.
As it relates to price, we're seeing favorability there as well. We had favorable positive low single-digit price realization in the quarter. We're expecting to be positive for the full year. That's a good contrast to last year where we were -- we had negative price as we drove down field inventories. Now that we rightsized the inventory situation in Brazil and are seeing some of these positive hints of optimism in terms of how that market plays out, we're seeing a lot more strength on the pricing side as well. Thanks, Kristen.
Our next question comes from Angel Castillo from Morgan Stanley.
Just wanted to maybe revisit price question, but a little bit more broadly for PPA. You reiterated the 1% realization for that segment for this year. I was just wondering, as you think about the incentives or maybe what needs to be done to support the continued reduction of used inventories, as well as just any other kind of ongoing incentives there, can you just talk about the level of confidence that in that plus 1%?
And then similarly on the construction side, you lowered that to flat this quarter or I guess, for the full year. Can you talk about there as well, the level of confidence that actually being flat now versus perhaps some of the competitive dynamics you're seeing to kind of drive and move volume in that segment?
Yes, sure. Thanks for the question, Angel. Starting with large ag, again, as you mentioned, our full year guide is 1%. And that contemplates additional incentives to help support the used market. You'll recall, North America as an example, list price increases or Early Order Programs on tractors kind of range from 2% to 3% for the year. The net price realization of one contemplates some additional contributions on incentives to pool funds, to help support that used market.
We feel good about where pool fund balances are. There are still at levels that are supportive of moving that market, getting it back to equilibrium. And so based on the visibility we have in the order books, based on the early order programs and the dynamic of that price guide incorporating those additional incentives for the used market, we feel really good about the price guide in large ag.
On the construction and forestry side, yes, I mean, as you saw in the quarter, negative price in the quarter. We have seen more price pressure there. And then as a result, we lowered the full year guide from a point down to flat. We see some -- and by the way, on those incentives, too, we saw that in the quarter translate to some positive retail movement. Particularly in compact construction, some lower rate financing incentives. We're very strong in terms of moving sales. We had a really, really strong December based on some of those programs.
We're going to expect to just given dynamics in the market, we'll probably see some continued price pressure, particularly in the early part of the year. I think as you look at our second quarter, we'd expect price pressures to continue. That moderates some, Angel, as you move through the year. Some of that is comps as well as we did in price action in the back half of '25, the comps get a little bit easier on the construction and forestry side. That's what gives us that flat guide.
Yes. Maybe one thing to add just on the CNS side. You brought up a good point, Josh, in terms of a little more price pressure in 2Q, we you could see that. We probably have a little more underproduction in -- on the earthmoving side in 2Q there as well. So that will impact kind of their cadence of margins as we go through the year. They actually -- we expect them to actually build from a margin perspective and improve as we go through the remainder of the year.
2Q probably being the most challenged. And then we start to, to Beal's point, we start to lap some of the price actions that we took last year. So the comps get a little bit easier in the back half of the year as well. Thank you.
Our next question comes from Mircea Dobre from Baird.
Okay. All right. I'm wondering if you can maybe give us a little bit of handholding on margins. We're starting pretty slow, obviously, Q1 across all segments. How do you sort of see getting to the full year guidance? And again, this is a question that applies across the board in all 3 segments.
Yes. I mean, I think as you're seeing build on the full year guide, it is a little bit atypical in some segments. I mean Jepsen just mentioned the construction and forestry side, that's going to be very different than what we normally see in a year just given the underproduction in the first half and a little bit on the price cadence as well, you're going to see margins gradually improve sequentially throughout the year on construction and forestry.
Large ag, as we mentioned, it's going to be a lot more like normal seasonality in terms of sales in that segment. We'll see -- we would expect to see sales peak in the second quarter in large ag as we typically do. So that will likely be the strongest margin quarter from the -- for the year.
Now you're going to see, again, from the sales side, year-over-year comps in terms of reduction be different just given the underproduction we did in the back half of the year. But it will be a lot more normal seasonality on the sales side.
Yes, Mig, this is Jepsen. I think from a margin perspective, similarly, we would expect 2Q as normal to be strong this quarter. 3Q probably not terribly far off that. And so strength kind of in 2 and 3, which is a little more normal. And then as I mentioned, 4Q normally lighter on revenue, but will be -- should mark the turn from sales being down year-over-year for the quarter to moving up.
We'll go ahead and take one more question.
Our last question comes from Tami Zakaria from JPMorgan.
So the farmer ag package from December, how long would it take for farmers to receive bulk of the money, such that it can provide some tailwind to equipment demand? If you're able to share any past examples or anecdotes that would be helpful. What I'm basically trying to understand is whether this could accelerate demand in the back half of 2025? Or more like early 2026 of your fiscal?
Yes. Thanks, Tami. This is Josh Jepsen. I would say when we saw some of this occur in the past, when we saw some payments come through in, call it, late '19, generally, what we saw is a lot of those things went to shore up balance sheets, pay down debt, buy inputs and those sorts of things. So I think our expectation is it doesn't probably drive new equipment demand in '25, but likely shores up balance sheet, potentially helps move some used inventory. But I think those are good outcomes, but likely near term, probably not a driver immediately of equipment orders.
Thanks, Tami. And thanks all. That's all the time we have for today. We appreciate everyone's time, and thanks for joining us.
That concludes today's conference. Thank you for participating. You may disconnect at this time.