00:00So it was a great disappointment, Chris, that this downturn continues and that we were not going to see really the trough until next year, according to the CEO.
00:08How much of it, though, has to do with tariffs and how much of it is just a cyclical downturn for big ag?
00:15You know, I think it's a combination of both. We expected Deere to introduce relatively conservative 26 guidance, but this was well short of our expectations and even some of the most bearish estimates out there.
00:26And it does suggest that we're looking at a lower for longer cycle, at least here in North America.
00:32Their guide implies that, you know, earnings are going to be down, you know, north of 10 percent next year, which was roughly, you know, 18 percent below consensus.
00:41That's all the bad news. I think there is a silver lining, though, to take away from this report and that, you know, one, now investors do have clarity and line of sight in terms of what trough earnings will look like next year.
00:53And two, you know, I think there's also some inherent conservatism baked into this outlook, just given the lingering uncertainty on the trade and tariff front.
01:02I mean, it's amazing, really, the visibility Deere does have to be able to say, look, next year is going to be the trough.
01:07And that's solidified at this point. These piecemeal deals that we're getting on things like beef, on bananas, other items that the Trump administration has promised.
01:16What is the agricultural community saying about them? Are they going to help or be any kind of permanent relief?
01:21So I think there's optimism that it will help. I don't think things could get much worse than they were, particularly on the soybean front, because China had essentially stopped buying our beans.
01:32So there was limited downside risk, I think, once we look beyond 26.
01:36North America large ag volumes really are approaching a four decade low.
01:40But in terms of moving forward, you know, these trade deals, I think there's a lot of optimism out there.
01:45But this is very much still going to be a show me story.
01:48And until China, you know, comes back to the market consistently and predictably, farmers are still just going to be hesitant to go out and spend on equipment.
01:57You know, I noticed that small farming, actually, we did see growth there is up 10 percent turf and other things like that.
02:04I mean, is that another silver lining or are the small farmers just being a little too optimistic, perhaps?
02:09Yeah, no, certainly small ag will be a positive next year, as will the construction business.
02:14Both those will be up near double digits on the top line next year.
02:19Margins are still going to be under pressure in both those businesses, largely due to tariffs.
02:24Tariffs are going to be a one point two billion dollar headwind for deer next year.
02:28You'll start to see a little bit better pricing come through, particularly on the small ag and construction side.
02:33But the dairy and livestock farmers continue to be quite healthy, and that's really driving the improvement on the small ag business.
02:40Briefly, financial services, that portion beats.
02:43Does that mean that there's more borrowing going on?
02:45Is it a good sign or a bad sign, Chris?
02:48Yeah, the one thing that we're keeping a close eye on there is the used market.
02:51The used market, particularly large high horsepower tractors, continues to be an overhang for deer.
02:56We're finally starting to see those inventories begin to come down.
02:59There's still a lot more work to do there in terms of financing and additional pool funds for that equipment.
03:05It's certainly something that we'll monitor moving forward, though.
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