Good morning and welcome to Deere & Company Second Quarter Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session of today's conference. I would now like to turn the call over to Mr. Tony Huegel, Director of Investor Relations. Thank you. You may begin.

Thank you. Also on the call today are Raj Kalathur, our Chief Financial Officer, and Josh Jepsen, Manager, Investor Communications. Today we'll take a closer look at Deere's second quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2017. 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 Web-site at www.johndeere.com/earnings. First, a reminder, this call is being 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 express 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 comments concerning the Company's plans and projections for the future that are subject to important risks and uncertainties. Additional information concerning factors that could cause actual results to differ materially is contained in the Company's most recent Form 8-K and periodic 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, or GAAP. Additional information concerning these measures including reconciliations to comparable GAAP measures is included in the release and posted on our Web-site at www.johndeere.com/earnings under Other Financial Information. Josh?

Today, John Deere reported second quarter financial results and the story was a good one, with market conditions showing signs of further stabilization. On an overall basis, we are seeing modestly higher demand for our products, with the agricultural sector in South America staging a strong recovery. At the same time, our performance reflects the actions we have taken to expand our customer base and operate more efficiently. We're benefitting from the sound execution of our operating plans, the strength of our broad product portfolio and the steps we've taken to bring down structural cost. As a result of all these factors, we have raised our forecast and are now calling for significantly higher earnings for the full year. Now let's take a closer look at our second quarter results, beginning on Slide 3. Net sales and revenues were up 5% to $8.287 billion. Net income attributable to Deere & Company was $802 million. EPS was $2.49 in the quarter. On Slide 4, total worldwide Equipment Operations net sales were up 2% to $7.26 billion. Price realization in the quarter was positive by 2 points. Currency translation did not have a material impact in the quarter. Turning to a review of our individual businesses, let's start with Agriculture & Turf on Slide 5. Net sales were up 1% in the quarter-over-quarter comparison, primarily due to price realization. Operating profit was $1.003 billion, up from 614 million last year, a result of more favorable sales mix, price realization and the favorable effects of currency exchange. The quarter also benefited from a gain on the sale of a partial interest in SiteOne Landscape Supply, Inc., which contributed about 3 points of operating margin. For more details regarding the transaction, please see the notes in today's earnings release. Operating margins were 17.3% for…

Thank you, Josh. We're now ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. But in consideration of others and our hope 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?

[Operator Instructions] We do have our first question. It's from Jerry Revich of Goldman Sachs. Jerry, your line is open.

Tony, the margin performance this quarter came despite warranty costs that were a headwind here. I'm wondering if you could talk about what's been driving the higher quality cost for you folks over the past two years compared to history and over what time frame would you expect warranties to return to the low 2% range that's more typical for you folks in the past?

That was something certainly that was cited in the press release, both for Equipment Operations and construction specifically. Just I think I'd remind people as to start with, with Tier 4 emissions requirements, we had a significant number of new product introductions coming very, very rapidly, and more rapidly than you intend to see. So the cycle of new products tended to ramp up, and you're starting to see a little bit of the effects of that. And to that point, we're not talking about significant challenges with a product r a couple of products, it's here and there smaller warranty costs that just accumulate a bit. The other thing I'd remind everyone is we do have slightly higher warranty costs related to the change we made in our parts warranty experience. So, we extended the warranty period for parts and that does come at a little bit higher cost. Some of that also specific to construction when you think about the warranty costs this quarter, some of the year-over-year compare, and specifically again for that division, there were some favorable adjustments last year, slightly favorable, and so the compare was a little more challenging for them. So those are really some of the key reasons.

And sorry, Tony, over what timeframe would you expect the performance to return to more difficult levels?

You will continue to see that get better. Now keep in mind you're going to see that occasionally especially in some of the earlier quarters of a year there's always risk because the numbers are relatively small, but certainly that is a key focus that we have as a company to continue to improve the warranty experience primarily for our customers, the quality experience. So I would expect over the next fairly short period of time, you'll see those things changing pretty rapidly.

Our next question is from Steven Fisher of UBS Securities. Steven, your line is open.

A bigger picture question on the ag cycle. We're now again forecasting growth in your ag business and starting to raise some of the regional forecast. How are you thinking about the shape of the ag recovery from here assuming that the crop forecast that you have play out as expected and things develop in South America as you are thinking?

I think the latter part of your question is important to keep in mind. I mean at this point it's still very, very early, especially as you think about Northern Hemisphere, crops and so on. That will make obviously a pretty large impact in terms of how we see the future. But if you assume current fundamentals, current assumptions, where you have normal weather, candidly if you look at our forecast, you're not seeing significant changes in the outlook, underlying fundamentals for our farmer customer, not a lot of change in crop prices. But I think what you are seeing today is the impact of a stabilization. And so, while you aren't necessarily, it's hard to argue today for a significant recovery in commodity prices and so on, we're also largely not anticipating significant reductions, and so as farmers adjust to that, we are starting to see some of them stepping in a bit more into the market and beginning some replacement of their equipment. Again, I would say it's more about stabilization and the change that that drives in the mindset of the farmer customer. Now there are exceptions to that. Obviously you go to Brazil and today anyway we are seeing some very strong recovery. That's a farmer customer who has stayed relatively profitable through this downturn and as a result they are in a strong financial position. As we have seen in prior months some of the uncertainty and political environment stabilizing in Brazil, we certainly saw some very, very strong recovery there. Obviously in the last week there's, there's been the last few days some uncertainty injected back into that market. We'll see where that goes in terms of both the uncertainty that's currently there, does that stay or the things stabilize again a bit, and then what impact that may or may not have on our customers' buying decisions. But largely, outside of Brazil, South America, I would argue you're really just seeing stabilization and some uptick in demand as a result of that.

Our next question is from Jamie Cook from Credit Suisse Securities. Jamie, your line is open.

Nice quarter. Tony, I guess the margin performance in the ag business even ex SiteOne was pretty impressive, and I understand you're guiding ex SiteOne to sort of mid-40s incremental margins but it does implies the incrementals in the back half of the year sort of fall off. So I'm just wondering, given how early we are in the cycle, why the implied incremental margins deteriorate in the back half of the year, is it we're being conservative, is it – or can you talk to the headwinds that are implied in that margin target?

Sure. I think as you think about margin, and specifically for ag, there's a number of different ways you can kind of slice it and look at it. Now if you look at absolute margins in the back half of the year, and again there are a lot of moving pieces in our numbers, because unlike some others we don't strip out a bunch of stuff in our reporting, we do pure GAAP reporting, but specifically if you look at just some of those one-time charges and eliminate things like SiteOne, things like the voluntary separation charges, the margin we've had in the first half of the year on ag has been about 2 points. If you look at the guide for the back half of the year, it's consistent. We're about a 2 point improved margin ex those one-time items again in the back half of the year. So again, I think that's pretty consistent. Remember if you think about too on the overall forecast, and here I need to be very clear, I'm not talking about the incremental change from first quarter, but if you look at the full year forecast as it is, you're starting to see some benefit from some of the large ag products, but overall you're still seeing not as attractive of a mix in those margins and in that forecast, and that's part of why you're seeing the margins where they are. While still very strong in the back half of the year, you're just not seeing quite as strong as maybe what some would have anticipated or what we would anticipate if it was driven by large ag. And so that's really some of the key differences.

Our next question is from David Raso from Evercore ISI. David, your line is open.

On the conversation around the retail outlook kind of post this year, I was just curious how you're thinking about replacement demand. If you look at the appendix, you have projections for 2017 and 2018 when it comes to corn prices and acres and so forth. That seemed pretty consistent with USDA and it really doesn't imply any cash receipt growth next year, but you mentioned the idea of replacement demand stabilization. At this outlook, would you expect retail in the U.S. to be up next year with these crop fundamentals?

David, I mean I think if you note where our working capital receivables and inventory forecasts are for the end of the year, I think it's appropriate to assume that next year is going to be up.

Okay, so that's – I was trying to read that into the idea of you've been able to raise your view of inventory and receivables in the channel as well as an ag, not just construction. So, we can take that as a sign of confidence that you feel better about the retail environment in 2018 from what we have learned the last few months in stabilization, replacement and all that. Is that a fair assessment?

It's certainly the sustainability of what we're seeing beginning to occur today.

And we don't want to get into a 2018 forecast, David, but I think the statement that we have in terms of the shift in our thinking in terms of working capital at the end of the year should give you a good idea.

I think that earnings power you are putting up with very little retail help and the ability to grow next year again without much crop health just emboldens investors to feel, look, if I can catch any lightening in a bottle on grain prices, that's all upside and along the way you're still growing earnings to the upside surprise. So again, we do feel retail can grow with this backdrop of the commodity environment. Just want to make sure I'm thinking about that right.

David, I think that's a good point. Now if you look at a longer-term global demand for commodities still going up, and if you look at the USDA in our 2017-18 production forecast, it's lower, which means stock-to-use you're saying is likely to come down, and equilibrium, all we will say is the equilibrium is getting tighter. Now, we haven't put in our projections any disruption to the production for commodities, but if any of those should come up, there is even further upside, you are right.

Our next question is from Michael Shlisky from Seaport Global Securities. Michael, your line is open.

I want to follow up on David's question there and maybe point to a different slide in your appendix. 22nd slide you outlined U.S. foreign debt level is at the highest level that we've seen in the last 15 years here in 2017. So Raj, just trying to get a feel for the kind of upsize you might be seeing next year. You guys said that farmer is going to have to start paying down soon their debt first before buying anything major going forward, whether it's this year or next, and is that kind of what we're kind of waiting for? If farmer incomes turn upward, would paying down debt be the first thing that they do and then turn towards buying any kind of machinery?

That's always the question and I think the thing to point out is easy to point that the debt levels have risen, but again, I think we would point to from an historic perspective farmers are still in much better shape than what they would have been previously. And certainly, if you continue at these kinds of levels, you'll continue to see those creep up a bit as we have. But we don't view that as a significant risk certainly at this point. And I think what you're seeing today, and the buying behavior of customers maybe answers that question for you, we're starting to see them step back in and place those orders and see those retails moving up a bit, even in this environment. Again, I think I want to separate that from a significant recovery type of conversation versus it's the effects of seeing stabilization for our farmer customers and their willingness now to step in, at least modestly, step back in and begin to think about some replacement. All right, so let's go ahead and move on to the next caller.

Our next question is from Ann Duignan of JPMorgan Securities. Ann, your line is open.

Just on the fundamentals again, if we look at what's happened in Brazil in the last week or so or even in the last few days, we saw significant farmers selling their crops, both beans and corn, down there and that weighed on bean prices and corn prices as recently as yesterday. Can you just talk about what's happening in Brazil, farmers now selling products, what impact that could have on U.S. exports as we move into the next marketing year and how that could weigh on the outlook for cash receipts for U.S. farmers going forward?

I think obviously what transpired over the last couple of days is still very fresh and impacts our – I'll say uncertain at this point to how long does it last, those sorts of things. Largely I think that when you think about the selling from Brazilian farmers, I mean outside of the last couple of days, it was pretty clear that they had been holding onto those crops looking for better price, and I think most forecast we're anticipating that they would at some point need to sell them and that they would be exported. So, I'm not sure it will have a significant impact necessarily on the broader export assumptions, either for Brazil or for the U.S. But certainly the timing of those got pulled up pretty considerably. Now the good news to that is, with the FX and the reason farmers are leasing that with the FX changes, it's bringing a lot of cash into those farmer pockets again, and they are seeing some benefit in the short-term from the FX change. So, that would be at least one positive that you could potentially point to for our Brazilian customers, and again, at least in the short-term. But it's early and the overall impact we'll have to wait and keep our eye on it as things move forward.

And to add to Tony's point, we look at the soybean prices, the current prices, you're right they are down, because of the additional soybean coming into the market from Brazil, but if you look at the futures, number futures, they haven't changed much. So that should help with what Tony just said. And then if you look at the longer-term, since you brought up Brazil, longer-term ag export is very critical to Brazil and for their foreign exchange, and historically you have seen a government's, regardless of the party, support to ag sector very well. And while there is uncertainty, we cannot say what's likely to happen, and if you look at the past and if you look at what is good for Brazil, we see them continuing to support the ag sector.

Our next question is from Neil Frohnapple from Longbow Research. Neil, your line is open.

Within the Construction business, could you provide more granularity on the positive price realization in the quarter, so as the competitive pressures ease, particularly in light of the higher sales outlook for the year, and just thoughts on whether you think you have turned the corner on this and what the outlook is from here?

That's a good question and I would tell you the positive price realization in the quarter was really more about last year versus this year. You may recall second quarter last year we had a pretty substantial accrual change as we increased incentive going into the market and had to then again change the accrual we had for product that had previously been sold, shipped to dealers but not retail sold. And so the compare I would say was a pretty easy compare and that was driving that positive price year-over-year. I would not say we have turned the corner. I would not say things have gotten less competitive in that market. In fact, if you look at our fiscal year guidance, really very little change, and we would continue to see kind of flattish to slightly negative price realization for Construction for the year. So again, that was more about a quarter impact, really no change in the annual guide there.

Our next question is from Nicole DeBlase from Deutsche Bank Securities. Nicole, your line is open.

So my question was just on the cadence of the rest of the year. So based on the outlook for the third quarter, the up 18% for Equipment Ops, the math I'm getting is that 4Q looks kind of flattish year-on-year, and first, is that completely wrong, and then second is what's driving the significant deceleration, is it just tougher comps in Brazil or is there something else that we need to be thinking about?

Yes, and you're looking at it for the Company versus…?

Yes, for the total Equipment Ops for the year.

The total Equipment Ops, if you look at fourth quarter, we would have it up a little bit. But keep in mind fourth quarter is a pretty light quarter, and remember versus last year too actually pretty easy compare, especially as it relates to ag. And I guess shifting for both ag and construction, pretty significant underproduction in the fourth quarter. You'll see underproduction as you typically would as we move into the end of the year. But again, it would be up slightly in the fourth quarter.

Okay. But I guess since last year the comp is easy, like could there be some conservatism baked into there is what I'm getting at, just seems kind of…

Yes, I mean all of those that you're seeing are ending inventories or receivables and inventory is, you can see in our guidance, is up. And so there's certainly some benefit there. But again, the percentage change in the fourth quarter, because we're coming off, the dollars may not be as impactful as the percentage in terms of the changes is what I would say there.

The percentage for Q4 is closer to 16%. If you just take the 9% for the full year, that's what it would work out to.

Our next question is from Robert Wertheimer from Barclays Capital. Robert, your line is open.

My question, you guys sometimes come on this, not terribly specifically, but it's basically production versus retail, so your industry guidance is obviously industry equipment guidance and it's kind of in Ag & Turf kind of flattish and your revenues are up substantially. And so between those two numbers can be parts, can be market share, can be reversal of path on a production, can be over-production, [indiscernible] over the next year. So I'm just a little curious, are you able to say where you're producing this year versus retail and whether it's over or under and whether you have share gain factored in?

Sure. I mean, yes, there is some share gain factored in. Again, I'd be a little careful to speaking very broadly versus specific products. If you think about large ag for example, certainly versus last year where we were under-producing retail, this year we would be at or in a pretty much at retail. So year-over-year you're getting a sales lift because we are not under-producing. I would say, really construction, if you look just broadly at construction equipment last year's significant under-production and this year we're actually over producing to retail. So dealers are building inventory some in the channel. So you get kind of a double benefit there, but I'd say the greater benefit is similar to large ag, the fact that we're not under-producing this year. Now if you look at some of the other product, it's going to be a mix here and there based on where we ended last year, how we view current year and then looking out into next year, but small ag for example in the U.S. you'd see a bit of under-production. But obviously, overall you're seeing some overproduction as our receivables and inventory numbers are going up slightly. But again, I wouldn't read too much into that.

Our next question is from Ross Gilardi of Bank of America Securities. Ross, your line is open.

Tony, you just touched on a little bit of that, a little of my question, but could you give a little more color on Construction & Forestry? I mean CAT put up negative 4% retail sales growth in North America construction yesterday for April and you're putting up in your guidance a 13% revenue growth in Construction foresee for 2017. So what's happening? I mean are you seeing a genuine acceleration in demand or is this just, a lot of this is just Deere dealer pipeline fill just because your dealer inventories were just so depleted going into this year?

Certainly I'd say it's a combination of things. As I mentioned with answering Rob's question, certainly last year as you recall, we ended our dealer inventories on a percent of sales basis, at the lowest level we'd had in over a decade. And even this year in our forecast on a percentage basis we're I think the second lowest in over a decade. So we're not building a lot of inventory but certainly we're not under-producing like we were. So that has given us a pretty significant lift. We talked about in the first quarter, our order books are really quite strong and they continue to be strong through the second quarter. More importantly, over the last several months, we've seen retail sales actually up year-over-year as well. So that's certainly been encouraging and a big part of the reason why our forecast has now increased is we're starting to see those dealer orders pulling through into the retail channel. So, from our perspective, industry retails were still flat to down slightly for U.S. construction equipment, but as you look at things like the smaller, what we call, commercial worksite or compact equipment, that continue to be very strong and we have new product there too that's helping to benefit the business. So there are a number of pieces. A big portion of that though is about our shipping to retail year-over-year versus under-producing last year.

Our next question is from Andrew Casey from Wells Fargo Securities. Andrew, your line is open.

I guess I want to return to the underproduction/overproduction comment versus retail, but if you look at the first six months, you saw mid-single-digit decline in U.S. equipment sales. Most of that seem to be related to Ag & Turf. And then if I combine last quarter's report with this quarter's, the first half receivables and inventory down about $670 million in Ag & Turf, is most of that $670 million inventory reduction or did you see kind of down receivables for the first six months?

Most of the reduction actually has been in trade receivables year-to-date.

Okay. And then can you update us, kind of follow-on on that, can you update us on the U.S. Canada high horsepower farm equipment order availability?

Yes, so if you look at, obviously combines are pretty straightforward and really no change from last year. I mean our early order program accounts for over 90% of that in any given year. So that's pretty full. As you look at, I'll talk to the Waterloo tractor numbers, last quarter I think we talked about it being relatively consistent. There were some puts and takes here and there. That order book actually has strengthened pretty significantly over the quarter. And I would say broadly speaking, our availability across the board on Waterloo product, that includes 7000, 8000 and 9000 series types of tractors, would be ahead or further out this year versus last year, and some of them fairly significantly. So again, over the course of the quarter, we've seen some real strength in the order book for those large tractors.

Our next question is from Joel Tiss from BMO Capital Markets. Joel, your line is open.

I just wondered if you could give us a sense, maybe the old baseball analogy on how far you threw the cost reduction efforts.

Joel, we are making good progress with respect to the cost reduction, structural cost reduction, goal of $500-plus million that we talked about. Now you will recall that when we talked about it, we said if the industry conditions stay the same as in 2016 levels, we will aim to get over $500-plus million in structural cost reduction by the end of 2018 and before we realized in 2019. And a couple of things I will point out. When we are making very good progress towards the structural portion, the controllable part of cost reduction, there are some headwinds, one essentially being the material inflation, then there is a second one that might confuse when you look at the total picture, which is lever pullings. As the volumes come up, we had pulled a lot of leverage over the last three years, and as the volumes come up, we'll be releasing some of those. But if you look at the underlying structural cost reduction, we are making very good progress and we are committed to hit the $500-plus million that we talked about.

Our next question is from Sebastian Kuenne from Berenberg Bank. Sebastian, your line is open.

I have a question regarding Ag & Turf. You had roughly flat Q2. You're expecting very strong growth for the rest of the year. In what markets do you think you will outperform most compared to the competitors given that you are certainly cautious on the U.S. and Europe? So what are the key margins by how much you think you can outperform the sector?

We try to be a little cautious around getting too specific on market share just from a competitive reason. Obviously I think we talked a little bit on an earlier question about the fact that we do have anticipated market share gains in several of our key markets. We've had a beginning, a long history of market share gains in Brazil on both tractors and combines and we've continued to localize product there. I think that's expected to continue. You know it's not uncommon as we begin to see a bit of recovery and so on in markets even like North America with large ag that tends to be some of our best opportunities to see some market share, positive market share shifts, and certainly our investment in things like precision ag will benefit that and will help boost some of that. We've done a lot of work on product and our dealer network in Europe as well and would hope to see at least some modest improvement as we move forward there. So I would say it's fairly broad where we would expect from some market share shift, but some markets may be a little more significant than others. And unfortunately, I can't get much more detailed than that but I appreciate the question.

Our next question is from Seth Weber from RBC Capital Markets. Seth, your line is open.

In the prepared remarks, I think I heard something about used equipment becoming more supportive of the environment in North America. Can you give us any additional color there whether that's in a reference to inventory levels or are you seeing pricing getting better, any additional help there would be great?

You're right, you heard that correctly. And I think it is a combination of things. I mean certainly used equipment levels do continue to come down and so that's been beneficial. In fact, we've kind of given a number versus the peak of summer of 2014. Last quarter we said it was down about 34%. It continued to come down in the second quarter this year, down about 36% from the peak. So that's certainly been supportive. And if you talk with many of our dealers, the volume of the overhang of used has become much less challenging for them. Pricing I would still say very stable, continues to stabilize and in certain products, and I want to be very clear, specifically certain products, you might see some strengthening in pricing, but broadly it's supportive that the benefit to our dealer, the confidence that they have in the value, not just the volume but the value they have placed on that used inventory is much stronger today, and that just gives them a much better position to be able to consider both new and used sales and be able to work with customers that way.

So you feel like that they are more open to taking new business because they have better visibility to the used market, is that what you're saying basically?

And I would say [indiscernible], we started saying that even as early as third quarter last year, the confidence that they have in some cases it's about their ability to take the equipment, but it's also significantly more confidence in the value they placed on it and their ability to get the appropriate level of margin when they turn that used piece of equipment. So, that's why the comment was written the way it was, it's not just about the ability to sell new but it's also about their ability to sell used at profitable levels, has become much more supportive.

Our next question is from Stanley Elliott from Stifel Nicolaus and Company. Stanley, your line is open.

You all actually kind of answered the question, but is there a way to parse out how much of the increase on the construction side was from some of the new products you had at CONEXPO? You did talk about some of the smaller, the mini class, but also there's pretty much going on, on the production side class there as well. And then lastly, did you mention anything about the parts commitment having any impact on the sales outlook?

I would say, again the large portion of the sales increase for Construction & Forestry, again I would emphasize is really about the difference in our production to retail year-over-year. Certainly those new products are having some benefit. I mentioned the commercial worksite products. You're certainly seeing some benefit kind of more broadly with products as well to your point some of the production class equipment. I don't have a specific number that would identify how much specifically is coming from new product versus the change in retail. But certainly there's benefit there. From a parts perspective, and I'm not sure I would necessarily attribute it immediately to the change in the warranty. That will take a bit of time to really see the full impact. But certainly as you think about our sales year-over-year parts is certainly stronger year-over-year as well. So that's helping to benefit that business.

Our next question is from Jerry Revich from Goldman Sachs. Jerry, your line is open.

Thank you for taking the follow up. Tony, can you talk about how you view normalized margins in Ag & Turf? Obviously really strong performance here towards the bottom of the cycle, and so if you apply your normal operating leverage, that would get you to 15-something percent type margins at normalized volumes, and I'm wondering at which point do you folks start to think about is that too high from a competitive standpoint, how do you think about what's normalized in this cycle for you?

I'll start and we'll see if Raj wants to throw any more in. But certainly, we've been pretty open and talked about, even introduced the 500 million reduction in structural cost. At that time, we talked about our mid-cycle margins as we would calculate them for the enterprise would be around 13%. And we've also been pretty open to your point about how much is too much, is wanting to make sure you kind of strike that balance between growth and margin. Certainly our strategy calls for a 12% margin at mid cycle. We are committed to maintaining 12% or higher mid cycle margin. But as we continue to improve the current structure of the business, in some cases we believe what will drive larger shareholder value and the greater shareholder value isn't necessarily to see those structural improvements just dropping to higher and higher margins, but be able to leverage some of that towards some growth opportunities. And so that's what we'll try to balance is opportunities to grow at at-least that 12% mid cycle margin with yet higher margins dropping to the bottom line. So a little bit of how we think about it. All right, let's go ahead and move on to the next caller, and I believe this will be our final question for the day.

Our last question is from Brett Wong from Piper Jaffray and Company. Brett, your line is open.

Just wondering looking at Brazil, talking about your expectations for Moderfrota rates coming up here in June, were you surprised that you didn't see rates change during the [indiscernible] Show and do you think that impacted sales at all during that show and are there any, are the change expectations or change rate expectations factored into your guidance for the region in the year?

It's a great question. I'm not sure it was necessarily a surprise. I think as we spoke with our group there, actually Head of the Show, they were not anticipating it being announced at the show this year. I think it's worth noting some additional funding was announced at the show to kind of closeout and provide enough funding to cover through the current fiscal year, through the end of June. We would continue to anticipate the announcements potentially in the next couple of weeks, even with, as Josh mentioned in his opening comments, even with some of the uncertainty today that's in that market. And there's a variety of questions candidly around what could happen going forward versus you have obviously could rate be lower and some would argue that the rates could come down a little bit given the fact that the broader market rates in Brazil have decreased. Others are actually advocating for rates to stay relatively the same but provide a higher level of funding, so you can fund more business. So we'll see where they land. I think the important part of the conversation though is at least based on information or conversations we've had with government officials there, and I would say history and even very recent history, they continue to be very supportive of agriculture, specifically around the FINAME and the Moderfrota program. And so, some that are doing a bit of sabre-rattling about what could happen to that program, I think that would be a significant divergence from what they've shown in recent time. So there's always risk, I'm not saying there's no risk here, but certainly we remain confident that the government will do everything they can to help support agriculture including supporting the FINAME program. Okay, with that, I think we'll go ahead and conclude the call. We appreciate everyone's participation, and as always, we'll be around for the rest of the day for any follow-up questions. Thank you. Operator?

That concludes today's conference. Thank you for your participation. You may now disconnect.