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

Hello. Also on the call today are Raj Kalathur, our Chief Financial Officer; John Lagemann, Senior Vice President of Sales and Marketing for the Americas; Ryan Campbell, Vice President and Corporate Controller; and Brent Norwood, Manager, Investor Communications. Today, we will take a closer look at Deere's fourth quarter earnings, then spend some time talking about our markets and our current outlooks for fiscal 2019. After that, we will respond to your questions. Please note that slides are available to complement the call this morning. They can be accessed at 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 used 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 maybe 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 may include financial measures that are not in conformance with accounting principles generally accepted in the Unit ed States of America, GAAP. Additional information concerning these metrics including reconciliations to comparable GAAP measures is included in the release and posted on our Web site at www.johndeere.com/earnings under Quarterly Earnings & Events. Brent?

John Deere had another solid quarter with contributions from both our equipment operations and financial services group. The strong performance has enabled significant investment in new products, services and technologies as well as a return of $1.8 billion to shareholders through both dividends and share buybacks. In agricultural markets, replacement demand continues to drive sales activity for our early order programs; while construction equipment sales benefited from increased construction investment and a healthy order book. Now let's take a closer look at our year end results for 2018 beginning on Slide 3. For the full year, net sales in revenues were up 26%, to $37.358 billion, while net sales for equipment operations were up 29% to $33.351 billion. Net income attributable to Deere & Company was $2.368 billion or $7.24 per diluted share. The results for the year included an unfavorable net adjustment to provisional income taxes of $704 million; excluding this item adjusted net income was $3.073 billion. Slide 4 shows the results for the fourth quarter. Net sales and revenues were up 17% to $9.4 billion. Net income attributable to Deere & Company was $785 million or $2.42 per diluted share. The results for the quarter included a favorable net adjustment to provisional income taxes of $37 million. Excluding this item adjusted net income was $748 million. On Slide 5, total worldwide equipment operations net sales were up 18% to $8.3 billion; price realization in the quarter was positive by 2 points. Currency translation was negative by 3 points. The impact of Wirtgen was 11 points. Turning to a review of our individual businesses starting with Agriculture & Turf on Slide 6. Net sales were up 3% in the quarter-over-quarter comparison primarily driven by higher shipment volumes and price realization partially offset by the negative impact of currency.…

Thanks Brent. Moving on to Slide 9, let's focus on the current backdrop for North American large ag including farmer sentiment, replacement demand and the status of our 2019 early order program. Over the past several months, I've traveled extensively meeting with both dealers and farmers and I've had a chance to discuss general business conditions and their outlook for next year. In the U.S., overall both farmer and dealer sentiment remains cautiously optimistic. While there is uncertainty in the soybean market, there is optimism around improved fundamentals that Brent just referenced in the corn, wheat and cotton markets. In addition, we're seeing notable excitement from dealers and customers in our core Midwest markets concerning the 2018 crop where there are record yields in both corn and soybeans. Dealers believe this crop will positively influence equipment demand for 2019. But despite this optimism, it is also important to acknowledge the ongoing uncertainty the industry faces regarding unresolved global trade issues. While many farmers believe these issues will be resolved before next year's harvest there's no doubt trade concerns have had an impact on farmer sentiment over the last several months. Now let's talk specifics on the industry and the reasons for our constructive view for 2019, which reflect the following four aspects: number one, we are in a replacement market; number two, replacement demand is being augmented by today's precision ag technology; number three, our approach in delivering this technology is uniquely and seamlessly integrated. And finally, the initial response to our 2019 early order programs has been supportive of our view. Now let's take a closer look at these drivers. First, it is still a replacement market that's because the fleet age has reached its highest point since 2013. And customers are increasingly citing a need for newer equipment…

Thanks. Let's focus on construction and forestry on Slide 13, net sales for the quarter of $2.7 billion were up 65% compared with last year driven by strong demand for construction and forestry equipment as well as by the acquisition of Wirtgen, which contributed 45% of the positive improvement. Fourth quarter operating profit was $295 million largely benefiting from the Wirtgen acquisition, higher shipment volumes and net price realization partially offset by higher production costs. C&F operating margins were 10.8% for the quarter, about 10.9% excluding Wirtgen. Moving to Slide 14, the economic environment for the construction, forestry and road building industries looks solid and continue to support increased demand for new and used equipment. For 2019, U.S. GDP in total construction investment are forecast to grow, while housing starts and oil activity remain at supportive levels for equipment demand. Importantly, our U.S. customer base remains quite optimistic on next year's prospects citing backlogs extending through much of the year. Lastly, global transportation investment this year is forecast to grow about 5% driving increased demand for road construction equipment such as milling machines, rollers and asphalt pavers, which are all important product lines for Wirtgen. These positive economic indicators are reflected in a strong order book which is now extending about six months into 2019. Moving to the C&F outlook on Slide 15, Deere's construction and forestry sales are now forecast to be up about 15% in 2019 as a result of stronger demand for equipment as well as an additional two months of ownership of Wirtgen. The net sales forecast includes about $3.8 billion attributable to Wirtgen. The forecast for global forestry market is up about 10% as a result of improvement in sales in the U.S. and Canada and strong demand for [cutter linked] [ph] products in Europe…

Before we respond to your questions, I'd like to share some thoughts on capital allocation, Deere's ongoing strategy and the long-term tailwinds underpinning our business outlook. First it's important to know that continued demand for book ag and construction equipment has resulted in excellent cash flow generation and allowed us to increase the capital return to shareholders. In 2018, the company returned almost $1.8 million through an increased dividend and the repurchase of approximately 950 million in stock. In 2019, we are forecasting a strong $4.8 billion in cash flow from operations. These measures reflect our optimism on the future prospects for the end markets we serve. With regard to our dividend, we aim to maintain a payout ratio that targets 25% to 35% of mid-cycle earnings and can be sustained through the cycle. Based on our performance in the previous cycle and the inclusion of Wirtgen, we will consider further dividend increases in fiscal year 2019. Second, in our recent review of the John Deere strategy, we revised our 2022 financial aspirations to reflect our higher expectations for the business. As a result, we raised our mid-cycle operating margin target from 12% to 15% and modified our operating asset turn aspiration to keep us focused on managing assets effectively. These goals reflect our continued drive to make further improvements and overcome headwinds such as currency or inflation. Also the new goals incorporate Wirtgen's potential contribution and will keep us focused on our successful integration. Furthermore, Deere has a good track record of achieving higher levels of performance, so we are confident the company will quickly drive towards these new aspirations. Importantly, incentive compensation is aligned to these higher goals as you may have already noticed in our last proxy. Lastly, although global agricultural markets continue to face uncertainty over trade, the underlying fundamentals and tailwinds remain intact. It's important to keep in mind that global demand for grains continue to grow even as trade flows adjust to accommodate changes in government policy and forecasts show demand outpacing supply for the '18/'19 seasons. We are encouraged by the level of replacement demand driving sales at the present time and believe our business will continue to benefit from a gradual recovery in the Northern American large ag market and the rapid adoption of precision technologies. As a result, we look forward to delivering strong results in 2019 and beyond.

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

Thank you. [Operator Instructions] First question comes from Tim Thein with Citigroup. You may ask your question.

Great. Thank you. Good morning. First, thanks to John for the color that was really helpful. Just coming back Raj on what you just finished with in terms of the updated goals, specifically the 15% at mid-cycle operating margin target. The company is -- I don't think has ever hit that just in any year in the past so maybe just obviously that the inclusion of Wirtgen adds a different component to the sales and profit mix from what you've had historically. But maybe if you can just give us some kind of a little more color in terms of what helps to give you confidence in the company's ability to hit that mid cycle margin target just in terms of the -- maybe changes to the cost structure et cetera. So that's my question. Thank you.

Sure, Tim. One, we talked about technology investments we've been making in the last few years and precision ag is an example. These types of technologies and the solutions and the products that come out of these have significant value to the customers and such products should allow us to not only generate higher revenues, higher share, but also much higher margins given the kind of value this will generate for the customer. That's one. The second would be John talked about Connected Support; these type of technologies that we are incorporating now will help us develop a much higher share of the aftermarket business going forward, okay. This you have to work with the channel and you heard about the investments the channel is making and we are making to enable that. Third, you mentioned Wirtgen, I think the synergies from Wirtgen both on the cost side and the sales side and some of the growth prospects there will also allow us to improve our margins. Four, the example would be just all the journey that we can do internally in terms of improving efficiency and effectiveness of our operations just leveraging digitalization for example, okay, a small thought would be in shared services and accounting we use robotic process automation. There are so many places we intend to actually use such digitalization technologies to improve the effectiveness and efficiency. And finally, one other example would be, we'll continue to work on direct material cost reduction, indirect material cost reduction and so on that will also yield an additional opportunity for us to improve margins. So those are the types of things we are envisioning. There'll be a lot more like that. So thank you.

Thanks. Next question.

Thank you. Our next question comes from Jamie Cook with Credit Suisse. You may ask your question.

Hi. Good morning. Couple of questions, one just on, can you comment on the ag margins in the quarter. They were I think a little light relative to what you guys had guided and also the margins for the full year for ag for '19 at 12.5% I think the implied incrementals are mid to high 20s, which is a little lighter than I think we were thinking so if you could provide color on that. And then, my follow-up question is just on the pricing front for 2019, I understand the full -- it's 3%, but can you help us get some better clarity on what -- how we should think about ag versus construction? Thank you.

Yes. Jamie when we look at the ag margins and I think it's really a similar story kind of what we saw in 2018 as well as the guide for 2019. FX was a significant headwind in the fourth quarter. We're seeing that carry through into 2019. So when you think about kind of the full year of 2018 about 12.1%, ex FX that's about 12.5%. So we saw some drag there. Similarly as we look at 2019, FX is about a 0.5 drag on our ag margins. So that's been a pretty significant impact over where we were forecasting a quarter ago. As you think about '19, the other components FX is the biggest piece, we do have the impact of R&D and SA&G, really R&D focused on some of the things that John and Raj mentioned in terms of precision ag as well as next generation large ag products that we think over the long-term help us achieve those ambition goals in terms of margins as well as growing share. I think those are the major puts and takes embedded in that guide as you noted is the price realization that we've talked about. So we're 3% next year for the equipment operations in total. Both divisions really participating, since we've talked a lot about pricing on large ag John alluded to it. We've seen that on our early order programs, in our order books that are available now. So we feel good about that and our ability to offset the material and freight cost inflation we've seen in '18 and '19. On the construction side, we put through some discount reductions so we took additional action there that went into effect in November to get price realization on the construction side of the business. And I think it's important to note there we also expect that we're going to get price that offsets the material and cost inflation we are seeing on that side. So I think that's probably how we look at '19 overall from a margin and price perspective. Thank you.

Thank you. We will go ahead to the next caller.

Thank you. Our next question comes from Seth Weber with RBC Capital Markets. You may ask your question.

Hey, good morning. For Raj, I guess maybe just going back to the capital allocation, as you noted cash from ops is going be up 50% or so this year. I mean is the increase in buyback that you did in the fourth quarter is -- do you feel like that's a decent run rate for us to be thinking about going forward for through 2019? Thanks.

Seth, I think we used the same cash use priorities that we've used in the past. And first, we maintain a mid-single A rating throughout the cycle. We have a strong balance sheet right now to support it. And second, as we'll invest in growth, both organic and inorganic. You've seen as invest in very promising technologies like in precision ag. We also invested in really selectively and adding to areas like Crop Care, the type of company [indiscernible] gain market position or importantly new capabilities. So you'll see us continue to do some of those. And then, you also notice that we've increased dividend by 15% in May 2018 to $0.69 per quarter. We plan to keep the dividends at 25% to 35% of mid-cycle earnings. Our mid-cycle earnings go up, we'll continue to consider increases. As mentioned earlier, we'll be considering further increases in fiscal '19. And finally, share repurchases, we'll definitely consider if there's cash left and you said $4.8 billion that should leave a lot of cash. But, we'll also be very opportunistic about it. And now with our purchases and time it appropriately in the cycle and we tend to look at the long-term shareholders benefit when we see repurchase shares. Now, with $4.8 billion, the forecast for next year and the current level of share prices, we think it will be a very good value in terms of share repurchase consideration from a longer term shareholder perspective. I think I will limit it to that right now, Seth.

Okay. Just I mean, obviously, over the last two quarters, the cadence has picked up fairly materially from where it had been. So, it seems like a natural progression, it seems like this maybe kind of how you are thinking about the run rate going forward. That's all I'm asking. Yes.

I think it's a good statement you made, its worth.

Thanks Seth. Next question please.

Thank you. Our next question comes from Ann Duignan with JPMorgan. You may ask your question.

Hi. Good morning. I guess my question is for John, I'm just curious frankly your outlook for cash receipts by commodity. What are you contemplating in terms of planted acres by major crop? And the same question. I kind of ask CMH with the North Dakota, South Dakota guys, you've got 12 million acres of soybean this year, with no export program. Is it conceivable that they will take completely out of beans next year and into other crops. I'm just curious what your thoughts are John and what you're hearing out there in the Midwest in terms of planted acres by major crop.

Ann, this is Josh. I'll start and then John will add on. I mean I think as we think about the major crops, I mean certainly a lot of eyes on what this forecast, this harvest is going to look like what happens in South America. I think by and large as we think about, the crop cash receipts, we're seeing -- certainly seeing the benefit of the improvements in corn, cotton and wheat this year in North America. And that probably does drive some shift in acreage out of soybeans, but probably not all to one commodity, some to corn, some to wheat. I think importantly as you go to South America at least what we're -- what our expectations are now is, you see shift out of corn into cotton, so I think there's going to be a lot of puts and takes as we think about this globally and how farmers -- you make their decisions and think about this from their specific economics as we start planning for next year.

Yes. And thanks for the question. This is John. I think it's highly dependent upon where it is. I think in those areas that that can grow corn successfully and have grown corn successfully, you'll probably see somewhat of a shift to corn. But I think the point that that Josh made about South America is important because my conversations down there the folks that plant second crop which is a significant piece of the Brazilian ag business, they're leaning heavily towards cotton because of the current conditions and that's going to -- we think provide a buffer on any increased corn here in the U.S. and we're seeing early estimates corn maybe up 3 million to 4 million acres in the U.S. So I'll limit my answer to that.

Thank you. We'll go ahead and move on to the next question.

Our next question comes from Andy Casey with Wells Fargo Securities. You may ask your question.

Thanks. Good morning. Wanted to go back to Jamie's question a little bit. You've been dealing with elevated production costs in Ag & Turf during 2018, first, do those dissipate in 2019? And then the higher R&D, SA&G that you're looking to incur in 2019 should we view that as partially precision ag market development that really should come back in terms of future payback?

Yes. I think you're right. Couple of components of higher production costs in '18, certainly material and freight that we've seen as we look at '18 versus '19, we saw a bigger impact in '18 than we were foreseen in '19. And then, when you think about R&D and SA&G, you're exactly right. I mean the large portion of the R&D is focused on precision ag as well as the next generation large ag products. And then, SA&G, there is a significant component there that is related to our customer and product support technology and capabilities and really working seamlessly with our dealer to deliver those solutions. So that's a piece. You've also got down smaller in that some things like incentive comp, some marketing type of things like that but those would be the biggest items.

Okay. Thanks very much.

Thanks. Next question.

Our next question comes from Jerry Revich with Goldman Sachs. You may ask your question.

Hi. Good morning and Happy Thanksgiving everyone. Can you expand on your comments on used inventories in the prepared remarks, so we're hearing about rising used inventories off of a low level or combines and for excavator product line specifically? So can you just talk about what you're seeing in the channel and your comfort level on the construction equipment outlook, strong production growth next year within the context of inventories starting to rise off of the low base but certainly starting to rise.

Yes. Thanks Jerry. Starting maybe on used on both sides of the business I think, large ag used we're down a third from the peak of the market. I think importantly we feel good about inventory levels and we've seen prices stabilize. So I think that's some positive on the construction side. We've also continued to see used inventory come down because of the tightness in terms of supply. We've actually seen a number of our dealers putting used into their rental fleets to leverage those machines they have to be able to drive that. So I don't think on the construction side, we've seen any product category be particularly concerning or an issue there. John on the used side…

I think you nailed it on the ag side. We are off third as you said. It's really the lowest point it's been over the last four years. And I think we're in a comfortable zone. If you look at the inventory ratio, so I really have nothing else to add.

And that includes [corn] [ph] on John?

Correct.

Yes. All right. Thank you.

Thanks Eric. Next question please.

Thank you. Next question comes from David Raso with Evercore. You may ask your question.

Thank you. A quick clarification first though, the John Deere strategy, the bumping up the operating margins. Was there any change to your view of mid-cycle revenues in that analysis?

So David as we think through this, we look at '18 through '22 and these are forecasted numbers for the future. And as our business expands you would expect approximate 7-year average to expand as well in terms of sales. So our modeling mid-cycle has not changed in this process, okay? So you would expect '18 or '22 some growth in the mid-cycle.

If you even account for the Wirtgen bump up for the margin, you sort of just bumped up your implied EPS mid-cycle by almost $2 and just making sure I understand was that may be as you lower the revenue assumption, so the margin bump is less powerful, but to be clear you're saying you didn't change your view of mid-cycle revenues.

We didn't change our -- I think we didn't change our process to calculate mid-cycle revenue, okay? The mid-cycle revenues will change based on what we post on a yearly basis.

Did they go down I guess, Raj. If you held them where they were adding about 200 to 250 bps of core margin improvement, so again exclude the Wirtgen benefit because it's a higher margin business. It does appear you bumped up your implied EPS mid-cycle by almost two dollars. I just want to make sure we understand that is the idea or no, did you lower the revenue assumption while raising the margin, so the benefit not quite as much.

This is kind of -- it might be an endless answer here to answer your question, but we are not going to talk about exactly what the change in EPS is on a year-by-year basis. But what we are not assuming any lower revenues in this process like we said.

That's all I think the clarification.

But this is not going to bring things like precision ag. They're going to bring new products additional growth. Wirtgen brings additional growth that our technologies that we talked about brings more growth on the aftermarket side. Like the customer support piece as we've talked about. So this looks at additional growth opportunities and thereby additional margin opportunities.

Thanks for that. So real quick, my question is on the guide for Ag & Turf for the year. You're saying organic sales are up 5, but when you back out pricing, it's almost implying volumes are almost not up at all. And given your end market outlook and you obviously sure sounded confident your ability to outgrow the market given all the technology benefits you have. Just trying to understand why are we assuming volumes globally for your business barely up at all in this guidance? That's the final question. Thank you.

Yes, David. I think if you look across those the guidance in ag, largely flat, flat to up 5, and I think as John has pointed out, there is uncertainty there. And I think just recognition its early and we want to make sure that we are not giving ahead of ourselves there. But, I think, I wouldn't read too much into that on top of that.

I appreciate it. Thank you.

Then we have the FX headwind that we talked about that's significant on the top-line.

Thank you, David. Lot more than one question. Next question please.

Thank you. The next question comes from Joe O’Dea with Vertical Research Partners. You may ask your question. Joe O’Dea: Hi, good morning. Just looking for any insight on where we stand on the farm aid payments, you've talked about, how much has been paid so far on the first tranche. But, what's your visibility is into any announcement on a second tranche and so the timing of that the amount of that and how that might be spread across commodities.

Thanks Joe. I mean I think as you've noted there's been conversations that there's expectations it could come out December, similar amount. I think probably importantly, as we think about that, we're seeing as noted and some of that payment come out quicker. So the expectation we see some of that come through maybe more here in the next month or two on the first tranche. So we'll see the timing of that but announcement in December. You could see that in the first couple of months then of calendar '19. Joe O’Dea: Okay. Thanks a lot.

Thanks. Next question.

Thank you. Your next question comes from Courtney Yakavonis with Morgan Stanley. You may your question.

Hi. Thanks. Just wanted to get some clarification on the margin guidance for A&G and for C&F next year? Do those, how much headwind are you guys assuming from the Section 232 and 301 tariff and are you assuming the 25% goes into that?

Yes. Great question, Courtney. So I think -- when you think about steel overall, we're seeing higher -- we saw a bigger impact in 2018 than we do in 2019. Couple of things that play there. If you think about hot-rolled coil on the ag side of the business, our fourth quarter is kind of where we saw the higher level of steel pricing and we've actually -- that's what we forecast as we look into 2019. So we're -- at a more elevated fuel level as it comes down as this forecasts that would be beneficial. On the C&F side, plate steel has actually been higher and we've not really seen that move a whole lot. So that's in our forecast. But it appears to look like it'll stay at higher levels throughout the year. So I mean '18, '19 all in, '18 is a little bit higher, we're seeing that impact in '19. I think importantly we're getting price in both divisions to offset that inflation. As you think about the 301 tariff. So we've estimated about 100 million to 125 million for the enterprise across the year in 2019 and that's at the 25% level. And what our teams would tell you is they're working really hard on that with suppliers and negotiations to go to try to beat that number, but that's what we've got embedded in the forecast, is 100 million to 125 million.

Thank you. Next question please.

Thank you. Your next question comes from Mig Dobre with Baird. You may ask your question.

Yes. Thank you. Good morning. I just want to talk about C&F a little bit. You talked about order book extending six months into 2019. Can you frame that? And then, on your implied core growth of 12, can you help us understand how you're thinking about Wirtgen versus your legacy construction business? Thanks.

Yes. So I think when we think about the order book, yes, we talk about -- we've got 6 months of orders in hand that's well beyond what we typically run somewhere a month two to less than two on a regular basis. So quite a bit more visibility that's really just based on orders we're seeing come in the backlog of work that our contractors have. I think when we step back and look at the economic indicators affecting that industry they are still supportive. You think about -- like I mentioned in the backlog, housing has been continued to be supportive. And so I think that's been positive rental utilization. Rental rates have been strong. So I think that's what is driving and informing that outlook. As we think about legacy C&F versus Wirtgen. I think Wirtgen as we talked about and I think Brent mentioned about $3.8 billion of sales next year. So solid growth healthy backlog there underlying that is about 5% growth expectation in global transportation, road transportation spending. I think that's positive as well. So I think not all of those factors kind of economic drivers are what would be forming the forecast there and we feel good about where that's at right now.

So thanks. We'll go ahead and move on to the next question.

Thank you. Your next question comes from Steve Fisher with UBS. You may ask your question.

Thanks. Good morning. I wonder if you could talk about the 30% increase in CapEx roughly that you're planning for 2019. What's in that? How tight is that to some of the things you mentioned on R &D? And how much maybe incremental depreciation is flowing through 2019 net income as a result of that higher CapEx?

Yes, Steve. When we think about CapEx. It's really it is as you noted a similar story to R&D in that we're focused on advancing our capabilities and precision ag large ag products, the next generation I think in our view, we've got an opportunity to extend our leadership position and continue to move forward there. So that's really what we're doing. And I think those would be the biggest components of that increased spend.

Yes. I was just going to ask the clarification about the incremental depreciation flowing through into 2019, net income as a result of that 30% increase.

Yes. I think it's up less than 100 million. If you look at Slide 26, it's about 75 million of increased D&A next year.

Okay, perfect. Thanks a lot.

All right. Thank you. Next question.

Thank you. Your question comes from Rob Wertheimer with Melius Research. You may ask your question.

Hi. Thanks and good morning. My question is just on the volume contribution from precision ag features and options. How much is that contributing to volume this year and do you have any comment has been on our penetration rates overall and what the potential contribution to that feature set is, whether it's 10% increase in your volumes or 5 or 20 or what?

Rob, we haven't sized that exactly what I tell you is, it is impactful, when we think about things like ExactEmerge and ExactApply. We're seeing those up significantly from a take rate perspective over a year ago. In some cases 50% increase in the take rates there. Similarly on the combined side, where we're seeing combine advisor and active yield be extremely high penetration rates and adoption. So we've been in it, so it's difficult to decide what does that mean towards our top-line. But we think it is part of the impact there. And it also helps our ability to get price because of the value and economic value we create for the customers. And I will let John…

I think that's the main thing. It's because it's really integrated into the product. I think it's hard to measure the incremental value of it, but it really helps sell the value of the product. So I think that's the main perspective.

Yes. So I think Rob that doesn't probably answer your question perfectly, but I think at this point we say, it is impactful and as noted by our investments and our new capital, we think it'll continue to be more important and as we go forward.

Thank you. We'll go ahead and jump to the next question.

Thank you. Your next question comes from Chad Dillard with Deutsche Bank. You may ask your question.

Hi. Good morning everyone. Just wanted to dig into the inventory increase that you saw exiting that year for [A&G] [ph]. I just want to understand the mix between large and small ag, and then, how are you thinking about Deere inventories exit in 2019? And then, secondly, maybe you can just comment on how you're seeing the dealer channel evolve and how you expecting that to exit the year.

I think Chad, when we think about the working capital and where we ended the year up what we'd expected. Earlier this year, it's really driven by a few things. One is kind of timing and weather. So later harvest has certainly impacted some of the timing of when we would expect things to retail. So that's been a significant impact. You've also got small ag there, where we're building inventory. It's important in terms of the customer purchase patterns that we've got inventory to sales and availability throughout the year. So that's a piece. And then, lastly, we're in a much better position with our supply base now than we were a year ago. So last year we did not have as much a part in component availability and this year, we're in a much better position that allows us to go into '19 producing more effectively and efficiently as we move forward. But I'll ask John to add a comment.

I think I'd add two things Josh. Number one the small tractor and small ag is a strategic play for us because of the focus we're putting on that market. And I think on the large ag piece, it's really timing and the reason I say that is because when you look at November retail sales, frankly they're up significantly over 2018. So I think the late harvest made it more of a timing issue. So we're very encouraged by the early sales in November as we look at 2019.

Yes, Chad. I think overall -- your comment of kind of where do we end with field inventory. I think that's where we feel like at a hundred horsepower plus a combine slightly higher inventory sales where we're a year ago. And again as John pointed out, we think some of that's just timing of when those retails are occurring. So thank you. We'll go ahead and take one more question.

Thank you. Our last question comes from Ross Gilardi with Bank of America Merrill Lynch. You may ask your question.

Yes. Thanks guys for squeezing me in. So the feedback from our dealer survey last week, the dealers gathering $2000 to $3000 of annual subscription revenue from customers if not more on a cumulative basis from all of your various precision ag technologies. Last quarter you talked about 130,000 connected ag machines. So if you just multiply $3000 as sub-revenue times 130,000 machines, it get them nearly $400 million in revenue. And then, some of these things you seem to be charging activation fees. You've got other hardware revenue streams. Is it unreasonable to think that precision ag is a $500 million revenue business for Deere today, if not larger at substantially higher margins than the rest of the company. And where are you accounting for that subscription revenue base. Is it in your 300 basis points of pricing or is it somewhere else? Thanks.

Yes. Thanks Ross. It's a big picture right now. We know we're not at the level where we want to break that out in terms of that business in one. It's particularly -- it's not easy to break out because of the integration but we do think it's really important. I think as we go forward, we'll continue to dig in to that and provide more color, but at this point you really -- you do see that -- you think about monetization in the base equipment and premium features, and then in those subscriptions. So we think it's a significant opportunity to create value for customers and we think as we do that we're going to be able to participate in that value.

It is buried inside of just your volumes or is it in the pricing or is it on top of the pricing the 300 basis points of pricing that you're forecasting this year.

Yes. It's really a combination. There is components of the hardware that would be in base and there's other things that would come through your premium features. So it's a little bit of a mix. If not just clean as just one simple -- one simple line item.

Okay. Thanks.

All right. Thanks Ross.

All right. Well, thanks everyone we appreciate your participation. I hope everyone has happy Thanksgiving and we'll be available today for callbacks. Take care.

Thank you and this does conclude today's conference. We thank you for your participation. At this time you may disconnect your lines.