Good morning and welcome to Deere & Company First Quarter Earnings Conference Call. Your lines have been placed in 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; Cory Reed, President of John Deere Financial; Ryan Campbell, Deputy Financial Officer and Corporate Controller; and Brent Norwood, Manager, Investor Communications. Today, we will take a closer look at Deere's first 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 website 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 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 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 non-conformance with accounting principles generally accepted in the United States of America, GAAP. Additional information concerning these measures including reconciliations to comparable GAAP measures is included in the release and posted on our website at www.johndeere.com/earnings under Quarterly Earnings & Events. Brent?

John Deere completed the first quarter with solid contributions from both our equipment operations and financial services group. Top line results reflect continued demand growth in key markets while profitability was negatively impacted by higher cost for raw and logistics. Despite inflationary cost pressures, the Company made solid progress advancing critical investments in technology and innovative new product programs. In agricultural markets, replacement demand continue to drive sales activity albeit at a slower pace through our early order programs, while construction equipment sales benefited from stable construction investment and a healthy order book. Now let's take a closer look on our first quarter results beginning on Slide 3. Net sales and revenue were up 15% to 7.98 billion, net income attributable to Deere & Company was $498 million or $1.54 per diluted share. On Slide 4, total worldwide equipment operations net sales were up 16% to 6.94 billion, price realization in the quarter was positive by 5 points. Currency translation was negative by 3 points. The impact of Wirtgen was 7 points due its inclusion for the entire quarter in 2019 compared to only one month in 2018. Turning to a review of our individual businesses starting with Agriculture & Turf on Slide 5. Net sales were up 10% in the quarter-over-quarter comparison, primarily driven by higher shipment volumes and price realization, partially offset by the negative impact of currency and higher warranty related expenses. Operating profit was $348 million, down 10% from the same quarter last year as the benefits of positive price realization and higher shipment volumes were offset by increased production costs, higher warranty expenses, less favorable product mix and a step-up in R&D expense. With regards to the higher production costs, it's important to note that our steel contracts operate on a 3 to 6 month…

Thank you, Brent. Before discussing the quarter's results, I'd like to review JDF's strategy as a key supporting business to the enterprise. As shown on Slide 13, John Deere Financial exists to enable growth of equipment sales by deepening customer relationships and strengthening our distribution channel. By fulfilling this mission, financial services provides sustainable financing solutions to customers and dealers throughout business cycles while effectively managing credit risk. Furthermore, we play an increasingly vital role in accelerating the adoption of precision ag and are key to extending Deere's leadership position in this area. It's important to emphasize the John Deere Financial's mission is exclusively aligned to the broader enterprise. Slide 14 shows the composition of JDF's portfolio and demonstrates our disciplined focus on enabling equipment sales. Over the last few years, this composition has remained relatively consistent, allowing for an optimal balance between portfolio growth and risk management. Regarding credit quality, John Deere Financial has maintained an exceptional record throughout its history. Even at the height of the 1980s farm crisis, write-offs in ag never exceeded 65 basis points. The current 10-year average provision stands much lower at 23 basis points. This kind of exceptional performance reflects the Company's unique position in the marketplace. In many cases, Deere has financed families for generations, allowing us to get to know our customers and understand their operations better than many third-party vendors. Furthermore, the credit quality also benefits from the strong resale and residual value of Deere equipment. Today, the credit worthiness of our customer base remains strong with little difference between those who purchase and those who lease equipment. While closely watched during Ag trough, our lease portfolio is performing in line with expectations. Importantly, since the challenges of 2016, we took steps to improve the quality of the lease book…

Slide 17 outlines receivables and inventories. For the Company as a whole, receivables and inventories ended the quarter up $1.6 billion. In the C&F division, the increase is a result of the higher order book and production schedules. For Ag, the increase is due to better inventory positioning with our supply base and continued demand for small ag products, which require adequate inventory to sales ratios. By the end of the year, we forecast a reduction in inventory and receivables compared to 2018. Moving to Slide 18, cost of sales for the first quarter was 78% of net sales and our 2019 guidance remains at about 75%, down about 2 points from 2018. R&D was up about 14% in the fourth quarter and forecasted to be up 5% in 2019 or 3% when excluding Wirtgen from the results for both periods. The increase in 2019 primarily relates to strategic investments in precision ag as well as next generation new product development programs for large ag product lines. SA&G expense for the equipment operations was up 9% in the quarter. The year over year increase is mostly attributable to the impact of Wirtgen. Our full year 2019 SA&G forecast expense is up about 7% or about 5% excluding Wirtgen. Turning to Slide 19. The equipment operations tax rate was 30% in the first quarter due to discrete items. For 2019, Deere's full year effective tax rate is now projected to be between 24% to 26%. Slide 20 shows our equipment operation’s history of strong cash flow. Cash flow from the equipment operations is now forecast to be about $4.4 billion in 2019, up from about $3.3 billion in 2018. The Company's financial outlook is on Slide 21. We have kept our full year outlook for net sales to be up about 7%, which includes about three points of price realization, and one point related to an additional two months of Wirtgen ownership. On the negative side, we expect currency to be about a 2 point headwind next year. With respect to cost inflation, we project that price realization forecasted in 2019 will offset both material cost and freight inflation experienced in 2018, as well as the additional increases forecasted in 2019. Finally, our full year 2019 net income forecast remained at about $3.6 billion. I will now turn the call over to Raj Kalathur for closing comments. Raj?

Before we respond to your questions, I would like to share some thoughts on performance of the Ag & Turf division and outlook for the full year. First, I would like to address the change in our Ag & Turf margin forecast from 12.5% to 12%. The decrease was largely due to an unfavorable change in mix. 2019 North American large ag volumes are now forecasted to be flat to 2018, showing the resiliency of replacement demand cycle in light of trade uncertainty and unfavorable weather during Canadian harvest. The flat combine order book in the U.S. reflects farmer concern over prolonged global trade uncertainty, which has resulted in a wait-and-see approach for the 2019 season. Specifically, many farmers were citing the tariff deadline on March 1st as an important date to watch for further clarity on the export market for soybeans. The momentum shifts and equipment orders that we observed during the progressive phases of our early order programs reflect this cautious behavior as planter and sprayer EOPs ended up mid-single digits while the more recent U.S. combine early order program ended flat. It's important to reiterate that the underlying fundamentals of replacement demand are still very much intact even if 2019 experiences a brief pause in further growth. Encouragingly, our dealers are reporting robust quoting activity and are optimistic that further clarity on trade flow will be constructive to retail demand. The hours and age of the fleet along with the technology advancements included in our latest offerings will continue to drive demand. Importantly, we firmly believe a timely resolution of the global trade issues affecting agricultural markets will drive resumed growth in the replacement cycle. Lastly and very importantly, global demand for grain is projected to increase again in 2019, bringing supply and demand into a more favorable balance this marketing year and further improving next year with consumption projected to outpace production. This will mark the 24th consecutive year of global demand growth and this key tailwind along with our proven ability to perform throughout the cycle gives us confidence in our capability to deliver strong results in 2019 and beyond. Furthermore, our strong market position will allow us to capitalize on these long-term trends. Thanks to the advantages of our product portfolio breadth, technology leadership, and world-class channel.

Now, we're ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. In consideration of others and 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?

Thank you. [Operator Instructions] The first question will come from Jamie Cook of Credit Suisse. Your line is open.

Just first question. As you guys -- you guys also within the ag business, you talked about product warranty issues, if you guys could quantify that and whether or not that was expected and just give some color around that? And then, Raj, I'm just trying to understand what you're trying to say about China trade war because you sound more cautious, but you're keeping the order -- the industry outlook is the same. So, I'm just trying to understand like why not take the top line forecast down and sort of where the order book of tractors is relative to your expectations at this point?

If you think about -- maybe to start with first quarter ag margins and what we saw there, so there are couple of things that to consider. So one is, the warranty as you called out, and the issues we saw there were really related to product improvement programs. And as discussed before, those are lumpy. We adjust those as they occur and it's important that we're making sure we're taking care of customers. So, that occurred in the first quarter and that's why you see that higher expense in the quarter. As you think about other impacts on the margins for the first quarter, we’ve talked about -- generally, we've seen the supply issues stabilize and logistics have improved, but we have a few critical components, suppliers that were still having issues, and we're incurring a significant amount of premium airfreight to bring those into our factories in order to get those machines to customers. So, those have been two issues that had a pretty big impact in the quarter and on the freight issue, we expect that to linger into the third quarter. And on top of that, we had material which we've discussed first quarter of '19 compared to first quarter of '18 is a difficult comparison, as really 232 issues related to steel didn't start until the second quarter of 2018. So, we see that impacting us really more in the first half. As we get to the latter part of the third quarter and into the fourth quarter, we see some of those -- that pricing abate due to our lags in our contracts. And then lastly, in the quarter, as we've talked about, we've got to step up R&D as we're focused on our next generation products and precision ag that overall those are the four items that impact us there.

If you think about -- maybe to start with first quarter ag margins and what we saw there, so there are couple of things that to consider. So one is, the warranty as you called out, and the issues we saw there were really related to product improvement programs. And as discussed before, those are lumpy. We adjust those as they occur and it's important that we're making sure we're taking care of customers. So, that occurred in the first quarter and that's why you see that higher expense in the quarter. As you think about other impacts on the margins for the first quarter, we’ve talked about -- generally, we've seen the supply issues stabilize and logistics have improved, but we have a few critical components, suppliers that were still having issues, and we're incurring a significant amount of premium airfreight to bring those into our factories in order to get those machines to customers. So, those have been two issues that had a pretty big impact in the quarter and on the freight issue, we expect that to linger into the third quarter. And on top of that, we had material which we've discussed first quarter of '19 compared to first quarter of '18 is a difficult comparison, as really 232 issues related to steel didn't start until the second quarter of 2018. So, we see that impacting us really more in the first half. As we get to the latter part of the third quarter and into the fourth quarter, we see some of those -- that pricing abate due to our lags in our contracts. And then lastly, in the quarter, as we've talked about, we've got to step up R&D as we're focused on our next generation products and precision ag that overall those are the four items that impact us there.

And Jaime, on your question about ag and top line 4% trade, what we would say is, trades impacted the sentiment and that's more temporary. So, we would say there is an upside if there is trade resolution. Now, if the trade thing prolongs, we still think the downside is not as much because we think that the replacement demand from what we are seeing is still very healthy. So when we factor all these upside, downside, we said, yes, trade is a negative right now, but longer term it will tend to work out. And then beyond that, the fundamentals are just very strong, that's why we left the Ag where it is -- and then if you look at Brazil, places like that, that's actually up for us and small ag is up. There are other portions of Ag that are actually working us up.

But if the trade war resolved, do you see downside risk? And then just where is your order book right now in big tractors? Because I think that what everyone is trying to scratch their head around.

Yes, so overall, if the trade war extends further, we see limited downside risk, okay? Now, overall, we know that some of this trade -- we've always said, the trade routes will be realigned and the trade flows will readjust and it's going to be bumpy when that happens for a couple of years and that's kind of what we are seeing, but the underlying fundamentals of Ag are still pretty strong and the replacement demand as we have said are looking strong.

Thank you. The next question comes from Tim Thein of Citi. Your line is open.

Just first a clarification Raj on the switch or the lowering the large Ag in North America, the forecast. Does that have any implications for pricing as we move through the balance of year relative to the initial forecast? A –Joshua Jepson: Tim, when we think about the change -- yes, understood. When we think about the impact there -- so, as Raj mentioned, we've seen the large ag come in some, and that's on what we've seen with the combine earlier programs as well as we're seeing our large tractor order book has come in where year-over-year we were down to some there. And that's really created the mix impacts that we talk about and that's really the driver of the change in margins. All of the change in margins for ag from 12.5% to 12% is driven on that mix shift because of the strength that we continue to see in small ag and this mix shift on the trade uncertainty on large ag so that's the driver. As you think about price, yeah, 5% overall in the first quarter, we maintained our view on 3% for the full year. And for the full year, if you think about that, both divisions are participating very similarly in that regard.

And follow-up on that, the operating costs. You had outlined a headwind of about $850 million year on year, A. Is that still the right number? And B, how would you think about as we move through the year? It sounds like a lot of that kind of dissipates in the second half, but any help in terms of how much has already been experienced of that in 1Q? A –Joshua Jepson: The first half we see unfavorable comps in our steel pricing as our contracts lagged as we talked about in the past. As we get into the latter part of the third quarter, fourth quarter, we see that improve from a comparison perspective. So, that's where we see some of that. Now, the seasonality of our build and how we're buying steel this year -- we're buying about 55% first half versus 45% second half. So, that has some impact too in terms of the benefit as those come down. The only thing I'd point out is, and this is a question that we're likely to get is, as that steel comes down some, are we seeing that benefit? But what I’d point out is that airfreight that I mentioned earlier is really offsetting what we're seeing in some of those steel price reductions as that rolls through our forecast. And then maybe on top of that, the other issue kind of related to purchasing is what happens with the 301 tariffs. So, on 301, a quarter ago, we had said $100 to $125 million. Today, we say, we're at the low end of that range about $100 million. And again that assumes that we would go to 25% on 1 March, which certainly is a question, but that's what we've got in our forecast today. So, thanks, Tim, and we'll jump to the next caller.

Thank you. The next person is Steven Fisher of UBS. Your line is open.

Just to be very clear. So, if no trade deal happens, Raj, you said limited downside. Does that mean flat to up 5% North America goes to like flat? And then related to construction, it sounds like your lower construction guidance was largely Wirtgen in China and Argentina plus forestry. Was there any real change to your core North American construction outlook? It looks like the construction settlements in retail were down in January, that's the first time in awhile that's been down. So, I guess I'm wondering to what extent is that a cautious demand signal or with First in the Dirt still up, does that tell us just rental is becoming more important driver again?

Yes. I'll try to unpack that a little bit, Steve. I think, first, on the guide and Raj’s comments relative to the trade disputes. I mean, when we were really looking at our guide, we're thinking about what are the demand drivers, what are the fundamentals, and that really informs what we're doing. As you think about kind of what does that mean over the course of the rest of the year for us, we do expect some recovery in orders and we would say, that could come from either trade resolution or just a refocusing on the fundamentals for our farmer customers, and that really means -- the P&Ls as we think about cash receipts being up, as Raj mentioned, the production being outpaced by consumption. So, I think those are the couple of components in play there. As it relates to C&F, you are right when you think about the guidance for top line coming in a little bit, that's really driven entirely by Wirtgen coming back some, and your assumption there is also correct, it’s really driven by some of those markets like China, Turkey, Argentina where we've seen some weakening there and some shifting in their mix. From a legacy C&F perspective, we've seen continued strength in that order book. As Brent mentioned, we're out 4 to 5 months and really driven by economic indicators that continue to be positive. We called out what we've seen from the independent rental companies, but also just the general backlog of work that our contractors have. So, we've seen that top line and C&F move up slightly while the Wirtgen numbers come in some. So, that's kind of the combination of how those all interplay. Thank you will go ahead and jump to the next question.

Thank you. The next question comes from David Raso of Evercore ISI. Your line is open.

Just trying to gain a little more comfort on the ag and turf margins. The rest of the year you're implying incremental margins are 22%, after the last two quarters that we've seen EBIT down in ag and turf despite sales up. So I would say, obviously, I appreciate the comments about the premium freight continuing to 3Q, the mix sounds a little more adverse. Just trying to gain comfort, why should we expect the incrementals to get so much better in the next three months? I know that the costs come down on some of the input costs, but can you give us a little more comfort with maybe at a minimum giving us a little more clarity on the first quarter? If you think the margins are worse, people would have thought would've been flat year-over-year. So, we're about 170 bps lower than you would've thought at baseline. Can you give us some bucketing of warranty costs were 60 bps, higher production costs were 80 bps? I mean just some way to frame is right now the incrementals in the next three quarters, given the commentary aren't completely comforting?

I think, David, maybe if we think about the full year in particular, so at 12% absolute margin versus 12.5%. I think an important thing to consider there, you've got more than 0.5 point impact of FX and similarly more than a half point of impact from mix. So, those are the two biggest drivers and you're right in that, you do see compares, particularly as you get late in the year, improve on the steel side of the business. And also as I mentioned, with the airfreight and some of the critical components we're seeing, we think that goes into the third quarter. So you do see improvement as we get further out. From a price perspective, our expectation is on the ag and turf. Our price is pretty stable across the year. No big fluctuations throughout the year.

I appreciate the full-year framework but given the first quarter is in the books now. Can you please help us with just for the quarter even? What were the warranty costs drags year-over-year in margin terms, production cost? Just some way to bucket it. Maybe the warranty costs were more than we thought, less -- again, some comfort here with why the incrementals go that positive given after some months there but definitely mix and freight and so forth?

So, I guess maybe to put in context. If you look at RNA, we see the drag in the first quarter, when you think about the full-year, we do not see that as a drag for the full-year. So that's one. That’s a significant difference between the quarter and then the full year.

Yes, that was just timing David. We had a couple of product improvement programs that we wanted to get out and get our customers taking care of, but full-year no real change…

But no quantification to help us with moving forward here the next three quarters of the year, I mean just some way to size the first quarter drag?

We don't size those specifically David.

I mean the same thing, the Wirtgen, we didn't get the full quarter revenues on Wirtgen, we just got the incremental. What was the full quarter Wirtgen revenues, not just the incremental, the full quarter?

Yes, so the first quarter, it was -- I mean just one thing to consider there is seasonally this quarter is a really small quarter for their business. As you think about their overall impact in terms of the colder weather, you’re not building roads and the like, so first quarter, it was something like in the range of $600 million of sales for their full year. So, comparatively that -- it's the smallest quarter that they would have from a sales perspective, from a margin perspective.

For the rest of the year, margins for Wirtgen have to get over 15% to at least get the full year to something like 13%. Can you help us again -- same with ag question, right? The rest of the year, the Wirtgen margin improvement, was there still some deal costs or something in the first quarter that kept the margin low single-digit for the rest of the year?

Yes, it's really just driven -- yes, it's driven by the -- really what is historically a weak quarter in terms of their activity and that's been common for them. Their seasonality being really slow in the first quarter, when you think about the full year for Wirtgen we’re 12.5% margin. We feel really good about that business and the long term prospects there. So I think that's not a huge surprise in terms of how they are performing. So with that, we can talk more off-line, David. We’ll jump next question.

Thank you. The next question is from Joe O'Dea of Vertical Research Partners. Your line is open.

I wanted to continue in a similar vein, I guess, it sounds like the first quarter actually shaped up pretty similar to your expectations. I don't think you would have seen a lot of mix surprise and you knew the warranty stuff was coming. And so, really when you think about that 170 bps of year-over-year margin decline in ag and turf., when we think about 2Q, I mean, is that more flattish? Seasonally, we generally see a nice step-up from 1Q to 2Q, and I think we're just trying to get comfortable with some of the moving parts in the cost structure, and how to think about, if 2Q comes in lighter year-over-year then we're looking at a less comfortable back half growth? So any help with that 2Q ag and turf margin, whether that's kind of flattish year-over-year would be appreciated?

Yes, I mean 2Q it's historically always -- we always see a pretty significant step-up. It's our largest sales quarter and as Brent mentioned, you know, we expect our seasonality on top line to be pretty similar if you break out kind of in a percentage term in terms of how the other quarters break out from a sales point of view. And so I think as we perform in the past would be a good indicator of our expectations going forward.

In terms of margin sequentials as well. You’re talking about not just revenue sequentials?

Yes, that’s right on both sides.

Okay. And then on the C&F side, just to understand kind of the underlying, very good legacy C&F margin in the quarter. Are you -- it seems like Wirtgen is stepping down now for the full year. Sorry if I missed this, but what's the full year Wirtgen margin expectation at this point?

Yes, so Wirtgen, we expect to be about 12.5% margins on -- essentially full year to full year flat sale. So, $3.4 billion of sales and about 12.5% margin. So with that, we'll jump to the next question.

Thank you. The next question comes from Andy Casey of Wells Fargo Securities.

I had a question on the $400 million OCF guidance decrease from a prior $4.8 billion. What drove that?

Yes, the biggest portion of that change was just shift in working capital as we refine forecast. And, you know, you have some seasonality movement and the like. But that was the biggest driver.

So if I look at slide 17, you're now expecting $175 million tailwind for receivables and inventory. I don't think you gave that outlook in your fourth quarter conference call. Is that significantly different?

Yes, I don't think it's significantly different. I mean, I think some of it is timing related in terms of how that's -- how it moves and when that inventory and receivables are moving in and out throughout the year, but it's not a significant shift.

Andy, overall, the $4.4 billion cash flow from operations is still very strong. It will always have some working capital shifts as we go from one month to the next and those are -- and then we also had some changes to you know dividends from JDF based on the size of the portfolio, ending portfolio and such. So, still a very strong cash flow from operations.

Thank you. The next question comes from Ann Duignan of JP Morgan. Your line is open.

Raj, you've touched on something that I think deserves more attention and that's that the trade flows could be impacted permanently as a result of these tariffs even if they are eliminated. Can you talk about the downside risk to U.S. agriculture on the back of these tariffs and the fact that our exports of soybeans are down for the almost 40% year-to-date and we export 60% our production through the end of January? So, this could be a permanent impact on U.S. soybean exports, and what happens if that is true?

Yes, I think Ann, this is Josh, I'll start. I mean I think when we think about the trade flow rerouting, I think, the positive thing is, we've seen some of that already occurring, we've seen more of our soybeans going to places like Europe, like Egypt, former Brazilian trade partners. So those things are happening. And I think it gets back to the fundamentals of -- demand has increased and it looks to continue to increase and there are only a few places in the world that produce enough soybeans to meet that demand. So, I think it's really hard to say what do we think permanent damage is because we have seen some of this reroute and move.

Again, Ann, no, I'm not sure we'll say there is a permanent damage already. So what we would say is, trade flows will reroute, now and again, the fundamentals are still very strong. As you know, cash receipts are important, right. That's a big predictor for ag equipment demand in the U.S. and Canada. And global demand for grains including oilseeds has been growing for the last 24 years. If you look at the last 5 marketing years, weather has been very good in general, and production has been plentiful and higher than the growing consumption portion. Even though, production has been plentiful for the last 5 years, and the 2018 and '19 marketing year, you’re seeing production and consumption and better balance. As we said, consumption is forecast to be higher than production, reducing stocks and putting pressure on commodity prices again. So, now, these are the reasons why commodity prices are holding up very well and well above breakeven prices from what INFORMA economics would say for many farmers. Again, that's the reason why farmers who are good economic actors continue to consistently plant 320 million acres of major crop in the U.S., which means they are going to utilize their machine earnings and so the need for replacement equipment. So, we think on balance, downside is still pretty limited.

Thank you. The next question comes from Steve Volkmann of Jefferies. Your line is open.

Just two quick follow-ups, if I might. You've talked a little bit about the combine early orders and some of the planters and sprayer. Could you just talk about tractors, what you saw in early orders for tractors? And then, the second question, I’ll just put right on here. Maybe this is just splitting hairs, but the slight decrease in R&D spending, what's that about? And is that sort of a response to slightly weaker market? Or is it sort of unrelated?

Maybe start with the latter, on the R&D, it's really just an adjustment related to timing and how those programs are working out. So no significant shifts there or anything other than just tuning up our forecast for how we're spending through the first quarter and how we see that playing out for the year. As it relates to the large tractors as we talked about, we have seen orders slow some compared to where we were a quarter ago really, as the prolonged trade uncertainty is pausing some purchase decisions as customers take a wait and see approach. I think it's important as we talked to our dealers our dealers, we just had a meeting with all of our dealer CEOs, and we see -- they see a lot of traffic in the dealership, strong quoting activity. And when you look at the first three months of the year, we saw a pretty -- really strong retail activity across large tractors and combine. So, I think while you do -- we've seen some folks maybe sitting a little bit on the side line waiting, the traffic is there and the dealerships, they are quoting. So, as Raj mentioned, I think a little more certainty we definitely believe those drivers of demand continue to be there.

The next question is from Seth Weber of RBC Capital Markets.

I wanted to take another swing at the ag and turf margin question. I mean, do you feel like we can exit the year with the, with steel and some of the freight costs and things getting better? Can you exit the year with kind of your mid -- low to mid 30% incremental margin? And is that still the way, the right way, to think about the business for next year assuming mix kind of gets back to where you thought we were at this year?

Yes, I think that's fair. I mean I think if you look at our full year right now, and think about kind of the biggest drivers of impact -- that are margins FX and mix, from an incremental perspective, you'd be kind of in the mid-30s, if you didn't have those drivers. So, I think that's fair to say, those two things have been the biggest hindrance to our full-year guide.

And then just real quick, can you comment on just what you are seeing on industry inventory on the higher horsepower stuff because there are concerns that it's getting elevated?

I mean our view is -- I think, we were very comfortable with our inventory levels there, as you look at for example in AEM, 100 horsepower and above inventory, and you look at the industry less Deere is about 70%, and we're about half of that. So we're continuing to manage that diligently and will continue to be cautious and thoughtful about how we're managing field inventory. Combines, for example, we would be about a third lower than the industry less Deere, so continuing to be thoughtful on the inventory position out there.

Thank you. The next question is from Mig Dobre of Baird. Your line is open.

I'd like to go back to Wirtgen, if we may. So, you used to expect growth and from what I can recall you expected something like 14% margins, you step it downright flat and margins 12.5%, but I'm sort of trying to understand the performance in the quarter versus your outlook going forward, it looks to me like the Wirtgen margin was something like 3% in the quarter. And I'm wondering, if you've taken any restructuring or if you've done anything specific in the quarter because the seasonality here seems to me to be a little bit out of whack. And then you've also raised your synergies longer-term, it seems like you're doing something with this business. I just -- I guess I'm wondering. What is it? And how does it flow through, through the rest of the year?

I think seasonally like I mentioned earlier 1Q is kind of the – I’d say, slowest, smallest quarter and you see that impact. I think you also have the component of they own a significant amount of their channel, so you know as they are even building inventory or building machines, that those aren't necessarily getting sold to third parties. So, you have some of that impact. And then -- there is a component of as we align our order fulfillment strategies, we're going to work to optimize field inventory and be thoughtful about how we manage that. So, I think those are the biggest drivers, we talked a little bit about the sales come in -- taking our sales guide to be flat year-over-year around 3.4 billion. And that’s really on I'd say softness in some key markets, China in particular, which is one that’s been well discussed and then a little bit of shifting in terms of mix amongst their product lines that drive some of that activity, but those are really the drivers of that business.

Josh, but that's -- no, it's still not clear to me. I mean, if we're excluding some of these items that you sort of called out that seemed to be temporary, what would the margin of this business would have been? I mean like what's happening here versus the plan and what's the seasonality of margin typically through the year?

I think this is kind of normal seasonality for that business, Mig. The first quarter is traditionally a much lighter margin quarter, it gets much better as you move into the remainder of the year, particularly in the kind of mid-quarters, it would be R2 and 3Q and so that's normal for their business. So, that that's what we would expect so I don't think this is not a big departure from what we've seen for their seasonality in the past. We can chat more offline, we've got more additional questions, Mig. We will go ahead and go to next question please.

Thank you. The next question is from Jerry Revich of Goldman Sachs. Your line is open.

I'm wondering if you can talk about so to hit the ag and turf sales guidance for the year. Do your order rates over the balance of the year have to pick up more than normal seasonality? In other words, Josh, you've spoke about the higher inquiries and foot traffic. Do you need that to convert to orders at a higher rate than historically given the weaker overall early order program results in large ag?

Yes, I mean, I think we would expect to see some level recovery in orders, again, as we talked about, whether that comes from trade resolution or just refocus on the underlying fundamentals. That would be there in terms of what we'd expect to see. And I think the thing that we feel good about, as you mentioned, is we're seeing a lot of traffic. The drivers of that demand continue to be there, hours, age on the equipment. Many farmers, as Brent mentioned, from an underlying fundamental perspective you know, '18, '19 you see prices higher on three of the four major crops. So, I think that's a significant driver as well.

Okay and on the precision ag side, we're hearing from your dealers that ExactApply has really good momentum with penetration in the 30s. I'm wondering, if you can comment. Is that a fair and nationwide number? And from an architecture standpoint, how does the existing spraying architecture and ExactApply fit in when you folks bring Blue River to market on a couple of years?

It's a good question. I mean, we have seen across the earlier programs continued strong adoption of technology whether it's ExactApply, which we saw about 50% growth in that take rate to be about 50%, so about half of those machines is taking that. We've seen big steps in things like ExactEmerge, Combine Advisor closer to 70%, Active Yields more like 90%. So, we're continuing to see adoption. I mean, as it relates to ExactApply and how do those product forms look with Blue River and See and Spray when we come, I think, we're still working through that. Today that we or this year we've had that out being tested in both cotton and in soybeans. But I think, we're still I'd say developing what exactly that will look like. We feel really good about what it's going look like, you know, in terms of the performance that we've seen in the field, but I think pretty premature to say what exactly that you know, product form looks like.

Thank you. The next question is from Joel Tiss of BMO. Your line is open.

I just wonder. Is there any way to kind of breakout the pricing from the precision versus the underlying equipment pricing? Just to give us a sense of kind of half and half of your price increases?

Yes, Joe, that's I think the, one, it's a benefit of our vertical integration in terms of how we've designed this and built it to be one and the same with our hardware. So, it's a challenge to break those out because we're not pricing that as two different components. Now you might have features and solutions that you can add-on. But we don't dig those -- dig it to separate each of those items. So I go back to how do we monetize precision ag? It's in base, features that are in base, things like guidance, or hardware and guidance Telematics, subscriptions for Telematics, and for our guidance systems would be a second way and then lastly would be what we say job automation. So things that allow customers to plant, spray, harvest better so it's ExactApply, it's the ExactEmerge, it's Combine Advisor, and those sorts of things. So as far as, when you think about 3% price realization for the year, it's really hard to say what amount is driven by that. So I think we will continue to dig in and have more conversations around precision ag, but today we are not -- we don’t have a good way to attribute pricing specific to that. So with that, I think we are at top of the hour, so we appreciate all the questions, we will be doing follow-ups. So, appreciate all the interest and will be talking to you soon. Thank you.

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