Good morning. And welcome to Deere & Company First 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. Josh Jepsen, Director of Investor Relations. Thank you. You may begin.

Hello, good morning. Also on the call today are Ryan Campbell, our Chief Financial Officer; and Brent Norwood, Manager of Investor Communications. Today, we’ll take a closer look at Deere’s first quarter earnings, then spend some time talking about our markets and current outlook for fiscal 2020. After that, we’ll respond to your questions. Please note that slides are available to complement the call this morning and can be accessed at our website at 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 not in conformance with accounting principles generally accepted in the United States of America. Additional information concerning these measures including reconciliations to comparable GAAP measures is included in the release and posted on our website at johndeere.com/earnings under Quarterly Earnings & Events. Brent?

John Deere completed the first quarter with a solid performance and sees early signs of stabilization for the U.S. Ag industry. That's been improved as some progress was made addressing market access for U.S. farmers through the passage of USMCA, and the phase 1 trade agreement with China. Meanwhile, markets such as Brazil got off to a slower start, even as underlying fundamentals and farm production remains high. At the same time, markets for our Construction and Forestry division slowed, dampening results as the division takes actions to manage inventory levels and adjust to lower levels of demand. Now, let's take a closer look at our first quarter results beginning on Slide 3. Enterprise net sales and revenues were down 4% to about $7.6 billion, while net sales for our equipment operations were down 6% to about $6.5 billion. Net income attributable to Deere & Company was up 4% to $517 million, or $1.63 per diluted share. The results included a pretax expense of $127 million relating to the voluntary employee separation program conducted during the quarter. Moving on to review of our individual businesses, we will first start with agriculture and turf on Slide 4. Net sales were down 4% in the quarter-over-quarter comparison, primarily driven by lower shipment volumes and the impact of currency translation, partially offset by positive price realization. Price realization in the quarter was positive by 3 points, while currency translation was negative by a point. Operating profit was $373 million, resulting in an 8.3% operating margin for the division. The year-over-year increase was primarily due to positive price realization and lower production costs, partially offset by lower volume as well as a $78 million charge relating to the voluntary employee separation program. Before reviewing our industry outlook, we'll first provide commentary on the regional…

Before we respond to your questions, I'd first like to offer some thoughts on current market conditions in Ag, and revisit some of the key initiatives we have underway in 2020. After a year of uncertainty in 2019, we're encouraged by early signs of stabilization evident in the beginning of 2020. We view the signing of the phase 1 trade agreement with China and the passage of USMCA as important first steps for removing some of the uncertainty that has weighed on producer sentiment over the last year. Continued positive sentiment will be dependent in part, upon a pickup and U.S. exports of agricultural goods to China. Over the last quarter, we were pleased with the conclusion of our combine early order program and the progress made, on our large tractor order book. As Brent noted, orders for our combine program ended up in the U.S. We are finding that despite, periods of high uncertainty, customers continue to invest in products and services that drive economic value. Customers are increasingly opting for solutions that offer the highest levels of productivity, driving a better outcome for their operations, and higher average selling prices for us. We view this as evidence, that we can drive growth and our financial results even in periods, when the number of units we sell is flat to slightly down. Now, shifting our focus to 2020 and beyond, recently discussed, some key initiatives to help us better execute our strategy. During our CES Analyst Day, John May, laid out his priorities as CEO. Our first priority is to refocus our capital allocation on investments that one, intensify our precision Ag leadership. Two, expand our aftermarket and retrofit business. And three, increase our emphasis on products and markets that have the greatest opportunity for differentiation. Our second priority involves reorienting our cost structure, including both our organizational design and footprint to create a more agile company, to best capitalize on the significant opportunity in front of us. To that end, we conducted a voluntary separation program during the first quarter, as a step towards achieving greater degrees of agility. Over the course of the year, we’ll pursue additional opportunities pertaining to our overseas footprint and organizational design. We believe the resulting organization will be more efficient and better equipped, to respond to dynamic market conditions. As we have indicated, we will provide updates on these initiatives during our quarterly earnings calls, as decisions are made.

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, please limit yourself to one question. If you have additional questions, we ask that you rejoin the queue. Caroline?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question or comment comes from Jerry Revich from Goldman Sachs. Your line is open.

Yes. Hi, good morning everyone. Ryan, I'm wondering if you could just expand on your last comment in terms of organizational structure and the opportunity set from realignment. Correct me if I'm wrong. I think you folks are set up as a matrix organizational structure with very heavy emphasis on shared services. And so when we've seen these transitions in the past, towards direct regional responsibility, there has been really significant benefit at the margin line pretty quickly. So how should we think about your transition here as an organization compared to what we've seen from others that have had similar transition from matrix to regional responsibilities that you outlined here?

Yes, Jerry, thanks for that question. We're still going through the analysis of what it might look like. And what I would point to is, now when we talked to CES and we talked about our bridge from mid-cycle margins from 12.5% to 15%, we said about 1% would come from cost structure. Certainly, the voluntary separation program that we just executed is a component of that, the Wirtgen synergies is a component of that. And then the footprint and kind of the recharacterization of the organizational design will be the rest of that. And so if you think about 1 point would be over $300 million, we took about - we’ll get about $120 million in savings from the voluntary separations programs, we did in 2019 and 2020. The Wirtgen synergy is €125 million, you get about a similar amount for the rest of it. So, we're early at, we'll talk as we make those decisions, but that’s how we would characterize it at this point.

And Ryan, the ultimate opportunity set, could it be bigger than that? I guess, when we've seen these changes in the past, we've seen something closer 200 basis points to 300 basis points of margin improvement. Is that what your benchmarking shows, or is it too soon to talk about numbers of that size until we're further along?

I would say, too soon to talk about that. We'd still point you to the numbers that we talked about to get us to 15%. As we get through it, we'll certainly provide updates on our quarterly calls.

Thank you. Our next question or comment is from Joe O'Dea from Vertical Research. Your line is open.

Hi, good morning everyone. You touched on seasonality of China purchasing of U.S. Ag commodities, but as we think about getting into the fall and post the phase 1 agreement. How are you thinking about that level of activity, whether that should return to a pre-trade dispute type of purchasing, whether it'll be stronger than just based on your evaluation of the phase 1 agreement?

Joe, thanks for the question. I think, it's certainly still early. I think, as Brent alluded to, we're at a period of time, where typically now you see the purchases moved to South America, coming back to North America kind of post our harvest time. So, we think there is some time like there. I think the real question is, as we think about how do we get to a larger number of purchases, and some of the numbers that have out there are roughly 2 times what we've done kind of historically on historical averages. So, I think it's still early to determine exactly what that looks and also what commodities make that up, play a pretty big role, is it a continued purchases of soybeans or do we see other commodities things like pork, ethanol and others come into the trade that necessarily haven't always been there haven't been significant. So, I think a lot of questions still there, in terms of how that comes through, as well as in the near-term with coronavirus and some of the things that have slowed, just overall activity in China, what impact does that have on their ability to make those purchases.

Got it. Thank you.

Thanks, Joe.

Thank you. Our next question or comment comes from Stephen Volkmann from Jefferies. Your line is open.

Hi, good morning, everybody. I wanted to dig in a little bit to your view of the Ag margins. Obviously, they came in quite a bit better than I think, some of us expected here in the first quarter. And frankly, it's a little tough to kind of hold them down into the level you've given in terms of guidance for the full year. When we think about the tailwind from the headcount reduction savings and probably some kind of mix improvement, I would assume, and maybe a little bit more production to retail versus last year. Are there some headwinds that we should be thinking about that kind of offset some of those benefits? Or is that maybe somewhat of a conservative outlook or are we skewing toward the higher end of the margin range or something, just a little more color on how you're thinking about that?

Yes, Steve, I mean, you're right. First of all, I think that we were pleased with the way the first quarter came in, margins up on lower sales, I think that's a positive. As we think about the full year, I think a few things that we are contemplating. One, it is still early. We're watching the situation in China with coronavirus closely, as well as in Brazil, where, as we've noted, we've started the year with a little bit slower retail activity. Our view there's that picks up, it's more back-half loaded, but that's something we'll watch pretty closely. One other thing, as we think about first quarter versus the rest of the year, the first quarter we had a nearly 3 points of price realization. Our full year is about 2 points, so, not as much expected there from that perspective. So, overall, not a change in our range, and we think, there's still a lot of moving pieces, so we feel like that's prudent. Maybe one thing to call out in particular, as we think about the second quarter, and Brent alluded to in his comments, is our second quarter, we have a few, I'd say, maybe unusual seasonal impacts in the quarter. One, we see much lower cotton sales in 2Q of this year, because they came through the first quarter, so that's really just timing of production. But also, we have a new product transition in Waterloo, for our brand new 8R tractor, as well as limited production builds for our new combine. And the result of those two things, will certainly impact what we're able to produce and ship during the month. And then one last thing to think about in 2Q is, as we think about coronavirus, and some of those impacts, one of the things that we've thought about is the impact on our supply base there, and the ability to get parts to our operations internationally. So, we've actually, in our second quarter included about $40 million of cost of expedited freight to make sure that we're able to have that availability to get parts into the operations. So that, all of those things result in, probably a lighter topline and margin line for 2Q than what we seasonally would see.

Yes. So Ryan, maybe overall just to summarize, we certainly feel good about the performance in the first quarter. But, there's a few moving pieces for the rest of the year, and it's too early for us to change our range at this point.

Got it. Okay, that's helpful. I appreciate guys.

Thank you. Our next question comes from Tim Thein from Citigroup. Your line is open.

Thank you. And first, Josh, thanks for the added disclosures in these lines. But just to continue along that that train of thought, in terms of the second quarter, obviously, historically, the highest seasonal quarter from a margin perspective. The factors you just outlined are those enough to - does that change this year such that third quarter you think is higher than the second from a margin perspective? Or, I again, recognize you don't give quarterly margin guidance, but just to make sure we understand kind of the magnitude of those impacts.

Yes, I'd say more similar now between those two than the difference that we've seen in the past.

So, okay, 2Q, 3Q kind of posted on par with one another's?

Correct, yes.

Okay. All right. Thanks a lot.

Our next question or comment comes from Jamie Cook from Credit Suisse. Your line is open.

Hi, good morning. Just following on to Steve's question on the Ag margins, again, I agree with his thoughts that the guide seems conservative. You did also talk about some of the actions you're taking in Europe within Ags. So, I'm wondering if there's any costs associated with that or how much that sort of incrementally if any weighing on the Ag margins relative to how I think about margins in South America or there U.S. for Ag? So, that's my first question. And I guess my second question on the flip side, the construction margins were a little weaker than I would have expected, understanding, you kept your margins the same, but just sort of your confidence level there, if there was anything in particular that weighed on the construction margins in the first quarter. Thank you.

So on the Ag side, starting the Ag side, I mean, I think as we think about Europe, some of the things we've already done, we executed on in 4Q of '19 and in 1Q, so, as we stand today, with where we're at, nothing additional to call out. If we do further actions, as Ryan mentioned, we'll lay those out and talk through those, but nothing major contemplated right now. As you think about construction and construction in the quarter, we had lower margins, the voluntary separation expenses $24 million, have an impact, and then lower volume, unfavorable mix, and then just the under production component are really the biggest drivers of that lower margin in the quarter. Maybe just a context and as we think about the full year, and what do we see there, we do expect to see mix improve as we go through the year, as we expect, our construction North American construction equipment mix will improve as we under produce less throughout the balance of the year. In addition to that, road building, which is more seasonally skewed, is a bigger portion of our total C&F business this year, and is much more heavily weighted their seasonality to 2Q and 3Q in the year. So, I think those are probably the biggest drivers on the construction side from a margin perspective.

Okay. Thank you.

Thank you. Our next question or comment is from Ashish Gupta from Stephens. Your line is open.

Hi, good morning. Thanks for taking the question. Appreciated the color on the supply chain impact and the costs you guys are budgeting for the second quarter. Just wondering if you can maybe expand on, and I think you said that the component you make in China for other international markets, I'm just wondering if there's any supply chain type impacts that could come over time with the virus spreading to Japan and South Korea.

Yes, so when we think about kind of the impacts and potential impacts of the coronavirus is kind of two components like that we mentioned. One is direct exposure, our sales into the China market that's relatively small for our Ag and turf business and for our traditional C&F business. Road building, though, has a bigger exposure there. So road building in China will tend to be 10% to 15% of their overall sales. So more of an impact there. We did see some reduction in their topline as a result of the lack of activity in that market over the last month or so. So we have seen some of that impact. That's one. The second component is on supply chain. And we've got suppliers in China that supply our operations across the globe. So, those are the suppliers we're watching closely, we're working through our supply management teams working really diligently to understand where each of those are, and the process to either, are they producing or when are they going to begin to produce, so that's something we're watching and monitoring closely. As a result of that, as I mentioned, that's where we did go ahead and set up and get capacity to expedite freight to make sure we can try to get those parts to our facilities during the quarter.

But if we remain in sort of an extended shut down or you see impact from quarantining in South Korea or Japan, do you see any impact there? And I guess, I should ask also, do you have other component suppliers that you can leverage in other regions in the Europe or U.S.?

Yes. I mean, first, I'd say it's really fluid and very early. This is day-to-day shifting in terms of what's going on. So, as we move forward, we will certainly update, but that’s kind of what we know today. And as always, our supply management teams are always looking at opportunities to resource and leverage suppliers that have multiple locations. So we're working through all those potential opportunities. Thanks Ashish, we will go ahead and go to our next question.

Thank you. Our next question or comment is from Andy Casey from Wells Fargo. Your line is open.

Thanks. Good morning everybody. A question on cash flow, I mean, you had a really good first quarter in terms of cutting the outflow relative to last year on the operating cash line. You didn’t really change the full year guidance. So, I'm wondering, what do you expect for the balance of the year in terms of working capital? And then, b, you didn’t really keep pace with the share repo and I'm wondering if that’s a signal that you are going to keep it dampened for the balance of the year or will that reaccelerate?

Yes. From a cash flow perspective we maintain the range, we're focused on managing inventory and receivables. We saw really good progress as you noted in the first quarter. But I think overall, I'd say, it's early in the year. We didn’t adjust our topline ranges nor our net income range. Felt it was prudent given just three months in that we maintain that from a cash flow perspective.

And Andy, it's Ryan. We took inventory out throughout the balance of '19, so that inventory reduction evens out over time, significant in the first quarter, but it evens out, although we do still project an inventory reduction. With respect to the buyback, we did around $100 million for the first quarter, that’s in line with our historical average. Typically, first quarter is a use of cash for us as we build some working capital. So nothing to read into that. It's right in line with what we've done historically, in the first quarter.

Our next question or comment is from David Raso from Evercore ISI. Your line is open.

Hi, thank you. I'm just trying to do a margin walk for Ag and turf for the year. If we just think the rest of the year, the price cost, what are you baking in for the year on price cost for Ag or the next nine months?

It would be favorable.

And you know as Josh said, we did about 3 in price. The first quarter full year is 2. So, there is an impact of that going through the rest of the year. So price cost still favorable but less favorable than the first quarter.

Well, I'm just trying to figure price cost was 1.97 positive for the first quarter when you add the price change and the production cost change. The rest of the year implied pricing is another $340 million or so. Do you think your cost go back up? Because I'm just trying to get the walk here from you are implying something about the decrementals on the volume declines for the rest of the year. But the savings from the separation cost within this division in the next nine months roughly should offset the incremental freight in the second quarter. Is that the right way to think about those two moving parts, separation savings versus the $40 million freight cost from coronavirus in 2Q?

Yes. Well, I think it's maybe a little more - there is a little more than trying to just compare one or two components. I mean, overall, as Ryan said, 2 points of price for the full year. Material and freight are favorable for us in 2020 and that includes the additional -

$40 million.

The additional $40 million, so still favorable. We do have a couple things that would be going against us there. Incentive comp is higher in the year, pension costs and OPEB costs are higher in the year. So there are some moving pieces there that impacts the overall net-net there.

And related to that same question, that the underproduction for the year in Ag and turf, has that changed at all from three months ago, be it high horsepower versus low horsepower, magnitude? Any color there would be appreciated. Thank you.

Yes. No change in terms of the expectations of how we produce relative to retail, or year-over-year.

Yes. So large Ag, still roughly in line, small Ag underproduction.

All right, thank you.

Our next question or comment comes from Mig Dobre from Baird. Your line is open.

Thank you. Good morning. Going back to construction, can you maybe help us understand sort of what's baked into your guidance in terms of earthmoving versus road building? And I'm kind of curious here as you think about your earthmoving business, do you think about the second quarter and beyond? At what point in time do you think you're going to be in a position where you can produce a little closer to retail demand? Is this maybe late in 2020 or more of a 2021 thing?

Yes. Thanks Mig. I think when we think about construction and forestry and if we look at kind of North American construction equipment, which I think is where your question really lies, is, for the balance of the year we will under produce retail demand. It's more front-half loaded. Certainly, the first quarter, we under produced more significantly than we will the balance of the year. So, as I mentioned a little bit talking about mix in that business improving over the year, that's a result of less underproduction of that CE that - North American construction equipment during the remaining quarters of the year.

And is road building down more or less than the segment average guidance?

Less.

Can you quantify that?

Yes. I mean, it's 5% or less.

Okay, thank you.

Our next question or comment is from Chad Dillard from Deutsche Bank. Your line is open.

Hi, good morning, guys. So I just want to go back to the question of small Ag and just want to understand, where did retail sales end up versus your expectations in the first quarter. And same question on the underproduction? Where did that end up versus your initial expectations? And how are you thinking about when you'll be able to produce in line with retail? Is it later in 2020? Or are we thinking about a little bit longer? And secondly, just want to get some comments on how you're seeing the new 8R adoption unfold. Any indication on penetration uptake from the farmers?

Yes. So, as it relates to small tractors in North America, and it's probably easiest or best to look at this on the full year given seasonality. We are, as Ryan mentioned, we expect to under produce retail demand in 2020 on contractors and that hasn't changed around 15% for the year. So that's the plan that we're executing to. And we think that puts us in a really solid position from an inventory to sales perspective when we end the year.

Yes, so we would project 2021, we're producing in line with retail in that business.

As it relates overall, the new 8R, we've seen good order activity there. We are ordered out further than we were a year ago. That's a little bit misleading just in that - we're impacted by the transition time as we moved - changed the factory over to begin producing the new model. But I think we've seen really positive response the 8R, in particular, the new four track option has been particularly well received and lots of interest and activity there for what that machine delivers. So, feel good about that.

Thank you.

Thank you. Our next question or comment comes from Ann Duignan from JP Morgan. Your line is open.

Hi, good morning. If we could switch back to the fundamentals, I'm curious to hear your thoughts on the strength of the real versus the dollar, I mean it's up 40% year-to-date. And what you think that might do to U.S. exports as we go forward? And couple that with the Argentinian peso and maybe the - and Ukraine on the corn side and versus the Brazil real on the bean side. What are your thoughts in terms of FX and strong dollar and the impact it has on competitiveness of U.S. agriculture?

Yes. So, I think certainly, we've seen deterioration particularly in South America and the real and peso, what has been going on there. So that does impact competitiveness, particularly in the short-term. It also benefits profitability for those producers in those markets as well. So, there's puts and takes on both of those. I mean, I think importantly, as we think about this, from our perspective is, where are - the fact that we continue to see demand growing, consumption of grains growing, and there are only a few places that produce these grains, particularly soybeans, en masse, at scale, and in that relatively low cost of production. So, we think, those places are the U.S., Brazil and Argentina to a lesser extent. So, again we think there's going to be the need for those grains, because those are really the only places that they're coming from. So, certainly, timing wise there can be advantages won or lost, as FX moves. But I think big picture when we step back feel like the demand for grain and the fact that these are only grown in a few places, at scale is an important thing to recall.

And along those lines just on Brazil again, why wouldn't farmers be spending money now than if they - if favorable financing is going to disappear midyear?

Yes. So, I mean, I think, well, we talked about a little bit, I think the some of the caution there has been around trade. And you see a significant shift in China's purchase pattern. I think that's paused the market a little bit. And I think we saw this over particularly at the end of last year and into this year, a little bit of the concern on financing. I think one other things we've seen as the government came out and talked about Finame, as we go forward, I think that's helped eliminate some of the big concern as we've now talking about our program that begins the transition to less subsidization or less interest rate equalization as referred to in the market, and getting to more of a free market system. And I think, a couple things that support that, one is we've seen pretty low interest rates, the benchmark rate in Brazil is at very low levels, which has been positive. So that certainly helps. And our largest customers in Brazil for quite some time, have had access to bank, private bank financing. So, we actually believe the longer-term as we begin this transition that this will create more stability in the market, and less volatility in the Ag machinery sector, because it will be more driven by actual demand and not finance availability or alike. As it relates, maybe one other note on Brazil, the lots of folks look at the shipment numbers coming out of Brazil, in Anfavea, and as earlier noted, someone made the comment we've seen weakness, as you noted, why are we seeing more activity. One thing that we have seen as we've looked at that market, and you look at by horsepower, splits or segments, there's been a pretty big distinction. It's really been occurring over the last three years, where we're seeing high horsepower, and in their reporting that's above 130 horsepower has been growing, whereas, you've seen lower horsepower has been declining year-on-year. And even year-to-date, we're seeing the lower horsepower ranges down double-digits, while we're up on the high horsepower side. So, there are a few dynamics there, but certainly, the growth in high horsepower and technology, we see a very positive, over the last few years that certainly helped to drive the market share gains we've seen and we think that continuing trend helps us, and particularly as you start to deliver more and more precision Ag into the market. So, long answer, but I think that’s some of how we're viewing the Brazilian market. We'll go ahead and jump to our next question.

Thank you. Our next question or comment comes from Seth Weber from RBC. Your line is open.

Good morning. This is Brendan on for Seth. I'd like to touch on the higher losses on the lower residuals, you called this out last quarter as well. So I'd like to get, ask if you think that you've lowered them to a sufficient enough level where it kind of be less of a headwind going forward. And then if you could talk to whether the lower residuals you were saying, was that on your Ag equipment, your construction equipment or both?

Thanks, Brendan. So, we noted losses in GDF in the quarter on operating leases, year-over-year, just first context as a little bit under $10 million, just to size that in terms of what we saw. Primarily those losses came in through our C&F division, really as of result of two things. A little bit of pressure on the overall used environment in C&F with higher inventories that have put some downward pressure on prices. And then we did take some actions during the quarter to move aged inventory and had relatively significant reductions of our matured lease inventory there that was of an older vintage. So, I think those are the things we saw there. From an Ag and turf perspective, portfolio was pretty stable where recoveries, we didn't see much change and return rates actually improved a little bit for us in the quarter. So, we're really early on now, as we start to think about the changes, we made a quarter ago but very, very focused on working with our dealers through the process of retaining more of those lease maturities, programs in place to incentivize both the dealers and customers to engage in managing that inventory at a much higher level. With that, we'll go ahead and go to our next question.

Our next question or comment is from Joel Tiss from BMO. Your line is open.

Hey guys, how's it going?

Hey Joe.

I just wonder, maybe I'll glue two quick ones together. How far can farmers go before they start replacing their equipment? Like, do you have any history on what the longest kind of drought of buying has been? And then on the focus side, are you contemplating exiting whole geographies like bigger chunks? Or is this just more like tweaking and looking a little more granularly? Thank you.

Yes. Maybe start with your second question. I mean, I think when we think about there, I'd say it's much more focused in terms of products and markets, how can we best serve those customers how we do that and in an efficient way, while also delivering the customer experience that they expect and deserve in that that we want to deliver. So, I think it's more targeted than saying entire geography or product form, but being thoughtful in terms of how can we best serve those customers.

Yes. Maybe it's a little more on how we go to market as opposed to which markets, we're going into.

Okay.

And as it pertains to the age of fleet or how long can someone go until you see purchases, we're in the U.S. in particular, we think about aging fleet. We are now pushing past kind of what has been the historically equilibrium going back to say 2000. So we're on high horsepower on tractors and on combines and we're pushing beyond the point that we've kind of ran at through really the early 2000s. So, we think we're there in terms of the drivers replacement demand and on top of that technology and productivity to see more of that activity. I think the uncertainty we've been dealt with over the last 18 months has caused a lot of that. But I think talking to dealers, talking to our team, I mean, certainly there's appetite and interest there. And when we can deliver not only productivity, but cost reduction, when we think about overall P&L for a farmer, there's value there. Canada, maybe a little bit different situation, where we see the age of that fleet is a little younger. And as a result, and Brent alluded to this in his comments, maybe a little bit further out to some of the replacements. Just given that market did not cycle us as much down or up that we saw in the U.S. Thanks, Joel. We'll go ahead and go to our next question.

Our next question or comment comes from Courtney Yakavonis from Morgan Stanley. Your line is open.

Thanks for the question. Maybe first, if you guys can just talk about the pricing expectations. I think pricing was a little bit better than we expect in the first quarter. And you did raise it for the year but still implying that pricing little bit worse. So maybe, can you just talk about where you saw the strength this quarter and why it should decelerate an Ag for the remainder of the year? And then secondly, kind of on the back of the last question. I think when you talked about North America large Ag, the industry outlook staying at down 5%. It definitely sounds like U.S. is a little bit better than you originally expecting and Canada's a little bit worse. So, when you have been talking about no change in the equipment replacement schedule, maybe first I just wanted to make sure that was saying that the pause that you thought happened last year is going to continue into 2020. And then I think you've historically talked about commodity prices. And what level you think commodity prices will impact the replacement schedule? And if you can just kind of give us some type of framework for where commodity prices need to go before you start to see that replacements schedule to pick up again? Thanks.

So, I think, as you think about the down 5% on large Ag in North America, you're exactly right in that. We see probably a little bit of improvement on the U.S. side and weaker on the Canada side. So that’s a very fair. We talked - Brent talked a little bit about what we saw U.S. versus Canada on combines. We see kind of a similar impact as we look at large tractors from an order book perspective. So that kind of the dynamic that we've seen there. As you think about price and how we came into the quarter, for C&F, we expect a point, we got about a point in the first quarter and we expect that for the year. On the Ag side, a little bit stronger price in the first quarter than our full year. We actually saw some improvement in overseas markets. So, that was, and the margins helped us a little bit, pushed us a little bit above what we had expected, I mean, into the quarter.

And then lastly, on the commodity prices and impact on replacement.

So, I mean, I think the easing of trade tensions and opening up of market access, we think is really important as the first step. I think, importantly, I think folks want to see grain actually flowing, grain actually moving purchases occurring. And we think that’s particularly important. I mean, as you think about absolute prices we've felt - believe that in the range of $3.50 corn and $9 soybeans can drive replacement demand that’s supportive of replacement demand. So, I think, if we actually start to see grain move, I think that provides a little more confidence in terms of the access actually being there. And we think is supportive of replacement demand. So we'll go ahead and go to our next question. Thanks, Courtney.

Our next question or comment comes from Ross Gilardi from Bank of America. Your line is open.

Thanks for squeezing me in guys. I got cut off for a couple of minutes. So hopefully, nobody already asked this. But could you clarify what the year-on-year swing in dealer inventories was in Ag and turf just reason being if you look at your retail sales, it's hard to tell what the number is in totality, but it looks like it's down more than the 4% revenue decline you had in the quarters. Any color there I would appreciate it. I'm just trying to get at whether or not dealer, restocking contributing meaningfully to be maybe less than expected revenue decline in Q1?

Yes. I think when we look at it, inventory to sales, in particular, if we look at kind of 100 horsepower and above, year-over-year it came down from 38% to 31% and combines we saw come down as well. I think overall from a small tractor perspective, we're relatively in-line with the industry and maybe down a little bit from where we were a year ago. But I think overall, we've continued to feel good about where we are from a large Ag perspective and the plans to execute for small tractors.

Okay. Thank you.

Thanks. So I think we’ve time for one more question.

Thank you. And our last question comes from Jerry Revich from Goldman Sachs. Your line is open.

Thanks for taking the follow-up. I'm wondering if you could talk about the margin improvement plans for C&F specifically. So, a lot of what we've spoken about precision Ag and their pricing, is really focused on the Ag part of the equitation. I'm wondering if you could just have a little bit of a discussion on the opportunities for the C&F side beyond the Wirtgen synergies to get closer to that 15% corporate target?

Yes. Thanks, Jerry. I mean, I think you know, maybe at a high level when we think about 15%, that is the margin level we expect to deliver. Our businesses may not all be exactly that number, but all contributing to getting there is probably an important distinction. But as we think about our construction business, and in particularly as we add in road building, which we feel like has a strong margin profile as well gives us an opportunity. I think, from a technology perspective, we do see opportunities to be able to leverage some of the things that we've done on our Ag business into our construction business. So, we think there is opportunity to add and create value there for customers, which is an important component that’s further out. But we think there's opportunity there. I'd say, today, very, very focused on managing the business, managing inventory, integrating Wirtgen and delivering on those synergies that that would be the near-term focus areas.

Thank you.

Yes. And maybe the one last thing that we talked about at our Analysts Day at CES is the aftermarket opportunity in retrofit, and I think in particularly in construction, the ability to take care of that product over the lifecycle from a parts and service perspective, leveraging telematics and those sort of things that we have today, we think can deliver margin opportunity for all of our businesses as we go forward.

Thanks.

Well, that concludes our call. We appreciate all the interest. Please reach out if you have got questions. Thank you.

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