Rachel Bach
Manager, Investor Communications at Deere & Company
Thanks, Brent. Good morning. John Deere achieved higher production rates in the third quarter, resulting in a 25% increase in net sales despite ongoing supply challenges. Financial results for the quarter included an 18% margin for the equipment operations. Ag fundamentals remain solid with our order books beginning to fill for model year '23 products, reflecting continued healthy demand as we look ahead. The construction and forestry markets also continue to benefit from demand, contributing to the division's strong performance in the quarter. Similarly, order books are now extending into 2023, providing visibility into the New Year.
Slide 3 shows the results for the second quarter. Net sales and revenues were up 22% to $14.1 billion, while net sales for the equipment operations were up 25% to $13 billion. Net income attributable to Deere & Company was $1.884 billion or $6.16 per diluted share. Looking at results by segment, beginning with our Production & Precision Ag business on slide 4; net sales of $6.096 billion were up 43% compared to the third quarter last year, largely due to higher production and shipment volumes. Price realization in the quarter was positive by about 15 points, whereas currency translation was negative by about 4 points. Operating profit was $1.293 billion, resulting in a 21% operating margin for the segment. The year-over-year increase in operating profit was primarily due to price realization and higher shipment volumes, partially offset by higher production costs and higher SA&G and R&D spend.
The production costs were mostly elevated material and freight. Overhead spend was also higher for the period as persistent supply challenges continue to cause production inefficiencies. Despite these challenges, factories were able to achieve higher rates of production and made progress on reducing the number of partially completed machines in inventory. Our factories are focused on finishing and shipping the remaining machines in the fourth quarter, which will help our progress toward restoring productivity and efficiencies going into next year.
The increased SA&G and R&D spend reflects our continued development of our technology stack and our progress on our Leap Ambitions, both of which will unlock additional value for our customers. Next, Small Ag & Turf on slide 5; net sales were up 16%, totaling $3.635 billion in the third quarter due to higher shipment volumes and price realization more than offsetting negative currency translation. Price realization in the quarter was positive by 10 points while currency translation was negative by over 4 points. For the quarter, operating profit was down year-over-year at $552 million, resulting in a 15% operating margin. The decreased profit was primarily due to higher production costs, specifically materials, offset by price realization.
Turning now to the industry outlook on slide 6; we expect U.S. and Canada industry sales of large ag equipment to be up around 15%. While the industry continues to be constrained by supply, demand remains robust and our guidance assumes a heavier back-end loaded year for industry retail. Relative to the industry, we've had our strongest results in high-horsepower row crop tractors, and we plan to end the year approaching our highest market share on record. Our order books for the remainder of the current fiscal year are full, and we see signs of robust demand into 2023 with some order books already full through the first half of next year.
Small Ag & Turf industry demand continues to be estimated generally flat this year. While we see steadiness from our hay and forage segment, consumer products such as contact utility tractors and turf equipment are down due to supply constraints, low turf inventory and moderating demand. Moving on to Europe. The industry is forecasted to be roughly flat despite solid demand. While supply constraints and operating challenges are affecting the industry, we expect to finish the year with higher shipments and market share gains. In South America, we expect industry sales of tractors and combines to increase by about 10% to 15%.
Despite the low trend in crop yields due to inclement weather, customers are very profitable this year, benefiting from high commodity prices. Industry sales in Asia are still forecasted to be down moderately as India, the world's largest tractor market by unit, has moderated from record volumes achieved in 2021. Moving on to our segment forecast on slide 7; Production & Precision Ag net sales continue to be forecasted up between 25% and 30% in fiscal year '22. The forecast assumes nearly 14 points of positive price realization for the full year, which will allow us to be price/cost positive for the fiscal year. This is partially offset by roughly 2 points of currency headwind.
For the segment's operating margin, our full year forecast is between 20% and 21%. The forecast reflects higher costs for material and freight inflation as well as the elevated overheads associated with the supply constraints that have introduced a number of factory inefficiencies this year. Slide 8 shows our forecast for the Small Ag & Turf segment. We now expect fiscal year '22 net sales to be up in the range of 10% to 15%. This guidance includes over 9 points of positive price realization, partially offset by 3 points of unfavorable currency impact. The segment's operating margin is now forecasted between 14% and 15%. The margin guidance reflects higher material costs and lower expectations for volume as small engine availability has been especially challenging. Price/cost remains neutral for the year.
Changing to Construction & Forestry on slide 9; for the quarter, net sales of $3.269 billion were up 8% due to price realization. Operating profit increased year-over-year to $514 million, resulting in a 16% operating margin. Favorable price realization offset higher production costs during the quarter. The production costs were mainly a result of elevated material and freight as well as higher overhead spend. Now let's take a look at our 2022 Construction & Forestry industry outlook on slide 10. Industry sales of earthmoving equipment in North America are expected to be up approximately 10%, while the compact construction market is forecasted to be flat to down 5%.
Though demand remains strong for compact construction products, the downward revision reflects extremely low levels of inventory and supply challenges constraining shipments. End markets for earthmoving are expected to remain strong as oil and gas activities remain steady, U.S. infrastructure spend begins to ramp and capex programs from the independent rental companies drive re-fleeting efforts. Housing starts have moderated though still remain elevated versus historical levels. Additionally, record low levels of new and used equipment will dampen any slowdown.
In Forestry, we now expect the industry to be flat to down 5%, primarily due to supply constraining the ability to meet demand. Global roadbuilding markets are expected to be flat to up 5%. Roadbuilding demand remains strongest in the Americas while China and Russia markets are down significantly. The C&F segment is on slide 11. Deere's Construction & Forestry 2022 net sales are forecasted to be up around 10%. Our net sales guidance for the year includes about 10 points of positive price realization and 3 points of negative currency impact. The segment's operating margin outlook remains at a range of 15.5% to 16.5%.
Shifting over to our Financial Services operations on slide 12; worldwide Financial Services net income attributable to Deere & Company in the third quarter was $209 million. This is a slight decrease compared to the third quarter last year due to unfavorable discrete income tax adjustments, a higher provision for credit losses and lower gains on operating lease residual values. These were partially offset by income earned on a higher average portfolio.
For fiscal year '22, we maintain our net income outlook at $870 million, slightly lower than fiscal year '21 due to a higher provision for credit losses, less favorable financing spreads and higher SA&G. The higher provisions for credit losses are primarily related to Russia. The segment is expected to continue to benefit from income earned on higher average portfolio balance. Overall, Financial Services continues to deliver steady results. Credit loss provisions, lease return rates and past dues are all in good shape, reflecting the solid balance sheet for our customers.
Slide 13 outlines our guidance for net income, our effective tax rate and operating cash flow. For fiscal year '22, we adjusted our outlook for net income to be between $7 billion and $7.2 billion. The full year forecast is inclusive of the impact of higher raw material prices, higher logistics costs and production inefficiencies caused by supply disruptions. Our forecasted price realization is expected to outpace both material and freight costs for the entire year.
Moving on to tax. Our guidance incorporates an effective tax rate projected to be between 21% and 23%. Lastly, cash flow from the equipment operations is now expected to be in the range of $5.3 billion to $5.5 billion. The decrease reflects the adjusted income forecast and increases in working capital required through the end of the fiscal year as we expect to maintain higher production levels heading into the first quarter of 2023. At this time, let's discuss a few topics for the quarter in more detail. First, I would like to take a closer look at Production & Precision Ag's third quarter results, an impressive jump in net sales, both compared to the third quarter last year as well as compared to the second quarter this year. Net sales were up 43% year-over-year and up 19% sequentially, which is not our typical seasonality.
Cory, can you talk through some of the factors that enabled us to achieve that?