Brent Norwood
Manager of Investor Communications at Deere & Company
John Deere completed the first quarter with sound execution despite managing through a very dynamic period. Financial results for the quarter included an 11% margin for the equipment operations. Strong ag fundamentals carried over from fiscal year '21 and have remained solid through the beginning of fiscal year '22, with our order books largely full through the balance of the year. Meanwhile, construction and forestry markets also continue to benefit from strong demand and price realization, contributing to the division's solid performance in the quarter.
Slide 3 shows the results for the first quarter. Net sales and revenues were up 5% to $9.569 billion, while net sales for the equipment operations were up 6% to $8.531 billion. Net income attributable to Deere & Company was $903 million or $2.92 per diluted share.
Now, let's turn to a review of our Production & Precision Ag business starting on Slide 4. Net sales of $3.356 billion were up 9% compared to the first quarter last year, primarily due to price realization and higher shipment volumes. Price realization in the quarter was positive by about 8 points and currency translation was negative by roughly 2 points. Operating profit was $296 million, resulting in a 9% operating margin for the segment compared to a 21% margin for the same period last year. The year-over-year decrease was due to higher production costs and an unfavorable sales mix.
The higher production costs were largely the result of higher material and freight costs as well as lower overhead absorption at the factories affected by the delayed ratification of our labor agreement. These items were partially offset by the improved price realization and higher shipment volumes. The most recent quarter was negatively affected by the UAW contract ratification bonus, while the prior period benefited from a favorable indirect tax ruling in Brazil.
Shifting focus to Small Ag & Turf on Slide 5. Net sales were up 5%, totaling $2.631 billion in the first quarter as price realization more than offset lower shipment volumes. Price realization in the quarter was positive by just over 6 points, while currency translation was negative by about 1 point. For the quarter, operating profit was down year-over-year at $371 million, resulting in a 14.1% operating margin. The decreased profit was primarily due to higher production costs and a combination of lower sales and an unfavorable sales mix. These items were partially offset by price realization.
Slide 6 shows our industry outlook for ag and turf markets globally. In the U.S. and Canada, we expect industry sales of large ag equipment to be up approximately 20%, reflecting another strong year of demand. In fiscal year '21, customer demand outpaced the industry's ability to supply, driven by the combination of strong fundamentals, advanced fleet age and low field inventory. With all of these dynamics still present in fiscal year '22, we expect demand to exceed the industry's ability to produce for a second consecutive year as supply-based delays continue to constrain shipments. Order books for the upcoming year are mostly full, except for a few cases where we have paused orders to allow us to re-evaluate inflationary pressures later in the year.
In the Small Ag & Turf segment, we expect industry sales in the U.S. and Canada to remain largely flat for the year as supply challenges continue to limit the industry's ability to produce. Following two years of robust demand, field inventory levels are at multi-year lows and unlikely to begin recovery until some time in 2023.
Moving on to Europe. The industry is forecasted to be up roughly 5% as higher commodity prices strengthen business conditions in the arable segment and dairy prices remain resilient even as we are starting to see modest pressure on margins from rising input costs. We expect the industry will continue to face supply-based constraints resulting in demand outstripping production for the year. At this time, our order book extends through the duration of fiscal year '22.
In South America, we expect industry sales of tractors and combines to increase between 5% to 10%. Farmer sentiment and profitability remain at all-time highs as our customers benefit from robust commodity prices, record production and a favorable currency environment. Our order books reflect this strong sentiment and currently extends into May, which is as far as we have allowed it to grow. Industry sales in Asia are forecasted to be flat, as India, the world's largest tractor market by units, moderates from record volumes achieved in 2021.
Moving on to our segment forecasts, beginning on Slide 7. For Production & Precision Ag, net sales are now forecasted to be up between 25% to 30% in fiscal year '22. The forecast assumes about 10 points of positive price realization for the full year and roughly 2 points of currency headwind. For the segment's operating margin, our full year forecast is now between 21% and 22%, reflecting consistently solid financial performance across all geographic regions.
Slide 8 shows our forecast for the Small Ag & Turf segment. We now expect net sales in fiscal year '22 to be up about 15%. This guidance includes 8 points of positive price realization and 2 points of currency headwind. The segment's operating margin is forecasted between 15.5% and 16.5%. The decreased sales guidance relative to our previous forecast reflects supply challenges, particularly with limitations around small engines, while higher material and freight costs are pressuring margins.
Now, let's focus on Construction & Forestry on Slide 9. For the quarter, net sales of $2.544 billion were up 3%, primarily due to price realization and higher shipment volumes. Last year, Wirtgen's one month reporting lag was eliminated, resulting in four months of Wirtgen activity in the first quarter of 2021, which increased net sales by $270 million.
Operating profit moved slightly higher year-over-year to $272 million, resulting in an 11% operating margin due to price realization, partially offset by higher production costs and lower sales and unfavorable sales mix. The higher production costs were largely a result of higher material and freight costs as well as poor overhead absorption at the factories affected by the delayed ratification of our labor agreement. Additionally, the current period was impacted by the ratification bonus, while last year's results included impairments of long-lived assets.
Let's turn to our 2022 Construction & Forestry industry outlook on Slide 10. Industry sales of earthmoving equipment in North America are expected to be up between 5% to 10%, while the compact construction market is now forecasted to be flat to up 5%. End markets for earthmoving and compact equipment are expected to remain strong in our fiscal year '22 forecast, benefiting from continued strength in the housing market, increased activity in the oil and gas sector as well as strong capex programs from the independent rental companies. The decrease in our compact construction equipment outlook is entirely due to supply constraints affecting those product lines.
Overall, demand for earthmoving and compact construction equipment is expected to exceed our production for the year, resulting in continued low inventory levels. Demand related to infrastructure has yet to materialize and will likely begin in fiscal year '23. Global road building markets are expected to be up between 5% to 10%, with growth in the North American market offsetting some weakness in China. In forestry, we expect the industry to be up 10% to 15% as lumber production looks to remain at elevated levels throughout the year, with lumber prices rising again after coming down from peaks last summer.
Moving to the C&F segment outlook on Slide 11. Deere's Construction & Forestry 2022 net sales are forecasted to be up between 10% to 15%. Our net sales guidance for the year includes 8.5 points of positive price realization and 2 points of negative currency impact. We are maintaining our outlook for the segment's operating margin at between 13.5% and 14.5%. The year is benefiting from increases in price and volume and a lack of one-time items from the prior year.
Let's move now to our financial services operations on Slide 12. Worldwide Financial Services net income attributable to Deere & Company in the first quarter was $231 million, benefiting from income earned on higher average portfolio balances and improved performance of our operating lease residual values. For fiscal year 2022, we maintain our net income outlook at $870 million as the segment is expected to continue to benefit from a higher average portfolio balance.
Slide 13 outlines our guidance for net income, our effective tax rate and operating cash flow. For fiscal year '22, we are raising our outlook for net income to be between $6.7 billion and $7.1 billion. The full year forecast is inclusive of the impact of higher raw material prices and logistics costs. At this time, our forecasted price realization is expected to outpace both material and freight cost for the entire year, though we were price cost negative in the first quarter and expect the second quarter to include our highest material and freight inflationary costs when compared to last year. As we progress through the second half of the year, we expect those material and freight comparisons to improve.
Moving on to tax, our guidance incorporates an effective tax rate projected to be between 25% and 27%. Lastly, cash flow from equipment operations is now expected to be in the range of $6.2 billion to $6.6 billion and includes $1 billion voluntary contribution to our OPEB plan, which occurred in the first quarter.
At this time, I will turn things over to John May, our Chairman and CEO, for some comments on the company's new Leap ambitions. John?
