Rachel Bach
Manager of Investor Communications at Deere & Company
Good morning, and thanks, everyone, for joining us today. John Deere completed the second quarter with strong performance. Financial results for the quarter included 24% margin for equipment operations. Across our businesses, outperformance was driven by strong demand, favorable pricing, and operational execution enabled by supply chain improvements. And fundamentals remain healthy, providing a strong second half of fiscal year 2023 and support and order backlog that extends throughout the fiscal year. Likewise, the construction and forestry division continues to benefit from healthy demand with order books virtually full for the remainder of the fiscal year.
Slide 3 begins with the results for the second quarter. Net sales and revenues were up 30% to $17.387 billion, while net sales for the equipment operations were up 34% to $16.079 billion. Net income attributable to Deere & Company was $2.86 billion, or $9.65 per diluted share. Taking a closer look at the individual segments. We begin with the production and precision ag business on Slide 4. Net sales of $7.822 billion were up 53% compared to the second quarter last year, and in fact more than our own forecast, primarily due to increased shipment volumes and price realization. Price realization was positive by about 20 points. We expect price realization to normalize as inflation continues to subside. Currency translation was negative by approximately 3 points. Operating profit was $2.17 billion, resulting in a 27.7% operating margin. The year-over-year increase was primarily due to favorable price realizations and improved shipment volumes. These were partially offset by increased R&D and SA&G spending, higher production costs, and unfavorable foreign currency exchange. Prior-year results were negatively impacted by an impairment of $46 million related to events in Russia and Ukraine.
Moving to small ag and turf on Slide 5. Net sales were up 16%, totaling $4.145 billion in the second quarter as a result of price realization and higher shipment volumes, partially offset by negative currency translation. Price realization was positive by just over 12 points, while currency was negative by roughly 2 points. Operating profit was improved year-over-year at $849 million, resulting in a 20.5% operating margin. The increased profit was primarily due to price realization and to a lesser extent, higher shipment volumes and mix which were partially offset by higher production costs, R&D and SA&G, and negative currency translation.
Slide 6 covers our industry outlook for ag and turf markets globally. We expect industry sales of large ag equipment in U.S. and Canada to be up approximately 10%, reflecting another year of strong demand. We've seen continued industry themes since last quarter with strong ag fundamentals, a historically high fleet age, and low field inventory from prior-year supply constraints. We expect elevated demand to continue for the back half of the year as evidenced by an order bank that extend into fiscal year '24. For small ag and turf, we estimate industry sales in the U.S. and Canada to be down around 5% as strength for midsized equipment is offset by weakness and more consumer-oriented products. Demand for compact tractors has declined year-over-year, resulting in inventory levels rising to pre-COVID levels. Meanwhile, Hanford segment remained strong, driving demand for products like our 100-horsepower to 180-horsepower tractors, windrowers, and round balers.
Moving on to Europe. The industry is forecasted to be flat-to-up 5%. Commodity prices have softened from near all-time highs in recent months. But farm input prices are coming down as well. As a result, arable cash flow is normalizing from recent peaks but still above average and continuing to drive demand for the rest of the year. In South America, we expect industry sales of tractors and combines to be flat, holding strong relative to historical levels. Ag fundamentals remain solid in Brazil, but markets are tempered by delays in government sponsoring -- sponsored financing programs for small ag producers. Meanwhile, Argentina continues to grapple with the historic drought, which has significantly pressured yields for the year. Industry sales in Asia are forecasted to be down moderately.
Now digging into the segment forecast, beginning on Slide 7. For production and precision ag, net sales continued to be forecasted up around 20% for the full year. The forecast assumes about 15 points of positive price realization for the full year and minimal currency impact. As noted last quarter, we expect price realization to moderate in the latter half of the fiscal year relative to our reported first six months. For the segment's operating margin, our full-year forecast is now between 25% and 26%.
Slide 8 shows our forecast for the small ag and turf segment. We now expect net sales to be up around 5% in fiscal year '23. This guidance includes about nine points of positive price realization and just over 0.5 points of currency headwind. The segment's operating margin is now projected to be between 15.5% and 16.5%.
With that, we'll turn to construction and forestry on Slide 9. Net sales for the quarter were $4.112 billion, up 23%, primarily due to price realization and improved shipment volumes. Price realization was positive by nearly 13 points while currency translation was negative by approximately 1.5 points. Operating profit increased year-over-year to $838 million, resulting in a 20.4% operating margin due to price realization and higher shipment volumes and mix, partially offset by higher production costs and increase SA&G and R&D expenses. When comparing to last year, keep in mind the prior-period results included a non-repeating net benefit of $279 million, mostly driven by a gain on the previously held equity investment in the Deere-Hitachi joint venture.
Slide 10 shows our 2023 construction and forestry industry outlook. Industry sales of earthmoving and compact construction equipment in North America are both projected to remain flat-to-up 5%. End markets for earthmoving and compact equipment remained relatively stable. While the commercial real estate and office segments weakened, the oil and gas sector is leveling and housing starts appear to have bottomed. Headwinds from year-over-year declines in residential and commercial have been more than offset by strong U.S. infrastructure spending and rental inventory restocking. Importantly, dealer inventory remains below historical averages.
In forestry, we estimate the global industry will be flat as the U.S. and Canada markets continue to soften while Europe continues to grow. Global road building markets are forecasted to be flat. North America remains the strongest market, compensating for sluggish fundamentals in Europe as well as parts of Asia.
Moving on to the C&F segment outlook in Slide 11. Deere's construction and forestry 2023 net sales are now forecasted to be up around 15%. Our net sales guidance for the year considers about 10 points of positive price realization. Operating margin is now expected to be in the range of 18% to 19%.
Next, we'll shift to our financial services operations on Slide 12. Worldwide, financial services' net income attributable to Deere & Company in the second quarter was $28 million. The decrease was due to less favorable financing spreads and a higher provision for credit losses, partially offset by income earned on a higher average portfolio. Additionally, during the quarter, there was $135 million after-tax correction of the accounting treatment and timing of expense recognition for financing incentives offered to John Deere dealers. The accounting correction is unrelated to the current market conditions or the credit quality of the financial services portfolio, which remained strong. For fiscal year 2023, our outlook is now $630 million, reflecting the less favorable financing spreads, the correction of the accounting treatment for financing incentives, a higher provision for credit losses, increased SA&G expenses, and lower gains on operating lease dispositions, partially offset by the benefits from a higher average portfolio balance.
Turning to Slide 13. Credit quality remains well above historical averages with minimal allowances, past dues, and write-offs as a percentage of the portfolio. Provisions for credit losses, excluding the portfolio in Russia is forecasted to be at 17 basis points for fiscal '23 and remains below long-term averages. Meanwhile, write-offs, past dues, and non-performing loans all remained stable, reflecting strong credit quality within our portfolio.
And lastly, on Slide 14, we've outlined our guidance for net income, our effective tax rate, and operating cash flow. For fiscal year 2023, we are again raising our outlook for net income to be between $9.25 billion and $9.5 billion, reflecting the strong results for the second quarter and continued optimism for the remainder of the year. Next, our guidance incorporates an effective tax rate between 23% and 25%. Lastly, our cash flow from equipment operations is now projected to be in the range of $10 billion to $10.5 billion.
That concludes our formal comments. We will now shift to discussion of a few specific topics relevant to this quarter before we open the line for Q&A. Let's start with Deere's performance this quarter, Brent. We saw production and precision ag net revenue up 53% year-over-year and operating margins expand 7 points. Small ag and turf up 16% on revenue, with 6 points of additional operating margin. And C&F was 23% top-line growth, accompanied by 4% operating margin expansion excluding the nonrecurring items.
What were the primary drivers of the strong quarter?
