Deere & Company, commonly known as John Deere, is a global leader in the production of agricultural, turf, construction, and forestry equipment and solutions . The company operates through four main business segments, offering a wide range of machinery and services tailored to various industries . John Deere sells large and mid-size tractors, combines, cotton pickers, sugarcane harvesters, mid-size and compact tractors, hay and forage equipment, turf products, excavators, loaders, roadbuilding equipment, and provides financing and leasing services for its equipment .
- Production and Precision Agriculture (PPA) - Produces large and mid-size tractors, combines, cotton pickers, sugarcane harvesters, and related equipment, significantly contributing to the company's revenue .
- Construction and Forestry (CF) - Offers a range of machines for construction, earthmoving, and forestry, including excavators, loaders, and roadbuilding equipment .
- Small Agriculture and Turf (SAT) - Provides mid-size and compact tractors, hay and forage equipment, and turf products .
- Financial Services (FS) - Includes financing and leasing for John Deere equipment, playing a crucial role in the company's operations .
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What went well
- John Deere is proactively managing inventory and costs, positioning the company for a better 2025 . They have adjusted production schedules more quickly than ever before to keep inventories aligned with market demand, which they believe will lead to more favorable cycle dynamics than in previous downturns .
- Positive customer feedback on the efficacy of new technologies is driving strong ROI and cost savings, demonstrating the success of their investment in precision solutions . Customers and dealers report that savings are meeting or exceeding expectations .
- Optimism about future opportunities, particularly in regions like Brazil where the market appears more stable, encouraging for 2025 . Deere is committed to supporting customers by investing in new products and technologies designed for specific markets .
What went wrong
- Net sales and revenues decreased by 17%, with equipment operations net sales down 20%, indicating significant declines in demand.
- Lower shipment volumes in both Production and Precision Ag (down 25%) and Small Ag and Turf (down 18%), due to muted ag fundamentals and tempered market demand.
- Increased competition led to net pricing declines, as additional incentives were required amid rising inventory levels in the earthmoving equipment segment.
Q&A Summary
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Production Cuts and EPS Impact
Q: Are production cuts altering future EPS and seasonality?
A: Management stated that significant underproduction in Q4 due to shutdowns will negatively impact margins and EPS, but this is not indicative of 2025 performance. They emphasized that typical seasonal patterns may not apply and that Q4 is not a good launching point for EPS into Q1 2025. -
Pricing Assumptions Raised
Q: Why did you raise price assumptions for 2024?
A: Despite market fundamentals, they increased price assumptions for precision and production agriculture to 2% from 1.5%. This was due to favorable pricing in North America and Europe, stabilization in Brazil, and reduced need for incentives. -
Inventory Management Strategies
Q: How significant is the underproduction strategy in Construction?
A: They are proactively underproducing construction equipment by mid-single digits to bring inventory levels to the lower end of their normal bands. This positions them well for the coming year and balances price with market share amid increasing price competition. -
2025 Outlook and Earnings
Q: What factors affect 2025 earnings expectations?
A: Management is controlling what they can by underproducing to manage inventory, taking out excess costs, and restructuring for a leaner environment. Cost actions taken, including workforce adjustments, will provide tailwinds into 2025. -
Inventory to Sales Ratios
Q: Is the 10% inventory to sales target still the outlook?
A: They expect to be at or lower than the 15% inventory to sales ratio for 220-horsepower plus tractors, aligning with last year's levels. They are managing inventories proactively and collaborating closely with dealers. -
'See & Spray' Technology Feedback
Q: How is the 'See & Spray' technology performing?
A: Early feedback is positive, with herbicide savings of over 50% for users. Customers are adapting to operational changes, and management is encouraged by the adoption rate, comparable to past product rollouts. -
Seasonality Patterns and Production Cuts
Q: Should we expect normal seasonality with deep Q4 cuts?
A: Due to significant underproduction and shutdowns in Q4, typical seasonal sales patterns won't apply. They caution against using Q4 as a baseline for projecting into Q1 2025. -
Decremental Margins in Q4
Q: How will underproduction affect Q4 margins?
A: Underproduction will cause higher decremental margins in Q4, contributing to a 1.5 to 2 percentage point drag on full-year margins. The majority of this impact occurs in Q4 and weighs on absolute margin and decrementals.
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With the proactive adjustments in production schedules and a mid-single-digit reduction in your global salaried workforce, resulting in a one-time expense of approximately $150 million, $124 million of which was booked in the third quarter , how do you plan to balance cost reductions with necessary investments in innovation to ensure long-term growth in precision agriculture technologies amidst the current challenging macro environment?
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Given the increased competition leading to net pricing declines in your Construction segment and adjustments to production schedules to lower field inventories , what strategies are you implementing to defend market share and preserve margins in the face of aggressive pricing from competitors?
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Can you elaborate on the steps you're taking to reduce elevated used inventory levels in North American large ag, and how this might impact new equipment sales and pricing dynamics in the coming quarters? ,
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With the volatility in working capital leading to a downward revision of your operating cash flow guidance , what specific actions are you taking to improve cash generation and manage capital deployment effectively?
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How confident are you that the proactive inventory management and production adjustments will prevent a prolonged downturn similar to previous cycles, especially considering the softening in both the agriculture and construction markets? ,
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
- Guidance:
- Precision Ag Segment:
- Net sales forecast: Down 20% to 25%
- Operating margin: 20.5% to 21.5%
- Small Ag and Turf Segment:
- Net sales forecast: Down 20% to 25%
- Operating margin: 13.5% to 14.5%
- Construction & Forestry Segment:
- Net sales: Down 10% to 15%
- Operating margin: 15%
- Financial Services:
- Net income: $720 million
- Overall Company:
- Net income: $7 billion
- Effective tax rate: 23% to 25%
- Cash flow from equipment operations: $6 billion to $6.5 billion
- Industry Outlook:
- U.S. and Canada earthmoving equipment sales: Down 5% to 10%
- Compact construction equipment sales: Flat to down 5%
- Global forestry markets: Down 10%
- Precision Ag Segment:
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Net Income: $7 billion
- Effective Tax Rate: 23% to 25%
- Operating Cash Flow: $7 billion to $7.25 billion
- Production and Precision Ag Segment:
- Net sales: Down 20% to 25%
- Operating margin: 20.5% to 21.5%
- Small Ag and Turf Segment:
- Net sales: Down 20% to 25%
- Operating margin: 13.5% to 14.5%
- Construction and Forestry Segment:
- Net sales: Down 5% to 10%
- Operating margin: 17%
- Financial Services: Net income: $770 million
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Net Income: $7.5 billion to $7.75 billion
- Effective Tax Rate: 24% to 26%
- Operating Cash Flow: $7 billion to $7.5 billion
- Production and Precision Ag Segment:
- Net sales: Down 20% with 1.5 points of positive price realization
- Operating margin: 21.5% to 22.5%
- Small Ag and Turf Segment:
- Net sales: Down 10% to 15% with 1.5 points of positive price realization
- Operating margin: 15% to 16%
- Construction and Forestry Segment:
- Net sales: Down 5% to 10% with 1.5 points of positive price realization
- Operating margin: 17% to 18%
- Financial Services Net Income: $770 million
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: N/A
- Guidance: The documents do not contain information from the Q4 2024 earnings call for Deere & Company. Therefore, I cannot provide the guidance metrics from that specific earnings call.
Competitors mentioned in the company's latest 10K filing.
- AGCO Corporation - Competitor in the agricultural equipment industry .
- CLAAS KGaA mbH - Competitor in the agricultural equipment industry .
- CNH Industrial N.V. - Competitor in both the agricultural equipment industry and the construction and forestry segment .
- Kubota Tractor Corporation - Competitor in the agricultural equipment industry .
- Mahindra & Mahindra Limited - Competitor in the agricultural equipment industry .
- The Toro Company - Competitor in the agricultural equipment industry .
- Caterpillar Inc. - Global competitor in the construction and forestry segment .
- Doosan Infracore Co., Ltd. and its subsidiary Doosan Bobcat Inc. - Global competitors in the construction and forestry segment .
- Fayat Group - Global competitor in the construction and forestry segment .
- GOMACO Corporation - Global competitor in the construction and forestry segment .
- Hitachi Construction Machinery - Global competitor in the construction and forestry segment .
- Komatsu Ltd. - Global competitor in the construction and forestry segment .
- Ponsse Plc - Global competitor in the construction and forestry segment .
- SANY Group Co., Ltd. - Global competitor in the construction and forestry segment .
- Terex - Global competitor in the construction and forestry segment .
- Tigercat Industries Inc. - Global competitor in the construction and forestry segment .
- Volvo Construction Equipment (part of Volvo Group AB) - Global competitor in the construction and forestry segment .
- XCMG - Global competitor in the construction and forestry segment .
Recent developments and announcements about DE.
Financial Reporting
- Net Sales and Revenues: The company's net sales and revenues for the fourth quarter were $11.143 billion, a 28% decrease from $15.412 billion in the fourth quarter of 2023. For the full year, net sales and revenues were $51.716 billion, down 16% from $61.251 billion in 2023 .
- Earnings Per Share (EPS): The diluted EPS for the fourth quarter was $4.55, compared to $8.26 in the same period last year. For the full year, the EPS was $25.62, down from $34.63 in 2023 .
- Production & Precision Agriculture: This segment saw a 38% decrease in net sales for the quarter, with sales totaling $4.305 billion compared to $6.965 billion in the previous year. The operating profit for this segment also decreased by 64% .
- Small Agriculture & Turf: Net sales for this segment were $2.306 billion, a 25% decrease from the previous year. The operating profit decreased by 47% .
- Construction & Forestry: This segment reported net sales of $2.664 billion, a 29% decrease from the previous year, with a 36% decrease in operating profit .
- The financial services segment reported a net income of $173 million for the fourth quarter, a 9% decrease from $190 million in the same quarter of the previous year. This decrease was attributed to a higher provision for credit losses .
- Deere & Company projects its net income for fiscal 2025 to be in the range of $5.0 billion to $5.5 billion. The company remains committed to making investments that enhance customer productivity and profitability despite ongoing market challenges .
- The company faced significant market challenges, including lower shipment volumes and sales mix, which impacted its financial performance. However, it has made structural improvements to better align with the current environment and serve its customers more effectively .
Earnings Report
Deere & Company 4Q 2024 Earnings Results
Deere & Company has released its earnings results for the fourth quarter of fiscal 2024, reporting a net income of $1.245 billion for the quarter, which is a significant decrease from the $2.369 billion reported in the same quarter of the previous year. For the full fiscal year 2024, the net income was $7.1 billion, down from $10.166 billion in fiscal 2023 .
Key Financial Highlights:
Segment Performance:
Financial Services:
Outlook:
Trends and Challenges:
Corporate Leadership
Board Change
R. Preston Feight has been appointed to the Deere & Company Board of Directors effective November 1, 2024. He is the CEO of PACCAR Inc, a company known for manufacturing commercial trucks and diesel engines. With this appointment, the board size has increased from 11 to 12 members .