Deere & Company · NYSE:DE
Deere & — Q3 2018 Earnings Presentation
46 slides from Deere &'s earnings presentation, Aug 17, 2018
Slide 1: 3Q 2018 Earnings Call
3Q 2018 Earnings Call 17 August 2018 1
Slide 2: Safe Harbor Statement & Disclosures
Safe Harbor Statement & Disclosures The earnings call and accompanying material include forward-looking comments and information concerning the company’s plans and projections for the future, including estimates and assumptions with respect to economic, political, technological, weather, market acce
Slide 3: 3Q 2018 Overview
3Q 2018 Overview 3Q 2018 ($ millions except where noted) 3Q 2018 vs. 3Q 2017 Net Sales & Revenues $10,308 32% Net Sales (equipment operations) $9,286 36% Net Income (attributable to Deere & Company) $910 42% Adjusted Net Income (attributable to Deere & Company) $849* 32% Diluted EPS ($ per share) $2
Slide 4: 3Q 2018 Overview: Equipment Operations
3Q 2018 Overview Equipment Operations 3Q 2018 vs. 3Q 2017 Net Sales 36% Price realization 1 point Currency translation 1 point Wirtgen 17 points 4
Slide 5: Worldwide Agriculture & Turf 3Q 2018 Overview
Worldwide Agriculture & Turf 3Q 2018 Overview 3Q 2018 ($ millions) 3Q 2018 vs. 3Q 2017 Net Sales $6,293 18% Operating Profit* $806 16% *3Q 2018 operating profit impacted by: + Shipment volumes + Price realization + Warranty-related expenses − Gains on the SiteOne sale − Production costs − Research &
Slide 6: Global Stocks-to-Use Ratios
Global Stocks-to-Use Ratios 60% 120% 50% 100% 40% 80% Wheat Cotton Cotton Ratios Corn 30% 60% 20% 40% Soybeans 10% 20% 0% 0% 1994 1997 2000 2003 2006 2009 2012 2015 2018P Source: USDA, 10 August 2018 6
Slide 7: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts $500 $400 $300 $ Billions $200 $100 $0 2002 2004 2006 2008 2010 2012 2014 2016 2018F Crops Livestock Government Payments Source: 2001–2016: USDA, 7 February 2018 2017F–2018F: Deere & Company forecast as of 17 August 2018 7
Slide 8: Economic Update: EU
Economic Update EU 28 Crop Value of Production* Dairy, Beef and Pork Prices $150 €470 €420 Beef meat and Pork meat - € per 100 kg $120 €420 €360 Milk - € per MT US$ Billions $90 €370 €300 $60 €320 €240 $30 €270 €180 $0 €220 €120 2009 2012 2015 2018F 2009 2012 2015 2018F Milk Milk 10yr avg Beef meat
Slide 9: Economic Update: Brazil
Economic Update Brazil Crop Value of Production* Eligible Finance Rates for Agriculture Equipment $150 12% 10% $120 9.5% 8% US$ Billions $90 7.5% 6% $60 4% $30 2% $0 0% 2009 2012 2015 2018F 2011 2013 2015 2017 All Farmers Farmers with Annual Revenues >R$90M Farmers with Annual Revenues ≤R$90M Note:
Slide 10: Agriculture & Turf Retail Sales Industry Outlook
Agriculture & Turf Retail Sales Industry Outlook Fiscal 2018 Previous Forecast Forecast U.S. and Canada Ag ~ 10% ~ 10% EU 28 Ag 5-10% ~ 5% South America Ag (tractors and combines) Flat to up 5% Flat to up 5% Asia Ag ~ Flat ~ Flat U.S. and Canada Turf and Utility Flat to up 5% Flat to up 5% Source: D
Slide 11: Worldwide Agriculture & Turf Deere & Company Outlook
Worldwide Agriculture & Turf Deere & Company Outlook Fiscal 2018 Previous Forecast Forecast Net Sales ~ 15% ~ 14% Currency translation ~ Flat ~ 1 point Source: Deere & Company forecast as of 17 August 2018 (previous forecast as of 18 May 2018) 11
Slide 12: Precision Ag & Crop Care
Precision Ag & Crop Care 12
Slide 13: Intelligent Solutions Group
GLOBAL ENGAGED Intelligent Solutions Group ACRES MILLION Celebrating… AUTOTRAC™ NOW AVAILABLE IN COUNTRIES
Slide 14: Strategic Acquisitions
Strategic Acquisitions *Acquisition announced 31 July, 2018, expected closing 4Q18 14
Slide 15: Worldwide Construction & Forestry 3Q 2018 Overview
Worldwide Construction & Forestry 3Q 2018 Overview 3Q 2018 ($ millions) 3Q 2018 vs. 3Q 2017 Net Sales $2,993 100% Operating Profit* $281 153% *3Q 2018 operating profit impacted by: + Shipment volumes + Wirtgen + Warranty expenses − Production costs − Sales-incentive expenses 15
Slide 16: U.S. Economic Indicators
Worldwide Construction & Forestry U.S. Economic Indicators Fiscal 2018 Previous (annual percentage rate* except where noted) Forecast Forecast GDP Growth 2.9% 2.7% Housing Starts (thousands) 1,299 1,293 Total Construction Investment 3.8% 2.9% Government Construction Investment 3.3% 2.0% Global Trans
Slide 17: Worldwide Construction & Forestry Deere & Company Outlook
Worldwide Construction & Forestry Deere & Company Outlook Fiscal 2018 Previous Forecast Forecast Net Sales ~ 81% ~ 83% Currency translation ~ Flat ~ 1 point Wirtgen ~ 55 points ~ 56 points Source: Deere & Company forecast as of 17 August 2018 (previous forecast as of 18 May 2018) 17
Slide 18: Worldwide Financial Services Credit Loss History
Worldwide Financial Services Credit Loss History Provision for Credit Losses / Average Owned Portfolio 2.0% 1.5% 1.0% 0.15% 0.5% 15 Year Average 0.0% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F Source: Deere & Company forecast as of 17 August 2018 18
Slide 19: Worldwide Financial Services
Worldwide Financial Services Fiscal 2018 Previous ($ millions) 3Q 2018 Forecast Forecast Net Income (attributable to Deere & Company) $151 ~ $815 ~ $800 Adjusted Net Income (attributable to Deere & Company) $148* ~ $583* ~ $571* * Excludes tax reform related net deferred tax asset remeasurement and
Slide 20: Consolidated Trade Receivables & Inventory
Consolidated Trade Receivables & Inventory Fiscal 2018 Previous ($ millions) 3Q 2018* Forecast** Forecast Agriculture & Turf $1,399 ~ $300 ~ $175 Construction & Forestry $2,406 ~ $2,125 ~ $1,825 Total (as reported) $3,805 ~ $2,425 ~ $2,000 Total (constant exchange) $4,003 ~ $2,525 ~ $1,950 * Change
Slide 21: Cost of Sales
Cost of Sales Equipment Operations Fiscal 2018 Previous 3Q 2018 Forecast Forecast COS (percent of Net Sales) 77.0% ~ 76% ~ 76% Source: Deere & Company forecast as of 17 August 2018 (previous forecast as of 18 May 2018) 21
Slide 22: Research & Development Expense
Research & Development Expense Equipment Operations 3Q 2018 Fiscal 2018 Previous vs. 3Q 2017 Forecast Forecast R&D Expense 23% ~ 21% ~ 20% Currency translation Flat ~ 1 point ~ 1 point Acquisition-related activities 12 points ~ 9 points ~ 9 points Source: Deere & Company forecast as of 17 August 201
Slide 23: Selling, Administrative & General Expense
Selling, Administrative & General Expense Equipment Operations 3Q 2018 Fiscal 2018 Previous vs. 3Q 2017 Forecast Forecast SA&G Expense 19% ~ 16% ~ 18% Acquisition-related activities 19 points ~ 16 points ~ 16 points Incentive compensation 1 point ~ 1 point ~ 2 points Currency translation Flat ~ Flat
Slide 24: Income Taxes
Income Taxes Equipment Operations Rest of Year Fiscal 2018 Fiscal 2019 3Q 2018 2018 Forecast Forecast* Forecast* Effective Tax Rate 24% 25-27% ~ 55% 25-27% * Previous forecast ~ 56% for Fiscal 2018 and 25-27% for Fiscal 2019 Source: Deere & Company forecast as of 17 August 2018 (previous forecast as
Slide 25: Net Operating Cash Flows
Net Operating Cash Flows Equipment Operations Fiscal 2018 Forecast* ~ $3.5 billion $5,000 $4,000 $3,000 $ Millions $2,000 $1,000 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F * Includes impact of voluntary contribution to Pension/OPEB; previous forecast ~ $3.8 billion Note: 2009-2016 adjuste
Slide 26: Deere & Company Outlook
Deere & Company Outlook Fiscal 2018 Forecast 4Q 2018 Fiscal 2018 Previous ($ billions except where noted) Forecast Forecast Forecast Net Sales (equipment operations) ~ 21% ~ 30% ~ 30%* Price realization ~ 2 points ~ 1 point ~ 1 point* Currency translation ~ 3 points ~ Flat ~ 1 point* Wirtgen ~ 12 po
Slide 27: Appendix
Appendix 27
Slide 28: The John Deere Strategy
28 THE JOHN DEERE STRATEGY OUR PURPOSE Committed to those linked to the land GLOBAL AGRICULTURAL GLOBAL OUTPACE 12% 25 Sorttameelertis EQUIPMENTSOLUTIONS CONSTRUCTS INDUSTRY OPERATINGMARGIN ASSET TURNS Saar tana vation PREEMINENCE a INGROWTH (ar iD-C¥CLE1 (AT MD-CACLE a a and disciplined expansion C
Slide 29: Deere Use-of-Cash Priorities
Deere Use-of-Cash Priorities Cash from Operations ➢ Manage the balance sheet, including liquidity, to support a rating that provides access to low-cost Committed to “A” Rating and readily available short- and long-term funding mechanisms ➢ Reflects the strategic nature of our financial services oper
Slide 30: Sources and Uses of Cash Fiscal 2004-2017
Sources and Uses of Cash Fiscal 2004-2017 Equipment Operations $50,000 ~ 58% of cash from = Source of Cash operations returned to = Use of Cash $665 $146 shareholders $40,000 $10,652 $1,345 $30,000 $ Millions $7,848 $37,440 $20,000 $13,904 $621 $10,000 $8,168 $4,287 $0 Beginning Cash Cash From Dives
Slide 31: Deere Quarterly Dividends Declared
Deere Quarterly Dividends Declared 1Q 2004 – 3Q 2018 Dividend raised 146% since 2010 $0.80 $0.69 $0.70 $0.60 $0.50 $0.40 $0.30 $0.28 $0.20 $0.10 $0.14 $0.00 2005 2006 2007* 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 * Adjusted for 2 for 1 stock split on 26 November 2007 31
Slide 32: Share Repurchase
Share Repurchase As Part of Publicly Announced Plans 35% net share reduction since 2004 2004–3Q 2018: Share Repurchase Cumulative cost of repurchases $16.8 billion 40 $3.0 Shares repurchased 248.0 million Millions of Shares* Average repurchase price $67.91 $2.5 30 $2.0 $ Billions December 2013 autho
Slide 33: Pension and OPEB Expense
Pension and OPEB Expense Fiscal 2018 Previous ($ millions) 3Q 2018 Forecast Forecast Pension and OPEB Expense $0.4 ~ $5 ~ $10 Source: Deere & Company forecast as of 17 August 2018 (previous forecast as of 18 May 2018) 33
Slide 34: Other Information
Other Information Equipment Operations Fiscal 2018 Previous ($ millions) Forecast Forecast Capital Expenditures ~ $925 ~ $925 Depreciation and Amortization ~ $1,000 ~ $1,000 Pension/OPEB Contributions ~ $1,100 ~ $1,100 Source: Deere & Company forecast as of 17 August 2018 (previous forecast as of 18
Slide 35: Economic Update: Other Selected Markets
Economic Update Other Selected Markets China - Crop Value of Production* India - Crop Value of Production* $300 $300 $225 $225 US$ Billions US$ Billions $150 $150 $75 $75 $0 $0 2009 2012 2015 2018F 2009 2012 2015 2018F * Includes corn, wheat, rice, barley, sorghum, oilseeds, peanut, sugar, cotton So
Slide 36: U.S. Farm Commodity Prices
U.S. Farm Commodity Prices $20 $1.00 $16 $0.80 Cotton - $ per Pound $12 $0.60 $ per Bushel Cotton $8 $0.40 Soybeans Wheat $4 $0.20 Corn $0 $0.00 2005 2007 2009 2011 2013 2015 2017 Source: USDA, 10 August 2018 36
Slide 37: U.S. Farm Commodity Prices
U.S. Farm Commodity Prices 2017/18 Previous 2018/19 ($ per bushel except where noted) 2016/17 Estimate 2017/18 Projection Corn $3.36 $3.40 $3.45 $3.60 Soybeans $9.47 $9.35 $9.40 $8.90 Wheat $3.89 $4.73 $4.70 $5.10 Cotton ($ per pound) $0.68 $0.68 $0.68 $0.75 Source: Deere & Company forecast as of 17
Slide 38: U.S. Acres Harvested
U.S. Acres Harvested 2017/18 2018/19 (millions) Estimate Projection Corn 82.7 81.8 Soybeans 89.5 88.9 Wheat 37.6 39.6 Cotton 11.1 10.1 Source: Deere & Company forecast as of 17 August 2018 38
Slide 39: U.S. Crop Yields
U.S. Crop Yields 2017/18 2018/19 (bushels per acre except where noted) Estimate Projection Corn 176.6 178.4 Soybeans 49.1 51.6 Wheat 46.3 47.4 Cotton (pounds per harvested acre) 905 911 Source: Deere & Company forecast as of 17 August 2018 39
Slide 40: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts 2017 2018 Previous ($ billions) 2016 Forecast Forecast 2018 Crops $194.4 $189.7 $188.8 $189.9 Livestock $162.9 $175.4 $177.5 $175.7 Government Payments $13.0 $11.4 $9.3 $9.3 Total Cash Receipts $370.2 $376.5 $375.6 $374.9 Source: 2016: USDA, 7 February 2018 2017F–2018F: Deere
Slide 41: U.S. Net Farm Cash Income
U.S. Net Farm Cash Income 2017 2018 Previous ($ billions) 2016 Forecast Forecast 2018 Total Cash Receipts $370.2 $376.5 $375.6 $374.9 Other Farm-Related Income $27.9 $29.7 $31.7 $31.7 Gross Cash Income $398.1 $406.2 $407.3 $406.6 Cash Expenses ($304.1) ($309.3) ($317.9) ($317.9) Net Cash Income $94.
Slide 42: U.S. Farm Balance Sheet
U.S. Farm Balance Sheet $3,500 30% $3,000 25% $2,500 $2,000 $ Billions 20% $1,500 $1,000 15% $500 $0 10% 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018F Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) Source: 1974–2016: USDA, 7 February 2018 2017F–2018F: Deere & C
Slide 43: July 2018 Retail Sales and Dealer Inventories
July 2018 Retail Sales (Rolling 3 Months) and Dealer Inventories Retail Sales U.S. and Canada Ag Industry* Deere** 2WD Tractors (< 40 PTO hp) 15% In line with the industry 2WD Tractors (40 < 100 PTO hp) 6% More than the industry 2WD Tractors (100+ PTO hp) 21% Slightly less than the industry 4WD Trac
Slide 44: July 2018 Retail Sales (Rolling 3 Months)
July 2018 Retail Sales (Rolling 3 Months) Retail Sales EU 28 Ag Deere* Tractors Double digits Combines Double digits Retail Sales U.S. and Canada Deere* Selected Turf & Utility Equipment Double digits Construction & Forestry First-in-the-Dirt Double digits Settlements Double digits * Based on intern
Slide 45: Supplemental Statement of Consolidated Income Information
Supplemental Statement of Consolidated Income Information Reconciliation of GAAP to Non-GAAP Financial Measures In addition to reporting financial results in conformity with accounting principles generally accepted in the United States (GAAP), the company also discusses non-GAAP measures that exclud
Slide 46: 4Q 2018 earnings call scheduled for 21 November 2018
Deere & Company’s 4Q 2018 earnings call is scheduled for 9:00 a.m. central time on Wednesday, 21 November 2018