Deere & Company · NYSE:DE
Deere & — Q4 2017 Earnings Presentation
44 slides from Deere &'s earnings presentation, Nov 22, 2017
Slide 1: 4Q 2017 Earnings Call
4Q 2017 Earnings Call 22 November 2017 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: 2017 Overview
2017 Overview Fiscal 2017 ($ millions except where noted) Fiscal 2017 vs. Fiscal 2016 Net Sales & Revenues $29,738 12% Net Sales (equipment operations) $25,885 11% Net Income (attributable to Deere & Company) $2,159 42% Diluted EPS ($ per share) $6.68 39% 3
Slide 4: 4Q 2017 Overview
4Q 2017 Overview 4Q 2017 ($ millions except where noted) 4Q 2017 vs. 4Q 2016 Net Sales & Revenues $8,018 23% Net Sales (equipment operations) $7,094 26% Net Income (attributable to Deere & Company) $510 79% Diluted EPS ($ per share) $1.57 74% 4
Slide 5: 4Q 2017 Overview: Equipment Operations
4Q 2017 Overview Equipment Operations 4Q 2017 vs. 4Q 2016 Net Sales 26% Price realization 1 point Currency translation 2 points 5
Slide 6: Worldwide Agriculture & Turf
Worldwide Agriculture & Turf 4Q 2017 Overview 4Q 2017 ($ millions) 4Q 2017 vs. 4Q 2016 Net Sales $5,437 22% Operating Profit* $584 57% *4Q 2017 operating profit impacted by: + Shipment volumes + Sales mix − Production costs − Selling, administrative & general expenses 6
Slide 7: 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% 1996 1999 2002 2005 2008 2011 2014 2017P Source: USDA, 9 November 2017 7
Slide 8: 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, 30 August 2017 2017F–2018F: Deere & Company forecast as of 22 November 2017 8
Slide 9: 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 10: Economic Update: Brazil
Economic Update Brazil Crop Value of Production* Eligible Finance Rates for Agriculture Equipment $150 12% 10.5% 10% $120 7.5% 8% US$ Billions $90 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$90M Note:
Slide 11: Agriculture & Turf Retail Sales Industry Outlook
Agriculture & Turf Retail Sales Industry Outlook Fiscal 2018 Forecast U.S. and Canada Ag 5-10% EU 28 Ag ~ 5% South America Ag (tractors and combines) Flat to up 5% Asia Ag ~ Flat U.S. and Canada Turf and Utility ~ Flat Source: Deere & Company forecast as of 22 November 2017 11
Slide 12: Worldwide Agriculture & Turf Outlook
Worldwide Agriculture & Turf Deere & Company Outlook Fiscal 2018 Forecast Net Sales ~ 9% Currency translation ~ 2 points Source: Deere & Company forecast as of 22 November 2017 12
Slide 13: Worldwide Construction & Forestry
Worldwide Construction & Forestry 4Q 2017 Overview 4Q 2017 ($ millions) 4Q 2017 vs. 4Q 2016 Net Sales $1,657 37% Operating Profit* $85 *4Q 2017 operating profit impacted by: + Shipment volumes + Price realization − Impairment charge for international operations 13
Slide 14: U.S. Economic Indicators
Worldwide Construction & Forestry U.S. Economic Indicators Fiscal 2018 (annual percentage rate* except where noted) Forecast GDP Growth 2.4% Housing Starts (thousands) 1,254 Total Construction Investment 1.4% Government Construction Investment 0.8% Crude Oil Price (per barrel)** $51.25 * Change from
Slide 15: Worldwide Construction & Forestry Outlook
Worldwide Construction & Forestry Deere & Company Outlook Fiscal 2018 Forecast* Net Sales ~ 69% Currency translation ~ 1 point Wirtgen ~ 54 points * Includes data based on the anticipated 1Q 2018 close of the Wirtgen acquisition Source: Deere & Company forecast as of 22 November 2017 15
Slide 16: Worldwide Financial Services: Credit Loss History
Worldwide Financial Services Credit Loss History Provision for Credit Losses / Average Owned Portfolio 2.0% 1.5% 1.0% 0.25% 0.5% 15 Year Average 0.0% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F Source: Deere & Company forecast as of 22 November 2017 16
Slide 17: Worldwide Financial Services
Worldwide Financial Services Fiscal 2018 ($ millions) 4Q 2017 Fiscal 2017 Forecast Net Income (attributable to Deere & Company) $128 $477 ~ $515 Source: Deere & Company forecast as of 22 November 2017 17
Slide 18: Consolidated Trade Receivables & Inventory
Consolidated Trade Receivables & Inventory Previous ($ millions) Fiscal 2017* Forecast* Agriculture & Turf $991 ~ $575 Construction & Forestry $486 ~ $375 Total (as reported) $1,477 ~ $950 Total (constant exchange) $1,374 ~ $775 * Change at 29 October 2017 vs. 30 October 2016 Note: Before the sale o
Slide 19: Cost of Sales
Cost of Sales Equipment Operations Previous Fiscal 2018 4Q 2017 Fiscal 2017 Forecast Forecast* COS (percent of Net Sales) 76.5% 77% ~ 77% ~ 75% * Includes data based on the anticipated 1Q 2018 close of the Wirtgen acquisition Source: Deere & Company forecast as of 22 November 2017 (previous forecast
Slide 20: Research & Development Expense
Research & Development Expense Equipment Operations 4Q 2017 Previous Fiscal 2018 vs. 4Q 2016 Fiscal 2017 Forecast Forecast* R&D Expense 3% 2% ~ 1% ~ 18% Currency translation 1 point Flat ~ Flat ~ 1 point Acquisition-related activities Flat Flat ~ Flat ~ 9 points * Includes data based on the anticipa
Slide 21: Selling, Administrative & General Expense
Selling, Administrative & General Expense Equipment Operations 4Q 2017 Previous Fiscal 2018 vs. 4Q 2016* Fiscal 2017* Forecast* Forecast* SA&G Expense 15% 12% ~ 11% ~ 26% Acquisition-related activities 4 points 2 points ~ 2 points ~ 24 points Commissions paid to dealers 3 points 2 points ~ 2 points
Slide 22: Income Taxes
Income Taxes Equipment Operations Previous Fiscal 2018 4Q 2017 Fiscal 2017 Forecast Forecast Effective Tax Rate 27% 30% 30-32% 31-33% Source: Deere & Company forecast as of 22 November 2017 (previous forecast as of 18 August 2017) 22
Slide 23: Net Operating Cash Flows
Net Operating Cash Flows Equipment Operations Fiscal 2018 Forecast ~ $3.8 billion $5,000 $4,000 $3,000 $ Millions $2,000 $1,000 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018F** * Previous forecast ~ $2.9 billion ** Includes data based on the anticipated 1Q 2018 close of the Wirtgen acquisiti
Slide 24: Deere & Company Outlook
Deere & Company Outlook Fiscal 2018 Forecast 1Q 2018 Fiscal 2018 ($ billions except where noted) Forecast* Forecast* Net Sales (equipment operations) ~ 38% ~ 22% Price realization ~ 2 points ~ 1 point Currency translation ~ 3 points ~ 2 points Wirtgen ~ 6 points ~ 12 points Net Income (attributable
Slide 25: 2017 vs. 2018 Operating Profit
2017 vs. 2018 Operating Profit Equipment Operations $75 $60 $375 $92 $37 $40 ~ $3,525 ~ $3,510 $2,821 $2,615 2017 SiteOne M&A Costs Impairment Voluntary 2017 20182018 Wirtgen Projected Wirtgen Net a,c Blue River 2018 Operating Separation Adjusted Projected Operating Profit Neta,c Technology Adjusted
Slide 26: Appendix
Appendix 26
Slide 27: The John Deere Strategy
27 THE JOHN DEERE STRATEGY OUR PURPOSE Committed to those linked to the land GLOBAL AGRICULTURAL — ¢,,GLOBAL OUTPACE rd 25 RLREASEIRATIONS EQUIPMENT soLUTIONs _ CONSTRUCTION INDUSTRY OPERATING MARGIN ASSET TURNS a aaron PREEMINENCE. IN GROWTH (ar MiD-cycte! (AT MIO-CYCLED gro rough innovatior pore a
Slide 28: 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 29: 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 30: Deere Quarterly Dividends Declared
Deere Quarterly Dividends Declared 1Q 2004 – 4Q 2017 Dividend raised 114% since 2010 $0.70 $0.60 $0.60 $0.50 $0.40 $0.30 $0.28 $0.20 $0.10 $0.11 $0.00 2004 2005 2006 2007* 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Adjusted for 2 for 1 stock split on 26 November 2007 30
Slide 31: Share Repurchase
Share Repurchase As Part of Publicly Announced Plans 35% net share reduction since 2004 2004–2017: Share Repurchase Cumulative cost of repurchases $16.4 billion 40 $3.0 Shares repurchased 245.0 million Millions of Shares* Average repurchase price $66.96 $2.5 30 $2.0 $ Billions December 2013 authoriz
Slide 32: Pension and OPEB Expense
Pension and OPEB Expense Previous Fiscal 2018 ($ millions) 4Q 2017 Fiscal 2017 Forecast Forecast Pension and OPEB Expense $9 $35 ~ $30 ~ $10 Source: Deere & Company forecast as of 22 November 2017 (previous forecast as of 18 August 2017) 32
Slide 33: Other Information
Other Information Equipment Operations Previous Fiscal 2018 ($ millions) Fiscal 2017 Forecast Forecast* Capital Expenditures $591 ~ $650 ~ $925 Depreciation and Amortization $839 ~ $850 ~ $1,050 Pension/OPEB Contributions $428 ~ $115 ~ $140 * Includes data based on the anticipated 1Q 2018 close of t
Slide 34: 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 35: 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 $0.00 2004 2006 2008 2010 2012 2014 2016 Source: USDA, 9 November 2017 35
Slide 36: U.S. Farm Commodity Prices
U.S. Farm Commodity Prices 2016/17 2017/18 Previous ($ per bushel except where noted) 2015/16 Estimate Projection 2017/18 Corn $3.61 $3.36 $3.20 $3.30 Soybeans $8.95 $9.50 $9.10 $9.30 Wheat $4.89 $3.89 $4.60 $4.80 Cotton ($ per pound) $0.58 $0.68 $0.60 $0.61 Source: Deere & Company forecast as of 22
Slide 37: U.S. Acres Harvested
U.S. Acres Harvested 2016/17 2017/18 (millions) Estimate Projection Corn 86.7 83.1 Soybeans 82.7 89.5 Wheat 43.9 37.6 Cotton 9.5 11.4 Source: Deere & Company forecast as of 22 November 2017 37
Slide 38: U.S. Crop Yields
U.S. Crop Yields 2016/17 2017/18 (bushels per acre except where noted) Estimate Projection Corn 174.6 175.4 Soybeans 52.1 49.5 Wheat 52.7 46.3 Cotton (pounds per harvested acre) 867 900 Source: Deere & Company forecast as of 22 November 2017 38
Slide 39: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts 2017 Previous 2018 ($ billions) 2016 Forecast 2017 Forecast Crops $189.6 $190.1 $186.7 $187.6 Livestock $162.9 $176.5 $168.2 $169.6 Government Payments $13.0 $10.0 $12.5 $11.1 Total Cash Receipts $365.4 $376.6 $367.4 $368.3 Source: 2016: USDA, 30 August 2017 2017F–2018F: Deer
Slide 40: U.S. Net Farm Cash Income
U.S. Net Farm Cash Income 2017 Previous 2018 ($ billions) 2016 Forecast 2017 Forecast Total Cash Receipts $365.4 $376.6 $367.4 $368.3 Other Farm-Related Income $27.9 $29.8 $34.4 $32.0 Gross Cash Income $393.3 $406.4 $401.8 $400.3 Cash Expenses ($304.1) ($309.0) ($308.3) ($310.0) Net Cash Income $89.
Slide 41: 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, 30 August 2017 2017F–2018F: Deere & Co
Slide 42: October 2017 Retail Sales and Dealer Inventories
October 2017 Retail Sales and Dealer Inventories Retail Sales U.S. and Canada Ag Industry* Deere** 2WD Tractors (< 40 PTO hp) 12% Single digit 2WD Tractors (40 < 100 PTO hp) 3% Less than the industry 2WD Tractors (100+ PTO hp) 38% More than the industry 4WD Tractors 16% Single digit Combines 46% Mor
Slide 43: October 2017 Retail Sales
October 2017 Retail Sales Retail Sales EU 28 Ag Deere* Tractors Single digit Combines Double digits Retail Sales U.S. and Canada Deere* Selected Turf & Utility Equipment Low Double digits Construction & Forestry First-in-the-Dirt Double digits Settlements Double digits * Based on internal sales repo
Slide 44: 1Q 2018 earnings call scheduled for 16 February 2018
Deere & Company’s 1Q 2018 earnings call is scheduled for 9:00 a.m. central time on Friday, 16 February 2018