Deere & Company · NYSE:DE
Deere & — Q2 2018 Earnings Presentation
46 slides from Deere &'s earnings presentation, May 18, 2018
Slide 1: 2Q 2018 Earnings Call
2Q 2018 Earnings Call 18 May 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: 2Q 2018 Overview
2Q 2018 Overview 2Q 2018 ($ millions except where noted) 2Q 2018 vs. 2Q 2017 Net Sales & Revenues $10,720 29% Net Sales (equipment operations) $9,747 34% Net Income (attributable to Deere & Company) $1,208 50% Adjusted Net Income (attributable to Deere & Company) $1,034* 28% Diluted EPS ($ per share
Slide 4: 2Q 2018 Overview: Equipment Operations
2Q 2018 Overview Equipment Operations 2Q 2018 vs. 2Q 2017 Net Sales 34% Price realization Flat Currency translation 3 points Wirtgen 12 points 4
Slide 5: Worldwide Agriculture & Turf: 2Q 2018 Overview
Worldwide Agriculture & Turf 2Q 2018 Overview 2Q 2018 ($ millions) 2Q 2018 vs. 2Q 2017 Net Sales $7,049 22% Operating Profit* $1,056 5% *2Q 2018 operating profit impacted by: + Shipment volumes − Gain on sale of partial interest in SiteOne Landscape Supply, Inc. − Research & development expenses − P
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 May 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 18 May 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% 10.5% 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$90M Note:
Slide 10: Agriculture & Turf Retail Sales Industry Outlook
Agriculture & Turf Retail Sales Industry Outlook Fiscal 2018 Previous Forecast Forecast U.S. and Canada Ag ~ 10% ~ 10% EU 28 Ag ~ 5% ~ 5% South America Ag (tractors and combines) Flat to up 5% Flat to up 5% Asia Ag ~ Flat ~ Flat U.S. and Canada Turf and Utility Flat to up 5% Flat to up 5% Source: De
Slide 11: Worldwide Agriculture & Turf: Deere & Company Outlook
Worldwide Agriculture & Turf Deere & Company Outlook Fiscal 2018 Previous Forecast Forecast Net Sales ~ 14% ~ 15% Currency translation ~ 1 point ~ 3 points Source: Deere & Company forecast as of 18 May 2018 (previous forecast as of 16 February 2018) 11
Slide 12: Worldwide Construction & Forestry: 2Q 2018 Overview
Worldwide Construction & Forestry 2Q 2018 Overview 2Q 2018 ($ millions) 2Q 2018 vs. 2Q 2017 Net Sales $2,698 84% Operating Profit* $259 133% *2Q 2018 operating profit impacted by: + Shipment volumes + Wirtgen + Warranty costs − Production costs 12
Slide 13: Worldwide Construction & Forestry: U.S. Economic Indicators
Worldwide Construction & Forestry U.S. Economic Indicators Fiscal 2018 Previous (annual percentage rate* except where noted) Forecast Forecast GDP Growth 2.7% 2.6% Housing Starts (thousands) 1,293 1,276 Total Construction Investment 2.9% 2.2% Government Construction Investment 2.0% 0.6% Crude Oil Pr
Slide 14: Wirtgen Update
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Slide 15: Worldwide Construction & Forestry: Deere & Company Outlook
Worldwide Construction & Forestry Deere & Company Outlook Fiscal 2018 Previous Forecast Forecast Net Sales ~ 83% ~ 80% Currency translation ~ 1 point ~ 2 points Wirtgen ~ 56 points ~ 56 points Source: Deere & Company forecast as of 18 May 2018 (previous forecast as of 16 February 2018) 15
Slide 16: Worldwide Financial Services: Credit Loss History
Worldwide Financial Services Credit Loss History Provision for Credit Losses / Average Owned Portfolio 2.0% 1.5% 1.0% 0.21% 0.5% 15 Year Average 0.0% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F Source: Deere & Company forecast as of 18 May 2018 16
Slide 17: Worldwide Financial Services
Worldwide Financial Services Fiscal 2018 Previous ($ millions) 2Q 2018 Forecast Forecast Net Income (attributable to Deere & Company) $104 ~ $800 ~ $840 Adjusted Net Income (attributable to Deere & Company) $137* ~ $571* ~ $578* * Excludes tax reform related net deferred tax asset remeasurement and
Slide 18: Consolidated Trade Receivables & Inventory
Consolidated Trade Receivables & Inventory Fiscal 2018 Previous ($ millions) 2Q 2018* Forecast** Forecast Agriculture & Turf $2,164 ~ $175 ~ $50 Construction & Forestry $2,639 ~ $1,825 ~ $1,750 Total (as reported) $4,803 ~ $2,000 ~ $1,700 Total (constant exchange) $4,593 ~ $1,950 ~ $1,525 * Change a
Slide 19: Cost of Sales
Cost of Sales Equipment Operations Fiscal 2018 Previous 2Q 2018 Forecast Forecast COS (percent of Net Sales) 75.2% ~ 76% ~ 75% Source: Deere & Company forecast as of 18 May 2018 (previous forecast as of 16 February 2018) 19
Slide 20: Research & Development Expense
Research & Development Expense Equipment Operations 2Q 2018 Fiscal 2018 Previous vs. 2Q 2017 Forecast Forecast R&D Expense 28% ~ 20% ~ 20% Currency translation 2 points ~ 1 point ~ 1 point Acquisition-related activities 10 points ~ 9 points ~ 9 points Source: Deere & Company forecast as of 18 May 20
Slide 21: Selling, Administrative & General Expense
Selling, Administrative & General Expense Equipment Operations 2Q 2018 Fiscal 2018 Previous vs. 2Q 2017 Forecast Forecast SA&G Expense 24% ~ 18% ~ 23% Acquisition-related activities 16 points ~ 16 points ~ 21 points Incentive compensation 2 points ~ 2 points ~ 2 points Currency translation 2 points
Slide 22: Income Taxes
Income Taxes Equipment Operations Rest of Year Fiscal 2018 Fiscal 2019 2Q 2018 2018 Forecast Forecast* Forecast* Effective Tax Rate 8% 25-27% ~ 56% 25-27% * Previous forecast ~ 62% for Fiscal 2018 and 25-27% for Fiscal 2019 Source: Deere & Company forecast as of 18 May 2018 (previous forecast as of
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 * Includes impact of planned voluntary contribution to Pension/OPEB; previous forecast ~ $4.4 billion Note: 2009-2016
Slide 24: Deere & Company Outlook
Deere & Company Outlook Fiscal 2018 Forecast 3Q 2018 Fiscal 2018 Previous ($ billions except where noted) Forecast Forecast Forecast Net Sales (equipment operations) ~ 35% ~ 30% ~ 29%* Price realization ~ 2 points ~ 1 point ~ 1 point* Currency translation ~ 1 point ~ 1 point ~ 3 points* Wirtgen ~ 18
Slide 25: Appendix
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Slide 26: The John Deere Strategy
26 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 27: 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 28: 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 29: Deere Quarterly Dividends Declared
Deere Quarterly Dividends Declared 1Q 2004 – 2Q 2018 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 2018 * Adjusted for 2 for 1 stock split on 26 November 2007 29
Slide 30: Share Repurchase
Share Repurchase As Part of Publicly Announced Plans 35% net share reduction since 2004 2004–2Q 2018: Share Repurchase Cumulative cost of repurchases $16.5 billion 40 $3.0 Shares repurchased 245.0 million Millions of Shares* Average repurchase price $67.08 $2.5 30 $2.0 $ Billions December 2013 autho
Slide 31: Pension and OPEB Expense
Pension and OPEB Expense Fiscal 2018 Previous ($ millions) 2Q 2018 Forecast Forecast Pension and OPEB Expense $5 ~ $10 ~ $15 Source: Deere & Company forecast as of 18 May 2018 (previous forecast as of 16 February 2018) 31
Slide 32: Other Information
Other Information Equipment Operations Fiscal 2018 Previous ($ millions) Forecast Forecast Capital Expenditures ~ $925 ~ $925 Depreciation and Amortization ~ $1,000 ~ $1,050 Pension/OPEB Contributions ~ $1,100 ~ $140 Source: Deere & Company forecast as of 18 May 2018 (previous forecast as of 16 Febr
Slide 33: 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 34: 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 $0.00 2005 2007 2009 2011 2013 2015 2017 Source: USDA, 10 May 2018 34
Slide 35: U.S. Farm Commodity Prices
U.S. Farm Commodity Prices 2017/18 Previous 2018/19 ($ per bushel except where noted) 2016/17 Estimate 2017/18 Projection Corn $3.36 $3.45 $3.30 $3.90 Soybeans $9.50 $9.40 $9.10 $9.55 Wheat $3.89 $4.70 $4.65 $5.00 Cotton ($ per pound) $0.68 $0.68 $0.69 $0.60 Source: Deere & Company forecast as of 18
Slide 36: U.S. Acres Planted
U.S. Acres Planted 2017/18 2018/19 (millions) Estimate Projection Corn 90.2 88.3 Soybeans 90.1 89.5 Wheat 46.0 47.3 Cotton 12.6 13.4 Source: Deere & Company forecast as of 18 May 2018 36
Slide 37: U.S. Crop Yields
U.S. Crop Yields 2017/18 2018/19 (bushels per acre except where noted) Estimate Projection Corn 176.6 173.0 Soybeans 49.1 48.3 Wheat 46.3 47.7 Cotton (pounds per harvested acre) 905 850 Source: Deere & Company forecast as of 18 May 2018 37
Slide 38: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts 2017 2018 Previous ($ billions) 2016 Forecast Forecast 2018 Crops $194.4 $189.7 $189.9 $188.2 Livestock $162.9 $175.4 $175.7 $174.9 Government Payments $13.0 $11.4 $9.3 $9.3 Total Cash Receipts $370.2 $376.5 $374.9 $372.4 Source: 2016: USDA, 7 February 2018 2017F–2018F: Deere
Slide 39: U.S. Net Farm Cash Income
U.S. Net Farm Cash Income 2017 2018 Previous ($ billions) 2016 Forecast Forecast 2018 Total Cash Receipts $370.2 $376.5 $374.9 $372.4 Other Farm-Related Income $27.9 $29.7 $31.7 $31.8 Gross Cash Income $398.1 $406.2 $406.6 $404.2 Cash Expenses ($304.1) ($309.3) ($317.9) ($312.2) Net Cash Income $94.
Slide 40: 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 41: April 2018 Retail Sales and Dealer Inventories
April 2018 Retail Sales and Dealer Inventories Retail Sales U.S. and Canada Ag Industry* Deere** 2WD Tractors (< 40 PTO hp) Flat Single digit 2WD Tractors (40 < 100 PTO hp) 6% In line with the industry 2WD Tractors (100+ PTO hp) 3% More than the industry 4WD Tractors 12% More than the industry Combi
Slide 42: April 2018 Retail Sales
April 2018 Retail Sales Retail Sales EU 28 Ag Deere* Tractors Low double digits Combines Double digits Retail Sales U.S. and Canada Deere* Selected Turf & Utility Equipment Double digits Construction & Forestry First-in-the-Dirt Single digit Settlements Single digit Note: Effective in 3Q 2018, retai
Slide 43: April 2018 Retail Sales (Rolling 3 Months) and Dealer Inventories
April 2018 Retail Sales (Rolling 3 Months) and Dealer Inventories Retail Sales U.S. and Canada Ag Industry* Deere** 2WD Tractors (< 40 PTO hp) Flat Low double digits 2WD Tractors (40 < 100 PTO hp) 2% Single digit 2WD Tractors (100+ PTO hp) 3% More than the industry 4WD Tractors 5% Low double digits
Slide 44: April 2018 Retail Sales (Rolling 3 Months)
April 2018 Retail Sales (Rolling 3 Months) 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 in
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: 3Q 2018 earnings call scheduled for 17 August 2018
Deere & Company’s 3Q 2018 earnings call is scheduled for 9:00 a.m. central time on Friday, 17 August 2018