Deere & Company · NYSE:DE
Deere & — Q2 2015 Earnings Presentation
43 slides from Deere &'s earnings presentation, May 22, 2015
Slide 1: Second Quarter 2015 Earnings Conference Call
Second Quarter 2015 Earnings Conference Call 22 May 2015
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: Second Quarter Overview
Second Quarter Overview (in millions of dollars except per share amounts) Q2 2015 Q2 2014 Change Net Sales and Revenues $8,171 $9,948 -18% Net Sales $7,399 $9,246 -20% Net Income $690 $981 -30% Attributable to Deere & Company Diluted EPS $2.03 $2.65 -23% 3 | 2nd Quarter 2015 Earnings Conference Call
Slide 4: Second Quarter Overview: Net Sales
Second Quarter Overview Net Sales Equipment operations net sales: Down 20% in Q2 2015 vs. Q2 2014 • Price realization: +2 points • Currency translation: (5) points 4 | 2nd Quarter 2015 Earnings Conference Call
Slide 5: Worldwide Agriculture & Turf
Worldwide Agriculture & Turf Second Quarter Overview (in millions of dollars) Q2 2015 Q2 2014 Change Net Sales $5,766 $7,646 -25% Operating Profit* $639 $1,229 -48% *Q2 2015 operating profit impacted by: Favorable • Price Realization • Selling, Administrative, and General Expenses Unfavorable • Ship
Slide 6: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts $500 $450 $400 $350 $300 $250 $ Billions $200 $150 $100 $50 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F Crops Livestock Government Payments Source: 1999 – 2013: USDA 10 February 2015 2014F – 2015F: Deere & Company Forecast as of 2
Slide 7: World Farm Fundamentals
World Farm Fundamentals Global Stocks-to-Use Ratios 100% 90% 80% 70% Cotton 60% 50% Wheat 40% 30% Corn 20% Soybeans 10% 0% 1994 1997 2000 2003 2006 2009 2012 2015P Source: USDA – 12 May 2015 7 | 2nd Quarter 2015 Earnings Conference Call
Slide 8: Economic Update
Economic Update EU 28 – Fiscal 2015 Outlook for economic growth improves slightly Fluctuating crop prices are expected to stabilize near the long- term average Livestock margins at sound levels • Beef prices have stabilized • Feed costs have eased • Downward pressure on dairy margins Deere & Company
Slide 9: Economic Update
Economic Update Other Selected Markets – Fiscal 2015 China • Continued slowdown in economic growth • Lower commodity prices impacting agricultural economy, somewhat mitigated by domestic supports • Ongoing subsidies are supportive of agricultural equipment India • Increased manufacturing and investm
Slide 10: Crop Value of Agricultural Production
Crop Value of Agricultural Production Brazil Expected to decrease ~ 11% in 2015 over prior season Crop Value of Agricultural Production 2014 Mix by Crop $120 10% $100 US$ Billions 13% $80 46% $60 17% $40 14% $20 Soybeans Ethanol $0 Corn Sugar 2003 2005 2007 2009 2011 2013 2015F Other Grains Source:
Slide 11: Eligible Finance Rates for Ag Equipment
Eligible Finance Rates for Ag Equipment Brazil 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2011 2012 2013 2014 2015 All Farmers Farmers with Annual Revenues <R$90M Farmers with Annual Revenues >R$90M Source: ABIMAQ (Brazilian Association of Machinery and Equipment) and BNDES PSI-FINAME w
Slide 12: Agriculture & Turf Retail Sales
Agriculture & Turf Retail Sales Industry Outlook – Fiscal 2015 2015 Forecast Previous Forecast * U.S. and Canada Ag Down ~ 25% Down 25-30% EU 28 Ag Down ~ 10% South America Ag Down 15-20% Down 10-15% (Tractors and Combines) Asia Ag Down modestly Down slightly CIS Countries Ag Down significantly U.S.
Slide 13: Worldwide Agriculture & Turf Outlook
Worldwide Agriculture & Turf Deere & Company Outlook Fiscal Year 2015 Forecast • Net sales: Down ~ 24% • Currency translation: ~ (5) points • Previous forecast: Down ~ 23% • Currency translation ~ (4) points Deere & Company Forecast as of 22 May 2015 (Previous Forecast as of 20 February 2015) 13 | 2
Slide 14: 8000 Series Self-Propelled Forage Harvester
8000 Series Self-Propelled Forage Harvester SIMA – 2015 Forage Harvester Machine of the Year • Complete product replacement results in greater efficiency and productivity for livestock, dairy and biogas producers • Forward-thinking technology, guidance and harvest analysis • Improved performance, up
Slide 15: Worldwide Construction & Forestry
Worldwide Construction & Forestry Second Quarter Overview (in millions of dollars) Q2 2015 Q2 2014 Change Net Sales $1,633 $1,600 +2% Operating Profit* $189 $132 +43% Incremental Margin ~ 173% *Q2 2015 operating profit impacted by: Favorable • Price Realization • Selling, Administrative, and General
Slide 16: Worldwide Construction & Forestry Outlook
Worldwide Construction & Forestry Deere & Company Outlook Fiscal Year 2015 Forecast • Net sales: Up ~ 2% • Currency translation: ~ (3) points • Previous forecast: Up ~ 5% • Currency translation: ~ (2) points 2015 Previous U.S. Economic Indicators Forecast Forecast GDP Growth (annual percentage rate)
Slide 17: 1050K Crawler Dozer
1050K Crawler Dozer Increased Power and Productivity • First Deere-built production class dozer • Exclusive dual-path hydrostatic transmission for machine-size class • Superior power-to-weight ratio provides traction needed to push more material • John Deere WorkSight telematics optimizes machines,
Slide 18: Worldwide Financial Services: Credit Loss History
Worldwide Financial Services Credit Loss History Provision for Credit Losses / Average Owned Portfolio 2.00% 1.50% 1.00% 0.08% 15 Year Average 0.50% 10 Year Average 0.00% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015* * Annualized provision for credit losses as of 30 April 2015 18
Slide 19: Worldwide Financial Services
Worldwide Financial Services Second Quarter 2015 • Net income attributable to Deere & Company • $170 million in Q2 2015 vs. $148 million in Q2 2014 Fiscal Year 2015 Forecast • Net income attributable to Deere & Company of ~ $630 million • No change from previous forecast Deere & Company Forecast as
Slide 20: Consolidated Trade Receivables & Inventory
Consolidated Trade Receivables & Inventory 2015** Q2 2015* 2015** Previous (in millions of dollars) Actual Forecast Forecast A&T ↓ $1,963 ↓ $1,000 ↓ $525 C&F ↑ $335 ↑ $400 ↑ $625 Total, as reported ↓ $1,628 ↓ $600 ↑ $100 Total, constant exchange ↓ $965 ↓ $200 ↑ $325 * Change at 30 April 2015 vs. 30
Slide 21: Cost of Sales as a Percent of Net Sales
Cost of Sales as a Percent of Net Sales Equipment Operations Second Quarter 2015 • ~ 77% Fiscal Year 2015 Forecast • ~ 78% • No change from previous forecast Deere & Company Forecast as of 22 May 2015 (Previous Forecast as of 20 February 2015) 21 | 2nd Quarter 2015 Earnings Conference Call
Slide 22: Research & Development Expense
Research & Development Expense Equipment Operations Second Quarter 2015 • Down ~ 4% vs. Q2 2014 • Currency translation: ~ (3) points Fiscal Year 2015 Forecast • Down ~ 1% vs. FY 2014 • Currency translation: ~ (3) points • Previous forecast: Down ~ 1% vs. FY 2014 • Currency translation: ~ (2) points
Slide 23: Selling, Administrative & General Expense
Selling, Administrative & General Expense Equipment Operations Second Quarter 2015 • Down ~ 14% vs. Q2 2014 • Currency translation: ~ (4) points Fiscal Year 2015 Forecast • Down ~ 11% vs. FY 2014 • JD Landscapes and JD Water: ~ (2) points • Currency translation: ~ (4) points • Previous forecast: Dow
Slide 24: Pension and OPEB Expense
Pension and OPEB Expense Second Quarter 2015 • Up ~ $15 million vs. Q2 2014 Fiscal Year 2015 Forecast • Up ~ $70 million vs. FY 2014 • Previous forecast: Up ~ $80 million vs. FY 2014 Deere & Company Forecast as of 22 May 2015 (Previous Forecast as of 20 February 2015) 24 | 2nd Quarter 2015 Earnings
Slide 25: Income Taxes
Income Taxes Equipment Operations Second Quarter 2015 • Effective tax rate: ~ 30% Year to Date 2015 • Effective tax rate: ~ 30% Rest of Year 2015 Forecast • Effective tax rate: 34-36% Deere & Company Forecast as of 22 May 2015 25 | 2nd Quarter 2015 Earnings Conference Call
Slide 26: Strong Operating Performance
Strong Operating Performance Equipment Operations Fiscal Year Cash Flows from Operations $4.7 $4.5 ~ $3.4 $3.0 $2.9 $2.5 $ Billions $2.4 $1.4 2008 2009 2010 2011 2012 2013 2014 2015 Forecast* * Previous forecast ~ $3.3 billion Deere & Company Forecast as of 22 May 2015 (Previous Forecast as of 20 Fe
Slide 27: 2015 Company Outlook
2015 Company Outlook Third Quarter 2015 Forecast • Net sales: Down ~ 17% vs. Q3 2014 • Price realization: ~ +2 points • Currency translation ~ (6) points Deere & Company Forecast as of 22 May 2015 27 | 2nd Quarter 2015 Earnings Conference Call
Slide 28: 2015 Company Outlook
2015 Company Outlook Fiscal Year 2015 Forecast • Net sales: Down ~ 19% vs. FY 2014 • Price realization: ~ +2 points • Currency translation: ~ (4) points • Previous forecast: Down ~ 17% vs. FY 2014 • Price realization: ~ +2 points • Currency translation ~ (3) points • Net income attributable to Deere
Slide 29: Appendix
Appendix 29 | 2nd Quarter 2015 Earnings Conference Call
Slide 30: The John Deere Strategy
The John Deere Strategy 30 | 2nd Quarter 2015 Earnings Conference Call
Slide 31: Deere Use-of-Cash Priorities
Deere Use-of-Cash Priorities Cash from Operations Manage the balance sheet, including liquidity, to support a rating Committed to “A” Rating that provides access to low-cost and readily available short- and long-term funding mechanisms Reflects the strategic nature of our financial services oper
Slide 32: Sources and Uses of Cash Fiscal 2004–2014
Sources and Uses of Cash Fiscal 2004–2014 Equipment Operations $953 $33,000 = Source of Cash = Use of Cash $30,000 $8,731 $27,000 $24,000 $1,269 $3,172 $21,000 $ Millions $18,000 $28,527 $5,506 $15,000 $12,000 $9,000 $11,659 $6,000 $3,000 $861 $4,287 ~60% of cash from operations $2,569 returned to s
Slide 33: Deere Quarterly Dividends Declared
Deere Quarterly Dividends Declared* Q1 2003 – Q2 2015 $0.70 $0.60 $0.60 $0.51 $0.50 $0.46 $0.41 $0.40 $0.35 $0.30 $0.30 $0.28 $0.25 Dividend raised 114% $0.22 since launch of the $0.20 revised John Deere $0.20 Strategy in 2010** $0.16 $0.14 $0.11 $0.10 $0.00 2003 2004 2005 2006 2007 2008 2009 2010 2
Slide 34: Share Repurchase
Share Repurchase As Part of Publicly Announced Plans Cumulative cost of repurchases 2004-2Q2015: ~ $14.6 billion Amount remaining on December 2013 authorization of $8 billion: ~ $5.1 billion 30 April 2015 period ended basic shares: ~ 333.9 million 2Q2015 average diluted shares: ~ 339.7 million Share
Slide 35: Other Information
Other Information Equipment Operations Fiscal Year 2015 Forecast • Capital Expenditures: ~ $825 million • Previous forecast: ~ $850 million • Depreciation and Amortization: ~ $800 million • No change from previous forecast • Pension/OPEB Contributions: ~ $100 million • No change from previous foreca
Slide 36: U.S. Farm Commodity Prices
U.S. Farm Commodity Prices (dollars per bushel, 2014/15 Previous 2015/16 except cotton, which 2013/14 Estimate 2014/15 Projection is dollars per pound) Corn $4.46 $3.65 $3.85 $3.75 Wheat $6.87 $6.00 $6.10 $5.10 Soybeans $13.00 $10.05 $9.85 $8.90 Cotton $.78 $.60 $.62 $.60 Deere & Company Forecast as
Slide 37: U.S. Farm Commodity Prices
U.S. Farm Commodity Prices $18 $1.00 $16 Wheat $0.90 Corn Soybeans $0.80 $14 Cotton Cotton - Dollars per Pound $0.70 $12 Dollars per Bushel $0.60 $10 $0.50 $8 $0.40 $6 $0.30 $4 $0.20 $2 $0.10 $0 $0.00 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: USDA 37
Slide 38: U.S. Acres Planted and Crop Yields
U.S. Acres Planted and Crop Yields Acres Planted (Yield in bushels per Yield (millions) acre, except cotton, which is pounds per 2014/15 2015/16 2014/15 2015/16 acre) Estimate Projection Estimate Projection Corn 90.6 89.2 171.0 166.8 Wheat 56.8 55.4 43.7 43.7 Soybeans 83.7 84.6 47.8 46.0 Cotton 11.0
Slide 39: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts 2014 Previous 2015 Previous (in billions of dollars) 2013 Forecast 2014 Forecast 2015 Crops $218.5 $198.2 $198.2 $182.5 $182.8 Livestock $182.8 $209.1 $209.2 $198.7 $199.0 Government $11.0 $10.8 $10.7 $12.4 $12.4 Payments Total Cash $412.3 $418.1 $418.1 $393.6 $394.2 Receipts
Slide 40: U.S. Net Farm Cash Income
U.S. Net Farm Cash Income (in billions of 2014 Previous 2015 2015 dollars) 2013 Forecast 2014 Forecast Forecast Total Cash Receipts $412.3 $418.1 $418.1 $393.6 $394.2 Other Farm- Related Income $31.5 $27.3 $27.3 $25.4 $25.3 Gross Cash Income $443.8 $445.4 $445.4 $419.0 $419.5 Cash Expenses ($312.7)
Slide 41: April 2015 Retail Sales and Dealer Inventories
April 2015 Retail Sales and Dealer Inventories Retail Sales U.S. and Canada Ag Industry* Deere** Utility Tractors ↑ 7% ↑ less than the industry Row-Crop Tractors ↓ 17% ↓ more than the industry 4WD Tractors ↓ 42% in line with the industry Combines ↓ 33% ↓ slightly less than the industry Deere Dealer
Slide 42: April 2015 Retail Sales
April 2015 Retail Sales EU 28 Deere* Tractors ↓ single digit Combines ↓ double digits U.S. and Canada Deere* Selected Turf & Utility Equipment ↑ double digits U.S. and Canada – Construction & Forestry Deere* First-in-the-Dirt ↑ double digits Settlements ↑ double digits * Based on internal sales repo
Slide 43: Third quarter 2015 conference call scheduled
Deere’s third quarter 2015 conference call is scheduled for 9:00 a.m. central time on Friday, August 21, 2015