Deere & Company · NYSE:DE
Deere & — Q1 2018 Earnings Presentation
43 slides from Deere &'s earnings presentation, Feb 16, 2018
Slide 1: 1Q 2018 Earnings Call
1Q 2018 Earnings Call 16 February 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: 1Q 2018 Overview
1Q 2018 Overview 1Q 2018 ($ millions except where noted) 1Q 2018 vs. 1Q 2017 Net Sales & Revenues $6,913 23% Net Sales (equipment operations) $5,974 27% Net Income (Loss) (attributable to Deere & Company) ($535)* Diluted EPS ($ per share) ($1.66)* * Excluding U.S. tax reform, adjusted net income $43
Slide 4: 1Q 2018 Overview - Equipment Operations
1Q 2018 Overview Equipment Operations 1Q 2018 vs. 1Q 2017 Net Sales 27% Price realization Flat Currency translation 3 points Wirtgen 5 points 4
Slide 5: Worldwide Agriculture & Turf 1Q 2018 Overview
Worldwide Agriculture & Turf 1Q 2018 Overview 1Q 2018 ($ millions) 1Q 2018 vs. 1Q 2017 Net Sales $4,243 18% Operating Profit* $387 78% *1Q 2018 operating profit impacted by: + Shipment volumes + Voluntary employee-separation program expenses + Warranty costs − Gain on sale of partial interest in Sit
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% 1996 1999 2002 2005 2008 2011 2014 2017P Source: USDA, 8 February 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 16 February 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$90M Note:
Slide 10: Agriculture & Turf Retail Sales Industry Outlook
Agriculture & Turf Retail Sales Industry Outlook Fiscal 2018 Previous Forecast Forecast U.S. and Canada Ag ~ 10% 5-10% EU 28 Ag ~ 5% ~ 5% South America Ag (tractors and combines) Flat to up 5% Flat to up 5% Asia Ag ~ Flat ~ Flat U.S. and Canada Turf and Utility Flat to up 5% ~ Flat Source: Deere & C
Slide 11: Worldwide Agriculture & Turf Deere & Company Outlook
Worldwide Agriculture & Turf Deere & Company Outlook Fiscal 2018 Previous Forecast Forecast Net Sales ~ 15% ~ 9% Currency translation ~ 3 points ~ 2 points Source: Deere & Company forecast as of 16 February 2018 (previous forecast as of 22 November 2017) 11
Slide 12: Worldwide Construction & Forestry 1Q 2018 Overview
Worldwide Construction & Forestry 1Q 2018 Overview 1Q 2018 ($ millions) 1Q 2018 vs. 1Q 2017 Net Sales $1,731 57% Operating Profit* $32 14% *1Q 2018 operating profit impacted by: − Wirtgen purchase accounting and acquisition costs Excluding Wirtgen: + Shipment volumes + Voluntary employee-separation
Slide 13: U.S. Economic Indicators
Worldwide Construction & Forestry U.S. Economic Indicators Fiscal 2018 Previous (annual percentage rate* except where noted) Forecast Forecast GDP Growth 2.6% 2.4% Housing Starts (thousands) 1,276 1,254 Total Construction Investment 2.2% 1.4% Government Construction Investment 0.6% 0.8% Crude Oil Pr
Slide 14: Worldwide Construction & Forestry Deere & Company Outlook
Worldwide Construction & Forestry Deere & Company Outlook Fiscal 2018 Previous Forecast Forecast Net Sales ~ 80% ~ 69% Currency translation ~ 2 points ~ 1 point Wirtgen ~ 56 points ~ 54 points Source: Deere & Company forecast as of 16 February 2018 (previous forecast as of 22 November 2017) 14
Slide 15: Worldwide Financial Services Credit Loss History
Worldwide Financial Services Credit Loss History Provision for Credit Losses / Average Owned Portfolio 2.0% 1.5% 1.0% 0.22% 0.5% 15 Year Average 0.0% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F Source: Deere & Company forecast as of 16 February 2018 15
Slide 16: Worldwide Financial Services
Worldwide Financial Services Fiscal 2018 Previous ($ millions) 1Q 2018 Forecast Forecast Net Income (Loss) (attributable to Deere & Company) $425* ~ $840* ~ $515 * Adjusted net income of $147 million in the quarter and ~ $520 million for the full year excluding the favorable changes associated with
Slide 17: Consolidated Trade Receivables & Inventory
Consolidated Trade Receivables & Inventory Fiscal 2018 ($ millions) 1Q 2018* Forecast** Agriculture & Turf $1,752 ~ $50 Construction & Forestry $2,351 ~ $1,750 Total (as reported) $4,103 ~ $1,700 Total (constant exchange) $3,747 ~ $1,525 * Change at 28 January 2018 vs. 29 January 2017 ** Change at 2
Slide 18: Cost of Sales
Cost of Sales Equipment Operations Fiscal 2018 Previous 1Q 2018 Forecast Forecast COS (percent of Net Sales) 78.8% ~ 75% ~ 75% Source: Deere & Company forecast as of 16 February 2018 (previous forecast as of 22 November 2017) 18
Slide 19: Research & Development Expense
Research & Development Expense Equipment Operations 1Q 2018 Fiscal 2018 Previous vs. 1Q 2017 Forecast Forecast R&D Expense 14% ~ 20% ~ 18% Currency translation 2 points ~ 1 point ~ 1 point Acquisition-related activities 5 points ~ 9 points ~ 9 points Source: Deere & Company forecast as of 16 Februar
Slide 20: Selling, Administrative & General Expense
Selling, Administrative & General Expense Equipment Operations 1Q 2018 Fiscal 2018 Previous vs. 1Q 2017 Forecast Forecast SA&G Expense 8% ~ 23% ~ 26% Acquisition-related activities 11 points ~ 21 points ~ 24 points Incentive compensation 3 points ~ 2 points ~ 1 point Currency translation 2 points ~
Slide 21: Income Taxes
Income Taxes Equipment Operations Rest of Year Fiscal 2018 Fiscal 2019 1Q 2018 2018 Forecast Forecast* Forecast Effective Tax Rate 422% 25-27% ~ 62% 25-27% * Previous forecast 31-33% prior to U.S. tax reform, pro-forma 2018 rate ~ 29.5% Source: Deere & Company forecast as of 16 February 2018 (previo
Slide 22: Net Operating Cash Flows
Net Operating Cash Flows Equipment Operations Fiscal 2018 Forecast* ~ $4.4 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 ~ $3.8 billion Note: 2009-2016 adjusted with the adoption of FASB ASU No. 2016-09 “Improvements t
Slide 23: Deere & Company Outlook
Deere & Company Outlook Fiscal 2018 Forecast 2Q 2018 Fiscal 2018 Previous ($ billions except where noted) Forecast Forecast Forecast Net Sales (equipment operations) 30-40% ~ 29% ~ 22% Price realization ~ Flat ~ 1 point ~ 1 point Currency translation ~ 4 points ~ 3 points ~ 2 points Wirtgen ~ 16 poi
Slide 24: Appendix
Appendix 24
Slide 25: The John Deere Strategy
25 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 26: 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 27: 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 28: Deere Quarterly Dividends Declared
Deere Quarterly Dividends Declared 1Q 2004 – 1Q 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 28
Slide 29: Share Repurchase
Share Repurchase As Part of Publicly Announced Plans 35% net share reduction since 2004 2004–1Q 2018: 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 autho
Slide 30: Pension and OPEB Expense
Pension and OPEB Expense Fiscal 2018 Previous ($ millions) 1Q 2018 Forecast Forecast Pension and OPEB Expense $6 ~ $15 ~ $10 Source: Deere & Company forecast as of 16 February 2018 (previous forecast as of 22 November 2017) 30
Slide 31: Other Information
Other Information Equipment Operations Fiscal 2018 Previous ($ millions) Forecast Forecast Capital Expenditures ~ $925 ~ $925 Depreciation and Amortization ~ $1,050 ~ $1,050 Pension/OPEB Contributions ~ $140 ~ $140 Source: Deere & Company forecast as of 16 February 2018 (previous forecast as of 22 N
Slide 32: 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 33: 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 $0.00 2005 2007 2009 2011 2013 2015 2017 Source: USDA, 8 February 2018 33
Slide 34: U.S. Farm Commodity Prices
U.S. Farm Commodity Prices 2016/17 2017/18 Previous ($ per bushel except where noted) 2015/16 Estimate Projection 2017/18 Corn $3.61 $3.36 $3.30 $3.20 Soybeans $8.95 $9.50 $9.10 $9.10 Wheat $4.89 $3.89 $4.65 $4.60 Cotton ($ per pound) $0.58 $0.68 $0.69 $0.60 Source: Deere & Company forecast as of 16
Slide 35: U.S. Acres Planted
U.S. Acres Planted 2016/17 2017/18 (millions) Estimate Projection Corn 94.0 90.2 Soybeans 83.4 90.1 Wheat 50.1 46.0 Cotton 10.1 12.6 Source: Deere & Company forecast as of 16 February 2018 35
Slide 36: U.S. Crop Yields
U.S. Crop Yields 2016/17 2017/18 (bushels per acre except where noted) Estimate Projection Corn 174.6 176.6 Soybeans 52.1 49.1 Wheat 52.7 46.3 Cotton (pounds per harvested acre) 867 899 Source: Deere & Company forecast as of 16 February 2018 36
Slide 37: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts 2017 2018 Previous ($ billions) 2016 Forecast Forecast 2018 Crops $194.4 $189.7 $188.2 $187.6 Livestock $162.9 $175.4 $174.9 $169.6 Government Payments $13.0 $11.4 $9.3 $11.1 Total Cash Receipts $370.2 $376.5 $372.4 $368.3 Source: 2016: USDA, 7 February 2018 2017F–2018F: Deer
Slide 38: U.S. Net Farm Cash Income
U.S. Net Farm Cash Income 2017 2018 Previous ($ billions) 2016 Forecast Forecast 2018 Total Cash Receipts $370.2 $376.5 $372.4 $368.3 Other Farm-Related Income $27.9 $29.7 $31.8 $32.0 Gross Cash Income $398.1 $406.2 $404.2 $400.3 Cash Expenses ($304.1) ($309.3) ($312.2) ($310.0) Net Cash Income $94.
Slide 39: 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 40: January 2018 Retail Sales and Dealer Inventories
January 2018 Retail Sales and Dealer Inventories Retail Sales U.S. and Canada Ag Industry* Deere** 2WD Tractors (< 40 PTO hp) 6% Double digits 2WD Tractors (40 < 100 PTO hp) 3% Low double digits 2WD Tractors (100+ PTO hp) 2% In line with the industry 4WD Tractors 33% More than the industry Combines
Slide 41: January 2018 Retail Sales
January 2018 Retail Sales 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 Single digit * Based on internal sales reports
Slide 42: 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 43: 2Q 2018 earnings call scheduled for 18 May 2018
Deere & Company’s 2Q 2018 earnings call is scheduled for 9:00 a.m. central time on Friday, 18 May 2018