01—Abstract
Summary
Summary of the 10-K filed December 19, 2011. Cited figures are marked; the original filing is the authoritative source.
Deere & Company (NYSE: DE) closed fiscal 2011 (year ended October 31, 2011) with record results.
Worldwide net income attributable to Deere was $2,800 milliona, or $6.63 per diluted share, up sharply from $1,865 million ($4.35) in 2010. Net sales and revenues rose 23% to $32,013 million, driven mainly by higher shipment volumes (equipment net sales up 25% to $29,466 million), with price realization of 3% and a 3% favorable currency effect. The equipment operations' operating profit rose to $3,839 million from $2,909 million, though the cost of sales ratio worsened to 74.4% from 73.8% on higher raw material and overhead costs.
The outlook is strongly positive. Management forecasts company equipment sales up about 15% in fiscal 2012 (16-18% in the first quarter), with net income of roughly $3.2 billionb. Agriculture and turf sales are expected to rise about 15% and construction and forestry about 16%, supported by favorable farm incomes and new products.
Financial services net income is guided lower, to about $450 millionc from $471 million, mainly because credit loss provisions are expected to normalize. The balance sheet remains solid, with stockholders' equity of $6,800 million and cash plus marketable securities of $4,435 million. Financial services carries heavy leverage, with total external debt of $22.9 billion.
Management returned capital through $1,667 milliond of share repurchases and $593 million of dividends paid. Key risks include global trade policy, the European sovereign debt crisis, commodity price volatility, tighter off-road engine emission standards (Tier 4), and farm income cyclicality.
02—Key points
Key Highlights
- Record fiscal 2011 results: net income of $2.8 billion ($6.63 diluted EPS), up about 50% from $4.35 in 2010, on net sales and revenues of $32.0 billion (+23%).
- Equipment operations sales rose 25% to $29.5 billion, led by higher shipment volumes (physical volume up 12% in U.S./Canada and 30% outside), with 3% price realization.
- Operating profit of the equipment operations rose to $3.8 billion from $2.9 billion, but the cost of sales ratio increased to 74.4% from 73.8% due to raw material and overhead costs.
- Fiscal 2012 guidance calls for equipment sales up about 15% and net income of roughly $3.2 billion; financial services net income is expected to fall to about $450 million on higher credit loss provisions.
- Agriculture and turf backlog reached $5.5 billion at October 31, 2011, up from $4.3 billion a year earlier, supporting near-term revenue visibility.
- Strong cash generation: operating cash flow of $2.3 billion; the company repurchased $1.7 billion of stock and paid $593 million in dividends, and declared a $1.52 per-share annual dividend (up from $1.16).
- Financial services is highly leveraged, with $22.9 billion of external interest-bearing debt (7.5x debt-to-equity), and the company flags funding-cost, European debt crisis, and Dodd-Frank regulatory risks.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Deere & Co kept $0.09.
- Revenue$32.01B100.0%
- Cost of revenue−$21.92B68.5%
- Gross profit$10.09B31.5%
- Operating costs−$5.53B17.3%
- Operating income$4.56B14.3%
- Interest, other & tax−$1.76B5.5%
- Net income$2.80B8.7%
Where FY2011 revenue went
$32.01B- Cost of revenue: $21.92B, 68% of revenue
- Net income: $2.80B, 8.7% of revenue
- R&D: $1.23B, 3.8% of revenue
- SG&A: $3.17B, 9.9% of revenue
- Other operating costs: $1.13B, 3.5% of revenue
- Interest, other & tax: $1.76B, 5.5% of revenue
Kept 8.7% as net incomeNet income $2.80B · 8.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed December 19, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $32.01B$26.00B | +23.1% |
| Cost of Revenue | $21.92B$17.40B | +26.0% |
| Gross Profit | $10.09B$8.61B | +17.3% |
| R&D Expenses | $1.23B$1.05B | +16.5% |
| SG&A Expenses | $3.17B$2.97B | +6.7% |
| Operating Expenses | $27.79B— | — |
| Operating Income | $4.56B$3.41B | +33.9% |
| Interest Expense | $759.40M$811.40M | −6.4% |
| Net Income | $2.80B$1.86B | +50.1% |
| EPS (Basic) | $6.71$4.40 | +52.5% |
| EPS (Diluted) | $6.63$4.35 | +52.4% |
| Shares Outstanding (Basic) | 417.40M424.00M | −1.6% |
| Shares Outstanding (Diluted) | 422.40M428.60M | −1.4% |
05—Questions
Frequently Asked Questions
How did Deere perform financially in fiscal 2011?
Deere posted record results. Net income attributable to Deere & Company was $2,800 million ($6.63 per diluted share), compared with $1,865 million ($4.35) in 2010. Net sales and revenues increased 23% to $32,013 million, mainly from higher equipment shipment volumes and improved pricing.
What is management's outlook for fiscal 2012?
Management expects company equipment sales to rise about 15% for the year (16-18% in the first quarter) and net income attributable to Deere of about $3.2 billion. Agriculture and turf sales are forecast to grow about 15% and construction and forestry about 16%, while financial services net income is expected to decline to about $450 million.
What are the main risks investors should watch?
Key risks include trade and government farm policy changes, weather and commodity price swings that affect farm income, the European sovereign debt crisis, rising raw material costs, and increasingly stringent engine emission rules (Interim and Final Tier 4). The financial services segment is also exposed to funding costs, credit losses, and new financial regulation under Dodd-Frank.
How strong is Deere's balance sheet and liquidity?
Stockholders' equity rose to $6,800 million. Cash, cash equivalents, and marketable securities totaled $4,435 million, and the equipment operations' debt-to-capital ratio was 35%. Financial services carries much higher leverage, with about $22.9 billion of external debt, but it is funded through diversified sources including securitization, commercial paper, and medium-term notes. The company also has $5.1 billion of worldwide credit lines, of which $3.7 billion was unused.
How is Deere returning capital to shareholders?
In fiscal 2011 Deere repurchased $1,667 million of common stock and paid $593 million in dividends. Dividends declared per share rose to $1.52 from $1.16, and a quarterly dividend of $0.41 was declared in December 2011. About $4.07 billion remained authorized under the May 2008 repurchase program.
06—Continue