01—Abstract
Summary
Summary of the 10-K filed December 16, 2013. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2013 10-K (year ended October 31, 2013) shows a strong year with record profitability.
Worldwide net income attributable to Deere was $3,537 milliona ($9.09 diluted EPS), up 15% from $3,065 million ($7.63) in 2012. Net sales and revenues rose 5% to $37,795 million, driven by price realization of 3% and higher shipment volumes in agriculture and turf. Equipment operations operating profit reached $5,058 million, and the cost of sales ratio improved to 73.3% from 74.6%.
Agriculture and turf operating profit grew to $4,680 millionb, while construction and forestry profit fell to $378 million on an 8% sales decline. Financial services net income rose to $565 million on credit portfolio growth and higher crop insurance margins. The outlook is more cautious.
Management projects fiscal 2014 equipment sales to fall about 3%, with agriculture and turf down about 6% as lower commodity prices and farm incomes weigh on large equipment demand, particularly in the U.S., Canada, and South America. Construction and forestry sales are forecast to rise about 10% on U.S. housing and economic recovery. Net income for fiscal 2014 is anticipated at about $3.3 billionc, below 2013.
Deere is also restructuring its portfolio, agreeing in October 2013 to sell a 60% stake in John Deere Landscapes to a Clayton, Dubilier & Rice affiliate, and reviewing strategic options for John Deere Water. Capital allocation remained shareholder-friendly. Deere repurchased $1,531 milliond of stock and paid $753 million in dividends in 2013.
In December 2013 the board authorized an additional $8,000 million buyback and declared a $0.51 quarterly dividend. Balance sheet strength is evident from a $10,266 million stockholders' equity base, improved by a $1,950 million retirement benefits adjustment, and a funded status that moved from a $1,817 million pension liability to a $40 million asset. Key risks disclosed include trade policy, commodity price swings, emissions-driven R&D costs, eurozone and emerging-market exposure, and GPS spectrum reallocation.
02—Key points
Key Highlights
- Net income attributable to Deere & Company rose 15% to $3,537 million ($9.09 diluted EPS) in 2013, versus $3,065 million ($7.63) in 2012.
- Net sales and revenues increased 5% to $37,795 million, with price realization contributing 3 points of growth.
- Equipment operations operating profit improved to $5,058 million from $4,397 million, and the cost of sales ratio fell to 73.3% from 74.6%.
- Fiscal 2014 guidance calls for equipment sales down about 3% and net income near $3.3 billion, with agriculture and turf down about 6% and construction and forestry up about 10%.
- Landscapes sale: 60% stake sold to a Clayton, Dubilier & Rice affiliate for about $300 million, and John Deere Water is under strategic review.
- Capital returns: $1,531 million in share repurchases and $753 million in dividends paid in 2013; a new $8,000 million buyback was authorized in December 2013.
- Pension funded status swung to a $40 million net asset from a $1,817 million net liability, helped by a $1,950 million after-tax retirement benefits adjustment in OCI.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Deere & Co kept $0.09.
- Revenue$37.80B100.0%
- Cost of revenue−$25.67B67.9%
- Gross profit$12.13B32.1%
- Operating costs−$6.20B16.4%
- Operating income$5.93B15.7%
- Interest, other & tax−$2.39B6.3%
- Net income$3.54B9.4%
Where FY2013 revenue went
$37.80B- Cost of revenue: $25.67B, 68% of revenue
- Net income: $3.54B, 9.4% of revenue
- R&D: $1.48B, 3.9% of revenue
- SG&A: $3.61B, 9.5% of revenue
- Other operating costs: $1.12B, 3.0% of revenue
- Interest, other & tax: $2.39B, 6.3% of revenue
Kept 9.4% as net incomeNet income $3.54B · 9.4%Other operating costs $1.12B · 3.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed December 16, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $37.80B$36.16B | +4.5% |
| Cost of Revenue | $25.67B$25.01B | +2.6% |
| Gross Profit | $12.13B$11.15B | +8.8% |
| R&D Expenses | $1.48B$1.43B | +3.0% |
| SG&A Expenses | $3.61B$3.42B | +5.5% |
| Operating Expenses | $32.31B$31.42B | +2.8% |
| Operating Income | $5.93B$5.11B | +16.0% |
| Interest Expense | $741.30M$782.80M | −5.3% |
| Net Income | $3.54B$3.06B | +15.4% |
| EPS (Basic) | $9.18$7.72 | +18.9% |
| EPS (Diluted) | $9.09$7.63 | +19.1% |
| Shares Outstanding (Basic) | 385.30M397.10M | −3.0% |
| Shares Outstanding (Diluted) | 389.20M401.50M | −3.1% |
05—Questions
Frequently Asked Questions
How did Deere perform financially in fiscal 2013?
Deere delivered record results. Net income attributable to Deere & Company was $3,537 million, or $9.09 per diluted share, up from $3,065 million ($7.63) in 2012. Revenue grew 5% to $37,795 million, supported by price increases and higher agriculture and turf shipments, and the cost of sales ratio improved to 73.3%.
What is management guiding for fiscal 2014?
Management expects equipment sales to decline about 3% and net income attributable to Deere to be about $3.3 billion. Agriculture and turf sales are forecast to fall about 6% as lower commodity prices and farm incomes dampen demand for large farm equipment. Construction and forestry sales are expected to rise about 10% on economic recovery and U.S. housing starts. Financial services net income is projected at about $600 million.
Why did construction and forestry profit decline in 2013?
Construction and forestry operating profit fell to $378 million from $476 million. Net sales dropped 8% on lower shipment volumes, and the segment faced an unfavorable product mix, higher production costs, and higher selling, administrative and general expenses. Price realization partly offset these pressures.
What strategic changes is Deere making to its portfolio?
In October 2013 Deere agreed to sell 60% of John Deere Landscapes to a private equity affiliate of Clayton, Dubilier & Rice for about $300 million, retaining a 40% equity stake. Deere is also reviewing strategic options for John Deere Water, which took $57 million of impairment charges in 2013, and recorded a $45 million write-down on Landscapes to its realizable value.
What are the main risks investors should monitor?
Key risks include international trade restrictions and government farm policies, volatility in commodity prices and farm income, emerging-market expansion in Brazil, China, India and Russia, eurozone economic stress, currency translation, and rising interest rates affecting financial services funding costs. Stricter engine emission standards (Tier 4/Stage IV) and possible GPS radio frequency reallocation also pose cost and operational risks.
06—Continue