01—Abstract
Summary
Summary of the 10-K filed December 19, 2014. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2014 (year ended October 31, 2014) was a year of solid but declining results, with management guiding to a sharper downturn in 2015.
Worldwide net sales and revenues fell 5% to $36.07 billiona, and net income attributable to Deere fell 11% to $3.16 billion ($8.63 diluted EPS, versus $9.09 in 2013). Equipment operations net sales decreased 6% to $32.96 billion, driven by lower shipment volumes, an unfavorable currency effect, and a 75.2% cost-of-sales ratio (up from 73.3%) reflecting product mix, engine emission costs, and FX. Financial services net income rose to $624 million on portfolio growth, helped by a more favorable tax rate, though crop insurance margins were lower.
The forward outlook is the most important element for investors. Equipment sales are projected to fall about 15%b in fiscal 2015 (about 21% in the first quarter), agriculture and turf sales about 20%, and U.S./Canada farm equipment industry sales 25-30%. Construction and forestry sales are expected to rise about 5%.
Net income for fiscal 2015 is guided to roughly $1.9 billionc, and financial services income to about $610 million on higher expected credit provisions. Management's framing is that the company remains solidly profitable and well positioned through the cycle. Capital allocation remained shareholder-friendly.
Deere repurchased $2.73 billiond of stock and paid $786 million in dividends, while the dividend declared rose to $2.22 per share from $1.99. Shareholder returns were funded in part by increased borrowings, and about $6.23 billion remained under the $8 billion repurchase authorization.
The company also agreed in December 2014 to sell its Crop Insurance operations (about $725 million in assets) and divested Landscapes and Water operations during the year. Ongoing risks include weak farm incomes, currency translation, tightening emissions standards, and the financial services segment's exposure to credit losses and funding costs.
02—Key points
Key Highlights
- Net sales and revenues fell 5% to $36.07 billion; equipment operations net sales fell 6% to $32.96 billion on lower shipment volumes and a 1% FX headwind, partly offset by 2% price realization.
- Net income attributable to Deere & Company declined to $3.16 billion ($8.63 diluted EPS) from $3.54 billion ($9.09) in 2013, with the cost-of-sales ratio rising to 75.2% from 73.3%.
- Fiscal 2015 guidance is weak: equipment sales down about 15% (Q1 down about 21%), agriculture and turf down about 20%, construction and forestry up about 5%, and net income of about $1.9 billion.
- Financial services net income rose to $624 million on a 13% larger average receivables portfolio, but fiscal 2015 income is guided lower to about $610 million on higher credit loss provisions.
- Shareholder returns were strong: $2.73 billion of share repurchases and $786 million of dividends paid, with dividends declared rising to $2.22 per share from $1.99.
- Stockholders' equity fell to $9.06 billion from $10.27 billion, largely from treasury stock purchases, retirement benefit and translation losses in other comprehensive income, and dividends, partly offset by net income.
- Agreed in December 2014 to sell the Crop Insurance operations (about $725 million in assets), with a projected close by March 2015 and no significant expected gain or loss.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Deere & Co kept $0.09.
- Revenue$36.07B100.0%
- Cost of revenue−$24.78B68.7%
- Gross profit$11.29B31.3%
- Operating costs−$6.07B16.8%
- Operating income$5.22B14.5%
- Interest, other & tax−$2.06B5.7%
- Net income$3.16B8.8%
Where FY2014 revenue went
$36.07B- Cost of revenue: $24.78B, 69% of revenue
- Net income: $3.16B, 8.8% of revenue
- R&D: $1.45B, 4.0% of revenue
- SG&A: $3.28B, 9.1% of revenue
- Other operating costs: $1.34B, 3.7% of revenue
- Interest, other & tax: $2.06B, 5.7% of revenue
Kept 8.8% as net incomeNet income $3.16B · 8.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed December 19, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $36.07B$37.80B | −4.6% |
| Cost of Revenue | $24.78B$25.67B | −3.5% |
| Gross Profit | $11.29B$12.13B | −6.9% |
| R&D Expenses | $1.45B$1.48B | −1.7% |
| SG&A Expenses | $3.28B$3.61B | −8.9% |
| Operating Expenses | $31.27B$32.31B | −3.2% |
| Operating Income | $5.22B$5.93B | −12.0% |
| Interest Expense | $664.00M$741.30M | −10.4% |
| Net Income | $3.16B$3.54B | −10.6% |
| EPS (Basic) | $8.71$9.18 | −5.1% |
| EPS (Diluted) | $8.63$9.09 | −5.1% |
| Shares Outstanding (Basic) | 363.00M385.30M | −5.8% |
| Shares Outstanding (Diluted) | 366.10M389.20M | −5.9% |
05—Questions
Frequently Asked Questions
How much is Deere expected to earn and sell in fiscal 2015?
Management projects equipment sales to fall about 15% in fiscal 2015 and about 21% in the first quarter, compared with the same periods of 2014. Net income attributable to Deere & Company is anticipated to be about $1.9 billion, and financial services net income about $610 million.
Why did profitability decline in 2014?
Equipment operations operating profit fell to $4.30 billion from $5.06 billion, mainly due to lower shipment and production volumes, less favorable product mix, unfavorable foreign currency effects, and higher production costs tied to engine emission programs. Price realization of about 2% partly offset these pressures.
How is Deere returning capital to shareholders?
In 2014 Deere repurchased $2.73 billion of common stock and paid $786 million in dividends, and declared $2.22 per share in dividends. About $6.23 billion remained under the $8 billion repurchase program authorized in December 2013.
What are the main risks to the outlook?
Key risks include weakening global farm incomes and lower commodity prices, tight credit conditions in some markets, currency volatility, costly compliance with Tier 4/Stage IV engine emission standards, and rising provisions for credit losses in the financial services segment. Customer access to funding and interest rate changes also matter.
06—Continue