01—Abstract
Summary
Summary of the 10-K filed December 18, 2015. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2015 10-K (year ended October 31, 2015) shows a sharp earnings downturn driven by weak farm and construction equipment demand.
Net sales and revenues fell 20% to $28.9 billiona, and net income attributable to Deere fell 39% to $1.94 billion ($5.77 diluted EPS), down from $3.16 billion ($8.63) in 2014. Equipment operations' operating profit dropped to $2.18 billion from $4.30 billion, and the cost of sales ratio rose to 78.1% from 75.2%, reflecting lower shipment volumes, unfavorable mix and a roughly 5-point currency translation headwind. Agriculture and turf sales fell 25%, and construction and forestry sales fell 9%.
Financial services net income rose modestly to $633 millionb, helped by a one-time gain on the crop insurance sale. Balance sheet and cash flow remain solid. Operating cash flow was $3.74 billion, and the company repurchased $2.77 billion of stock and paid $816 million in dividends.
Stockholders' equity fell to $6.74 billionc from $9.06 billion, largely because of buybacks and a $935 million currency translation loss, and the company's total debt-to-capital ratio for equipment operations rose to 42% from 36%. Management guides fiscal 2016 equipment sales down about 7%, with net income of roughly $1.4 billion, citing sharply lower North American and South American agricultural demand. Ratings remain A2/A stable.
For investors, the key issues are the cyclical trough in farm income, the margin pressure from product mix and currency, and whether the company's aggressive buybacks can be sustained while earnings decline. The 2016 outlook implies further earnings pressure before any recovery, though management describes this downturn as less severe than prior ones.
02—Key points
Key Highlights
- Net sales and revenues fell 20% to $28,863 million; equipment net sales dropped 22% to $25,775 million, with an unfavorable 5% currency effect.
- Net income attributable to Deere & Company declined 39% to $1,940 million ($5.77 diluted EPS), versus $3,162 million ($8.63) in 2014.
- Equipment operating profit fell to $2,177 million from $4,297 million, and the cost of sales ratio rose to 78.1% from 75.2% on weaker mix and volumes.
- Agriculture and turf sales dropped 25%, and construction and forestry sales fell 9%. Fiscal 2016 equipment sales are forecast down about 7%, with net income near $1.4 billion.
- Operating cash flow of $3,740 million funded $2,771 million in share repurchases and $816 million in dividends. Stock repurchase authorization remaining is $3,461 million.
- Stockholders' equity fell to $6,743 million from $9,063 million, and equipment operations' debt-to-capital ratio rose to 42% from 36%.
- Financial services net income rose to $633 million, aided by a $42 million pretax gain on the crop insurance sale; fiscal 2016 outlook is about $550 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Deere & Co kept $0.07.
- Revenue$28.86B100.0%
- Cost of revenue−$20.14B69.8%
- Gross profit$8.72B30.2%
- Operating costs−$5.58B19.3%
- Operating income$3.14B10.9%
- Interest, other & tax−$1.20B4.2%
- Net income$1.94B6.7%
Where FY2015 revenue went
$28.86B- Cost of revenue: $20.14B, 70% of revenue
- Net income: $1.94B, 6.7% of revenue
- R&D: $1.43B, 4.9% of revenue
- SG&A: $2.87B, 10.0% of revenue
- Other operating costs: $1.28B, 4.4% of revenue
- Interest, other & tax: $1.20B, 4.2% of revenue
Kept 6.7% as net incomeNet income $1.94B · 6.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed December 18, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $28.86B$36.07B | −20.0% |
| Cost of Revenue | $20.14B$24.78B | −18.7% |
| Gross Profit | $8.72B$11.29B | −22.8% |
| R&D Expenses | $1.43B$1.45B | −1.9% |
| SG&A Expenses | $2.87B$3.28B | −12.5% |
| Operating Expenses | $26.08B$31.27B | −16.6% |
| Operating Income | $3.14B$5.22B | −39.8% |
| Interest Expense | $680.00M$664.00M | +2.4% |
| Net Income | $1.94B$3.16B | −38.6% |
| EPS (Basic) | $5.81$8.71 | −33.3% |
| EPS (Diluted) | $5.77$8.63 | −33.1% |
| Shares Outstanding (Basic) | 333.60M363.00M | −8.1% |
| Shares Outstanding (Diluted) | 336.00M366.10M | −8.2% |
05—Questions
Frequently Asked Questions
Why did Deere's earnings fall so sharply in fiscal 2015?
Lower shipment volumes across agriculture and turf and construction and forestry drove the decline, compounded by an unfavorable product mix and about a 5% currency translation headwind. Farm income weakness from low commodity prices reduced demand for equipment, particularly in the U.S., Canada and South America.
What is the outlook for fiscal 2016?
Management forecasts equipment sales to decline about 7% for fiscal 2016, with first-quarter sales down about 11%. Net income attributable to Deere is expected to be about $1.4 billion, and agriculture and turf industry sales in the U.S. and Canada are forecast to fall 15% to 20%.
Is Deere's balance sheet under pressure?
Liquidity remains solid, with $4.6 billion in cash and marketable securities and $7.2 billion in credit lines, of which $4.0 billion was unused. Credit ratings are A2 (Moody's) and A (S&P), both stable. However, equity fell significantly due to buybacks and currency losses, and equipment operations' debt-to-capital ratio rose to 42%.
How is Deere returning capital to shareholders?
In 2015 Deere repurchased $2.77 billion of common stock and paid $816 million in dividends, and declared $2.40 per share in dividends, up from $2.22. Roughly $3.46 billion remains under the $8 billion repurchase authorization approved in December 2013.
What were the key one-time items affecting 2015 results?
Financial services benefited from a $42 million pretax gain on the sale of the crop insurance operations, which closed in March 2015. Equipment results were helped by a lower effective tax rate, driven mainly by a reduction in a valuation allowance on a deferred tax asset recorded in the fourth quarter.
06—Continue