01—Abstract
Summary
Summary of the 10-K filed December 19, 2019. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2019 (ended November 3, 2019) was a strong year on the bottom line, with net income attributable to the company of $3.253 billiona, or $10.15 per diluted share, up from $2.368 billion ($7.24) in 2018.
Worldwide net sales and revenues rose 5% to $39.258 billionb. Growth was driven by price realization and higher shipment volumes in construction and forestry, which was boosted by the Wirtgen acquisition (including two extra months of results, adding roughly 1 percent to total net sales). The 2018 comparison was also depressed by a $704 million tax-reform charge, so the year-over-year improvement in earnings is partly flattered by base effects.
Equipment operations net income rose to $2.698 billionc, while financial services net income fell 43% to $539 million on impairments, higher operating lease residual losses, and unfavorable financing spreads. The outlook for fiscal 2020 is noticeably weaker. Management forecasts net income of $2.7 billion to $3.1 billion, implying a decline from 2019.
Agriculture and turf sales are expected to fall about 5 to 10 percent, with U.S. and Canada industry sales down roughly 5 percent on lower demand for large equipment, while construction and forestry sales are expected to fall 10 to 15 percent as construction activity slows and dealers work down inventory. Financial services net income is expected to be about $600 milliond. Management also announced a voluntary employee-separation program costing about $120 to $140 million, with annual savings of roughly $90 to $115 million.
Management cites trade tensions, farmer caution on major purchases, and weather as headwinds. The balance sheet and capital returns remain solid. Stockholders' equity was $11.4 billion, total assets were $73.0 billion, and the company repurchased $1.25 billion of stock and paid $943 million in dividends during the year.
Management also authorized an additional $8 billion buyback in December 2019, and the Board declared a quarterly dividend of $0.76 per share. Credit ratings are A (Fitch), A2 (Moody's), and A (S&P), all with stable outlooks. Investors should weigh the strong 2019 earnings and cash returns against the sharp expected softening in equipment demand and rising financial services credit and residual risk.
02—Key points
Key Highlights
- Net income attributable to Deere & Company rose 37% to $3.253 billion ($10.15 diluted EPS) in fiscal 2019, versus $2.368 billion ($7.24) in 2018, though 2018 was depressed by a $704 million tax-reform charge.
- Worldwide net sales and revenues increased 5% to $39.258 billion, with construction and forestry sales up 10% (helped by Wirtgen) and agriculture and turf sales up 2%.
- Fiscal 2020 guidance calls for net income of $2.7 to $3.1 billion, with agriculture and turf sales forecast down 5 to 10 percent and construction and forestry sales down 10 to 15 percent.
- Financial services net income fell 43% to $539 million due to impairments, higher operating lease residual losses, and unfavorable financing spreads; fiscal 2020 is expected at about $600 million.
- Announced a broad voluntary employee-separation program in early 2020 with about $120 to $140 million in pretax costs and roughly $90 to $115 million in annual savings.
- Returned capital to shareholders with $1.25 billion in buybacks and $943 million in dividends paid in 2019, plus a new $8 billion repurchase authorization in December 2019.
- Operating margins diverged: agriculture and turf margin fell to 10.6% from 12.1% on higher production costs, R&D, and currency effects, while construction and forestry margin improved to 10.8% from 8.5%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed December 19, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $39.26B$37.36B | +5.1% |
| R&D Expenses | $1.78B$1.66B | +7.5% |
| SG&A Expenses | $3.55B$3.46B | +2.8% |
| Operating Expenses | $35.17B$33.29B | +5.7% |
| Operating Income | $4.42B$4.48B | −1.4% |
| Interest Expense | $1.47B$1.20B | +21.8% |
| Net Income | $3.25B$2.37B | +37.4% |
| EPS (Basic) | $10.28$7.34 | +40.1% |
| EPS (Diluted) | $10.15$7.24 | +40.2% |
| Shares Outstanding (Basic) | 316.50M322.60M | −1.9% |
| Shares Outstanding (Diluted) | 320.60M327.30M | −2.0% |
05—Questions
Frequently Asked Questions
Why did Deere's earnings rise so much in fiscal 2019?
Net income attributable to Deere rose to $3.253 billion from $2.368 billion. Part of the increase reflects the 2018 base: that year included a $704 million net tax-reform charge, whereas 2019 had a $68 million tax benefit. Underlying growth came from price realization, higher construction and forestry shipment volumes, and the full-year inclusion of Wirtgen, partly offset by higher production costs and weaker agriculture and turf margins.
What is the outlook for fiscal 2020?
Management forecasts net income of $2.7 to $3.1 billion, a decline from 2019. Equipment sales are expected to fall: agriculture and turf down 5 to 10 percent, driven by lower U.S. and Canadian demand for large equipment, and construction and forestry down 10 to 15 percent amid slowing construction activity and dealer inventory reduction. Financial services net income is expected to be about $600 million.
What are the main risks highlighted for investors?
Key risks include trade policy and tariffs (notably U.S.-China), weak farm income and commodity prices, slowing construction activity, and currency volatility, since the company reports in U.S. dollars. Financial services faces credit losses, used-equipment price declines affecting lease residual values, and funding-cost sensitivity to interest rates and credit ratings. The company also cites rising emissions and data-privacy compliance costs and LIBOR transition uncertainty.
How strong is Deere's balance sheet and liquidity?
Total assets were $73.0 billion and stockholders' equity was $11.4 billion at year end. Equipment operations' total debt to total capital was 36 percent, and the company held $4.4 billion in cash and marketable securities. Financial services debt-to-equity was 8.0 to 1. Deere's credit ratings are A (Fitch), A2 (Moody's), and A (S&P), all with stable outlooks, and the company had $5.1 billion of unused worldwide credit lines.
What is Deere doing with its cash?
In 2019 Deere repurchased $1.25 billion of common stock, paid $943 million in dividends, and made $1.1 billion in capital expenditures, after acquiring about $5.2 billion of businesses in 2018 (mainly Wirtgen). In December 2019 the board authorized an additional $8 billion buyback and declared a quarterly dividend of $0.76 per share, while a planned $95 million acquisition of Unimil in Brazil is expected to close in six to ten months.
06—Continue