01—Abstract
Summary
Summary of the 10-K filed December 17, 2020. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2020 10-K (year ended November 1, 2020) shows a company that absorbed a sharp revenue decline from COVID-19 while preserving profitability and liquidity.
Worldwide net sales and revenues fell 9% to $35.54 billiona, and net income attributable to the company dropped 15% to $2.751 billion ($8.69 diluted EPS, versus $10.15). Results were weighed down by $458 million after-tax in impairments and employee-separation costs. Equipment net sales declined 10% to $31.27 billion, with construction and forestry down 20% and agriculture and turf down 6%.
Partially offsetting this, cost of sales as a percentage of net sales improved to 75.7% from 76.8%, driven by price realization, lower warranty expense and improved production costs. Agriculture and turf operating profit actually rose 18% to $2.97 billionb, while construction and forestry operating profit fell 51% to $590 million. Balance sheet and cash flow were strong.
Management raised borrowings in the second quarter to build liquidity, ending the year with $7.07 billionc in cash and undrawn revolving credit facilities. Operating cash flow was $7.48 billion, up from $3.41 billion in 2019. Share repurchases were suspended for much of the year and resumed only in the fourth quarter ($487 million).
Dividends were held at $3.04d per share. Equipment operations debt-to-capital rose to 45% from 36%, a deliberate step that reflects the pandemic-driven caution rather than structural stress. Financial services net income rose 5% to $566 million, helped by lower impairments and residual value losses.
Looking forward, management guides to a 2021 recovery: U.S. and Canadian agricultural industry sales are forecast up 5 to 10%, while North American construction equipment sales are expected to fall about 5%. Investors should weigh the strength of the agricultural cycle and cash generation against continued construction weakness, elevated post-pandemic uncertainty, and the rising debt load.
02—Key points
Key Highlights
- Worldwide net sales and revenues declined 9% to $35.54 billion; equipment operations net sales fell 10% to $31.27 billion.
- Net income attributable to Deere fell 15% to $2.751 billion, or $8.69 per diluted share, versus $10.15 in 2019, after $458 million in after-tax impairment and employee-separation charges.
- Agriculture and turf operating profit rose 18% to $2.97 billion on price realization and lower costs, despite a 6% sales decline; construction and forestry operating profit fell 51% to $590 million.
- Cost of sales as a percentage of net sales improved to 75.7% from 76.8%, reflecting price realization, improved production costs and lower warranty expense.
- Operating cash flow nearly doubled to $7.48 billion, and year-end cash reached $7.07 billion with undrawn revolving credit facilities, reinforcing liquidity through the pandemic.
- Equipment operations total debt-to-capital rose to 45% from 36% as the company raised long-term borrowings; share repurchases were suspended for most of the year and resumed in Q4 with $487 million repurchased.
- 2021 outlook: U.S./Canada agricultural industry sales expected to rise 5 to 10%, while North American construction equipment sales are forecast to fall about 5%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed December 17, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $35.54B$39.26B | −9.5% |
| R&D Expenses | $1.64B$1.78B | −7.8% |
| SG&A Expenses | $3.48B$3.55B | −2.1% |
| Operating Expenses | $31.66B$35.17B | −10.0% |
| Operating Income | $4.30B$4.42B | −2.5% |
| Interest Expense | $1.25B$1.47B | −14.9% |
| Net Income | $2.75B$3.25B | −15.4% |
| EPS (Basic) | $8.77$10.28 | −14.7% |
| EPS (Diluted) | $8.69$10.15 | −14.4% |
| Shares Outstanding (Basic) | 313.50M316.50M | −0.9% |
| Shares Outstanding (Diluted) | 316.60M320.60M | −1.2% |
05—Questions
Frequently Asked Questions
How did COVID-19 affect Deere's fiscal 2020 results?
COVID reduced customer demand, especially for construction and forestry equipment, and caused some component shortages and temporary plant slowdowns. Net sales fell 10% for equipment operations. Management responded with spending cuts, employee-separation programs, short-term payment relief for dealers and customers, and additional borrowing to strengthen liquidity. Most factories operated through the year, some at reduced capacity.
Why did net income decline even though agriculture profit improved?
Construction and forestry operating profit fell 51% on lower volumes, impairments and separation costs. Net income was also hurt by $458 million in after-tax impairment and employee-separation charges and by non-deductible impairments that raised the tax rate. Agriculture and turf operating profit grew 18%, but this did not fully offset the construction decline and the one-time charges.
Is Deere's balance sheet under pressure from the higher debt?
Equipment operations debt rose meaningfully, lifting the total debt-to-capital ratio to 45% from 36%, and long-term borrowings increased. However, the company held $7.07 billion in cash, had $6.8 billion of unused credit lines, generated $7.48 billion in operating cash flow, and maintained strong credit ratings (A/A2/A), so the leverage increase appears intended to bolster liquidity rather than signal financial strain.
What is the outlook for Deere's segments in fiscal 2021?
Management expects U.S. and Canadian agricultural equipment industry sales to rise 5 to 10%, supported by larger-model demand, with European and South American sales flat to modestly higher. Construction equipment sales in North America are forecast to decline about 5%, though compact equipment is expected to rise about 5%. Financial services should benefit from better financing spreads and lower residual value losses, partly offset by higher credit loss provisions.
Did Deere change its dividend or buyback policy in 2020?
The quarterly dividend was held at $0.76 per share ($3.04 annually), flat with 2019. Share repurchases were paused in the second and third quarters of 2020 to preserve liquidity and resumed in Q4, when the company bought back $487 million of stock. Full-year repurchases totaled $750 million, compared with $1.25 billion in 2019, and $8.34 billion remained authorized at year end.
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