01—Abstract
Summary
Summary of the 10-K filed December 16, 2021. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2021 (year ended October 31, 2021) was a strong year marked by a sharp rebound in profitability.
Worldwide net sales and revenues rose 24% to $44.0 billiona, and net income attributable to the company more than doubled to $5.96 billion, or $18.99 per diluted share, versus $2.75 billion ($8.69) in 2020. The improvement was driven mainly by price realization, higher shipment volumes and sales mix across the production and precision agriculture, small agriculture and turf, and construction and forestry segments, along with a lower cost of sales ratio (73.3% vs. 75.7%). The prior year had been depressed by impairments and employee-separation costs.
The company also reorganized into four reportable segments, and the financial services arm earned $881 millionb. Balance sheet and cash flow were solid. Operating cash flow was $7.7 billion, and the company repurchased $2.5 billion of stock and paid $1.04 billion in dividends.
Stockholders' equity rose to $18.4 billionc, and the equipment operations' debt-to-capital ratio improved to 36% from 45%. Backlog for production and precision agriculture ($9.6 billion) and construction and forestry ($6.7 billion) increased sharply, supporting the outlook for fiscal 2022 with forecast growth in large ag machinery (about 15%) and North American construction equipment (5 to 10%). Key risks flagged for investors include the October 2021 UAW strike at 14 U.S. facilities, which was resolved in November with a six-year contract that adds pension and labor costs and is expected to hurt results in the first quarter of fiscal 2022.
Ongoing supply chain shortages and logistics constraints, persistent inflationary pressure, the planned dissolution of the Hitachi construction joint venture, LIBOR transition, and exposure to trade policy and farm income cycles remain material. Management also noted a $1 billiond voluntary OPEB contribution in late November 2021 and a planned Kreisel Electric acquisition, both of which affect near-term cash deployment.
02—Key points
Key Highlights
- Worldwide net sales and revenues rose 24% to $44.024 billion, and net income attributable to Deere & Company rose to $5.963 billion ($18.99 diluted EPS), up from $2.751 billion ($8.69) in 2020.
- Equipment operations operating profit nearly doubled to $6.868 billion (up 93%), with the cost of sales ratio improving to 73.3% from 75.7% on price realization and the absence of prior-year impairments and separation costs.
- Production & precision agriculture operating margin reached 20.2% and small agriculture & turf margin 17.2%, while construction & forestry margin rose to 13.1% from 6.6%.
- Operating cash flow of $7.726 billion funded $2.538 billion of share repurchases and $1.040 billion of dividends; $5.811 billion remained under the $8 billion buyback authorization.
- Backlog grew sharply to $9.6B (production & precision ag), $5.2B (small ag & turf), and $6.7B (construction & forestry), supporting the fiscal 2022 outlook.
- The UAW strike (Oct 14 to Nov 17, 2021) affected 14 U.S. facilities; the new six-year contract adds a $90 million ratification bonus, a 10% immediate wage increase, and about $80 million of added 2022 pension expense.
- Equipment operations debt-to-capital ratio improved to 36% from 45%, and the company's credit ratings (A / A2 / A) remain stable.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed December 16, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $44.02B$35.54B | +23.9% |
| R&D Expenses | $1.59B$1.64B | −3.5% |
| SG&A Expenses | $3.38B$3.48B | −2.7% |
| Operating Expenses | $36.42B$31.66B | +15.1% |
| Operating Income | $8.01B$4.30B | +86.1% |
| Interest Expense | $993.00M$1.25B | −20.4% |
| Net Income | $5.96B$2.75B | +116.8% |
| EPS (Basic) | $19.14$8.77 | +118.2% |
| EPS (Diluted) | $18.99$8.69 | +118.5% |
| Shares Outstanding (Basic) | 311.60M313.50M | −0.6% |
| Shares Outstanding (Diluted) | 314.00M316.60M | −0.8% |
05—Questions
Frequently Asked Questions
What drove the large increase in Deere's fiscal 2021 earnings?
Net income attributable to Deere rose to $5.96 billion from $2.75 billion. The main drivers were price realization, higher shipment volumes and sales mix across all equipment segments, and a lower cost of sales ratio. Fiscal 2020 was also depressed by about $458 million after-tax of impairments and employee-separation costs, and fiscal 2021 benefited from a favorable Brazilian indirect tax ruling and a gain on a China factory sale.
How did the UAW strike affect the company, and what is the ongoing impact?
The strike started October 14, 2021 and idled production at 14 U.S. facilities until a new six-year contract was approved November 17, 2021. The company said it reduced fourth-quarter production and shipments and expects an adverse effect on results for the quarter ending January 30, 2022. The contract carries a $90 million ratification bonus, a 10% immediate wage increase, further raises over the term, and a remeasurement that lowered the U.S. hourly pension plan's funded status by about $495 million and adds roughly $80 million to 2022 pension expense.
What is Deere's outlook for fiscal 2022?
Management expects U.S. and Canadian large agricultural machinery industry sales to rise about 15%, small ag and turf to be flat, European ag machinery to be about 5% higher, and South American tractor and combine sales to be about 5% higher. North American construction equipment is forecast to rise 5 to 10% and global forestry 10 to 15%. Financial services results are expected to be slightly lower on higher credit loss provisions and lower residual value gains. Supply chain challenges are expected to persist into at least early fiscal 2022.
How is Deere returning capital and managing its balance sheet?
In fiscal 2021 Deere repurchased $2.538 billion of stock and paid $1.040 billion in dividends, with a quarterly dividend of $1.05 per share declared for February 2022. The company voluntarily contributed $1 billion to a U.S. OPEB plan in November 2021, and expects to fund the roughly $275 million initial cash consideration for the Hitachi joint venture dissolution and a €221 million Kreisel Electric acquisition from cash on hand. Equipment operations held $8.7 billion in cash and marketable securities at year end, and the debt-to-capital ratio fell to 36%.
06—Continue