01—Abstract
Summary
Summary of the 10-K filed December 15, 2023. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2023 10-K (fiscal year ended October 29, 2023) shows a year of strong performance driven by price realization and robust demand for farm and construction equipment.
Consolidated net sales and revenues rose to $61.3 billiona from $52.6 billion, and net income attributable to Deere reached $10.2 billion, or $34.63 diluted EPS, versus $23.28 in 2022. Equipment operations net sales grew 16% to $55.6 billion, with price realization of 12% across the enterprise and the production and precision agriculture segment posting a 26.1% operating margin. Deere's cost of sales ratio improved to 67.9% from 73.7%, showing that price increases outpaced cost inflation as supply chains normalized.
The filing also points to a weaker outlook for 2024. Management expects demand to decline, production volumes to fall back toward more normal levels, and large agricultural equipment sales to decline in North America, Europe, and South America. Backlogs fell year over year across all segments (PPA from $9.7 billion to $7.9 billionb, SAT from $4.6 billion to $3.3 billion, CF from $8.2 billion to $6.4 billion).
Rising interest rates compressed financial services spreads by about $170 millionc after tax, and management expects further spread compression in 2024 if rates keep rising. Interest expense more than doubled to $2.45 billion, reflecting higher borrowing costs and a larger receivables portfolio. Balance sheet and capital allocation are important considerations for investors.
Operating cash flow was $8.6 billiond, while investing outflows of $8.7 billion were driven mainly by growth in financing receivables. Deere returned significantly more cash to shareholders, repurchasing $7.2 billion of stock and paying $1.4 billion in dividends, and $13.0 billion remains under the $18.0 billion buyback authorization. Financial services now carries roughly $70.7 billion in assets against $104.1 billion consolidated, and the company's credit ratings remain strong at A2 (Moody's, positive outlook), A (S&P), and A+ (Fitch).
The auditor, Deloitte & Touche LLP, issued an unqualified opinion on both the financial statements and internal control over financial reporting. Pending legal risks include a class action over right-to-repair and an FTC investigation, both of which management says cannot yet be predicted.
02—Key points
Key Highlights
- Net sales and revenues rose 16% to $61.3 billion in FY2023, with equipment operations net sales up 16% to $55.6 billion.
- Net income attributable to Deere reached $10.2 billion (diluted EPS $34.63), up about 43% from $7.1 billion in FY2022.
- Price realization of 12% across the enterprise drove margin expansion: cost of sales fell to 67.9% of net sales from 73.7%.
- Management guides to lower demand, lower production volumes, and declining large ag equipment sales in 2024, with backlogs down year over year in all segments.
- Interest expense more than doubled to $2.45 billion on higher borrowing rates and a larger finance receivables portfolio, compressing financial services spreads.
- Deere returned $8.6 billion to shareholders via $7.2 billion in buybacks and $1.4 billion in dividends; $13.0 billion remains on the $18.0 billion authorization.
- Pending right-to-repair class action and FTC investigation into agricultural equipment repair and information security practices could have a material adverse effect, though outcomes cannot be predicted.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed December 15, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $61.25B$52.58B | +16.5% |
| R&D Expenses | $2.18B$1.91B | +13.9% |
| SG&A Expenses | $4.59B$3.86B | +18.9% |
| Operating Expenses | $48.23B$43.45B | +11.0% |
| Operating Income | $12.96B$9.51B | +36.3% |
| Interest Expense | $2.45B$1.06B | +131.0% |
| Net Income | $10.17B$7.13B | +42.6% |
| EPS (Basic) | $34.80$23.42 | +48.6% |
| EPS (Diluted) | $34.63$23.28 | +48.8% |
| Shares Outstanding (Basic) | 292.20M304.50M | −4.0% |
| Shares Outstanding (Diluted) | 293.60M306.30M | −4.1% |
05—Questions
Frequently Asked Questions
How much did Deere's earnings grow in fiscal 2023, and what drove it?
Net income attributable to Deere & Company rose to $10.2 billion from $7.1 billion, and diluted EPS rose to $34.63 from $23.28. The increase was driven mainly by strong price realization of 12% across the enterprise, as orderbooks were full and most product lines were on allocation. Easing supply chain disruptions also reduced premium freight costs and improved production efficiency, while higher sales volumes in large agriculture and construction equipment added to results.
What is management's outlook for fiscal 2024?
Management expects demand to decline in 2024 as production volumes return to more normal levels. Large agricultural equipment sales are expected to fall in North America, Europe, and South America, and construction equipment industry sales are forecast to be lower. Financial services net income is expected to rise moderately, but financing spreads are expected to be unfavorable if interest rates keep rising. Management also expects lower operating cash flows in 2024 compared with 2023.
Why did interest expense rise so sharply, and how does it affect investors?
Interest expense increased to $2.45 billion from $1.06 billion, reflecting higher average borrowing rates and higher average borrowings. Because Deere's financial services segment funds retail and wholesale receivables with debt, rising central bank rates raise funding costs faster than the yield on its existing receivable and lease portfolios. This compressed financial services spreads by about $170 million after tax in 2023, and further compression is expected in 2024 if rates continue to rise, which could weigh on earnings growth.
How is Deere returning cash to shareholders, and how much capacity is left?
In fiscal 2023 Deere repurchased $7.2 billion of common stock and paid $1.4 billion in dividends, a combined increase of about $3.7 billion over 2022. The board authorized an $18.0 billion buyback in December 2022, and $13.0 billion remained available at year end. Management also declared a quarterly dividend of $1.47 per share in December 2023, and it expects to pursue further buybacks as a means of deploying excess cash once other requirements are met.
What legal and regulatory risks should investors watch?
Deere faces a consolidated multidistrict class action in the Northern District of Illinois alleging attempted monopolization and restraint of the market for agricultural equipment repair services, and the Federal Trade Commission is investigating repair practices and information security statements. Management says it cannot predict the outcome, and it could be material. The filing also highlights exposure to emissions regulations, climate-related disclosure rules, and the California ban on small off-road engines, though management does not expect material capital expenditures for environmental compliance in 2024.
06—Continue