10-QPeriod: Q3 FY2019

DEERE & CO Quarterly Report for Q3 Ended Jul 28, 2019

Filed August 29, 2019For Securities:DE

Summary

Deere & Company's Q3 2019 filing (period ending July 28, 2019) shows a slight decrease in net sales for the quarter, primarily due to lower shipment volumes and unfavorable currency translation, although price realization provided some offset. For the nine-month period, net sales saw a modest increase, driven by price realization and higher shipment volumes, despite currency headwinds. Profitability experienced a mixed trend. The Agriculture and Turf segment saw a significant decline in operating profit for the quarter, impacted by lower volumes, increased production costs, and currency effects. Conversely, the Construction and Forestry segment demonstrated strong growth in both sales and operating profit, benefiting from price realization and the inclusion of Wirtgen's results. The Financial Services segment reported a slight increase in operating profit for the quarter, but a decline for the nine-month period, attributed to a higher average portfolio balanced against unfavorable financing spreads and increased lease residual losses. Overall, the company reported diluted EPS of $2.81 for the quarter and $7.87 for the nine-month period, demonstrating resilience despite industry-specific challenges, particularly in the agricultural sector, which is experiencing farmer caution due to export market uncertainties and commodity price concerns. The company maintains a positive outlook for the full fiscal year, projecting increased net income and sales growth.

Financial Highlights

45 data points
Beta

Revenue

$10.04B

20.9% Gross Margin

Net Income

$899.00M

9.0% Net Margin

EPS (Diluted)

$2.81

Total Assets

$73.53B

Cash & Equivalents

$3.38B

Free Cash Flow

$1.63B

Financial Statements
Beta
Revenue$10.04B
Gross Profit$2.10B
R&D Expenses$431.00M
SG&A Expenses$896.00M
Operating Expenses$8.92B
Operating Income$1.19B
Interest Expense$374.00M
Net Income$899.00M
EPS (Basic)$2.84
EPS (Diluted)$2.81
Shares Outstanding (Basic)315.90M
Shares Outstanding (Diluted)319.80M

Key Highlights

  • 1Net sales for the third quarter of fiscal year 2019 decreased by 3% to $10,036 million compared to $10,308 million in the same period of fiscal year 2018.
  • 2Net income attributable to Deere & Company for the third quarter was $899 million, a slight decrease from $910 million in the prior year's quarter.
  • 3Diluted earnings per share (EPS) for the third quarter were $2.81, up from $2.78 in the prior year's quarter.
  • 4The Agriculture and Turf segment's net sales decreased by 6% in the third quarter, while operating profit fell by 24% due to lower shipment volumes and higher production costs.
  • 5The Construction and Forestry segment saw a 1% increase in net sales and a significant 35% increase in operating profit for the quarter, driven by price realization and the inclusion of Wirtgen's results.
  • 6The Financial Services segment's net income decreased by 34% for the nine-month period, primarily due to unfavorable financing spreads and higher losses on operating lease residual values.
  • 7For the first nine months of fiscal year 2019, net sales increased by 5% to $29,362 million, and net income attributable to Deere & Company increased by 60% to $2,532 million.

Frequently Asked Questions

In the third quarter of fiscal year 2019, Deere & Company reported net sales of $10,036 million, a slight decrease of 3% compared to the prior year's quarter. Net income attributable to Deere & Company was $899 million, down slightly from $910 million. Diluted earnings per share were $2.81, an improvement from $2.78 in the prior year's quarter.

The Agriculture and Turf segment experienced a 6% decrease in net sales and a 24% drop in operating profit due to lower shipment volumes and higher production costs. The Construction and Forestry segment showed resilience with a 1% increase in net sales and a significant 35% rise in operating profit, boosted by price realization and the Wirtgen acquisition. The Financial Services segment saw a 9% increase in revenue for the quarter but its operating profit was up only 4%, and for the nine-month period, net income declined 34% due to unfavorable financing spreads and lease residual losses.

Deere & Company forecasts total net sales and revenues to increase about 5% for fiscal year 2019, with Agriculture and Turf sales expected to grow around 2% and Construction and Forestry sales around 10%. Net income attributable to Deere & Company is projected to be approximately $3,200 million. Key factors include ongoing uncertainty in the agricultural sector, positive fundamentals in construction, and continued strength in financial services, though offset by potential market volatility from trade agreements, economic conditions, and currency fluctuations.

Deere & Company maintained access to global funding markets. Consolidated operating activities generated positive cash flow of $404 million in the first nine months of 2019, though investing activities used $2,129 million. Financing activities provided $1,216 million. The company has access to significant credit lines and maintained adequate liquidity through cash, marketable securities, and various borrowing facilities. Debt ratings remained stable from major agencies.