01—Abstract
Summary
Summary of the 10-Q filed February 29, 2024. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's first-quarter fiscal 2024 results (quarter ended January 28, 2024) show a clear slowdown from the prior-year period.
Net sales and revenues fell 4% to $12,185 milliona from $12,652 million, driven by lower shipment volumes in production and precision agriculture and small agriculture and turf. Net income attributable to Deere declined 11% to $1,751 million, and diluted EPS dropped to $6.23 from $6.55. Management expects production volumes to decline further in 2024 as demand moderates toward more normal levels, and it forecasts lower operating cash flows for the year.
The quarter's most notable pressure point is interest expense, which rose 67% to $802 millionb on higher average borrowing rates and larger average borrowings. Operating profit in equipment segments fell as well: production and precision agriculture operating profit dropped 13%, small agriculture and turf 27%, and construction and forestry 9%. Financial services was a relative bright spot, with revenues up 32% and net income up 12% on a 19% larger average receivables portfolio, although management flagged continued financing spread compression from elevated interest rates.
Cash flow and balance sheet trends also warrant attention. Operating cash use was $908 millionc, and cash, equivalents and marketable securities declined to $6,273 million from $8,404 million at fiscal year-end.
Total assets were $101,371 milliond and total borrowings rose year over year, while the company continued returning capital, with $1,714 million paid to shareholders in the quarter through buybacks and dividends. Credit ratings remain strong (A+/A1/A), and management reiterated that the company has access to funding at reasonable cost.
02—Key points
Key Highlights
- Net sales and revenues declined 4% to $12,185 million, mainly from lower equipment shipment volumes in agriculture and turf.
- Net income attributable to Deere fell 11% to $1,751 million; diluted EPS was $6.23 versus $6.55 a year earlier.
- Interest expense rose 67% to $802 million due to higher average borrowing rates and larger average borrowings.
- Equipment segment operating profit fell across the board: PPA -13%, SAT -27%, CF -9%, reflecting lower volumes and higher SG&A and R&D spending.
- Financial services revenues grew 32% and net income rose 12%, supported by a 19% larger average receivables portfolio, though financing spreads are compressing.
- Operating cash flow was negative $908 million, and cash plus marketable securities fell to $6,273 million; management forecasts lower operating cash flow for 2024.
- Management guides to lower production volumes and lower agricultural and construction equipment industry sales in 2024, with continued shareholder returns of $1,714 million in the quarter.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed February 29, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $12.19B$12.65B | −3.7% |
| R&D Expenses | $533.00M$495.00M | +7.7% |
| SG&A Expenses | $1.07B$952.00M | +12.0% |
| Operating Expenses | $9.97B$10.16B | −1.9% |
| Interest Expense | $802.00M$479.00M | +67.4% |
| Net Income | $1.75B$1.96B | −10.6% |
| EPS (Basic) | $6.25$6.58 | −5.0% |
| EPS (Diluted) | $6.23$6.55 | −4.9% |
| Shares Outstanding (Basic) | 279.90M297.60M | −5.9% |
| Shares Outstanding (Diluted) | 281.10M299.10M | −6.0% |
05—Questions
Frequently Asked Questions
Why did Deere's earnings decline in the first quarter of fiscal 2024?
Lower sales volumes across production and precision agriculture, small agriculture and turf, and construction and forestry reduced operating profit. Higher interest expense (up $323 million) and increased selling, administrative, and R&D costs also weighed on results, partly offset by price realization and higher financial services income.
How is the outlook for Deere's equipment demand in 2024?
Management expects production volumes to decline in 2024 as demand moderates toward more normal levels. Large and small agricultural equipment sales are expected to be down in North America, Europe, and South America, and construction equipment industry sales are forecast to fall, partly offset by U.S. infrastructure spending and roadbuilding demand.
Is Deere's financial services business still growing?
Yes. Financial services revenues rose 32% to $1,376 million and net income increased 12% to $207 million, driven by a 19% larger average portfolio. However, rising interest rates are compressing financing spreads, and provisions for credit losses are expected to be unfavorable in 2024.
Is Deere's debt load a concern for investors?
Total borrowings rose year over year, with long-term borrowings at $39,933 million and short-term borrowings at $17,117 million. Most of the increase supports the financial services receivables portfolio, which carries a leverage ratio of 8.3 to 1. Deere's credit ratings (A+, A1, A) are stable, and management says it can meet funding needs over the next 12 months and beyond.
How much did Deere return to shareholders this quarter, and what does the dividend look like?
Deere repurchased $1,328 million of common stock and paid $386 million in dividends during the quarter, for total shareholder returns of $1,714 million. A quarterly dividend of $1.47 per share was declared on February 28, 2024, payable May 8, 2024. About $11.7 billion remained authorized under the December 2022 repurchase program.
06—Continue