01—Abstract
Summary
Summary of the 8-K filed August 15, 2024. Cited figures are marked; the original filing is the authoritative source.
Deere & Company reported third-quarter fiscal 2024 net income of $1.734 billiona, or $6.29 per diluted share, down 42% from $2.978 billion, or $10.20 per share, a year earlier.
Total net sales and revenues fell 17% to $13.152 billionb, and equipment net sales fell roughly 20% to $11.387 billion. Weakness was broad across segments: production and precision agriculture net sales fell 25%, small agriculture and turf fell 18%, and construction and forestry fell 13%, all driven mainly by lower shipment volumes. Operating margins compressed sharply, with production and precision agriculture at 22.8% (versus 26.2%), small agriculture and turf at 16.2% (versus 19.6%), and construction and forestry at 13.8% (versus 19.1%).
Management expects fiscal 2024 net income of approximately $7.0 billionc, which the company describes as unchanged. It also lowered its segment sales outlook, now calling for declines of 20 to 25% in production and precision agriculture and small agriculture and turf, and 10 to 15% in construction and forestry. Industry forecasts point to weak demand, including large ag down about 15% in the U.S. and Canada, South American tractor and combine sales down 15 to 20%, and construction equipment down 5 to 10%.
Management is responding with employee-separation programs that carry an estimated $150 milliond pretax cost and roughly $230 million of annual pretax savings, and with a plan to sell 50% of Banco John Deere in Brazil to Banco Bradesco. For investors, the central question is whether the cost actions and the reaffirmed full-year earnings target can offset a multi-year agricultural downcycle.
Financial services earnings are forecast at about $720 million for fiscal 2024, higher than 2023, and the Brazil transaction should reduce incremental credit risk. The filing also flags heavier interest expense, which rose to $840 million in the quarter from $623 million, along with the cyclical and macroeconomic risks described in the forward-looking statements.
02—Key points
Key Highlights
- Q3 FY2024 net income attributable to Deere fell 42% to $1.734 billion ($6.29 per diluted share) from $2.978 billion ($10.20 per share); nine-month net income was $5.855 billion ($21.04 per share), down 25%.
- Total net sales and revenues declined 17% to $13.152 billion; equipment net sales declined about 20% to $11.387 billion, reflecting lower shipment volumes across all three equipment segments.
- Segment operating margins contracted: production and precision agriculture 22.8% (from 26.2%), small agriculture and turf 16.2% (from 19.6%), and construction and forestry 13.8% (from 19.1%).
- Fiscal 2024 net income forecast of approximately $7.0 billion was described as unchanged, while segment net sales outlooks were set at declines of 20 to 25% for production and precision agriculture and small agriculture and turf, and 10 to 15% for construction and forestry.
- Employee-separation programs carry an estimated $150 million pretax cost ($124 million recorded in Q3) and are expected to yield about $230 million in annual pretax savings, with $100 million realized in fiscal 2024.
- Deere agreed in August 2024 to sell 50% of Banco John Deere S.A. in Brazil to Banco Bradesco, which reduces incremental risk in a growth market; the business was classified as held for sale with a $15 million after-tax net loss recorded in Q3.
- Interest expense rose to $840 million in Q3 from $623 million a year earlier, and fiscal 2024 equipment operations net operating cash flow is forecast at $6.0 to $6.5 billion.
03—Questions
Frequently Asked Questions
Did Deere change its full-year earnings guidance?
Deere forecasts fiscal 2024 net income attributable to the company of approximately $7.0 billion, which the company's headline describes as unchanged despite weak conditions. However, the company did lower its segment net sales outlook, with production and precision agriculture and small agriculture and turf now expected to decline 20 to 25% and construction and forestry expected to decline 10 to 15%.
What is driving the decline in equipment sales and margins?
Lower shipment volumes were the primary driver across all equipment segments, partially offset by price realization. Margin compression also reflected unfavorable price realization and sales mix in construction and forestry, higher warranty expenses in small agriculture and turf, and employee-separation expenses. Management cited weak agricultural and construction markets and a deliberate decision to align production with customer demand.
What are the employee-separation programs and what do they save?
Deere implemented employee-separation programs for salaried workers in the U.S., Europe, Asia, and Latin America to reduce overlap and redundancy in roles. Total pretax expenses are estimated at about $150 million, with $124 million recorded in Q3 and the remainder mainly in 2025. Annual pretax savings are estimated at about $230 million, of which $100 million is expected in fiscal 2024.
Why is Deere selling half of Banco John Deere in Brazil?
The company's board authorized the sale of 50% of Banco John Deere S.A., which finances agricultural, construction, and forestry equipment in Brazil. Deere said the transaction reduces its incremental risk as it grows in the Brazilian market. In August 2024, it agreed to have Brazilian bank Banco Bradesco invest and become the 50% owner. The business is classified as held for sale, and the net effect in Q3 was a $15 million pretax and after-tax loss.
How is the financial services segment expected to perform?
Q3 financial services net income fell 29% to $153 million from $216 million, due to a higher provision for credit losses and less favorable financing spreads, partly offset by higher average portfolio balances. For fiscal 2024, financial services net income is forecast at about $720 million, above the roughly $619 million reported for fiscal 2023, as higher portfolio income is expected to offset higher credit provisions and tighter spreads.
04—Continue