John Deere Committed to Those Linked to the Land

Transcription

1 John Deere Committed to Those Linked to the Land Deere & Company December 2013 / January 2014

2 Safe Harbor Statement & Disclosures This presentation includes forward-looking comments subject to important risks and uncertainties. It may also contain financial measures that are not in conformance with accounting principles generally accepted in the United States of America (GAAP). Refer to Deere s reports filed on Forms 8-K (current), 10-Q (quarterly), and 10-K (annual) for information on factors that could cause actual results to differ materially from information in this presentation and for information reconciling financial measures to GAAP. Guidance noted in the following slides was effective as of the company s most recent earnings release and conference call (20 November 2013). Nothing in this presentation should be construed as reaffirming or disaffirming such guidance. This presentation is not an offer to sell or a solicitation of offers to buy any of Deere s securities. 2

3 Table of Contents Slide # 2013 in Review Outlook 8 John Deere Strategy 12 Supplemental Information: Foundational Success Factors 18 Global Markets and Opportunities 28 John Deere Financial Services 40 John Deere Power Systems 44 Farm Fundamentals 49 Appendix 53 3

4 2013 in Review

5 2013 in Review Equipment Operations Exceptional Results Record net sales $ billion Record net income $3.537 billion Attributable to Deere & Company 14.5% operating profit margin Cash flow from operations $4.669 billion SVA $3.147 billion OROA 31.8% 5

6 2013 in Review Investments in the Business Capex and R&D for equipment operations $2.633 billion Capital Returned to Shareholders Quarterly dividend increased to $0.51 per share (+11%) Shares repurchased 18.2 million shares Fiscal ~ 58% of cash from operations returned to shareholders 6

7 Net Sales by Major Markets Equipment Operations U.S. & Canada 8% CAGR $15.1 $14.8 $13.8 $13.0 $17.4 $20.8 $21.8 $3.9 Western Europe 2% CAGR $4.6 $4.4 $4.3 $4.4 $3.4 $3.4 Central Europe & CIS $1.9 $1.0 8% CAGR $1.4 $1.7 $1.6 $0.7 $ Asia, Africa & Middle East 17% CAGR $0.8 $1.1 $1.2 $1.4 $1.9 $2.1 $2.1 Central & South America 18% CAGR $3.6 $3.6 $4.3 $2.6 $2.6 $1.6 $ Australia & New Zealand 12% CAGR $0.4 $0.6 $0.6 $0.6 $0.8 $1.0 $ $ Billions 7

8 2014 Outlook

9 Fiscal Year 2014 Outlook Equipment Operations Strong Company Outlook Net sales Down ~ 3% vs. FY 2013 Price Realization: ~ +2 points JD Landscapes: ~ (3) points Net income ~ $3.3 billion Attributable to Deere & Company Strong operating profit margins Cash flow from operations ~ $3.9 billion Deere & Company Forecast as of 20 November

10 Fiscal Year 2014 Outlook Equipment Operations Strong financial performance projected, despite challenges Grain prices and farm incomes, although still at healthy levels, are expected to decline Impacting demand for high horsepower agricultural equipment Tier 4 product and implementation costs Global economic concerns and regulatory challenges Deere & Company Forecast as of 20 November

11 Deere Use-of-Cash Priorities Cash from Operations Committed to A Rating Manage the balance sheet, including liquidity, to support a rating that provides access to low-cost and readily available short- and long-term funding mechanisms Reflects the strategic nature of our financial services operation Fund Operating and Growth Needs Fund value-creating investments in our businesses Common Stock Dividend Consistently and moderately raise dividend targeting a 25%- 35% payout ratio of mid-cycle earnings Share Repurchase Consider share repurchase as a means to deploy excess cash to shareholders, once above requirements are met and repurchase is viewed as value-enhancing 11

12 John Deere Strategy

13 13

14 John Deere Strategy Organic Growth - Extending Our Footprint Orenburg, Russia A&T Division Seeding Equipment Tillage Equipment Harbin, China A&T Division Combine Harvesters Tractors Sprayers Irrigation Products Tianjin (TEDA), China C&F Division 4WD Loaders Excavators Indaiatuba, Brazil C&F Division Backhoe Loaders 4WD Loaders Indaiatuba, Brazil (JV) C&F Division Excavators Montenegro, Brazil Tractors Dewas, India A&T Division Tractors Tianjin (TEDA), China John Deere Power Systems Engines New Factories Localization of 8R Tractor 14

15 John Deere Strategy Repositioning Portfolio Increased strategic focus on global growth and complementary businesses Acquisition of Bauer Built Manufacturing Inc. Highly productive machines needed to feed the world Opportunity to leverage global dealer network, manufacturing capabilities, and management skills Accelerate growth of planter business globally JD Landscapes Majority interest sold JD Water Reviewing strategic options 15

16 Health Metrics Demonstrating Sustainability 2013 Awards World s Most Ethical Companies, Ethisphere Institute Seventh consecutive year Top 50 Most Admired Companies, Fortune Magazine Fifth consecutive year 2012 Awards America s Most Reputable Companies, Forbes.com Best Global Brands 2012, Interbrand 500 Most Innovative Users of Business Technology, InformationWeek Magazine Top 100 Global Innovator, Thomson Reuters 16

17 The John Deere Strategy In Summary Accelerated emphasis on global growth $50 billion mid-cycle sales by 2018 Approximately 50% outside of U.S. & Canada Capitalize on increased global demand for food, shelter and infrastructure Focus on improved profitability 12% mid-cycle margin by 2014 Continued adherence to OROA*/SVA** model 30% OROA at mid-cycle sales with improved asset turns Focus on two growth platforms Global pre-eminence in agricultural-equipment solutions Global construction-equipment operations Complementary/supporting businesses to help drive performance of global growth platforms Revised metrics reflect strategic direction Performance metrics align compensation to strategy Health metrics introduced to monitor underlying factors (e.g., market share, quality) to ensure performance is sustainable * OROA: Operating Return on Operating Assets ** SVA: Shareholder Value Added 17

18 Supplemental Information Foundational Success Factors

19 The John Deere Strategy Foundational Success Factors Exceptional Operating Performance - Equipment Operations 31.8% OROA* in % 30% % % 2009, adjusted*** 20% 15% % 12% % 12% OROA (SVA** Neutral) 5% % % 80% Low 100% Normal % of Normal Volume * OROA: Operating Return on Operating Assets ** SVA: Shareholder Value Added *** Excludes fiscal 2009 expenses related to goodwill impairment and voluntary employee-separation, for reconciliation to GAAP see 2009 OROA* Reconciliation to GAAP slide in Appendix. 120% High 19

20 The John Deere Strategy Foundational Success Factors Exceptional Operating Performance - Equipment Operations Higher Net Cash Flow, More Consistently 5,000 4,500 Adoption of SVA* Model 4,000 Sale of Trade Receivables to Credit 3,500 $ Millions 3,000 2,500 2,000 1,500 1, Roughly $8.0 billion in Pension/OPEB contributions, * SVA: Shareholder Value Added 20

21 The John Deere Strategy Foundational Success Factors Disciplined SVA* Growth - Equipment Operations SVA Journey, SVA ($ millions) 3,600 3,200 2,800 2,400 2,000 1,600 1, ,200-1,600 Adoption of SVA Model * SVA: Shareholder Value Added Note: For reconciliation of SVA to GAAP, please see SVA* Reconciliation to GAAP slide in Appendix 21

22 Asset Management Dramatic Reduction in Asset Intensity Avoided ~ $8.5 billion in working capital in 2013 vs Receivable level in 2013 consistent with 1998, with almost 3x the sales Quarterly Receivables & Inventory as a % of Previous 12 Months Sales 60% $40,000 Trade Receivables and Net Sales 55% $35,000 50% 45% Prior Year Current Year $30,000 $25,000 40% 35% $ Millions $20,000 $15,000 30% $10,000 25% $5,000 20% $0 Trade Receivables Net Sales

23 Investment in New Products and Technologies $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 R&D as Percent of Net Sales % 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Deere R&D $ Deere % Competitor A % Competitor B % Competitor C % Source: Deere & Company and competitor SEC filings 23

24 Net Sales by Product Category Equipment Operations - Fiscal Year 2013 Agriculture & Turf $29.1B Construction & Forestry $5.9B Turf Other Commercial Worksite Products Other Large Ag Forestry Small Ag Construction 24

25 Share Repurchase As Part of Publicly Announced Plans Cumulative cost of repurchases : Amount remaining on May 2008 authorization of $5 billion: ~ $10.7 billion ~ $1.0 billion 31 October 2013 period ended shares: ~ million 2013 average diluted shares: ~ million Shares repurchased : ~ million Average repurchase price : $59.86 Actual Shares Repurchased* (in millions) Total Amount** (in billions) $ $ $ $ $ $ $ $ $ $1.5 * All shares adjusted for two-for-one stock split effective 26 November 2007 ** Rounded totals for each period sum may not tie to cumulative cost of repurchases

26 Deere Quarterly Dividends Declared* Q Q $0.60 $0.50 $0.46 $0.51 $0.40 $0.35 $0.41 $0.30 $0.20 $0.10 $0.11 $0.14 $0.16 $0.20 $0.22 $0.25 $0.28 $0.30 Dividend raised 82% since launch of the revised John Deere Strategy in 2010** $ * Adjusted for 2 for 1 stock split on 26 November 2007 ** See slide 5 for John Deere Strategy 26

27 Sources and Uses of Cash Fiscal Equipment Operations $33,000 $30,000 $607 = Source of Cash = Use of Cash $27,000 $24,000 $21,000 $7,685 $1,203 $1,980 $ Millions $18,000 $15,000 $12,000 $23,994 $4,720 $9,000 $9,077 $6,000 $3,000 $0 $4,287 Beginning Cash & Cash Equivalents (10/31/03) Cash From Operations Divestitures, net of Acquisitions Capital Expenditures Investment in Financial Services Net Change in Debt and Intercompany Balances $1,200 ~58% of cash from operations returned to shareholders Dividends Share Repurchase, net of Common Stock Issuances Other(1) $3,023 Ending Cash & Cash Equivalents (10/31/13) (1) Other includes proceeds from maturities and sales of marketable securities and purchases of marketable securities and reconciliation for non-cash items including excess tax benefits from share-based compensation and the effect of exchange rates on cash and cash equivalents Source: Deere & Company SEC filings 27

28 Supplemental Information Global Markets and Opportunities

29 Global Growth Major Equipment Factory Investments Waterloo, IA, USA A&T Division Foundry Waterloo, IA, USA A&T Division Ag Tractors Domodedovo, Russia A&T and C&F Division Tractors Combine Harvesters Orenburg, Russia A&T Division Seeding Equipment Tillage Equipment Valley City, ND, USA A&T Division Seeding Equipment Tillage Equipment Des Moines, IA, USA A&T Division Spraying Equipment Cotton Harvesting Equipment Tillage Equipment Seeding Equipment Indaiatuba, Brazil C&F Division Backhoe Loaders 4WD Loaders Moline, IL, USA A&T Division Planting Equipment Moline, IL, USA Cylinder Division Hydraulic Cylinders Davenport, IA, USA C&F Division Articulated Dump Trucks 4WD Loaders Motor Graders Skidders Wheeled Feller Bunchers Harbin, China A&T Division Combine Harvesters Tractors Sprayers Irrigation Products Tianjin (TEDA), China C&F Division 4WD Loaders Excavators Tianjin (TEDA), China John Deere Power Systems Engines Rosario, Argentina A&T Divison and John Deere Power Systems Engines Tractors Combines Indaiatuba, Brazil (JV) C&F Division Excavators Pune, India A&T Division Engines Transmissions Tractors Dewas, India A&T Division Tractors Announcements since May 2010 New Factories Major Expansions or Modernizations 29

30 Global Growth Invest Resources to Growing Our Core Businesses October $30 million investment at Bruchsal, Germany to expand manufacturing capacity and flexibility October 2013 Agreement to sell majority interest in JD Landscapes September 2013 Acquisition of Bauer Built Manufacturing to accelerate growth of planter business globally September 2013 $40 million investment to create capacity to manufacture 8R tractors in Montenegro, Brazil factory November 2012 $58 million investment at Moline, IL planter factory to enhance efficiency and quality 30

31 U.S. and Canada Factory Locations British Columbia, Canada Log Loaders & Specialty Products Alberta, Canada Remanufactured Components North Dakota, USA Air Seeding Equipment Electronics Tillage Equipment Wisconsin, USA Lawn & Garden Equipment Utility Vehicles Golf & Turf Reel Mowers Iowa, USA Cotton Harvesting Equipment Planting Equipment Spraying Equipment Tillage Equipment Ag Tractors Components Foundry Engines Hay & Forage Equipment Articulated Dump Trucks 4WD Loaders Motor Graders Skidders Wheeled Feller Bunchers Backhoes Compact Tracked Loaders Crawler Dozers High-Speed Dozers Knuckleboom Loaders Skid Steer Loaders Tracked Feller Bunchers Tracked Harvesters Illinois, USA Combine Harvesters Headers Planting Equipment Hydraulic Cylinders Tennessee, USA Lawn Tractors North Carolina, USA Commercial Mowers Golf & Turf Mowers Utility Vehicles Hydraulic Excavators Georgia, USA Utility Tractors Compact Utility Tractors California, USA Satellite Receivers Kansas, USA Power Transmission Equipment Missouri, USA Remanufactured Components Louisiana, USA Sugarcane Harvesting Equipment Tractor Loaders Scrapers Cotton Strippers 31

32 EU 28 Factory Locations Horst, The Netherlands Spraying Equipment Joensuu, Finland Wheel Forwarders Wheel Harvesters Forestry Attachments Zweibrücken, Germany Combines & Forage Harvesters Saran, France Engines Arc-les-Gray, France Forage Equipment Balers Ag Loaders Stadtlohn, Germany Headers Gummersbach, Germany Walk-Behind Mowers Bruchsal, Germany Tractor, Harvesting & Forestry Cabs Madrid, Spain Components Mannheim, Germany Tractors 32

33 Brazil Factory Locations Catalão, Brazil Sugarcane Harvesters Sprayers São Paulo, Brazil (JV) Components Indaiatuba, Brazil Backhoe Loaders 4WD Loaders Horizontina, Brazil Combine Harvesters Planters Indaiatuba, Brazil (JV) Excavators Montenegro, Brazil Tractors 33

34 CIS Factory Locations Orenburg, Russia Seeding Equipment Tillage Equipment Domodedovo, Russia Tractors 34

35 China Factory Locations Jiamusi, China Large Combine Harvesters Corn Pickers Cotton Pickers Tianjin (TEDA), China 4WD Loaders Excavators Harbin, China Combine Harvesters Tractors (150+ hp) Sprayers Irrigation Products Tianjin (TEDA), China Engines ( hp) Tianjin (TEDA), China Tractors ( hp) Transmissions Ningbo, China Tractors (28-70 hp) Small Combine Harvesters Hydraulic Cylinders 35

36 India Factory Locations Sirhind, India Combine Harvesters Pune, India Engines Transmissions Tractors (36-75 hp) Electronics Dewas, India Tractors (36-50 hp) Gummidipoondi, India (JV) Side-Shift Backhoes 4WD Loaders (planned production 2014) 36

37 Other Regions Factory Locations Kibbutz Beit Hashita, Israel Cotton Picker Components Monterrey, Mexico Rotary Cutters Implements Components Ramos, Mexico Ag Loaders Compact Utility Tractor Loaders Utility Tractor Cabs Hydraulic Cylinders Torreon, Mexico Axles Engines Electronics Saltillo, Mexico Ag Tractors Transaxles Tokoroa, New Zealand Forestry Harvester Heads Rosario, Argentina Engines Tractors Combines 37

38 Worldwide Parts Services Supporting the Global Growth of Our Equipment Operations Highlights: Nagpur, India Announced India Parts Distribution Center targeted to open in late 2014 Johannesburg, South Africa New, larger Regional Distribution Center opened 4Q 2012 Rosario, Argentina New, larger Regional Distribution Center opened 4Q 2012 Stockholm, Sweden New, larger Regional Distribution Center serving C&F and A&T opened May 2012 Bruchsal, Germany E-PDC deconsolidation & packaging facility opened Nov 2011 Anchor Parts Distribution Centers Regional Parts Distribution Centers or Depots Distribution Centers under construction 38

39 John Deere FarmSight TM Integrated wireless technology linking the equipment, managers, operators, dealers, and agricultural consultants to provide more productivity, efficiency and yield to a farm or business. Machine Optimization Solutions that get the most out of machinery Use of automation and machine sensors Increased machine uptime, and higher levels of machine productivity, including the impact machines have on crop productivity & input efficiency Logistics Optimization Coordination of field activities and resources Enable fleet management decisions from web enabled devices Machine-to-machine communication for in-field logistics Ag Decision Support Easy data flow between machines and trusted advisors Platform for secure, trusted data sharing Enable proactive management decisions through insights 39

40 Supplemental Information John Deere Financial Services

41 John Deere Financial Services Supporting the Global Growth of Our Equipment Operations Expanding EU-28 coverage to majority of countries Owned Operations Bank/Finance Company Partners Deere & Company Forecast as of 20 November 2013 Retail programs through JDF not currently offered 41

42 John Deere Financial Services $36.8 Billion Owned Portfolio at 31 October 2013 Portfolio Composition by Market Portfolio Composition by Geography Portfolio Composition by Product C&F 12% Latin America 6% Europe 6% Australia 3% Leasing 13% Revolving Credit 7% Canada 11% Ag & Turf 88% U.S. 74% Wholesale / Floorplan 23% Installment Financing 57% Information above includes all Deere lending activities worldwide. John Deere Capital Corporation is the largest lending operation of Deere & Company. 42

43 John Deere Capital Corporation Profitability and Growth Net Income ($ Millions) Administered Portfolio Growth ($ Billions) Write-offs/Average Owned Portfolio 0.70% 0.22% 0.29% 0.33% 0.48% 0.12% 0.05% 0.03%

44 Supplemental Information John Deere Power Systems

45 Tier 4 Engine Implementation Interim Tier 4 (IT4): 50% Nitrogen Oxide (NOx) reduction 90% Particulate Matter (PM) reduction Final Tier 4 (FT4): 80% NOx reduction Tier 1 PM, g/kw-hr Interim Tier 4 Tier 3 Tier 2 Final Tier NOx, g/kw-hr 45

46 Engine Emissions Interim Tier 4/Stage IIIB Successful transition from Tier 3/Stage IIIA Integrated vehicle solution Meeting customer performance and reliability requirements Over 100,000 field engines with over 35 million hours* Single fluid solution well accepted No need for Diesel Exhaust Fluid Deere tractors with 9.0L engine have 1-5% better fuel economy than competitive tractors** * As of September 2013 ** Per Nebraska Tractor Test Laboratory Results 46

47 Engine Emissions Final Tier 4/Stage IV IT4/Stage IIIA creates foundation for FT4/Stage IV delivery FT4/Stage IV technologies to deliver excellent performance and operation costs Shorter implementation horizon than IT4/Stage IIIA More applications to transition to FT4/Stage IV than IT4/Stage IIIB emission programs Maintain Tier 2/Stage II and Tier 3/Stage IIIA solutions for global markets 47

48 Engine Emissions Worldwide Emissions Regulations U.S. and Canada Transition to Final Tier hp: Jan hp: Jan 2015 EU28* Transition to Stage IV hp: Jan hp: Oct 2014 Russia No set date to transition from Stage II China Anticipated transition to Stage IIIA Oct Emissions Regulations None Stage II/Tier 2 Stage IIIA/Tier 3/TREM 3A (>50hp) Stage IIIB/Interim Tier 4 Brazil Transition to Stage IIIA: Construction Equipment: Jan 2015 Ag Equipment: Jan 2017 India No set date to transition from TREM 3A *Includes some non-eu28 countries that follow EU28 emissions regulations 48

49 Supplemental Information Farm Fundamentals

50 U.S. Farm Cash Receipts Projected total cash receipts remain at historically high levels $450 $400 $350 $300 $ Billions $250 $200 $150 $100 $50 $ F 2014F Government Payments Total Cash Receipts Source: : USDA 27 August F 2014F: Deere & Company Forecast as of 20 November

51 U.S. Farm Balance Sheet Strong $3,000 30% 28% $2,500 26% $2,000 24% 22% $ Billions $1,500 $1,000 20% 18% 16% $500 14% 12% $ F 2013F 2014F Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) 10% Source: : USDA 27 August F 2014F: Deere & Company Forecast as of 20 November

52 World Farm Fundamentals Global Stocks-to-Use Ratios 90% 80% 70% 60% Cotton 50% 40% 30% 20% 10% 0% Wheat Corn Soybeans P Source: USDA 11 October

53 Supplemental Information Appendix

54 SVA* Reconciliation to GAAP Equipment Operations (millions of dollars unless stated otherwise) Equipment Operations Net Sales 5,723 6,479 7,663 8,830 9,640 11,082 11,926 9,701 11,169 11,077 11,703 Average Identifiable Assets With Inventories at LIFO 5,765 5,449 5,551 6,187 6,502 6,682 7,672 7,724 8,069 8,743 6,229 With Inventories at Standard Cost 6,846 6,442 6,494 7,131 7,488 7,703 8,711 8,739 9,039 9,678 7,147 Operating Profit ,006 1,125 1,402 1, (46) 401 Percent of Net Sales 1.3% 3.7% 11.1% 11.4% 11.7% 12.6% 12.4% 2.8% 6.2% -0.4% 3.4% Operating Return on Assets With Inventories at LIFO 1.3% 4.4% 15.3% 16.3% 17.3% 21.0% 19.3% 3.5% 8.6% -0.5% 6.4% With Inventories at Standard Cost 1.1% 3.8% 13.0% 14.1% 15.0% 18.2% 16.9% 3.1% 7.7% -0.5% 5.6% SVA Cost of Assets (821) (773) (780) (856) (898) (924) (1,045) (1,049) (1,085) (1,162) (858) SVA (744) (531) (776) (392) (1,208) (457) Equipment Operations Net Sales 13,349 17,673 19,401 19,884 21,489 25,803 20,756 23,573 29,466 33,501 34,998 Average Identifiable Assets With Inventories at LIFO 5,965 6,482 7,248 7,546 8,092 9,652 9,647 9,196 11,516 13,594 14,569 With Inventories at Standard Cost 6,925 7,477 8,312 8,634 9,205 10,812 10,950 10,494 12,875 14,965 15,924 Operating Profit 708 1,905 1,842 1,905 2,318 2,927 1,365 2,909 3,839 4,397 5,058 Percent of Net Sales 5.3% 10.8% 9.5% 9.6% 10.8% 11.3% 6.6% 12.3% 13.0% 13.1% 14.5% Operating Return on Assets With Inventories at LIFO 11.9% 29.4% 25.4% 25.2% 28.6% 30.3% 14.1% 31.6% 33.3% 32.3% 34.7% With Inventories at Standard Cost 10.2% 25.5% 22.2% 22.1% 25.2% 27.1% 12.5% 27.7% 29.8% 29.4% 31.8% SVA Cost of Assets (831) (897) (998) (1,036) (1,094) (1,284) (1,301) (1,259) (1,545) (1,795) (1,911) SVA (123) 1, ,224 1, ,650 2,294 2,602 3,147 * SVA: Shareholder Value Added 54

55 2009 OROA* Reconciliation to GAAP Equipment Operations (millions of dollars unless stated otherwise) Equipment Operations 2009, as Reported Exclude Goodwill Impairment & Voluntary Employee- Separation 2009, as Adjusted Net Sales 20,756 20,756 Average Identifiable Assets With Inventories at LIFO 9,647 9,647 With Inventories at Standard Cost 10,950 10,950 Operating Profit 1, ,745 Percent of Net Sales 6.6% 8.4% Operating Return on Assets With Inventories at LIFO 14.1% 18.1% With Inventories at Standard Cost 12.5% 15.9% * OROA: Operating Return on Operating Assets 55