Construction & Forestry Division Analyst Update. Mike Mack. President, C&F Division. March 2014

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1 Construction & Forestry Division Analyst Update March 2014 Mike Mack President, C&F Division

2 Safe Harbor Statement & Disclosures This presentation and accompanying material include forward-looking comments and information concerning the company s plans and projections for the future, including estimates and assumptions with respect to economic, political, technological, weather, market acceptance and other factors that impact our businesses and customers. They also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America (GAAP). Words such as forecast, projection, outlook, prospects, expected, estimated, will, plan, anticipate, intend, believe, or other similar words or phrases often identify forward-looking statements. Actual results may differ materially from those projected in these forwardlooking statements based on a number of factors and uncertainties. Additional information concerning factors that could cause actual results to differ materially is contained in the company s most recent Form 8-K and periodic report filed with the U.S. Securities and Exchange Commission, and is incorporated by reference herein. Investors should refer to and consider the incorporated information on risks and uncertainties in addition to the information presented here. Investors should consider non-gaap financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. The company, except as required by law, undertakes no obligation to update or revise its forward-looking statements whether as a result of new developments or otherwise. This presentation and accompanying materials are not an offer to sell or a solicitation of offers to buy any of the company s securities. 2 Construction & Forestry Division Overview

3 Enterprise Strategy

4 Our Strategy GLOBAL GROWTH OPERATIONS Agricultural Equipment Construction Equipment 4 Construction & Forestry Division Overview

5 Our Strategy COMPLEMENTARY OPERATIONS Turf Equipment Forestry Equipment 5 Construction & Forestry Division Overview

6 Our Strategy SUPPORTING OPERATIONS Financial Services Power Systems Turf Equipment Worldwide Parts Services Intelligent Solutions Group 6 Construction & Forestry Division Overview

7 Construction Market Conditions

8 Explanatory variable for equipment sales U.S. Construction Spending Investment State & Local, Federal Gov't Infrastructure Nonresidential Structures State & Local, Federal Gov't Structures Residential Structures Billions of Real 2009 Dollars 2,000 1,800 1,600 1,400 1,200 1, Sources: Actual - U.S. Bureau of Economic Analysis; Forecast - IHS Global Insight 8 Construction & Forestry Division Overview

9 Housing Starts 1960 to 2015 Forecast Millions of Units Sources: Actual - Housing starts from the U.S. Census Bureau; Forecast - IHS Global Insight 9 Construction & Forestry Division Overview

10 U.S. GDP Growth 4% Pessimistic GDP Growth GDP Growth 3% 2% GDP Growth 1% 0% -1% -2% -3% -4% Bureau of Economic Analysis, IHS Global Insight October / November 2013 Sources: Actual - GDP from U.S. Bureau of Economic Analysis; Forecast IHS Global Insight 10 Construction & Forestry Division Overview

11 U.S./Canada Construction Equipment Industry The Shift to Rental To manage uncertainty, contractors are increasingly renting equipment Dealer-owned rental fleets lead the trend US/C CE Industry, Units 120, ,000 80,000 60,000 40,000 20,000 26% 16% 10% 36% 27% 9% 40% 35% 30% 25% 20% 15% 10% 5% Rental % of Industry Rental, % of Industry Total Rental DORF IRC Industry Sales, units Non-Rental DORF IRC 0 0% Source: Off-Highway Research 11 Construction & Forestry Division Overview

12 U.S./Canada Construction Equipment Industry Sales and Cyclicality 120,000 US/C Construction Industry Unit Sales R12 110, ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, % 48 Mo Source: AEM 12 Construction & Forestry Division Overview

13 C&F in U.S. and Canada Feet on the Ground 13 Construction & Forestry Division Overview

14 C&F Dealer Channel Strong dealers who make the investments required to service large customer needs Change Owner Groups % Dealer Locations % Total Sales +303% Equipment Sales +293% Parts Sales +329% Service Sales +343% Total Assets +397% Adjusted Equity $ +534% 14 Construction & Forestry Division Overview

15 Emissions Product Launches Investing in Final Tier 4 Technology 15 Construction & Forestry Division Overview

16 John Deere Davenport Works Investing for Growth Dramatic Factory Improvements 30% more capacity/output 25% faster cycle times More efficient layout Improved productivity Improved quality 16 Construction & Forestry Division Overview

17 The World s Broadest Forestry Product Line Improving Our #1 Position 17 Construction & Forestry Division Overview

18 Forestry Harvest Processes / Machine Systems Cut-To-Length and Full-Tree systems: 80% of global sites Delimb, Cut Length Cut-To Length Full Tree South Delimb, Cut Length Delimb, Cut Length Full Tree North 18 Construction & Forestry Division Overview

19 John Deere WorkSight Industry-Leading Technology Improves Uptime Machine, Jobsite, and Uptime Optimization Machine Jobsite Dealer 19 Construction & Forestry Division Overview

20 Corporate Business Division Growing Our Large Customer Base Single point of contact Listening and responding better than anyone else Construction & Forestry Division Overview

21 Production Class Equipment Expanding Our Big Iron Product Offerings 21 Construction & Forestry Division Overview

22 Deere and Hitachi Relationship Relationship is stronger than ever focused on execution and growth 22 Construction & Forestry Division Overview

23 Deere-Hitachi Manufacturing Operations Expanding in Kernersville, North Carolina Objectives Increase capacity Reduce cost Improve flexibility North Expansion East Expansion New Assembly & Warehouse Paint Engineering/Quality Audit 23 Construction & Forestry Division Overview

24 Brazil just wouldn t be the same without a little green AND yellow. 24 Construction & Forestry Division Overview

25 C&F in Brazil John Deere and Deere-Hitachi Operations Two factories completed in September 2013 Located in Indaiatuba, Sao Paulo 25 Construction & Forestry Division Overview

26 John Deere Brazil Building Backhoes and 4WD Loaders 26 Construction & Forestry Division Overview

27 Deere-Hitachi Brazil Building Excavators 27 Construction & Forestry Division Overview

28 Brazil Dealer Coverage Five Strong Channel Partners MEGA Sao Paulo 28 Construction & Forestry Division Overview

29 C&F in Latin America Significant Opportunities Chile, Peru, Columbia & Mexico forecasting healthy GDP growth Significant infrastructure, utility, oil and gas investments John Deere is well-positioned Full product line 29 dealers with 114 locations 29 Construction & Forestry Division Overview

30 C&F in China Tianjin Construction Works WL56 4WD Loader Shipping to China, Russia, North Africa and South America E240 Excavator Shipping to China and Russia 30 Construction & Forestry Division Overview

31 C&F in India Ashok Leyland - John Deere Joint Venture Backhoe specifically designed for world s largest market 31 Construction & Forestry Division Overview

32 C&F in Russia Eyes on the Horizon Significant increases in infrastructure investment and development Forestry market John Deere in leading position Construction market Leverage Deere Enterprise to enable CE entry Graders and backhoes lead penetration 32 Construction & Forestry Division Overview

33 C&F Division Financial Results

34 C&F Division Financial Results $M Q Q Change Net Sales $1,353 $1,302 +4% Operating Profit* $94 $71 +32% Incremental Margin ~45% Q Operating Profit* impacted by: + Production costs + Research and development expenses + Price realization - Production levels; Q1 receivables and inventory $ Construction & Forestry Division Overview

35 C&F Division Financial Forecast Fiscal Year 2014 Forecast Net sales +10% No change from previous forecast U.S. Economic Indicators 2014 Forecast GDP Growth* (APR) +2.7% Housing Starts (thousands) 1,162 Non-Residential Spending Growth* (APR) +1.6% Government Spending Growth* (APR) +1.1% * Change from prior year in real dollars Source: Global Insight, Calendar year estimates January 2014 Deere & Company Forecast February 12, 2014 (previous forecast November 20, 2013) 35 Construction & Forestry Division Overview

36 36 Construction & Forestry Division Overview