Deere & Company 2017 Annual Meeting of Stockholders Remarks of Sam Allen, Chairman & CEO (As Prepared)

Transcription

1 Not so long ago, shareholders gathered at this meeting to hear about the record performance our company was achieving. Eight times in ten years, this auditorium echoed with news of unsurpassed sales, unprecedented profits, and a future bright with promise and opportunity. That narrative shifted in 2014 when the farm economy slowed, then weakened in a most dramatic way. Dee e s sales ha e si e de li ed o e $ illio.or about as much in percentage terms as we saw in the 1980s. But what a difference a generation makes! Throughout the present downturn, John Deere has shown a consistent ability to deliver solid profits nowhere near record levels, of course, but much better than in the farm slumps of the past. What s o e, the o pa has accomplished all this while doing what it does best -- serving customers with advanced products and services and making investments for the future. That part of the story, the part about the future, the part about the needs of a g o i g, o e afflue t, o e o ile populatio, that pa t of the sto has t eall changed at all. A d it s still a good o e. That s o e poi t I a ot ake st o gl e ough: ega dless of toda s o p i e o e t ua te s et i o e, Joh Dee e has o e g eat futu e. O e the e t fe i utes, let s e ie Dee e s e e t pe fo a e, look at the oad trends that we believe will drive business opportunities in the future, then discuss a fe of the a s e e pla i g to seize those oppo tu ities fo the benefit of our customers and investors. Deere continued its record of sound performance in We posted our tenth-highest-ever level of earnings. We continued to lay the groundwork for bringing the power and value of the John Deere brand to a growing global audience. And we delivered solid returns to our investors through dividend payments and stock-price appreciation. Page 1

2 Last ea s esults a e p oof of the su essful e e ution of our business plans. They stress attracting new customers throughout the world while running our everyday operations in a safe, efficient and consistently profitable way. Looking ahead, we see signs the worst may be over for our key markets. But 2017 looks like another difficult year. Our latest forecast, issued just last week, called for sales to be up modestly the first increase in four years -- and for profits to e p ett u h i li e ith last ea s total. It s important to note that even ith the halle ges e e fa ed, John Deere has maintained a strong financial condition. Our equipment operations hold modest debt and our financial services unit remains conservatively capitalized. Also, the company carries a healthy cash balance of well over $4 billion. As for our customers, they, too, have weathered the present downturn in sound financial shape over all. Fa e s a e t aki g the ki d of o e the e e fou o fi e ea s ago, ut fa i g continues to be a profitable endeavor for the most part. Also, farm balance sheets are still plenty strong. The p i e of U.S. fa e s la gest asset land has eased a bit but remains around twice the level of a decade ago. Another important customer group, construction contractors, are in generally good condition as well, though their businesses have certainly felt the effects of a sluggish economy. O e easo Dee e s pe fo a e has sho so u h esilie e has to do ith ou success assembling a formidable lineup of well-rounded, profitable businesses. They really show their colors in tough times. John Deere is widely known for signature products like large tractors and combines. The e o ld sta da ds that ha e been a major source of sales and profit and earned the company generations of unmatched brand loyalty. Last year, however, sales of large farm machinery made up not three-fourths of our sales, or even half but right around one-third. And, remember, we still had one of our ten-best years. The truth is, parts, power systems, financial services, forestry, turf equipment, and integrated solutions a e good usi esses i thei o ight. A d the do t necessarily move in lockstep with the broader cycles for farm and construction machinery. Page 2

3 Dee e s i p o i g a ilit to ope ate p ofita l a oss the usi ess le also efle ts the steady advances e e ade managing assets in a disciplined way and keeping a tight rein on costs. Today Deere needs about 40 percent less working capital things like inventory -- for each dollar of sales than was the case 20 or so years ago. Dealer receivables finished 2016 actually lower than in the late 1990s. Yet annual sales were about twice as much. In the same way, we have established a more responsive cost structure and raised implied operating margins by 2 to 3 points across the cycle, thanks to our efforts of recent years. Last year, the company reduced administrative expenses, including things like travel, advertising and indirect materials, by a further $100 million, and held the line on R&D spending. We also launched a plan to bring down structural costs by at least $500 million and are making good progress toward that goal. The investment community has taken note of our success establishing a wider range of revenue sources and a more durable business model. Deere stock has surged to record highs in recent months. And, of course, we e o ti ued to pay a competitive dividend -- which has been raised 12 times since Deere has returned about two-thirds of its cash flow from operations to shareholders through dividends and stock repurchases over this time. Dee e s e o d of steady performance provides a solid foundation for the company to capitalize on trends of great power and promise.su h as a growing global population and an emerging middle class in many parts of the world. These trends, which we e discussed with you in the past, remain as vibrant as ever. Take population growth, for example. The world continues to gain thousands of mouths to feed, and bodies to clothe and shelter, every single hour roughly 9,000 in the time it takes to conduct this meeting and perhaps 80 million more by the time we come together next year. It is widely believed that global agricultural output will have to double over the first half of the century to keep pace with demand. And it will need to happen with no more land and even less labor and water. Page 3

4 Prospects for demand growth lie at the heart of our plans and, the fact is, demand for agricultural goods has grown with impressive consistency for many, many years. World consumption of grain and oilseeds has fallen all of three times in the last half century. Demand has tripled since the mid-1960s, doubled since the mid- 7 s, a d increased roughly 40 percent in this century alone. Urbanization is another positive trend. People in developing nations are leaving rural areas and heading to the cities in a big way. More may live in urban areas by 2050 than inhabited the entire planet as recently as the year That means a greater need for roads, bridges, buildings and all manner of major construction projects. And, by the way, all those folks living in town mean fewer working on the farm, accelerating the need for mechanization and modern agricultural equipment. The e s o dou t a out it: these tailwinds hold exciting potential for John Deere and all those with a stake in its well-being. We e o fide t the ill suppo t de a d fo p odu ti e a hi e make that productive green-and-yellow and black-and-yellow John Deere machinery -- well into the future. Needless to say, Deere fully intends to seize these trends and turn them into meaningful value for our customers and investors. We e pursuing a far-reaching strategic plan to make sure the job gets done. Last ea the pla, hi h e e e ie ed ith ou i p e ious eeti gs, as updated to give it even more relevance and impact. I a o e t, e ll see a video presentation that provides an overview of the pla s main points. But to set the stage, here are a few things to keep in mind First, the plan is a refresh, not a rewrite -- so the changes are largely supportive of the original plan adopted in The strategy also validates our assumptions about the trends we just discussed such as population growth and their potential impact on our businesses. Page 4

5 Further, it stresses continuing our emphasis on quality and innovation, puts a sharper focus on after-market products and services, intensifies our commitment to advanced technology and emerging fields such as precision agriculture, and reiterates our rigorous profitability goals. Let s tu ou atte tio o to the video presentation. It was developed especially for investors and recently made available on our website. Strategy Investor Video (Available at JohnDeere.com under Investor Relations) As you may have noticed, corporate citizenship is expressly included in the revised strategic plan and deservedly so. In fact, one of the five pillars cited as ei g fou datio al to ou su ess is. i i a d environmental stewardship. John Deere has been committed to operating ethically, safely, and in an environmentally responsible manner for a long time. O e the ea s, e e found that good citizenship is good business. What s o e, e firmly believe that the products we manufacture and the services we offer make a positive impact on society and the world around us. Our factories, after all, do more than produce tractors, bulldozers and turf equipment. They also provide the means to feed a growing world, help people secure a foothold in the middle class, and assist developing nations reach their economic potential. John Deere touches lives in other ways, too. Our company and its foundation are committed to building vibrant communities with a focus on world hunger, economic development and education. Last year, we made charitable contributions totaling some $3 illio a d helped improve the lives of at least 18 million people worldwide, by our estimates. Along these lines, our volunteerism policy encourages employees to share their time and talent for the benefit of others. In 2016, U.S. employees alone recorded more than 160,000 hours of volunteer time twice the level of just two years ago. Responsible citizenship also is reflected in the ways we protect the well-being of our e plo ees a d safegua d the e i o e t. Deere had one of its best employee safety years ever in 2016, with recordable-injury rates reaching all-time lows, and over half of our locations reporting not a single injury that resulted in time away from work. Page 5

6 On the environmental side, we made additional progress toward our aggressive goals for waste, water and energy reduction. We e also o ki g to reduce the environmental impact of our products. Deere equipment, as an example, has long been known for its fuel efficiency and has set a number of industry records in this category. Just last year our 8R-series tractors reached a new fuel-efficiency milestone for high horsepower tractors in an important European test. Dee e s o it e t to doi g the ight thi gs i the ight a has o ti ued to receive widespread recognition. In 2016, the company appeared in prominent listings of the o ld s most-ethical and most-admired enterprises, and most-valuable brands. Any way you look at it, to recall the words of our late CEO Hans Becherer, John Deere operates with a sense of purpose that goes deeper than the bottom line. Ha s s o ds, a d his o it e t to espo si le o po ate itize ship, espe iall community development, remain very much alive today and serve as a powerful source of inspiration to us all. By all appearances, John Deere will face a subdued market environment in the year ahead. Yet we have no hesitation in reaffirming our belief the company is on track for long-term growth and success. I deed, ou pla s fo helpi g eet the o ld s eed fo ad a ed e uip e t a d services are having considerable success. They are providing value to customers around the world each and every day. At the sa e ti e, e e o fide t ou a tio s to esta lish a ide a ge of e e ue sou es a d a o e du a le usi ess odel ill help us o ti ue generating solid financial returns even under less-than-ideal conditions. Fo these easo s, a d a o e, e a e p oud to de la e ou faith i the o pa s p ese t ou se.a d i its a ilit to produce strong, sustainable performance well into the future. We thank all of you for your continued encouragement and support as we move ahead with our important work on your behalf. No let s p o eed ith the est of this ea s eeti g Page 6 # # #