Investor Presentation...Investor Presentation August – October 2017 2 Safe Harbor Statement &...
Transcript of Investor Presentation...Investor Presentation August – October 2017 2 Safe Harbor Statement &...
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Investor PresentationAugust – October 2017
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. Past performance may not be representative of future results.
Guidance noted in the following slides was effective as of the company’s most recent earnings release and earnings call (18 August 2017). 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.
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Table of ContentsSlide
John Deere Strategy 4
Use-of-Cash 16
Global Markets 21
John Deere Financial Services 32
Agriculture Fundamentals 37
Construction & Forestry Fundamentals 43
Appendix 46
4
John Deere Strategy
5
6
Exceptional Operating Performance - OROAEquipment Operations
* Operating Return on Operating Assets** Shareholder Value Added; for reconciliation to GAAP see “SVA* Reconciliation to GAAP” slide in Appendix
14.4% OROA* in 2016
12%
20%
28%
2001
2002
2003
200420052006
2007 2008
2009
2010
2011
2012
2013
2014
20152016
-10%
0%
10%
20%
30%
40%
12% OROA (SVA** Neutral)
% of Mid-Cycle Volume80% 100% 120%
7
Exceptional Operating Performance – SVAEquipment Operations
* Shareholder Value Added; for reconciliation to GAAP see “SVA* Reconciliation to GAAP” slide in Appendix
$310 million SVA* in 2016
-$2,000
-$1,000
$0
$1,000
$2,000
$3,000
$4,000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
$ M
illio
ns
Adoption of SVA Model
8
Exceptional Operating Performance – Net Cash FlowEquipment Operations
* Shareholder Value AddedNote: Over $8 billion in Pension/OPEB contributions from 2001-2016
$2.9 billion Net Cash Flow in 2016
$0
$1,000
$2,000
$3,000
$4,000
$5,000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
$ M
illio
ns
Sale of Trade Receivables to John Deere Financial
Adoption of SVA* Model
9
Asset Management
Receivable level in 2016 lower than 1998, with 2x the sales
0%
10%
20%
30%
40%
50%
60%
2001 2004 2007 2010 2013 2016
Current Year Prior Year
Quarterly Receivables & Inventory as a % of Previous 12 Months Sales
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Trade Receivables Net Sales
$ M
illio
ns
1998 2016
Trade Receivables and Net Sales
10
Productivity Improvement
Net Sales and Revenues per Employee
$0
$100
$200
$300
$400
$500
$600
$700
1988 1992 1996 2000 2004 2008 2012 2016
$ Th
ousa
nds
~ 5% CAGR* over 30 years
* Compound Annual Growth Rate
11
Investment in New Products and Technologies
Source: Deere & Company and competitor SEC filings
0%
2%
4%
6%
8%
$0
$300
$600
$900
$1,200
$1,500
$1,800
2002 2004 2006 2008 2010 2012 2014 2016
Deere R&D $ Deere % Competitor A % Competitor B %
Consistently spending at or above competition on technology and innovation
R&D as Percent of Net Sales
$ M
illio
ns
12
Precision Ag
Easier Smarter More PreciseBigger Faster Stronger
Today’s machines are more productive
Greater productivity emerges with added technology
13
Equipment + Precision Ag Technology
Digital Solutions
API’s
Core Precision Ag Technologies
AutoTrac™ Rate Controller
Machine Sync & Coverage Map Sharing
JDLink Connect
Premium ActivationDoc & Section Control
HarvestLab™
Harvest Mobile
Mobile Data Transfer
Large Ag Equipment
John Deere Operations Center
MyOperations™
MyAnalyzer™
14
Better machine performance
Precision AgEquipment + Technology + Services
Better job performance Better agronomic decisions
– Ensure machines function as expected– Maximize machine performance– Increase operator consistency
– Achieve quality outcomes for each job– Coordinate machines to execute jobs
more effectively and efficiently– Monitor job progress and adjust
operational plans
– See, collaborate and direct information when needed and where needed with an online set of tools
– Automate collection and transfer of data from the machine to platform
15
Net Sales by Product CategoryEquipment Operations – Fiscal 2016
Agriculture & Turf$18.5 billion
Construction & Forestry$4.9 billion
Small Ag
TurfCompact
Construction
Forestry
Other
Large Ag
16
Use-of-Cash
17
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
Committed to “A” Rating
Cash from Operations
Fund Operating and Growth Needs
Common Stock Dividend
Share Repurchase
Fund value-creating investments in our businesses
Consistently and moderately raise dividend targeting a 25%-35% payout ratio of mid-cycle earnings
Consider share repurchase as a means to deploy excess cash to shareholders, once above requirements are met and repurchase is viewed as value-enhancing
Deere Use-of-Cash Priorities
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$0.11
$0.28
$0.60
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
2004 2005 2006 2007* 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Deere Quarterly Dividends Declared 1Q 2004 – 3Q 2017
* Adjusted for 2 for 1 stock split on 26 November 2007
Dividend raised 114% since 2010
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Share RepurchaseAs Part of Publicly Announced Plans
* All shares adjusted for two-for-one stock split effective 26 November 2007
2004–3Q 2017:Cumulative cost of repurchases $16.4 billionShares repurchased 245.0 millionAverage repurchase price $66.96
December 2013 authorization of $8 billion:Amount remaining $3.3 billion
30 July 2017 period ended basic shares 321.3 million3Q 2017 average diluted shares 325.1 million
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
0
10
20
30
40
2005 2007 2009 2011 2013 2015 2017YTD
$ Billions
Mill
ions
of Sha
res*
Shares Repurchased Amount Spent
Share Repurchase
35% net share reduction since 2004
20
$4,287 $3,141
$35,002
$835
$10,060$1,325
$3,102
$7,084
$14,427
$987
$0
$10,000
$20,000
$30,000
$40,000
$50,000
Beginning Cash& Cash
Equivalents(Fiscal 2004)
Cash FromOperations
Divestitures,net of
Acquisitions
CapitalExpenditures
Investment inFinancialServices
Net Change inDebt and
IntercompanyBalances
Dividends ShareRepurchase, net
of CommonStock Issuances
Other* Ending Cash &Cash
Equivalents(Fiscal 2016)
Sources and Uses of Cash Fiscal 2004-2016Equipment Operations
$ M
illio
ns
~ 61% of cash from operations returned to
shareholders
* Other includes proceeds from maturities and sales of marketable securities and purchases of marketable securities and reconciliation for non-cash items including the effect of exchange rates on cash and cash equivalentsNote: “Cash from Operations” adjusted with the adoption of FASB ASU No. 2016-09 “Improvements to Employee Share-Based Payment Accounting”Source: Deere & Company SEC filings
= Source of Cash= Use of Cash
21
Global Markets
22
Net Sales by Major MarketsEquipment Operations
$ Billions* U.S. & Canada not to scale with other markets
$14.8
$17.4
$20.8$21.8
$20.2
$16.6$14.4
2010 2011 2012 2013 2014 2015 2016
U.S. & Canada*
$3.4$4.4 $4.3 $4.4 $4.4
$3.3 $3.2
2010 2011 2012 2013 2014 2015 2016
Western Europe
$2.6$3.6 $3.6
$4.3 $4.1
$2.4 $2.2
2010 2011 2012 2013 2014 2015 2016
Latin America
$1.4 $1.9 $2.1 $2.1 $2.0 $1.9 $1.5
2010 2011 2012 2013 2014 2015 2016
Asia, Africa & Middle East
$0.7$1.4 $1.7 $1.6 $1.4 $1.0 $1.3
2010 2011 2012 2013 2014 2015 2016
Central Europe & CIS
$0.6 $0.8 $1.0 $0.8 $0.8 $0.6 $0.8
2010 2011 2012 2013 2014 2015 2016
Asia Pacific, Australia & New Zealand
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U.S. and CanadaFactory Locations
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• High Clearance Sprayers (JV)
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
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
Louisiana, USA• Sugarcane Harvesting Equipment• Tractor Loaders• Scrapers• Cotton Strippers
Missouri, USA• Remanufactured Components
Kansas, USA• Power Transmission Equipment
California, USA• Satellite Receivers
24
EU 28Factory Locations
Joensuu, Finland• Wheel Forwarders• Wheel Harvesters• Forestry Attachments
Stadtlohn, Germany• Headers
Gummersbach, Germany• Walk-Behind & Autonomous Mowers
Bruchsal, Germany• Tractor & Harvesting Cabs
Mannheim, Germany• Tractors
Madrid, Spain• Components
Arc-les-Gray, France• Balers• Ag Loaders
Largeasse, France• Planting Equipment
Saran, France• Engines
Zweibrücken, Germany• Combines & Forage Harvesters
Horst, The Netherlands• Spraying Equipment
Ravenna, Italy• Sprayers
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BrazilFactory Locations
Catalão, Brazil• Sugarcane Harvesters• Sprayers
Indaiatuba, Brazil• Backhoe Loaders• 4WD Loaders• Motor Graders• Excavators (JV)
Montenegro, Brazil• Tractors
Horizontina, Brazil• Combine Harvesters• Planters
26
CISFactory Locations
Domodedovo, Russia• Tractors• Combine Harvesters• Motor Graders
Orenburg, Russia• Seeding Equipment• Tillage Equipment
27
ChinaFactory Locations
Jiamusi, China• Combine Harvesters• Cotton Pickers
Tianjin (TEDA), China• 4WD Loaders• Excavators• Engines (85-254 hp)• Tractors (85-320 hp)
Ningbo, China• Tractors (30-55 hp)• Cane Harvesters
28
IndiaFactory Locations
Pune, India• Engines• Transmissions• Tractors (36-75 hp)• Electronics
Sirhind, India• Combine Harvesters
Dewas, India• Tractors (36-50 hp)
29
Other RegionsFactory Locations
Ramos, Mexico• Ag Loaders• Compact Utility Tractor Loaders• Utility Tractor Cabs• Hydraulic Cylinders
Monterrey, Mexico• Rotary Cutters• Implements• Components
Saltillo, Mexico• Ag Tractors• TransaxlesTorreon, Mexico
• Axles• Engines• Electronics
Rosario, Argentina• Engines• Tractors• Combines
Kibbutz Beit Hashita, Israel• Cotton Picker Components
Tokoroa, New Zealand• Forestry Harvester Heads
30
Worldwide Parts ServicesSupporting the Growth of Our Equipment Operations
Highlights:– Miami, Florida (United States)
– Will directly support the Latin America dealer network, operational in 4Q 2017
– China footprint– Strategic distribution locations to support
China market, operational 2016
– Campinas, Brazil– Expansion of existing facility, operational
March 2015
Anchor Parts Distribution CentersRegional Parts Distribution Centers or DepotsDistribution Centers Under Construction
31
Engine Emissions2017 Worldwide Off-Road Emissions Regulations > 75 hp
Stage II/Tier 2
Stage IIIA/Tier 3/TREM 3A/MAR 1/China NR III
Stage IV/Final Tier 4 (> 75-750 hp)
* Includes some non-EU28 countries that follow EU28 emissions regulations
U.S. and CanadaFinal Tier 4
RussiaAg tractors: Stage II
EU28*Stage V – starting 2019
ChinaChina NR III
IndiaTREM 3A >50hp
BrazilMAR 1:• Construction equipment• Ag equipment >100hp
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John Deere Financial Services
33
John Deere Financial ServicesSupporting the Growth of Our Equipment Operations
Owned Operations
Bank/Finance Company Partners
Retail programs through JDF not currently offered
34
John Deere Financial Services
Net Income
-$2,000
-$1,000
$0
$1,000
$2,000
$3,000
$4,000
1987 1991 1995 1999 2003 2007 2011 2015
John Deere Financial (attributable to Deere & Company) Deere & Company
$ M
illio
ns
Consistent earnings throughout the cycle
35
Portfolio Composition by Segment
John Deere Financial Services
Portfolio Composition by Geography Portfolio Composition by Product
A&T85%
C&F15%
Installment and Finance
Lease57%
Wholesale/ Floorplan
19%
Revolving Credit8%
Operating Lease16%
U.S.75%
Canada10%
Europe5%
Latin America
6%
Australia3% Asia
1%
Note: Information above includes all Deere & Company lending activities worldwide. John Deere Capital Corporation is the largest lending operation of Deere & Company.
$38.1 billion Net Owned Portfolio as of 31 October 2016
36
John Deere Capital Corporation
Agriculture & Turf* Construction & Forestry
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
1983 1988 1993 1998 2003 2008 2013
Net Write-offs (Ag) Installments 60+DPD (Ag)
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
1995 2000 2005 2010 2015
Net Write-offs (C&F) Installments 60+DPD (C&F)
* 1983–1985 includes construction; 1986-1994 includes lawn & grounds care; 2009 forward includes ag & turf equipment; as % of owned losses after dealer reserve charges Source: 1983–1994 internal reporting, 1995-2011 JDCC 10-K filings, 2012-2016 internal reporting
Continued extremely low write-offs in Agriculture & Turf and Construction & Forestry
37
Agriculture Fundamentals
38
Global Stocks-to-Use Ratios
Source: USDA, 10 August 2017
0%
20%
40%
60%
80%
100%
120%
0%
10%
20%
30%
40%
50%
60%
1996 1999 2002 2005 2008 2011 2014 2017P
Cotton R
atios
CottonWheat
Corn
Soybeans
39
Source: USDA, 10 August 2017
Global Grain Supply and Demand
0
500
1,000
1,500
2,000
2,500
3,000
93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18
Mill
ion
Met
ric
Tons
Consumption Production
40
Global Grain DemandWith and Without Biofuel Use
0
1,000
2,000
3,000
2005 2007 2009 2011 2013 2015 2017F
Mill
ion
Met
ric
Tons
Consumption with biofuel use
0
1,000
2,000
3,000
2005 2007 2009 2011 2013 2015 2017F
Mill
ion
Met
ric
Tons
Consumption without biofuel use
* Compound Annual Growth RateSource: OECD-FAO Agricultural Outlook 2016-2025, July 2016
41
U.S. Farm Cash Receipts
$0
$100
$200
$300
$400
$500
2001 2003 2005 2007 2009 2011 2013 2015 2017F
$ Bill
ions
Crops Livestock Government Payments
Source: 2001–2015: USDA, 7 February 20172016F–2017F: Deere & Company forecast as of 18 August 2017
42
U.S. Farm Balance Sheet
10%
15%
20%
25%
30%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017F
$ Bill
ions
Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%)
Source: 1973–2015: USDA, 7 February 20172016F–2017F: Deere & Company forecast as of 18 August 2017
43
Construction & Forestry Fundamentals
44
U.S. Housing Starts
0.0
0.5
1.0
1.5
2.0
2.5
1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017F
Multi-Family Housing Starts Single-Family Housing Starts
Source: 1967–2015: U.S. Census Bureau, July 20172016F–2017F: Deere & Company forecast as of 18 August 2017
Mill
ions
of U
nits
45
-160%
-140%
-120%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017F
% Total C
onstruction Spend
$ Bill
ions
*
Government Infrastructure Investment Government Investment in StructuresNonresidential Investment in Structures Residential Investment in Structures
U.S. Construction Spending
* 2009$ baseSource: 1997–2015: U.S. Bureau of Economic Analysis, July 2017
2016F–2017F: Deere & Company forecast as of 18 August 2017
46
Appendix
47
SVA* Reconciliation to GAAPEquipment Operations
* Shareholder Value Added
($ millions except where noted) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Net Sales 6,479 7,663 8,830 9,640 11,082 11,926 9,701 11,169 11,077 11,703 13,349 17,673
Average Identifiable AssetsWith Inventories at LIFOWith Inventories at Standard Cost
5,4496,442
5,5516,494
6,1877,131
6,5027,488
6,6827,703
7,6728,711
7,7248,739
8,0699,039
8,7439,678
6,2297,147
5,9656,925
6,4827,477
Operating ProfitPercent of Net Sales
2423.7%
84711.1%
1,00611.4%
1,12511.7%
1,40212.6%
1,47612.4%
2722.8%
6936.2%
(46)(0.4%)
4013.4%
7085.3%
1,90510.8%
Operating Return on AssetsWith Inventories at LIFOWith Inventories at Standard Cost
4.4%3.8%
15.3%13.0%
16.3%14.1%
17.3%15.0%
21.0%18.2%
19.3%16.9%
3.5%3.1%
8.6%7.7%
(0.5%)(0.5%)
6.4%5.6%
11.9%10.2%
29.4%25.5%
SVA Cost of Assets (773) (780) (856) (898) (924) (1,045) (1,049) (1,085) (1,162) (858) (831) (897)
SVA (531) 68 150 226 477 431 (776) (392) (1,208) (457) (123) 1,008
($ millions except where noted) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Net Sales 19,401 19,884 21,489 25,803 20,756 23,573 29,466 33,501 34,998 32,961 25,775 23,387
Average Identifiable AssetsWith Inventories at LIFOWith Inventories at Standard Cost
7,2488,312
7,5468,634
8,0929,205
9,65210,812
9,64710,950
9,19610,494
11,51612,875
13,59414,965
14,56915,924
14,11315,493
12,49113,840
11,81613,092
Operating ProfitPercent of Net Sales
1,8429.5%
1,9059.6%
2,31810.8%
2,92711.3%
1,3656.6%
2,90912.3%
3,83913.0%
4,39713.1%
5,05814.5%
4,29713.0%
2,1778.4%
1,8808.0%
Operating Return on AssetsWith Inventories at LIFOWith Inventories at Standard Cost
25.4%22.2%
25.2%22.1%
28.6%25.2%
30.3%27.1%
14.1%12.5%
31.6%27.7%
33.3%29.8%
32.3%29.4%
34.7%31.8%
30.4%27.7%
17.4%15.7%
15.9%14.4%
SVA Cost of Assets (998) (1,036) (1,094) (1,284) (1,301) (1,259) (1,545) (1,795) (1,911) (1,860) (1,661) (1,570)
SVA 844 869 1,224 1,643 64 1,650 2,294 2,602 3,147 2,437 516 310