John Deere. Committed to Those Linked to the Land. Investor Presentation. Deere & Company December 2013 / January 2014

Transcription

1 John Deere Committed to Those Linked to the Land Investor Presentation 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 # John Deere Strategy 4 Foundational Success Factors 9 Global Markets and Opportunities 18 John Deere Financial Services 32 John Deere Power Systems 37 Market Fundamentals 42 Appendix 48 3

4 John Deere Strategy

5 * * * SVA: Shareholder Value Added 5

6 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 6

7 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 7

8 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 8

9 Foundational Success Factors Building on Core Strengths That Have Guided Our Success

10 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

11 Productivity Improvement ~ 6% CAGR over 30 Years Deere s net sales and revenues per employee have increased at a CAGR of ~ 6% over last 30 years $600 Net Sales and Revenues per Employee $500 $400 $ Thousands $300 $200 $100 $

12 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 12

13 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 13

14 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 14

15 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

16 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 16

17 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 17

18 Global Markets and Opportunities

19 Growing Global Presence FY 2013 equipment net sales outside U.S. & Canada 4.5 times the level in FY 2000 $14,000 Net Sales Outside U.S. and Canada 50% $12,000 45% $ Millions $10,000 $8,000 $6,000 $4,000 $2,000 40% 35% 30% 25% $ % Net Sales Outside U.S. & Canada % of Total Net Sales 19

20 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 20

21 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 21

22 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 $4.6 Western Europe 2% CAGR $3.4 $3.4 $4.4 $4.3 $4.4 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 22

23 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 23

24 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 24

25 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 25

26 CIS Factory Locations Orenburg, Russia Seeding Equipment Tillage Equipment Domodedovo, Russia Tractors 26

27 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 27

28 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) 28

29 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 29

30 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 30

31 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 31

32 John Deere Financial Services

33 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 33

34 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. 34

35 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%

36 John Deere Capital Corporation Retail Notes 60+ Days Past Due vs. Write-offs Agriculture & Turf % 3.45% 2.95% 2.45% 1.95% 1.45% 0.95% 0.45% Continued extremely low write-offs Average write-offs less than 5 bps over last 10 years Construction & Forestry Extremely low write-offs in 2013 Steady decline in write-offs since % 3.45% 2.95% 2.45% 1.95% 1.45% 0.95% 0.45% -0.05% '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 13 Net Write-offs (Ag) Installments 60+DPD (Ag) -0.05% '95 '98 '01 '04 '07 '10 13 Net Write-offs (C&F) Installments 60+DPD (C&F) (1) includes Construction; includes Lawn & Grounds Care; beginning in 2009 includes both Ag and Turf equipment; As % of Owned Losses After Dealer Reserve Charges Source: internal reporting, JDCC 10-K filings, internal reporting 36

37 John Deere Power Systems Engine Emissions and Technology

38 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 38

39 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 39

40 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 40

41 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 41

42 Market Fundamentals

43 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

44 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

45 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

46 U.S. Housing Starts Housing Starts (Millions of Units) Multi-Family Housing Starts Single-Family Housing Starts F Source: : U.S. Census Bureau September F 2014F: Deere & Company Forecast as of 20 November

47 U.S. Construction Spending Billions, 2005 Chained $ s U.S. Construction Spending (Billions, 2005 Chained $ s) 2,300 70% 2,200 60% 2,100 50% 2,000 40% 1,900 30% 1,800 20% 1,700 10% 1,600 0% 1,500-10% 1,400-20% 1,300-30% 1,200-40% 1,100-50% 1,000-60% % % % % % % Residential Investment in Structures % Nonresidential Investment in Structures % Government Investment in Structures 100 Government Infrastructure Investment -150% 0-160% F 2013F 2014F % Total Construction Spend Source: : U.S. Bureau of Economic Analysis September F 2014F: Deere & Company Forecast as of 20 November

48 Appendix

49 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 49

50 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 50

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