10-K: Deere & Co. Reports Fiscal Year 2024 Results Amidst Market Headwinds

Deere & Co.'s fiscal year 2024 saw a decline in net income due to weakened market conditions, despite ongoing investments in technology and customer solutions.

Summary

• Deere & Co. reported a decrease in net sales for fiscal year 2024, primarily due to lower sales volumes across its equipment operations.
• The Production and Precision Agriculture segment experienced a 22% decrease in net sales, while Small Agriculture and Turf and Construction and Forestry segments also saw declines of 22% and 12%, respectively.
• The company's financial services segment saw a 17% increase in revenue, driven by higher average financing receivable portfolios and higher average financing rates.
• Backlog orders decreased across all segments, with PPA at $5.2 billion, SAT at $2.1 billion, and CF at $2.2 billion, reflecting a decline in demand.
• The company implemented employee-separation programs, incurring $157 million in expenses, with estimated annual pretax savings of about $220 million.
• Deere's net income attributable to the company decreased to $7.1 billion, and diluted earnings per share decreased to $25.62.
• The company is forecasting lower operating cash flows from equipment operations in 2025 compared with 2024 driven by a decrease in net income adjusted for non-cash provisions, partially offset by higher cash flows generated from inventory reductions.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with a clear downturn in financial performance, but also highlights strategic investments and ongoing efforts to adapt to market changes. The overall sentiment is cautiously negative due to the significant decrease in sales and income.

Positives

• The financial services segment experienced a 17% increase in revenue, driven by higher average financing receivable portfolios and higher average financing rates.
• The company is focused on structural profitability and strategically investing in solutions that deliver value to customers.
• The company is proactively increasing the resiliency of its supply chain and actively monitoring supply chain risks to minimize the likelihood of business disruptions.
• The company is working toward production of a fully autonomous, battery-powered agricultural tractor and has launched several models of electric turf and compact construction products.

Negatives

• Net sales decreased in 2024 due to lower sales volumes across all equipment operations segments.
• The company experienced unfavorable market conditions, resulting in lower sales volumes, higher sales incentives, higher receivable write-offs, and an increase in expected credit losses.
• Backlog orders decreased significantly across all segments, indicating a decline in demand.
• The company implemented employee-separation programs, incurring $157 million in expenses.
• Net income attributable to Deere & Company decreased to $7.1 billion, and diluted earnings per share decreased to $25.62.
• The company is forecasting lower operating cash flows from equipment operations in 2025 compared with 2024.

Risks

• The company's financial results are largely dependent on the agricultural market business cycle and general economic conditions.
• The company may be unable to manage increasing political, economic, and social uncertainty in certain regions of the world.
• Changes in the availability and price of certain raw materials, components, and whole goods could result in disruptions to the supply chain.
• Unfavorable weather conditions or natural catastrophes could reduce agricultural production and demand for equipment.
• The company could be adversely affected by the infringement or loss of intellectual property rights.
• Security breaches and other disruptions to the company's information technology infrastructure could interfere with operations.
• The company may face risks associated with international, national, and regional trade laws, regulations, and policies.
• Legal proceedings, disputes, and government inquiries and investigations could harm the company's business, financial condition, reputation, and brand.

Future Outlook

Agriculture and turf equipment sales are projected to decline in 2025 due to contraction of agriculture markets globally. Construction equipment sales are projected to decline in 2025 as healthy end markets are offset by continued uncertainty in equipment purchases. Roadbuilding equipment sales are anticipated to be generally flat.

Management Comments

• We continue to focus on structural profitability and strategically investing in solutions that deliver value to our customers.
• We are measuring our customers utilization of our technology, in part, by the number of engaged acres, which is a measure of our PPA and SAT customers use of the John Deere Operations Center (our online farm management system).

Industry Context

The agricultural equipment industry is becoming more competitive through the emergence and global expansion of many competitors. As technology increasingly enables enhanced productivity in agriculture, the industry is also attracting non-traditional competitors, including technology-focused companies and start-up ventures.

Comparison to Industry Standards

• The competitive environment for the agriculture and turf operations includes some global competitors, such as AGCO Corporation, CLAAS KGaA mbH, CNH Industrial N.V., Kubota Tractor Corporation, Mahindra & Mahindra Limited, and The Toro Company.
• Global competitors of the CF segment include Caterpillar Inc., CNH Industrial N.V., Doosan Infracore Co., Ltd. and its subsidiary Doosan Bobcat Inc., Fayat Group, GOMACO Corporation, Hitachi Construction Machinery, Komatsu Ltd., Kubota Tractor Corporation, Ponsse Plc, SANY Group Co., Ltd., Terex, Tigercat Industries Inc., Volvo Construction Equipment (part of Volvo Group AB), and XCMG.

Management Changes

Legal Proceedings

• In fiscal year 2024, we agreed to pay approximately $10.0 million to the Commission to resolve charges that the Company violated the FCPA arising out of improper payments by our wholly-owned subsidiary, Wirtgen Thailand.
• We are currently subject to a consolidated multidistrict class action lawsuit in the Northern District of Illinois alleging that we have engaged in attempted monopolization, exclusionary conduct, and restraint of the market for repair services for John Deere brand agricultural equipment by limiting repair resources only to our authorized technicians or independent authorized John Deere dealers.
• In addition, the Federal Trade Commission (FTC) is investigating whether we have violated laws in connection with the repair of John Deere brand agricultural equipment, as well as our information security practices and statements as they relate to the risk of unauthorized access to our computer systems, products, and services.

Related Party Transactions

• In the fourth quarter of fiscal year 2024, we entered into a joint venture agreement with a Brazilian bank, Banco Bradesco S.A. (Bradesco), for Bradesco to invest and become 50 percent owner of our subsidiary in Brazil, Banco John Deere S.A.

Stakeholder Impact

• Shareholders may experience decreased returns due to lower net income and earnings per share.
• Employees may be affected by workforce reductions and changes in compensation.
• Customers may experience changes in product availability and pricing due to supply chain disruptions and market conditions.
• Suppliers may be impacted by changes in demand and sourcing strategies.
• Creditors may be affected by changes in the company's financial performance and credit ratings.

Next Steps

• The company plans to continue to focus on structural profitability and strategically investing in solutions that deliver value to customers.
• The company plans to continue to work toward production of a fully autonomous, battery-powered agricultural tractor and has launched several models of electric turf and compact construction products.
• The company plans to enhance how it delivers value by investing in a Solutions as a Service business model.

Key Dates

Keywords

agricultural equipment, construction equipment, financial services, precision agriculture, technology solutions, supply chain, market conditions, net sales, operating profit, backlog orders