Deere & Company — FY2021 Form 10-K Summary
Business context and reporting period
Deere & Company filed its annual report for the fiscal year ended October 31, 2021 (52 weeks). The business comprises production and precision agriculture, small agriculture and turf, construction and forestry, and financial services. The company reorganized agriculture and turf into two reporting segments in 2021; prior-period segment results were recast. The filing includes fourth-quarter developments, including a UAW strike that reduced production and shipments.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales and revenues | $44.024 billion | $35.540 billion |
| Equipment operations net sales | $39.737 billion | $31.272 billion |
| Net income attributable to Deere & Company | $5.963 billion | $2.751 billion |
| Diluted EPS | $18.99 | $8.69 |
| Operating cash flow | $7.726 billion | $7.483 billion |
| Cash used for investing activities | $5.750 billion | $3.319 billion |
| Cash used for financing activities | $1.078 billion | $0.980 billion |
- Consolidated revenue increased 24%; equipment sales rose 27%. Earnings were more than twice FY2020, which included $458 million of after-tax impairment and employee-separation costs and less favorable discrete tax adjustments.
- Equipment operations operating profit was $6.868 billion, up 93%. Cost of sales was 73.3% of net sales versus 75.7% in 2020, reflecting price realization and the prior-year charges.
- Segment results: production and precision agriculture sales were $16.509 billion and operating profit $3.334 billion (20.2% margin); small agriculture and turf sales were $11.860 billion and operating profit $2.045 billion (17.2% margin); construction and forestry sales were $11.368 billion and operating profit $1.489 billion (13.1% margin).
- Financial services net income was $881 million, up 56%, despite revenue declining 2% to $3.794 billion. Improvement reflected higher portfolio income, better financing spreads, lower credit-loss provisions, and improved operating-lease residual values.
- Cash, cash equivalents, and marketable securities totaled $8.745 billion at year-end. Consolidated balance-sheet borrowings comprised $10.919 billion of short-term borrowings, $4.605 billion of short-term securitization borrowings, and $32.888 billion of long-term borrowings. These totals include financial-services funding.
- Equipment operations interest-bearing debt, excluding finance leases, was $10.373 billion; debt to capital was 36%, down from 45% in 2020. Financial services external interest-bearing debt was $37.978 billion; debt to equity was 7.8-to-1, unchanged year over year.
- Worldwide credit lines totaled $8.336 billion, of which $5.770 billion was unused. Deere reported compliance with its credit covenants. Stockholders’ equity increased to $18.431 billion from $12.937 billion.
Material changes and notable items
- All three equipment segments recorded 27% sales growth, driven primarily by higher shipment volumes and price realization; higher production costs partly offset the benefit.
- Firm backlog at October 31, 2021 was $9.6 billion in production and precision agriculture, $5.2 billion in small agriculture and turf, and $6.7 billion in construction and forestry, compared with $4.9 billion, $3.3 billion, and $2.1 billion, respectively, a year earlier.
- In the fourth quarter, a UAW strike beginning October 14 affected more than 10,000 workers at 14 U.S. facilities and reduced production and shipments. The strike ended after ratification of a six-year agreement on November 17.
- Cash generated from operations was partly offset by investment in receivables and leases, capital spending, $2.538 billion of share repurchases, and $1.040 billion of dividends paid. Inventory increased $1.782 billion in equipment operations.
Outlook, commentary, and risks
- Management cited strong end-market demand and positive fundamentals, including favorable crop prices, economic growth, and increased infrastructure investment. The filing forecasts 2022 industry sales: large agricultural machinery in the U.S. and Canada up about 15%; small agriculture and turf flat; Europe agriculture up about 5%; South American tractors and combines up roughly 5%; North American construction equipment up 5–10%; and global forestry up 10–15%. These are industry forecasts, not Deere sales guidance.
- Financial-services results in FY2022 were expected to be slightly lower, due to higher credit-loss provisions, lower operating-lease residual-value gains, and higher selling, administrative, and general expenses, partly offset by a larger average portfolio. The supplied filing text does not provide a clear consolidated FY2022 net-income or EPS forecast.
- Supply shortages, logistics constraints, labor availability, and inflationary cost pressures affected operations and were expected to persist into at least early FY2022. Management said it was working with suppliers to secure critical components.
- The UAW agreement includes an $8,500 ratification payment per eligible employee, totaling $90 million, and wage increases. The payment was to be expensed in Q1 FY2022; the strike was expected to adversely affect results for the three months ending January 30, 2022. The agreement also reduced the U.S. hourly pension plan’s funded status by approximately $495 million and was expected to increase 2022 pension expense by nearly $80 million.
- Other subsequent events include a voluntary $1.0 billion U.S. OPEB contribution in November 2021; renewal of a securitization facility at a reduced capacity, prompting repayment of $511 million of borrowings; and a planned Hitachi joint-venture termination, including $275 million initial cash consideration and assumption of substantially all related entity liabilities and debt. Deere also announced a planned majority investment in Kreisel Electric for €221 million.
- Special items in FY2021 included a $58 million favorable Brazilian indirect-tax ruling, a $27 million gain on a China factory sale, and $50 million of long-lived-asset impairments—net pretax benefit of $35 million. Deere acquired Bear Flag Robotics for $225 million net of acquired cash, with an additional $25 million to be recognized as compensation expense over four years.
- Principal risks include pandemic-related disruption, supply-chain constraints, labor disputes, commodity and farm-income variability, interest and foreign-exchange movements, credit losses and used-equipment residual values, geopolitical and regulatory changes, cybersecurity and data privacy, and execution of precision-technology and strategic initiatives.
Investor facts to verify
- Whether strong backlogs convert to shipments and sales as supply-chain constraints ease, and how production costs and pricing affect margins.
- Fourth-quarter strike effects and FY2022 labor-related costs, including the ratification payment and pension expense.
- Financial-services credit quality, residual-value assumptions, portfolio growth, funding costs, and the reduced securitization facility capacity.
- Cash deployment, including the $1.0 billion OPEB contribution, planned Hitachi and Kreisel transactions, dividends, and remaining share-repurchase authorization.
- Underlying comparability of FY2021 earnings, considering the prior-year impairments and separation costs and FY2021 special items. Deloitte issued unqualified opinions on the financial statements and internal controls; sales incentives and the credit-loss allowance were identified as critical audit matters.