Business context and reporting period
Deere & Company’s Form 10-K covers fiscal 2023, ended October 29, 2023—not a standalone 2023 fourth quarter. The company reports production and precision agriculture (PPA), small agriculture and turf (SAT), construction and forestry (CF), and financial services (FS). Amounts below are U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and key metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total net sales and revenues | $61,251 | $52,577 |
| Equipment operations net sales | $55,565 | $47,917 |
| Net income attributable to Deere & Company | $10,166 | $7,131 |
| Diluted earnings per share | $34.63 | $23.28 |
| Net cash from operating activities | $8,589 | $4,699 |
| Net cash used for investing activities | ($8,749) | ($8,485) |
| Net cash from financing activities | $2,808 | $826 |
| Cash and cash equivalents at year-end | $7,458 | $4,774 |
- Total revenue increased 16%; equipment net sales rose 16%. Management attributed growth to strong demand and favorable industry fundamentals. Net income grew faster than sales as price realization outpaced cost increases.
- Cost of sales as a share of equipment net sales improved to 67.9% from 73.7%. Price realization was favorable; production costs remained unfavorable due to materials, incentives, and manufacturing overhead, partly offset by lower freight and improved efficiency.
- Segment results: PPA sales $26,790 (+22%), operating profit $6,996, margin 26.1% (19.9% prior year); SAT sales $13,980 (+4%), profit $2,472, margin 17.7% (14.6%); CF sales $14,795 (+18%), profit $2,695, margin 18.2% (16.1%).
- FS revenue, including intercompany amounts, was $5,554 (+36%); net income fell 30% to $619, reflecting financing-spread pressure and an accounting correction. Higher portfolio balances and financing rates increased revenue, while interest expense rose sharply.
- Balance sheet: total assets were $104,087 versus $90,030; total liabilities were $82,201 versus $69,673; Deere stockholders’ equity was $21,785 versus $20,262. Borrowings were $17,939 short-term, $6,995 short-term securitization, and $38,477 long-term. These figures include substantial financing-business funding and should be assessed in that context.
- Operating cash flow improved with higher earnings and lower inventory, partly offset by higher sales-related receivables. Investing outflows primarily reflected growth in financing receivables and leases, plus capital investment. Share repurchases were $7,216 and dividends paid were $1,427.
Material changes versus the prior comparable period
- All three equipment segments reported higher operating profit and margins. SAT sales volume declined, but price realization supported sales growth; PPA and CF benefited from higher shipment volumes and pricing.
- FS net income decreased from $880 to $619. Management cited $170 million of after-tax unfavorable financing-spread impact in FY2023 versus FY2022, in addition to the dealer-incentive accounting correction.
- Supply-chain conditions improved, production returned closer to historical seasonal patterns, and freight costs moderated. Inventory declined to $8,160 from $8,495.
- Equipment backlog fell year over year: PPA $7.9 billion from $9.7 billion; SAT $3.3 billion from $4.6 billion; CF $6.4 billion from $8.2 billion. The filing attributes the decline to easing demand.
Guidance, outlook, risks, contingencies, and unusual items
- For FY2024, Deere expects demand to decline and production volumes to move to more normal levels. Large agricultural equipment sales are expected to decline in North America, Europe, and South America; small agriculture demand is expected to moderate in Europe; and turf and utility sales are expected to be lower. Construction industry sales are forecast below FY2023. The filing text provided does not give a clear consolidated FY2024 net-income or EPS target.
- Management forecasts lower operating cash flow in FY2024 and approximately $1.9 billion of capital expenditures. It expects about $225 million of pension and OPEB contributions. Borrowing payments of $21.2 billion and interest payments of $2.2 billion were due within the next year as of year-end; management expects refinancing to support the financing portfolio. Worldwide credit lines totaled $10.5 billion, of which $0.8 billion was unused.
- Rising interest rates may continue to compress FS spreads and weigh on customer demand, especially discretionary and residential products. Other key exposures include farm commodity prices and customer income, construction activity, used-equipment values, weather, foreign exchange, supply and material costs, labor relations, and geopolitical and trade developments.
- FY2023 unusual items included a $243 million reduction in income-tax provision and $47 million of interest income from a favorable Brazil tax ruling; an unfavorable $173 million pretax ($135 million after-tax) cumulative correction to dealer financing-incentive accounting, not treated as a restatement; and an $18 million loss on the sale of the Russian roadbuilding business. Deere also sold its Russian financial-services business in FY2023.
- Legal matters include a consolidated U.S. class-action lawsuit alleging restrictions on agricultural-equipment repair and an FTC investigation into repair practices and information-security matters. Deere says it is cooperating and cannot predict the outcomes. It states that accrued losses for unresolved legal actions are not material and that the reasonably possible loss range is not expected to materially affect the financial statements.
- Other strategic risks include successful adoption and monetization of precision and autonomous technologies, cybersecurity and data privacy, emissions regulation, and the execution of its Smart Industrial Operating Model and Leap Ambitions. The company reported audited financial statements with an unqualified opinion and effective internal control over financial reporting.
Important facts an investor should verify
- Whether FY2024 demand, production, and backlog trends develop as management expects, and how pricing and production normalization affect margins.
- Whether rising funding costs continue to compress FS spreads, and whether credit quality, delinquencies, and used-equipment residual values remain controlled as portfolios grow.
- How much of reported earnings and cash generation is sustainable after considering the Brazil tax benefit, dealer-incentive correction, and prior-year special items.
- The funding and refinancing profile of FS borrowings and securitizations, available liquidity, and planned capital returns relative to operating cash flow.
- Developments in the repair-related lawsuit and FTC investigation, as well as the financial and operational consequences of Russia-related dispositions.