Business context and reporting period
Deere & Company’s Form 10-K covers the fiscal year ended October 31, 2012. The filing also reports fourth-quarter results; fiscal quarters ended in January, April, July and October. Deere operates agriculture and turf, construction and forestry, and financial services businesses.
Financial performance and key metrics
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales and revenues | $36.157 billion | $32.013 billion |
| Net sales, equipment operations | $33.501 billion | $29.466 billion |
| Net income attributable to Deere | $3.065 billion | $2.800 billion |
| Diluted EPS | $7.63 | $6.63 |
| Operating profit, equipment operations | $4.397 billion | $3.839 billion |
| Cost of sales / net sales | 74.6% | 74.4% |
| Operating cash flow | $1.168 billion | $2.326 billion |
| Cash and marketable securities at year-end | $6.123 billion | $4.435 billion |
| Long-term borrowings at year-end | $22.453 billion | $16.960 billion |
Fourth-quarter net sales and revenues were $9.792 billion versus $8.612 billion a year earlier; net income attributable to Deere was $688 million versus $670 million, and diluted EPS was $1.75 versus $1.62. The filing does not provide a clear standalone fourth-quarter cash-flow figure.
Fiscal 2012 investing cash outflow was $4.004 billion and financing cash inflow was $3.880 billion. Property and equipment purchases were $1.319 billion. Deere repurchased $1.588 billion of common stock and paid $698 million in dividends. Total assets were $56.266 billion, versus $48.207 billion; Deere stockholders’ equity was $6.842 billion, versus $6.800 billion.
Material changes versus prior year
- Revenue rose 13% and Deere-attributable net income increased about 9%; equipment sales rose 14%, including 4% improved price realization and a 3% unfavorable currency effect.
- Agriculture and turf sales increased 13%, with operating profit rising to $3.921 billion from $3.447 billion. Construction and forestry sales increased 19%, with operating profit up to $476 million from $392 million.
- Financial services net income attributable to Deere declined to $460 million from $471 million. Management cited higher expenses and crop-insurance reserves and narrower financing spreads, partly offset by portfolio growth and lower credit-loss provisions.
- Cash from operations fell to $1.168 billion from $2.326 billion, primarily amid increases in receivables, inventories and insurance receivables. Consolidated borrowings rose, including equipment-operations debt of $5.870 billion versus $3.696 billion.
Outlook, commentary and risks
For fiscal 2013, Deere forecast equipment sales growth of about 5% overall and approximately 10% in the first quarter, and net income attributable to Deere of approximately $3.2 billion. It forecast agriculture and turf sales growth of about 4%, construction and forestry growth of about 8%, and financial services net income of approximately $500 million.
Management expected relatively high commodity prices and strong farm incomes to support farm machinery demand, while citing weaker European conditions, softer conditions in parts of Asia, drought and commodity-price volatility, economic and credit-market uncertainty, and component availability as concerns. Financial services’ projected improvement depended on credit-portfolio growth and lower crop-insurance claims, partly offset by an expected return of credit-loss provisions toward more typical levels.
Other material risks include adverse weather and lower farm income; currency and interest-rate movements; funding access and customer defaults; raw-material or supplier disruptions; competition; increasingly stringent engine-emissions requirements and related costs; pension and postretirement obligations; regulatory and trade changes; and technology, cybersecurity and GPS signal risks. Deere recorded a $33 million pretax ($31 million after-tax) non-cash goodwill impairment in John Deere Water; that reporting unit’s goodwill was fully written off. The company reported unresolved ordinary-course legal matters and said reasonably possible additional losses beyond accrued amounts were not expected to materially affect its financial statements.
Important facts for investors to verify
- Whether fiscal 2013 sales and earnings guidance was achieved, especially given the weather, commodity, regional-demand and currency assumptions.
- How increased debt and financing-portfolio growth affected funding costs, liquidity and credit quality; year-end cash and marketable securities were $6.123 billion, while total short-term borrowings, securitization borrowings and long-term borrowings were approximately $32.4 billion.
- Whether production-cost, raw-material, emissions-compliance and research-and-development pressures continued to affect equipment margins.
- Developments in pension and postretirement obligations: net pension liabilities were $1.817 billion and health-care and life-insurance liabilities were $5.736 billion at year-end; expected 2013 plan contributions were approximately $554 million.
- Progress on the $2.489 billion remaining under the share-repurchase authorization and the sustainability of dividends and capital spending.