Business Context and Reporting Period
Company: DEERE & CO
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended July 31, 1996
Business Overview: Deere & Company operates in two primary segments: Equipment Operations (agricultural, industrial, and commercial/consumer equipment) and Financial Services (credit, insurance, and health care). The company reported record earnings for both the quarter and the year-to-date period.
Key Financial Metrics
| Metric (Millions USD) | 3 Months Ended July 31, 1996 | 3 Months Ended July 31, 1995 | 9 Months Ended July 31, 1996 | 9 Months Ended July 31, 1995 |
|---|---|---|---|---|
| Total Net Sales & Revenues | $2,904.6 | $2,672.9 | $8,310.8 | $7,572.1 |
| Net Income | $204.4 | $180.1 | $643.4 | $555.5 |
| Diluted EPS | $0.79 | $0.69 | $2.46 | $2.14 |
| Operating Cash Flow (9 Mo) | $364.2 (1996) vs $(71.8) (1995) | |||
| Short-Term Borrowings | $3,958.0 | $3,248.0 | (Balance Sheet Data) | |
| Long-Term Borrowings | $2,098.8 | $2,377.1 | (Balance Sheet Data) | |
| Cash & Equivalents | $301.2 | $426.7 | (Balance Sheet Data) |
Material Changes vs. Prior Period
- Revenue Growth: Total net sales and revenues increased 9% in the quarter and 10% year-to-date compared to 1995. Equipment net sales rose 9% in the quarter and 10% year-to-date.
- Profitability: Net income increased 13% in the quarter and 16% year-to-date. Equipment Operations income rose 13% in the quarter and 15% year-to-date.
- Segment Performance:
- Agricultural Equipment: Net sales increased 18% (quarter) and 16% (9 months); operating profit increased 38% (quarter) and 22% (9 months).
- Industrial Equipment: Net sales decreased 2% (quarter); operating profit decreased 16% (quarter) due to new engine development expenses.
- Commercial/Consumer: Net sales decreased 6% (quarter); operating profit decreased 61% (quarter) due to lower volume and weather impacts.
- Financial Services: Credit operations net income increased 26% (quarter) and 19% (9 months) driven by a larger portfolio.
- Cash Flow: Operating cash flow turned positive at $364.2 million for the nine months ended July 31, 1996, compared to a negative $71.8 million in the prior year period.
- Debt Levels: Total short-term borrowings increased to $3,958.0 million from $3,248.0 million year-over-year, while long-term borrowings decreased to $2,098.8 million from $2,377.1 million.
Guidance, Outlook, and Risks
- Outlook: Management projects worldwide physical volume of sales to dealers will increase approximately 7% for the full year compared to 1995. Overseas sales are expected to exceed $2.5 billion for the year.
- Market Drivers: Strong grain and oilseed prices, low world grain stocks, and the "freedom to farm" bill are supporting agricultural demand. Industrial demand remains strong due to housing starts.
- Risks & Contingencies:
- Weather: Erratic weather in North America has reduced commercial and consumer equipment sales.
- Legal: The company faces unresolved legal actions regarding product liability, retail credit, and patents, though management does not expect a material effect.
- Foreign Exchange: A strengthening dollar impacts export markets, though demand remains resilient.
- Capital Allocation: The company announced a $500 million stock repurchase program in February 1996; $155 million was repurchased in the first nine months of 1996. A quarterly dividend of $0.20 per share was declared.
Investor Verification Checklist
- Overseas Sales Volume: Verify the 30% increase in overseas net sales and the specific impact of the $187 million Ukraine combine contract.
- Dealer Receivables: Monitor the $3,503.7 million in dealer accounts and notes receivable, noting the 7% portion outstanding over 12 months.
- Financial Services Leverage: Review the credit subsidiaries' debt-to-equity ratio of 6.2 to 1 and the $5,045 million in outside interest-bearing debt.
- Inventory Levels: Confirm the $221 million increase in company-owned inventories is aligned with seasonal demand and not indicative of overstocking.
- Stock Repurchases: Track the remaining capacity of the $500 million buyback program and its impact on share count.