Deere & Company FY2022 10-K Summary
Business context and reporting period
Deere & Company manufactures agricultural, turf, construction, roadbuilding, and forestry equipment and provides equipment financing. Its four reportable segments are Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services. This is the annual report for the fiscal year ended October 30, 2022 (52 weeks), compared primarily with fiscal 2021; it is not a standalone fourth-quarter report.
Financial results and key metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales and revenues | $52.577 billion | $44.024 billion |
| Equipment net sales | $47.917 billion | $39.737 billion |
| Net income attributable to Deere | $7.131 billion | $5.963 billion |
| Diluted earnings per share | $23.28 | $18.99 |
| Operating cash flow | $4.699 billion | $7.726 billion |
| Cash, cash equivalents, and marketable securities | $5.508 billion | $8.745 billion |
| Inventories | $8.495 billion | $6.781 billion |
Revenue increased 19% and equipment net sales increased 21%, driven mainly by higher shipments and price realization, partly offset by unfavorable currency translation. Net income rose 20%. Cost of sales was 73.7% of equipment net sales, versus 73.3% in 2021; higher production costs partly offset price realization.
- Production and Precision Agriculture: sales $22.002 billion, up 33%; operating profit $4.386 billion, up 32%; operating margin 19.9%, versus 20.2%.
- Small Agriculture and Turf: sales $13.381 billion, up 13%; operating profit $1.949 billion, down 5%; margin 14.6%, versus 17.2%.
- Construction and Forestry: sales $12.534 billion, up 10%; operating profit $2.014 billion, up 35%; margin 16.1%, versus 13.1%.
- Financial Services: revenue $4.085 billion, up 8%; net income $880 million, essentially flat. Higher portfolio income was offset by narrower financing spreads, higher credit-loss provisions, and tax adjustments.
Operating cash flow declined as receivables and inventory grew and Deere made a $1.0 billion voluntary contribution to a U.S. postretirement-benefit plan. Investing activities used $8.485 billion, principally reflecting growth in financing receivables and leases, capital spending, and acquisitions. Financing activities provided $826 million. Deere repurchased $3.597 billion of shares and paid $1.313 billion in dividends.
At year-end, total assets were $90.030 billion and stockholders’ equity was $20.265 billion. Balance-sheet borrowings included $12.592 billion short-term, $5.711 billion short-term securitization, and $33.596 billion long-term. Financial Services’ interest-bearing debt-to-equity ratio was 8.5:1, up from 7.8:1. Worldwide bank credit lines totaled $8.402 billion, of which $3.284 billion was unused. Management said it expected sufficient liquidity for short- and long-term needs.
Material changes and unusual items
- FY2022 results included a $326 million non-cash gain from remeasuring Deere’s previously held investment in the Deere-Hitachi joint venture after Deere acquired the former joint venture factories. The company also recorded $255 million of pretax Russia/Ukraine-related expenses ($215 million after tax), including asset impairments, inventory reserves, credit provisions, and separation costs, as well as a $90 million UAW ratification bonus.
- The Hitachi joint venture ended in FY2022. Hitachi continues to supply certain Deere-branded excavators under a new agreement; Deere’s marketing arrangement for Hitachi-branded construction excavators and mining equipment in the Americas ended.
- Supply-chain constraints, inflation, freight costs, and production inefficiencies increased costs and contributed to higher inventory. Inventory rose by $1.714 billion; management cautioned that typical seasonal inventory reductions might not occur in 2023.
- Deere acquired majority ownership of battery technology company Kreisel Electric and made several other technology-related acquisitions and investments. Research and development expense increased 20% to $1.912 billion.
Outlook, management commentary, and risks
Management reported strong equipment demand and order books full through most of 2023, with solid agricultural fundamentals expected to continue. Industry forecasts—not company revenue or earnings guidance—called for 2023 large agricultural machinery sales up 5%–10% in the U.S. and Canada; small agriculture and turf flat to down 5% there; and North American construction and compact construction equipment flat to up 5%. Global forestry and roadbuilding industry sales were forecast to be flat. Deere expected to sell more large agricultural equipment in North America, Europe, and South America than in 2022, while U.S. turf and utility sales were expected to be lower. It anticipated dealer inventory replenishment in 2024.
Financial Services net income was expected to be slightly higher in FY2023, as a larger average portfolio would be partly offset by less-favorable spreads and lower operating-lease residual-value gains. Excluding the Russia portfolio, Deere forecast a higher credit-loss provision. The company also expected supply-chain pressures, inflation, and interest-rate increases to persist into 2023; further rate increases could prolong Financial Services spread compression. Management forecast higher operating cash flow in 2023 but did not provide a clear consolidated FY2023 earnings or revenue forecast in the filing text provided.
- Key risks include supply-chain disruption and input-cost inflation; rising interest rates and funding costs; recession or weaker customer demand; agricultural commodity prices, weather, and farm income; currency and geopolitical risks, including Russia/Ukraine; credit losses and lease residual values; labor disruptions; and successful adoption and monetization of precision, autonomous, and other new technologies.
- Deere disclosed antitrust class-action lawsuits alleging unlawful monopolization of repair services for agricultural equipment. The company said the reasonably possible loss range for unresolved legal actions was not expected to have a material effect on its financial statements.
- The company reported effective disclosure controls and internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much FY2022 earnings depended on the one-time $326 million non-cash Deere-Hitachi gain, and the full after-tax effect of special items.
- Whether Deere can convert substantial backlogs into shipments amid ongoing supply constraints, and whether inventory and working capital normalize as expected.
- Whether price realization continues to offset material, freight, labor, and financing-cost inflation without weakening customer demand or margins.
- Financial Services credit quality, Russia-related exposure, funding costs, spread compression, and operating-lease residual values as interest rates and used-equipment markets change.
- The progress and costs of technology investments and acquisitions, including adoption of precision and autonomous products and achievement of Leap Ambitions.
- The implications of the repair-services antitrust litigation and other legal, regulatory, labor, and geopolitical developments.