Key Metrics
- Net Sales and Revenues: $13,152 million (-17% yoy)
- Financial Services Revenue: $1,667 million (+15% yoy)
- Net Sales - Production and Precision Agriculture: $5,099 million (-25% yoy)
- Operating Profit - Production and Precision Agriculture: $1,162 million (-35% yoy)
- Net Sales - Small Agriculture and Turf: $3,053 million (-18% yoy)
- Operating Profit - Small Agriculture and Turf: $496 million (-32% yoy)
- Net Sales - Construction and Forestry: $3,235 million (-13% yoy)
- Operating Profit - Construction and Forestry: $448 million (-37% yoy)
Forward guidance
- Net Income Guidance: For fiscal year 2024, Deere maintains its outlook for net income at approximately $7 billion.
- Effective Tax Rate: The effective tax rate is projected to be between 23% and 25% for fiscal year 2024.
- Cash Flow from Equipment Operations: Cash flow from equipment operations is now projected to be in the range of $6 billion to $6.5 billion.
- Production and Precision Ag Sales Forecast: Net sales for the Production and Precision Ag segment are expected to be down between 20% and 25% for the full year, with an operating margin forecast between 20.5% and 21.5%.
- Small Ag and Turf Sales Forecast: Net sales for the Small Ag and Turf segment are expected to remain down between 20% and 25%, with an operating margin forecast between 13.5% and 14.5%.
- Construction and Forestry Sales Guidance: Net sales for the Construction and Forestry segment are now expected to be down between 10% and 15% for fiscal year 2024, with an operating margin projected around 15%.
- Underproduction Strategy: Deere plans to implement a mid-single-digit underproduction strategy in construction equipment for the remainder of the year to align with demand.
Key takeaways
- Positives:
- John May emphasized proactive inventory management, stating, "We are taking action more quickly and making more aggressive decisions to ensure that inventory levels remain balanced as markets soften," indicating a strategic approach to navigate current market challenges.
- Josh Beal noted that despite a challenging macro backdrop, Deere maintained an 18.5% margin, showcasing effective cost control and inventory management: "By keeping inventories in check, we've been able to maintain solid price realization."
- The company is investing in technology, with John May highlighting, "Our machines are delivering ever greater cost savings and promoting sustainable operations for our customers," suggesting a focus on long-term growth through innovation.
- Negatives:
- Josh Rohleder pointed out that "Ag fundamentals remain muted," with lower shipment volumes and reduced demand impacting net sales, which were down 20% year-over-year.
- John May acknowledged the pressure on farmers due to "softer commodity prices and elevated interest rates," which are leading to reduced equipment demand and declining farm margins.
- The construction segment is facing increased competition and rising used inventory levels, with Beal stating, "We are witnessing a sequential slowdown in single-family housing starts amid interest rate uncertainty," indicating a challenging environment for construction equipment sales.
- The company is implementing significant underproduction strategies, with Jepsen noting, "Underproduction is probably 1.5 points to 2 points of margin drag," which could impact profitability in the near term.
Peer Summary
- Construction Equipment: Caterpillar reported a 7% decline in sales to users in Construction Industries, with ongoing weakness expected in Q4, indicating a challenging environment. They noted, "Sales to users in Construction Industries were down 7% year-over-year," reflecting broader market pressures.
- Agricultural Equipment: AGCO experienced a 25% sales decline, attributing it to "lower farm income" impacting purchasing behavior. They highlighted, "Retail tractor sales down 11% in North America," indicating significant sector-wide demand challenges.
- Lawn and Garden Equipment: Toro's professional segment saw a low single-digit decline, with caution noted in homeowner-facing businesses due to "high interest rates and consumer uncertainty," suggesting a cautious consumer sentiment affecting sales.
- ATV Manufacturing: Polaris reported a 23% sales drop, with ongoing macroeconomic challenges leading to a cautious outlook. They stated, "We do not expect a significant change in demand as we move through the end of 2024," reflecting broader industry headwinds.
