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Deere Reports Third Quarter Net Income of $1.884 Billion

·13 min read
  • Third-quarter net sales rise 25%, bolstered by higher rates of production, despite continuing supply-chain pressures.

  • Full-year earnings outlook revised to range of $7.0$7.2 billion.

  • Strong order books and positive customer fundamentals to drive demand in 2023.

MOLINE, Ill., Aug. 19, 2022 /CNW/ -- Deere & Company (NYSE: DE) reported net income of $1.884 billion for the third quarter ended July 31, 2022, or $6.16 per share, compared with net income of $1.667 billion, or $5.32 per share, for the quarter ended August 1, 2021. For the first nine months of the year, net income attributable to Deere & Company was $4.885 billion, or $15.88 per share, compared with $4.680 billion, or $14.86 per share, for the same period last year.

Net sales and revenues increased 22 percent, to $14.102 billion, for the third quarter of 2022 and rose 13 percent, to $37.041 billion, for nine months. Net sales were $13.000 billion for the quarter and $33.565 billion for nine months, compared with $10.413 billion and $29.461 billion last year.

"We're proud of the extraordinary efforts by our employees to increase factory output and get products to customers under challenging circumstances," said John C. May, chairman and chief executive officer. "At the same time, our results reflected higher costs and production inefficiencies driven by the difficult supply-chain situation."

Company Outlook & Summary

Net income attributable to Deere & Company for fiscal 2022 is forecast to be in a range of $7.0 billion to $7.2 billion.

"Looking ahead, we believe favorable conditions will continue into 2023 based on the strong response we have experienced to early-order programs," said May. "We are working closely with our factories and suppliers to meet higher levels of customer demand next year. Additionally, we are confident the company's smart industrial strategy and leap ambitions will continue unlocking new value for customers through Deere's advanced technologies and solutions."

Deere & Company


Third Quarter


Year to Date


$ in millions, except per share amounts


2022


2021


% Change


2022


2021


% Change


Net sales and revenues


$

14,102


$

11,527


22 %


$

37,041


$

32,697


13 %


Net income


$

1,884


$

1,667


13 %


$

4,885


$

4,680


4 %


Fully diluted EPS


$

6.16


$

5.32




$

15.88


$

14.86




Results for the presented periods were affected by special items. See Note 1 of the financial statements in this earnings release for further details.

Production & Precision Agriculture


Third Quarter


$ in millions


2022


2021


% Change


Net sales


$

6,096


$

4,250


43 %


Operating profit


$

1,293


$

906


43 %


Operating margin



21.2 %



21.3 %




Production and precision agriculture sales increased for the quarter due to higher shipment volumes and price realization, partially offset by the unfavorable impact of currency translation. Operating profit rose primarily due to price realization and higher shipment volumes / sales mix. These items were partially offset by higher production costs, higher selling, administrative, and general expenses, increased research and development expenses, and the unfavorable effects of foreign currency exchange.

Small Agriculture & Turf


Third Quarter


$ in millions


2022


2021


% Change


Net sales


$

3,635


$

3,147


16 %


Operating profit


$

552


$

583


-5 %


Operating margin



15.2 %



18.5 %




Small agriculture and turf sales for the quarter increased due to higher shipment volumes and price realization partially offset by the unfavorable impact of currency translation. Operating profit decreased primarily due to higher production costs, higher selling, administrative, and general expenses, increased research and development expenses, and the unfavorable effects of foreign currency exchange. These items were partially offset by price realization and higher sales volumes. Results for the prior period included a gain on the sale of a closed factory in China that had produced small agricultural equipment.

Construction & Forestry


Third Quarter


$ in millions


2022


2021


% Change


Net sales


$

3,269


$

3,016


8 %


Operating profit


$

514


$

463


11 %


Operating margin



15.7 %



15.4 %




Construction and forestry sales moved higher for the quarter primarily due to price realization. Operating profit increased due to price realization, partially offset by higher production costs.

Financial Services


Third Quarter


$ in millions


2022


2021


% Change


Net income


$

209


$

227


-8 %


Financial services net income for the quarter was negatively affected by unfavorable discrete income-tax adjustments, a higher provision for credit losses, and lower gains on operating-lease residual values. These items were partially offset by income earned on a higher average portfolio.

Industry Outlook for Fiscal 2022








Agriculture & Turf








U.S. & Canada:








Large Ag






Up ~ 15%


Small Ag & Turf






~ Flat


Europe






~ Flat


South America (Tractors & Combines)






Up 10 to 15%


Asia






Down moderately










Construction & Forestry








U.S. & Canada:








Construction Equipment






Up ~ 10%


Compact Construction Equipment






Flat to Down 5%


Global Forestry






Flat to Down 5%


Global Roadbuilding






Flat to Up 5%


Deere Segment Outlook for Fiscal 2022




Currency


Price


$ in millions


Net Sales


Translation


Realization


Production & Precision Ag


Up 25 to 30%


-2 %


+14 %


Small Ag & Turf


Up 10 to 15%


-3 %


+9 %


Construction & Forestry


Up ~ 10%


-3 %


+10 %










Financial Services


Net Income


$ 870




Financial Services. Full-year 2022 results are expected to be slightly lower than in fiscal 2021 due to a higher provision for credit losses, less-favorable financing spreads, and higher selling, administrative, and general expenses. These factors are expected to be partially offset by income earned on a higher average portfolio.

John Deere Capital Corporation

The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market.



Third Quarter


Year to Date


$ in millions


2022


2021


% Change


2022


2021


% Change


Revenue


$

689


$

683


1 %


$

1,984


$

2,015


-2 %


Net income


$

173


$

186


-7 %


$

521


$

530


-2 %


Ending portfolio balance










$

45,185


$

41,508


9 %


Results in the quarter declined due to unfavorable discrete income-tax adjustments, less-favorable financing spreads, and lower gains on operating-lease residual values. Partially offsetting these factors was income earned on a higher average portfolio. For the year-to-date period, net income decreased mainly due to less-favorable financing spreads, a higher provision for credit losses, and unfavorable discrete income-tax adjustments, partially offset by income earned on a higher average portfolio.

FORWARD-LOOKING STATEMENTS

Certain statements contained herein, including in the sections entitled "Company Outlook & Summary," "Industry Outlook," and "Deere Segment Outlook," relating to future events, expectations, and trends constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and involve factors that are subject to change, assumptions, risks, and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect all lines of the company's operations while others could more heavily affect a particular line of business.

Forward-looking statements are based on currently available information and current assumptions, expectations, and projections about future events and should not be relied upon. Except as required by law, the company expressly disclaims any obligation to update or revise its forward-looking statements. Further information concerning the company and its businesses, including factors that could materially affect the company's financial results, is included in the company's other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. "Risk Factors" of the company's most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q).

Factors Affecting All Lines of Business

All of the company's businesses and their results are affected by general global macroeconomic conditions, including but not limited to inflation, including rising costs for materials used in our production, slower growth or recession, higher interest rates and currency fluctuations which could adversely affect the U.S. dollar and customer confidence, customer access to capital and overall demand for our products; delays or disruptions in the company's supply chain, including work stoppages or disputes by suppliers with their unionized labor; shipping delays; government spending and taxing; changes in weather and climate patterns; the political and social stability of the markets in which the company operates; the effects of, or response to, wars and other conflicts, including the current military conflict between Russia and Ukraine; natural disasters; and the spread of major epidemics or pandemics (including the COVID-19 pandemic). The sustainability of economic recovery from COVID-19 remains unclear and significant volatility could continue for a prolonged period.

Significant changes in market liquidity conditions, changes in the company's credit ratings, and any failure to comply with financial covenants in credit agreements could impact our access to or terms of future funding, which could reduce the company's earnings and cash flows. A debt crisis in Europe, Latin America, or elsewhere could negatively impact currencies, global financial markets, funding sources and costs, asset and obligation values, customers, suppliers, and demand for equipment. The company's investment management activities could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.

Additional factors that could materially affect the company's operations, financial condition, and results include changes in governmental trade, banking, monetary, and fiscal policies, including, policies, and tariffs for the benefit of certain industries or sectors; actions by environmental, health, and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, and the effects of climate change; changes to GPS radio frequency bands and their permitted uses; changes to accounting standards; changes to and compliance with economic sanctions and export controls laws and regulations (including those in place for Russia); and compliance with evolving U.S. and foreign laws when expanding to new markets and otherwise.

Other factors that could materially affect the company's results and operations include security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the company and its suppliers and dealers; security breaches with respect to the company's products; the loss of or challenges to intellectual property rights; the availability and prices of strategically sourced materials, components, and whole goods; introduction of legislation that could affect the company's business model and intellectual property, such as right to repair or right to modify; events that damage the company's reputation or brand; significant investigations, claims, lawsuits, or other legal proceedings; the success or failure of new product initiatives or business strategies; changes in product preferences, sales mix, and take rates of products and life cycle solutions; gaps or limitations in rural broadband coverage, capacity, and speed needed to support technology solutions; oil and energy prices, supplies, and volatility; the availability and cost of freight; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices, especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; the inability to deliver precision technology and agricultural solutions to customers; labor relations and contracts, including work stoppages and other disruptions; changes in the ability to attract, develop, engage, and retain qualified personnel; and the integration of acquired businesses.

Agricultural Equipment Operations

The company's agricultural equipment operations are subject to a number of uncertainties, including certain factors that affect farmers' confidence and financial condition. These factors include demand for agricultural products; world grain stocks; soil conditions; harvest yields; prices for commodities and livestock; availability and cost of fertilizer; availability of transport for crops; the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production); real estate values; available acreage for farming; changes in government farm programs and policies; changes in and effects of crop insurance programs; changes in environmental regulations and their impact on farming practices; animal diseases and their effects on poultry, beef, and pork consumption and prices on livestock feed demand; and crop pests and diseases.

Production and Precision Agriculture Operations

The production and precision agriculture operations rely in part on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence. Many factors contribute to the company's precision agriculture sales and results, including the impact to customers' profitability and/or sustainability outcomes; availability of technological innovations; speed of research and development; effectiveness of partnerships with third parties; and the dealer channel's ability to support and service precision technology solutions.

Small Agriculture and Turf Equipment

Factors affecting the company's small agriculture and turf equipment operations include customer profitability; consumer purchasing preferences; housing starts and supply; infrastructure investment; spending by municipalities and golf courses; and consumable input costs.

Construction and Forestry

Factors affecting the company's construction and forestry equipment operations include real estate and housing prices; the number of housing starts; commodity prices such as oil and gas; the levels of public and non-residential construction; and investment in infrastructure. Prices for pulp, paper, lumber, and structural panels affect sales of forestry equipment.

John Deere Financial

The liquidity and ongoing profitability of John Deere Capital Corporation and the company's other financial services subsidiaries depend on timely access to capital to meet future cash flow requirements, and to fund operations, costs, and purchases of the company's products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.

DEERE & COMPANY
THIRD QUARTER 2022 PRESS RELEASE
(In millions of dollars) Unaudited









Three Months Ended


Nine Months Ended




July 31


August 1


%


July 31


August 1


%




2022


2021


Change


2022


2021


Change


Net sales and revenues:


















Production & precision ag net sales


$

6,096


$

4,250


+43


$

14,568


$

11,848


+23


Small ag & turf net sales



3,635



3,147


+16



9,836



9,051


+9


Construction & forestry net sales



3,269



3,016


+8



9,161



8,562


+7


Financial services revenues



903



902





2,637



2,679


-2


Other revenues



199



212


-6



839



557


+51


Total net sales and revenues


$

14,102


$

11,527


+22


$

37,041


$

32,697


+13




















Operating profit: *


















Production & precision ag


$

1,293


$

906


+43


$

2,646


$

2,557


+3


Small ag & turf



552



583


-5



1,443



1,699


-15


Construction & forestry



514



463


+11



1,599



1,220


+31


Financial services



287



291


-1



864



844


+2


Total operating profit



2,646



2,243


+18



6,552



6,320


+4


Reconciling items **



(108)



(85)


+27



(303)



(312)


-3


Income taxes



(654)



(491)


+33



(1,364)



(1,328)


+3


Net income attributable to Deere & Company


$

1,884


$

1,667


+13


$

4,885


$

4,680


+4




*

Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses, and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains or losses.



**

Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and postretirement benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.

DEERE & COMPANY
STATEMENTS OF CONSOLIDATED INCOME
For the Three and Nine Months Ended July 31, 2022 and August 1, 2021
(In millions of dollars and shares except per share amounts) Unaudited




Three Months Ended


Nine Months Ended




2022


2021


2022


2021


Net Sales and Revenues














...