netrashetty
Netra Shetty
Deere & Company, usually known by its brand name John Deere (NYSE: DE), is an American corporation based in Moline, Illinois, and the leading manufacturer of agricultural machinery in the world. In 2008, it was listed as 102nd in the Fortune 500 ranking. Deere and Company agricultural products, usually sold under the John Deere name, include tractors, combine harvesters, balers, planters/seeders, ATVs and forestry equipment. The company is also a leading supplier of construction equipment, as well as equipment used in lawn, grounds and turf care, such as ride-on lawn mowers, string trimmers, chainsaws, snowthrowers and for a short period, snowmobiles.
The company's slogan is "Nothing runs like a Deere" and has a picture of a deer as a logo, a word play pun on "nothing runs like a deer."
Additionally, John Deere manufactures engines used in heavy equipment and provides financial services and other related activities that support the core businesses.
The company was founded in 1837 by John Deere, who developed and manufactured the first commercially successful cast-steel plow.
Deere & Company (NYSE: DE) is the world's leading manufacturer of agricultural and forestry equipment by revenue. In FY 2009 Deere generated over $23.1 billion in revenue, marking however, a 19% decrease from FY 2008 which had revenues of $25.8 billion with an overall profit margin of 7.2%.[1][2] The company also produces equipment used for construction, residential lawn care, commercial landscaping, and other consumer and commercial heavy equipment products. Perhaps best known by consumers for their lawn tractors, Deere's products also include harvesters, excavators, loaders, industrial sprayers, and utility vehicles.
Approximately 50% of Deere's revenue in FY2009 came from sales of agricultural equipment.[3] Consequently, much of Deere's success hinges upon the success of the agriculture industry and crop prices. Increased research in renewable energy sources that use ethanol, a chemical material typically derived from corn will benefit Deere. Ethanol-based energy research and development over the next several years could cause a large growth in corn prices, leading to higher agricultural activity which would increase Deere's sales of farm equipment.
Deere has been looking to diversify away from the increasingly volatile domestic markets. The houseing market collapse negatively effected sales in Deere's Commercial & Consumer segment, whose sales declined 24% during the first half of FY 2009.[4] In response to this, Deere has combined the commercial and consumer equipment segment with its agricultural equipment segment,[3] thereby making it more distinguish between drivers of sales gains and losses. This sales decline, which totaled 19% in FY2009, have caused the subsequent 19% decline in company's revenues mentioned earlier.[3]
Contents
1 Business Overview
1.1 Quarterly and Annual Earnings
1.1.1 Q4 FY 2010 Quarterly Earnings
1.1.2 Q3 FY 2010 Quarterly Earnings
1.1.3 Q2 FY 2010 Quarterly Earnings
1.1.4 Q1 FY 2010 Quarterly Earnings
1.1.5 FY2009 Annual Earnings
2 Trends and Forces
2.1 Biofuels Research Will Impact Sales Levels
2.2 The Strength of the Housing Market Directly Impacts Deere's Sales and Operations
2.3 Deere's Performance will be Reliant upon its Ability to Capitalize on Emerging Markets
3 Competition
4 References
Deere has recently qualified for TALF credit, which means that the Federal Government will back $737 million of its recent loans. [5] The Company needs the liquidity in face of recent lay-offs affecting over 1000 of its hourly employees, which triggered a labor dispute with the United Auto Workers. [6]
Business Overview
Deere & Company is one of the world's largest manufacturer of heavy machinery and is the leading producer of agricultural and forestry equipment. In addition to designing and manufacturing equipment, the company has a network of dealers and distributors that sell its equipment and utilize Deere's parts network. Also, Deere has an in-house credit department that allows customers to finance their purchases directly through Deere. The company is divided into four business segments:
Agricultural Equipment: This segment develops and manufactures farming equipment such as tractors, harvesters, balers, sprayers, utility vehicles and other machines. Deere is the world's leading producer of agricultural equipment.
Construction & Forestry Equipment: This segment is responsible for construction equipment such as excavators, bulldozers, and dump trucks as well as forestry equipment that includes feller bunchers, skidders, and knuckleboom loaders. Deere is the world's largest producer of forestry equipment.
Commercial & Consumer Equipment: This segment produces commercial and consumer landscaping equipment such as mowers, tractors, trimmers and other lawn care machinery. Deere also makes landscaping equipment designed for use on golf courses.
Financial Services: Deere's financial services department provides clients with the opportunity to finance their purchases. Deere's financial services segment operates at a very high margin, contributing to only 8% of total revenue, but over 20% of total operating income.
Quarterly and Annual Earnings
Q4 FY 2010 Quarterly Earnings
Deere & Company posted net income of $457.2 million for the fourth quarter of 2010, an increase from a loss of $222.8 million in the fourth quarter of 2009.[7] Fourth quarter net income translated to earnings of $99.0 million for the quarter.[7] Net sales and revenues increased by 35% and culminated at $7.202 billion and were a Deere & Company quarterly earnings record.[7] Driving this growth was a quarterly increase in the net sales of equipment operations, increasing from $4.726 in Q4 FY2009 to $6.564 in Q4 FY2010.[7] Deere saw increases for its yearly earnings as well, increasing from $873.5 million in FY2009 to $1.865 billion in FY2010.[7]
Q3 FY 2010 Quarterly Earnings
Deere & Company posted a 47% increase in income for the third quarter of 2010, driven primarily by a 16% gain in revenues and net sales.[8] This income totaled $617.0 million for the quarter as compared to $420.0 million from the same quarter last year.[8] Net sales and revenues totaled $6.837 billion; net sales for equipment operations in particular were $6.224 billion as compared to $5.283 billion in the third quarter of 2009.[8] Driving increases in sales and revenues were 2% increases in prices of sold goods as well as 19% and 16% increases in the US and Canada as well as in the rest of the world respectively.[8] Operating profit increased from $452 million in the third quarter of 2009 to $890 million for the third quarter of 2010.[8]
Q2 FY 2010 Quarterly Earnings
Deere & Company posted a 16% increase in income for the second quarter of 2010, driven primarily by a 6% gain in net sales and revenues.[9] These gains brought Deere's income to $547.5 million for the quarter, an improvement from quarterly income of $472.3 million in the second quarter of last year.[9] Income was impacted by a $129.5 million tax charge following the passing of U.S. health-care legislation.[9] Revenues culminated at $7.13 billion for the second quarter and were also up by 1% to $11.96 billion for six months.[9] Net sales increased by approximately $36 million bringing them to $6.55 billion for the quarter.[9]
Q1 FY 2010 Quarterly Earnings
Deere & Company posted 6% declines in net sales and revenues despite a 19% increase in income, culminating with earnings of $243.2 million.[10] Revenues posted at $4.835 billion, as compared to $5.146 billion one year ago in this quarter.[10] Net sales similarly dropped by proportion from $4.560 billion to $4.237 billion in year ago comparisons.[10] Net sales, when looking at quarterly comparisons, decreased 7% for Q1 FY 2010; operating profit, however, grew from $307 million to $315 million.[10] This growth was driven primarily by lower costs and favorable foreign exchange rates.[10]
FY2009 Annual Earnings
In FY2009, net income was $873.5 million as compared with $2.1 billion the previous year.[2] Net sales worldwide and revenues fell by 28%, to $5.3 billion, for Q4 FY2009 and were down 19%, to $23.1 billion, for the full fiscal year.[2] Net sales of the equipment operations were $4.7 billion for the quarter and $20.8 billion for FY2009, compared with $6.7 billion and $25.8 billion last year.[2] Net sales of equipment in the United States and Canada declined 26% for Q4 FY 2009 and 14% for FY2009. Net sales outside the United States and Canada were similarly down 35% for Q4 and 28% for the year.[2]
Deere's equipment operations reported an operating loss of $22 million for the quarter compared with an operating profit of $549 million for Q4 in FY2008. Despite these conditions, Deere still reported an operating profit of $1.4 billion for FY 2009, though this still reflects a decline from FY 2008 which saw an operating profit of $2.9 billion.[2]
Trends and Forces
Biofuels Research Will Impact Sales Levels
Deere's agricultural equipment sector will prosper if the nation has to harvest massive amounts of corn or soybeans to fuel its vehicles. It takes about 21 pounds of corn to make 1 gallon of ethanol, which would mean much more demand for Deere's tractors if corn based ethanol took off.
The demand for Ethanol and biofuels peaked in 2008 along with gas prices, only to falter in 2009. People only consume biofuels, it seems, when gas prices are extremely high. For instance, the Midwest has seen a 52% drop in ethanol consumption, with only a 3% drop in gasoline consumption. Ethanol is about 15-20% less efficient than gasoline, and studies have shown it needs to be about 40 cents cheaper per gallon to compete. [11] This implies that gas prices need to be relatively high for Deere to benefit from the biofuel trend.
And the biofuel trend might miss the point. New research done at UC Merced and published in the journal Science in May 2009 presents evidence that crops yield 81% more energy per unit area of land when it is burned to make electricity to power cars than when it is refined into ethanol.[12] Furthermore, greenhouse gas emissions from this "bioelectricity" are 100% lower per unit area of land than cellulosic ethanol.[13] Certainly, Deere would benefit from a switch to corn-based power, but not as much if that power does not require the excessive harvests that ethanol does.
It is also possible that Deere tractors will not be used to harvest biofuels in the future. In July, 2009, Exxon Mobil (XOM) entered a five-year, $600 million partnership with Synthetic Genomics Incorporated, to develop algae-based biofuels.[14] Algae grows in the ocean, where Deere equipment does not work very well.
The Strength of the Housing Market Directly Impacts Deere's Sales and Operations
The US housing market is highly influential upon Deere's revenue, particularly in its Commercial & Consumer Equipment segment. Most sales from this segment come from sales of lawn tractors, mowers, and other landscaping and yardwork equipment. When the housing market thrives, consumers purchase and commission the construction of new homes, and many decide to purchase lawn mowers to care for their own yards or hire landscaping services.
When the housing market heats up, Deere sells more equipment and generates more revenue and profit. When the housing market falters, consumers cut back on unnecessary expenditures such as landscaping services and are less likely to make relatively large purchases such as mowers and other lawn care machinery, the prices for which can reach into the thousands of dollars.
June 2009 housing data beat expectations, but renting is cheaper than owning in many parts of the country. [15] This means that the housing market has not yet recovered from its 2008 slump in Summer 2009. Watch the IShares Dow Jones U.S. Real Estate Index Fund (IYR) to monitor a potential real-estate recovery.
Deere's Performance will be Reliant upon its Ability to Capitalize on Emerging Markets
Internationally, Deere has been attempting to gain a stronger presence in markets throughout Western Europe where it faces stiff competition from CNH Global N.V. (CNH) and AGCO (AG) . Deere is also working to establish itself more firmly in emerging markets such as Brazil, India, China, and Russia.
Last year, Deere took steps towards enhancing its presence in these nations through building factories in Brazil and China, a technical and engineering center in India, and by solidifying its distribution and support network throughout Russia. Also, in June 2007, Deere announced plans to acquire Ningbo Benye, a small tractor manufacturer in China in hopes of better serving the needs to China's agriculture industry.
Deere is very well poised to benefit from the increased demand for its products from these emerging economies. Everything from its construction equipment used to build roads and cities to lawn tractors used in the backyards of newly built homes, would likely see increased sales. Thus, if Deere can successfully insert itself into these markets and use its size and brand reputation to compete with other manufacturers, Deere will experience significantly increased revenues in years to come.
Competition
Deere operates in several industries, and competes with major players within those industries.
It primarily competes in the Tractors and Agricultural Machinery market along with Caterpillar (CAT), AGCO (AG), FIAT S.p.A. (F-MI), and Kubota (KUB). The following graph describes the market share of these major players as of 2009. Caterpillar and Deere are the major players in the US markets. [16]
Deere has more definitive dominance in Wholesale Farm, Lawn and Garden equipment within the United States, though it is a very fragmented market. Its major publicly traded competitors include CNH Global N.V. (CNH), Kubota (KUB), AGCO (AG).[16]
Finally, Deere competes in the construction machinery area, where it loses quite definitively to Caterpillar. It also competes with CNH Global N.V. (CNH), Komatsu, Terex (TEX), and a large number of private companies
The company's slogan is "Nothing runs like a Deere" and has a picture of a deer as a logo, a word play pun on "nothing runs like a deer."
Additionally, John Deere manufactures engines used in heavy equipment and provides financial services and other related activities that support the core businesses.
The company was founded in 1837 by John Deere, who developed and manufactured the first commercially successful cast-steel plow.
Deere & Company (NYSE: DE) is the world's leading manufacturer of agricultural and forestry equipment by revenue. In FY 2009 Deere generated over $23.1 billion in revenue, marking however, a 19% decrease from FY 2008 which had revenues of $25.8 billion with an overall profit margin of 7.2%.[1][2] The company also produces equipment used for construction, residential lawn care, commercial landscaping, and other consumer and commercial heavy equipment products. Perhaps best known by consumers for their lawn tractors, Deere's products also include harvesters, excavators, loaders, industrial sprayers, and utility vehicles.
Approximately 50% of Deere's revenue in FY2009 came from sales of agricultural equipment.[3] Consequently, much of Deere's success hinges upon the success of the agriculture industry and crop prices. Increased research in renewable energy sources that use ethanol, a chemical material typically derived from corn will benefit Deere. Ethanol-based energy research and development over the next several years could cause a large growth in corn prices, leading to higher agricultural activity which would increase Deere's sales of farm equipment.
Deere has been looking to diversify away from the increasingly volatile domestic markets. The houseing market collapse negatively effected sales in Deere's Commercial & Consumer segment, whose sales declined 24% during the first half of FY 2009.[4] In response to this, Deere has combined the commercial and consumer equipment segment with its agricultural equipment segment,[3] thereby making it more distinguish between drivers of sales gains and losses. This sales decline, which totaled 19% in FY2009, have caused the subsequent 19% decline in company's revenues mentioned earlier.[3]
Contents
1 Business Overview
1.1 Quarterly and Annual Earnings
1.1.1 Q4 FY 2010 Quarterly Earnings
1.1.2 Q3 FY 2010 Quarterly Earnings
1.1.3 Q2 FY 2010 Quarterly Earnings
1.1.4 Q1 FY 2010 Quarterly Earnings
1.1.5 FY2009 Annual Earnings
2 Trends and Forces
2.1 Biofuels Research Will Impact Sales Levels
2.2 The Strength of the Housing Market Directly Impacts Deere's Sales and Operations
2.3 Deere's Performance will be Reliant upon its Ability to Capitalize on Emerging Markets
3 Competition
4 References
Deere has recently qualified for TALF credit, which means that the Federal Government will back $737 million of its recent loans. [5] The Company needs the liquidity in face of recent lay-offs affecting over 1000 of its hourly employees, which triggered a labor dispute with the United Auto Workers. [6]
Business Overview
Deere & Company is one of the world's largest manufacturer of heavy machinery and is the leading producer of agricultural and forestry equipment. In addition to designing and manufacturing equipment, the company has a network of dealers and distributors that sell its equipment and utilize Deere's parts network. Also, Deere has an in-house credit department that allows customers to finance their purchases directly through Deere. The company is divided into four business segments:
Agricultural Equipment: This segment develops and manufactures farming equipment such as tractors, harvesters, balers, sprayers, utility vehicles and other machines. Deere is the world's leading producer of agricultural equipment.
Construction & Forestry Equipment: This segment is responsible for construction equipment such as excavators, bulldozers, and dump trucks as well as forestry equipment that includes feller bunchers, skidders, and knuckleboom loaders. Deere is the world's largest producer of forestry equipment.
Commercial & Consumer Equipment: This segment produces commercial and consumer landscaping equipment such as mowers, tractors, trimmers and other lawn care machinery. Deere also makes landscaping equipment designed for use on golf courses.
Financial Services: Deere's financial services department provides clients with the opportunity to finance their purchases. Deere's financial services segment operates at a very high margin, contributing to only 8% of total revenue, but over 20% of total operating income.
Quarterly and Annual Earnings
Q4 FY 2010 Quarterly Earnings
Deere & Company posted net income of $457.2 million for the fourth quarter of 2010, an increase from a loss of $222.8 million in the fourth quarter of 2009.[7] Fourth quarter net income translated to earnings of $99.0 million for the quarter.[7] Net sales and revenues increased by 35% and culminated at $7.202 billion and were a Deere & Company quarterly earnings record.[7] Driving this growth was a quarterly increase in the net sales of equipment operations, increasing from $4.726 in Q4 FY2009 to $6.564 in Q4 FY2010.[7] Deere saw increases for its yearly earnings as well, increasing from $873.5 million in FY2009 to $1.865 billion in FY2010.[7]
Q3 FY 2010 Quarterly Earnings
Deere & Company posted a 47% increase in income for the third quarter of 2010, driven primarily by a 16% gain in revenues and net sales.[8] This income totaled $617.0 million for the quarter as compared to $420.0 million from the same quarter last year.[8] Net sales and revenues totaled $6.837 billion; net sales for equipment operations in particular were $6.224 billion as compared to $5.283 billion in the third quarter of 2009.[8] Driving increases in sales and revenues were 2% increases in prices of sold goods as well as 19% and 16% increases in the US and Canada as well as in the rest of the world respectively.[8] Operating profit increased from $452 million in the third quarter of 2009 to $890 million for the third quarter of 2010.[8]
Q2 FY 2010 Quarterly Earnings
Deere & Company posted a 16% increase in income for the second quarter of 2010, driven primarily by a 6% gain in net sales and revenues.[9] These gains brought Deere's income to $547.5 million for the quarter, an improvement from quarterly income of $472.3 million in the second quarter of last year.[9] Income was impacted by a $129.5 million tax charge following the passing of U.S. health-care legislation.[9] Revenues culminated at $7.13 billion for the second quarter and were also up by 1% to $11.96 billion for six months.[9] Net sales increased by approximately $36 million bringing them to $6.55 billion for the quarter.[9]
Q1 FY 2010 Quarterly Earnings
Deere & Company posted 6% declines in net sales and revenues despite a 19% increase in income, culminating with earnings of $243.2 million.[10] Revenues posted at $4.835 billion, as compared to $5.146 billion one year ago in this quarter.[10] Net sales similarly dropped by proportion from $4.560 billion to $4.237 billion in year ago comparisons.[10] Net sales, when looking at quarterly comparisons, decreased 7% for Q1 FY 2010; operating profit, however, grew from $307 million to $315 million.[10] This growth was driven primarily by lower costs and favorable foreign exchange rates.[10]
FY2009 Annual Earnings
In FY2009, net income was $873.5 million as compared with $2.1 billion the previous year.[2] Net sales worldwide and revenues fell by 28%, to $5.3 billion, for Q4 FY2009 and were down 19%, to $23.1 billion, for the full fiscal year.[2] Net sales of the equipment operations were $4.7 billion for the quarter and $20.8 billion for FY2009, compared with $6.7 billion and $25.8 billion last year.[2] Net sales of equipment in the United States and Canada declined 26% for Q4 FY 2009 and 14% for FY2009. Net sales outside the United States and Canada were similarly down 35% for Q4 and 28% for the year.[2]
Deere's equipment operations reported an operating loss of $22 million for the quarter compared with an operating profit of $549 million for Q4 in FY2008. Despite these conditions, Deere still reported an operating profit of $1.4 billion for FY 2009, though this still reflects a decline from FY 2008 which saw an operating profit of $2.9 billion.[2]
Trends and Forces
Biofuels Research Will Impact Sales Levels
Deere's agricultural equipment sector will prosper if the nation has to harvest massive amounts of corn or soybeans to fuel its vehicles. It takes about 21 pounds of corn to make 1 gallon of ethanol, which would mean much more demand for Deere's tractors if corn based ethanol took off.
The demand for Ethanol and biofuels peaked in 2008 along with gas prices, only to falter in 2009. People only consume biofuels, it seems, when gas prices are extremely high. For instance, the Midwest has seen a 52% drop in ethanol consumption, with only a 3% drop in gasoline consumption. Ethanol is about 15-20% less efficient than gasoline, and studies have shown it needs to be about 40 cents cheaper per gallon to compete. [11] This implies that gas prices need to be relatively high for Deere to benefit from the biofuel trend.
And the biofuel trend might miss the point. New research done at UC Merced and published in the journal Science in May 2009 presents evidence that crops yield 81% more energy per unit area of land when it is burned to make electricity to power cars than when it is refined into ethanol.[12] Furthermore, greenhouse gas emissions from this "bioelectricity" are 100% lower per unit area of land than cellulosic ethanol.[13] Certainly, Deere would benefit from a switch to corn-based power, but not as much if that power does not require the excessive harvests that ethanol does.
It is also possible that Deere tractors will not be used to harvest biofuels in the future. In July, 2009, Exxon Mobil (XOM) entered a five-year, $600 million partnership with Synthetic Genomics Incorporated, to develop algae-based biofuels.[14] Algae grows in the ocean, where Deere equipment does not work very well.
The Strength of the Housing Market Directly Impacts Deere's Sales and Operations
The US housing market is highly influential upon Deere's revenue, particularly in its Commercial & Consumer Equipment segment. Most sales from this segment come from sales of lawn tractors, mowers, and other landscaping and yardwork equipment. When the housing market thrives, consumers purchase and commission the construction of new homes, and many decide to purchase lawn mowers to care for their own yards or hire landscaping services.
When the housing market heats up, Deere sells more equipment and generates more revenue and profit. When the housing market falters, consumers cut back on unnecessary expenditures such as landscaping services and are less likely to make relatively large purchases such as mowers and other lawn care machinery, the prices for which can reach into the thousands of dollars.
June 2009 housing data beat expectations, but renting is cheaper than owning in many parts of the country. [15] This means that the housing market has not yet recovered from its 2008 slump in Summer 2009. Watch the IShares Dow Jones U.S. Real Estate Index Fund (IYR) to monitor a potential real-estate recovery.
Deere's Performance will be Reliant upon its Ability to Capitalize on Emerging Markets
Internationally, Deere has been attempting to gain a stronger presence in markets throughout Western Europe where it faces stiff competition from CNH Global N.V. (CNH) and AGCO (AG) . Deere is also working to establish itself more firmly in emerging markets such as Brazil, India, China, and Russia.
Last year, Deere took steps towards enhancing its presence in these nations through building factories in Brazil and China, a technical and engineering center in India, and by solidifying its distribution and support network throughout Russia. Also, in June 2007, Deere announced plans to acquire Ningbo Benye, a small tractor manufacturer in China in hopes of better serving the needs to China's agriculture industry.
Deere is very well poised to benefit from the increased demand for its products from these emerging economies. Everything from its construction equipment used to build roads and cities to lawn tractors used in the backyards of newly built homes, would likely see increased sales. Thus, if Deere can successfully insert itself into these markets and use its size and brand reputation to compete with other manufacturers, Deere will experience significantly increased revenues in years to come.
Competition
Deere operates in several industries, and competes with major players within those industries.
It primarily competes in the Tractors and Agricultural Machinery market along with Caterpillar (CAT), AGCO (AG), FIAT S.p.A. (F-MI), and Kubota (KUB). The following graph describes the market share of these major players as of 2009. Caterpillar and Deere are the major players in the US markets. [16]
Deere has more definitive dominance in Wholesale Farm, Lawn and Garden equipment within the United States, though it is a very fragmented market. Its major publicly traded competitors include CNH Global N.V. (CNH), Kubota (KUB), AGCO (AG).[16]
Finally, Deere competes in the construction machinery area, where it loses quite definitively to Caterpillar. It also competes with CNH Global N.V. (CNH), Komatsu, Terex (TEX), and a large number of private companies
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