QUOTE AND NEWS
SeekingAlpha  Jul 16  Comment 
By Jason Russ: Introduction In the following article, I will discuss the share buyback strategy of Deere & Company (NYSE:DE) over the last 14 quarters. Rather than repeat the introduction of my previous article in which I discuss General...
Forbes  Jul 15  Comment 
Considering Deere's large market share in the agricultural equipment market and its global presence, we believe it is well positioned to benefit from these two trends. This is why we have forecast the segment's revenue to grow throughout our...
Motley Fool  Jul 11  Comment 
Does either or both of these companies belong in your portfolio?
Dividend Growth Investor  Jul 11  Comment 
Deere & Company (DE), together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The company is a dividend achiever that has paid dividends since 1937 and managed to...
SeekingAlpha  Jul 11  Comment 
By Dividend Growth Investor: Deere & Company (DE), together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The company is a dividend achiever that has paid dividends...
SeekingAlpha  Jul 10  Comment 
By Sean Weston: Deere & Company (DE) operates in 3 segments: Agriculture & Turf Construction & Forestry Financial Services Over the past year, the geographic breakdown of the sales is as follows: U.S. & Canada $21.8 billion ...
SeekingAlpha  Jul 6  Comment 
By Jeff Williams: By 2050, the world's population is expected to grow by ~30% and reach ~9 billion mark. With this as a Macro-Economic tail wind, companies with strong management that focus on infrastructure/construction as well as...
Motley Fool  Jul 3  Comment 
Deere made a downward revision of numbers for the fiscal year after the USDA predicted crop prices would fall this year. Does the situation call for further consideration?
Market Intelligence Center  Jul 3  Comment 
The patented option-trade picking algorithms that power MarketIntelligenceCenter.com's Artificial Intelligence Center  are highlighting two trades on Deere & Co (DE) today after it closed at $90.35 on Wednesday. For more conservative investors,...
SeekingAlpha  Jul 2  Comment 
ByIAEResearch: Deere & Company's (DE) stock had a bad start to the year as it lost around 5% of its value in the first two months. However, after the early year fall, the stock has been rising and currently it trades for a year-to-date loss of...




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Deere & Company (NYSE: DE) is the world's leading manufacturer of agricultural and forestry equipment by revenue. [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 comes 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.

Business Overview

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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

Q1 FY 2011 Quarterly Earnings

Deere & Company doubled for the first quarter of 2011 when compared to fiscal earnings in the first quarter of 2010.[4] Driving this increase in income was a 27% increase in net sales and revenues globally.[4] These were similarly driven by an overall increase in the demand for farm machinery and a generally favorable climate for construction.[4] Net income totaled $513.7 million for the quarter as compared to $243.2 million in Q1FY2010.[4]

FY 2010 Annual Earnings

Deere & Company posted net income of $457.2 million for the fourth quarter of 2010, an increase from a loss of $322.8 million in the fourth quarter of 2009.[5] Fourth quarter net income translated to earnings of $99.0 million for the quarter.[5] Net sales and revenues increased by 35% and culminated at $7.202 billion and were a Deere & Company quarterly earnings record.[5] 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.[5] Deere saw increases for its yearly earnings as well, increasing from $873.5 million in FY2009 to $1.865 billion in FY2010.[5]

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.

People only consume biofuels, it seems, when gas prices are extremely high. 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. [6] This implies that gas prices need to be relatively high for Deere to benefit from the biofuel trend.

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.

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.

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). Caterpillar and Deere are the major players in the US markets. [7] 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).[7]

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.[7]

References

  1. stock:Deere_&_Company_(DE)/Filing/10-K/2008/F3465691 DE 10-K Report, 2008
  2. stock:Deere_&_Company_(DE)/Filing/10-K/2009/F47088201 Fourth Quarter 2009 Reports
  3. Deere & Co. 10-K Annual Report 2009
  4. 4.0 4.1 4.2 4.3 | Deere Reports First Quarter Annual Earnings
  5. 5.0 5.1 5.2 5.3 5.4 Deere Announces Fourth Quarter Earnings
  6. [http://news.yahoo.com/s/ap/20090714/ap_on_re_ca/us_farm_scene_e85_outlook | Yahoo News: Massive Ethanol Decrease in 2009]
  7. 7.0 7.1 7.2 [ http://www.reuters.com/finance/stocks/overview?symbol=DE.N |Reuters Research]
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