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MarketScreener Homepage  >  Equities  >  Nyse  >  Deere & Company    DE


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Deere mpany : Turns to U.S. After Growth Stalls Overseas

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09/22/2019 | 07:35am EDT

By Bob Tita

Deere & Co.'s incoming chief executive will take charge as the struggling tractor maker switches course from its sluggish global expansion to a narrower focus on its home U.S. market.

With demand for farm machinery receding world-wide, dealers for the Moline, Ill., manufacturer and industry analysts say they expect John May to focus on cutting costs and adding new technology and data services to its equipment that will justify higher prices in the U.S.

Those new technologies, such as a sprayer that can differentiate between weeds and crops when applying herbicide, aim to make seed and fertilizer applications more efficient, increase crop yields and alert farmers when equipment shows signs of breaking down.

"It's putting money in farmers' pockets," said Scott Kraft, a manager at Gooseneck Implement Co., a Deere dealer in North Dakota.

But it is a difficult time to count on U.S. farmers paying more for tractors and harvesting combines that can cost more than $300,000. Years of high production, falling prices for commodities and a trade war with China that has slashed U.S. exports of crops and livestock have squeezed farmers' incomes for the past five years. Farm bankruptcies are on the rise.

"Everybody can't afford new equipment all the time," said Lyn Perkins, a manager and crop-data specialist at Blanchard Equipment, a Deere dealer in Georgia.

The focus on new technology aimed at U.S. farmers is a pivot from current CEO Sam Allen's emphasis on selling more of Deere's green and yellow equipment in developing markets overseas.

After he took the helm a decade ago, Mr. Allen said more productive farms would be required to provide crops and livestock to feed a growing middle class around the world. After the 2008 recession, Deere opened or expanded factories in Brazil, Russia, China, India and elsewhere in pursuit of $50 billion in annual sales by 2018.

Executives have talked less about the company's global ambitions in recent years as slowing demand for equipment at home and decelerating economic expansion in developing countries made the $50 billion goal unattainable. The U.S. and Canada accounted for 57% of Deere's $33.3 billion in equipment sales last year, which also included the company's construction and forestry machinery lines.

Deere said in August that Mr. May, 50 years old, will become CEO in November, while Mr. Allen will remain chairman of the company's board.

The company has seen strong sales growth in South America and Western Europe, where farmers use the same large equipment as farmers in North America. In Brazil, which has been a growth market for U.S. farm-equipment manufacturers in the past decade, Deere gained market share in tractors at the expense of market leader AGCO Corp.

But sales expansion has been tougher in other developing markets. The consolidation of small farms into larger ones that require bigger equipment has been slower than Deere and its rivals expected, industry analysts said. Farmers had less access to financing than anticipated. Deere's sales in Asia, Africa and the Middle East grew last year for just the second time since 2012, according to Melius Research.

Other U.S. manufacturers, including construction-equipment maker Caterpillar Inc. and industrial conglomerate 3M Co. that made big bets on developing markets have also had disappointing results.

Deere's sales of farm equipment over the past three quarters are up 2% from the year-ago period because of price increases. But profit from those sales fell 12%, partly due to higher material costs and rising factory expenses. Deere's gross profit margin on equipment has been flat for most of the past decade even though overall equipment sales have increased about 61% during that time. Margins in manufacturing typically expand with higher production volumes.

Deere has said it will decide this fall whether to close some of its world-wide network of around 50 factories. The company last month aimed to raise its operating margin to 15% by 2022 from about 10% currently.

Some U.S. farmers using technology to guide their planting decisions say rising prices for new equipment have been offset by savings on seed and fertilizer.

Christian Yunker, who raises dairy cattle and grows corn, soybeans, wheat, vegetables and sod on about 7,800 acres near Elba, N.Y., said the $200,000 he has spent on precision agriculture equipment from Deere and other manufacturers have helped him improve his yields.

His planters now apply more seeds on acres with a record of higher output, and cut back on seeds on acres that have been less fertile. He said that technology upgrade, which cost him about $70,000 for two planters, has lowered his seed expenses by as much as $15 an acre.

Mr. Yunker has cut his spending on equipment purchases by about 20% this year but continues to invest in technology for his planters.

"There's advancements all the time to continue to invest in," he said.

Write to Bob Tita at robert.tita@wsj.com

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Financials (USD)
Sales 2019 34 663 M
EBIT 2019 4 496 M
Net income 2019 3 218 M
Debt 2019 42 572 M
Yield 2019 1,72%
P/E ratio 2019 17,4x
P/E ratio 2020 15,6x
EV / Sales2019 2,81x
EV / Sales2020 2,69x
Capitalization 54 763 M
Duration : Period :
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Technical analysis trends DEERE & COMPANY
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 23
Average target price 171,05  $
Last Close Price 173,92  $
Spread / Highest target 12,7%
Spread / Average Target -1,65%
Spread / Lowest Target -19,5%
EPS Revisions
Samuel R. Allen Chairman & Chief Executive Officer
John C. May President, Chief Operating Officer & Director
Ryan D. Campbell Chief Financial Officer & Senior Vice President
Rajesh Kalathur Chief Information Officer
Vance D. Coffman Independent Director
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