There are many challenges when it comes to global strategic plans for businesses. One involves international cash management, due to the risk of currency fluctuations and interest rate changes in the global market. Review the quarterly financial statements for Deere & Company fromInvestor Relations(Links to an external site.)and locate the discussions about fluctuations and risk in interest rates or foreign exchange rates. Then, address the following:
- Indicate whether the foreign exchange translation has increased or decreased profitability for this quarter.
- Explain strategies a company might use to reduce the risk associated with foreign exchange fluctuations.
- Interpret the impact of foreign currency translation on profitability for Deere & Company.
JD PowerPoint 1 1Q 2019 Earnings Call 15 February 2019 2 Safe Harbor Statement & Disclosures The earnings call and accompanying material include forward-looking comments and information concerning the company’s plans and projections for the future, including estimates and assumptions with respect to economic, political, technological, weather, market acceptance, acquisitions and divestitures of businesses, anticipated transaction costs, the integration of new businesses, anticipated benefits of acquisitions, and other factors that impact our businesses and customers. They also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America (GAAP). Words such as “forecast,” “projection,” “outlook,” “prospects,” “expected,” “estimated,” “will,” “plan,” “anticipate,” “intend,” “believe,” or other similar words or phrases often identify forward-looking statements. Actual results may differ materially from those projected in these forward-looking statements based on a number of factors and uncertainties. Additional information concerning factors that could cause actual results to differ materially is contained in the company’s most recent Form 8-K and periodic report filed with the U.S. Securities and Exchange Commission, and is incorporated by reference herein. Investors should refer to and consider the incorporated information on risks and uncertainties in addition to the information presented here. The company, except as required by law, undertakes no obligation to update or revise its forward-looking statements whether as a result of new developments or otherwise. The call and accompanying materials are not an offer to sell or a solicitation of offers to buy any of the company’s securities. Non-GAAP Financial Measures This presentation includes the following non-GAAP financial measures on an historical and forecasted basis: adjusted net income and adjusted diluted EPS. Please refer to the supplemental information located at the end of this presentation for a reconciliation of these historical and forecasted non-GAAP financial measures to the most directly comparable historical and forecasted GAAP financial measures and other important information. 3 1Q 2019 Overview ($ millions except where noted) 1Q 2019 1Q 2019 vs. 1Q 2018 Net Sales & Revenues $7,984 15% Net Sales (equipment operations) $6,941 16% Net Income (attributable to Deere & Company) $498 Diluted EPS ($ per share) $1.54 Note: Wirtgen’s results were included in the Company’s consolidated financial statements beginning on the acquisition date of 1 December 2017. The results are incorporated with the Company’s results using a 30-day lag period and are included in the construction and forestry segment. 4 1Q 2019 Overview Equipment Operations 1Q 2019 vs. 1Q 2018 Net Sales 16% Price realization Currency translation Wirtgen 5 points 3 points 7 points Note: Wirtgen’s results are included for the entire first-quarter period of 2019 while the prior period reflected one month. The two additional months increased the company’s net sales results in the current quarter by about 7%. 5 Worldwide Agriculture & Turf 1Q 2019 Overview ($ millions) 1Q 2019 1Q 2019 vs. 1Q 2018 Net Sales $4,681 10% Operating Profit* $348 10% *1Q 2019 operating profit impacted by: − Production costs − Warranty costs − Product mix − Research & development costs + Price realization + Shipment volumes 6 Global Stocks-to-Use Ratios Source: USDA, 8 February 2019 0% 20% 40% 60% 80% 100% 120% 0% 10% 20% 30% 40% 50% 60% 1994 1997 2000 2003 2006 2009 2012 2015 2018P C o tto n R a tio s Cotton Wheat Corn Soybeans 7 U.S. Principal Crop Cash Receipts *USDA Aid includes only the ~$8B crop aid payment Note: USDA authorized a one-time $12B aid package to assist farmers from the trade dispute impact, with $8B authorized to be distributed to farmers for crop aid via direct payment. Source: Deere forecast, February 2019 0 20 40 60 80 100 120 140 160 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F $ B il li o n s Food Grains Feed Crops Cotton Oil Crops USDA Aid* 8 Fiscal 2019 Forecast Previous Forecast U.S. and Canada Ag Flat to up 5% Flat to up 5% EU 28 Ag ~ Flat ~ Flat South America Ag (tractors and combines) Flat to up 5% Flat to up 5% Asia Ag Flat to slightly down Flat to slightly down U.S. and Canada Turf and Utility Flat to up 5% Flat to up 5% Agriculture & Turf Industry Outlook Source: Deere & Company forecast as of 15 February 2019 9 Worldwide Agriculture & Turf Deere & Company Outlook Fiscal 2019 Forecast Previous Forecast Net Sales ~ 4% ~ 3% Currency translation ~ 2% ~ 2% Source: Deere & Company forecast as of 15 February 2019 10 ($ millions) 1Q 2019 1Q 2019 vs. 1Q 2018 Net Sales $2,260 31% Operating Profit* $229 616% Worldwide Construction & Forestry 1Q 2019 Overview *1Q 2019 operating profit impacted by: + Price realization + Wirtgen − Production costs − Product mix 11 Fiscal 2019 Forecast Previous Forecast GDP Growth Housing Starts (thousands) Total Construction Investment Government Construction Investment Global Transportation Investment Crude Oil Price Worldwide Construction & Forestry U.S. Economic Indicators Source: IHS Markit, Calendar Year Estimates – January 2019 12 Fiscal 2019 Forecast* Previous Forecast* Net Sales ~ 13% ~ 15% Currency translation Wirtgen ~ 2 points ~ 4 points ~ 2 points ~ 5 points Worldwide Construction & Forestry Deere & Company Outlook * Includes 12 months of Wirtgen sales, vs 10 months in fiscal 2018 Source: Deere & Company forecast as of 15 February 2019 JDF Mission Supporting Business Enable growth of John Deere sales by: − Deepening customer relationships − Strengthening distribution channels While delivering consistent, sustainable earnings, managing risk, and maximizing enterprise SVA Cory Reed President, John Deere Financial 14 Portfolio Composition by Segment John Deere Financial Services Portfolio Composition by Geography Portfolio Composition by Product A&T 83% C&F 17% Installment and Finance Lease 53% Wholesale/ Floorplan 21% Revolving Credit 9% Operating Lease 17% U.S. 73% Canada 11% Europe 5% Latin America 6% Australia 3% Asia 2% Note: Information above includes all Deere & Company lending activities worldwide. ~$43 billion Net Portfolio owned as of 28 October 2018 15 0.0% 0.5% 1.0% 1.5% 2.0% 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019F Worldwide Financial Services Credit Loss History Provision for Credit Losses / Average Owned Portfolio 0.17% 15 Year Average Source: Deere & Company forecast as of 15 February 2019 16 Worldwide Financial Services ($ millions) 1Q 2019 Fiscal 2019 Forecast Previous Forecast Net Income (attributable to Deere & Company) $154 ~$630 ~ $630 Source: Deere & Company forecast as of 15 February 2019 17 Consolidated Trade Receivables & Inventory ($ millions) 1Q 2019* Fiscal 2019 Forecast** Agriculture & Turf $831 ~ $25 Construction & Forestry $770 ~ $175 Total (as reported) $1,601 ~ $200 Total (constant exchange) $2,125 ~ $175 * Change at 27 January 2019 vs. 28 January 2018 **Change at 3 November 2019 vs. 28 October 2018 Note: Before the sale of receivables to John Deere Financial Source: Deere & Company forecast as of 15 February 2019 18 ($ millions) 1Q 2019 Fiscal 2019 Forecast Previous Forecast COS (percent of Net Sales) 78% ~75% ~75% Research and Development 14% ~ 5% ~ 6% SA&G Expense 9% ~ 7% ~ 7% Source: Deere & Company forecast as of 15 February 2019 (previous forecast as of 21 November 2018) Cost and Expenses Equipment Operations 19 1Q 2019 Fiscal 2019 Forecast Previous Forecast Effective Tax Rate 30% 24-26% 25-27% Income Taxes Equipment Operations Source: Deere & Company forecast as of 15 February 2019 20 Net Operating Cash Flows Equipment Operations Fiscal 2019 Forecast* ~ $4.4 billion $0 $1,000 $2,000 $3,000 $4,000 $5,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F $ M il li o n s * Previous forecast ~$4.8 billion Note: 2010-2016 adjusted with the adoption of FASB ASU No. 2016-09 “Improvements to Employee Share-Based Payment Accounting” Source: Deere & Company forecast as of 15 February 2019 (previous forecast as of 21 November 2018) 21 Source: Deere & Company forecast as of 15 February 2019 ($ billions except where noted) Fiscal 2019 Forecast Previous Forecast Net Sales (equipment operations) ~ 7% ~ 7% Price realization Currency translation Wirtgen ~ 3 points ~ 2 points ~ 1 point ~ 3 points ~ 2 points ~ 2 points Net Income (attributable to Deere & Company) ~ $3.6 ~ $3.6 Deere & Company Outlook Fiscal 2019 Forecast 22 Appendix 23 Share Repurchase As Part of Publicly Announced Plans * All shares adjusted for two-for-one stock split effective 26 November 2007 2004–1Q 2019: Cumulative cost of repurchases $17.5 billion Shares repurchased 252.0 million December 2013 authorization of $8 billion: Amount remaining $2.2 billion 27 January 2019 period ended basic shares 318.5 million 1Q 2019 average diluted shares 322.7 million $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 0 10 20 30 40 2005 2007 2009 2011 2013 2015 2017 2019 $ B illio n s M il li o n s o f S h a re s * Shares Repurchased Amount Spent Share Repurchase 36% net share reduction since 2004 24 25 ($ millions) Fiscal 2019 Forecast Previous Forecast Capital Expenditures ~ $1,150 ~ $1,150 Depreciation & Amortization ~ $1,025 ~ $1,050 Pension/OPEB Expense ~ $120 ~ $120 Pension/OPEB Contributions ~ $200 ~ $200 Other Information Equipment Operations Source: Deere & Company forecast as of 15 February 2019 26 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $0 $4 $8 $12 $16 $20 2004 2006 2008 2010 2012 2014 2016 2018 C o tto n - $ p e r P o u n d $ p e r B u s h e l Cotton Wheat Corn Soybeans Source: USDA, 8 February 2019 U.S. Farm Commodity Prices 27 U.S. Farm Cash Receipts $0 $100 $200 $300 $400 $500 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019F $ B il li o n s Crops Livestock Government Payments USDA Aid* *USDA Aid includes only the ~$8B crop aid payment Note: USDA authorized a one-time $12B aid package to assist farmers from the trade dispute impact, with $8B authorized to be distributed to farmers for crop aid via direct payment. Source: 2001–2017: USDA, 30 August 2018 2018F–2019F: Deere & Company forecast as of 15 February 2019 28 Economic Update EU 28 €120 €180 €240 €300 €360 €420 €220 €270 €320 €370 €420 €470 2010 2013 2016 2019F B e e f m e a t a n d P o rk m e a t - € p e r 1 0 0 k g M il k - € p e r M T Dairy, Beef and Pork Prices Milk Milk 10yr avg Beef meat Beef meat 10yr avg Pork meat Pork meat 10yr avg Source: EU Com, LTO, January 2019 Deere & Company forecast as of 15 February 2019 29 Economic Update Brazil $0 $30 $60