Deere Financial reduces credit loss provisions, bucking ag concerns

Deere & Co. captive John Deere Financial reduced its provisions for credit losses in the third quarter of fiscal 2023 despite concerns about the agriculture industry’s health. 

John Deere Financial reduced its provisions for credit losses by 208% year over year, or $67 million, according to the company’s earnings release. John Deere’s consolidated provision for credit losses declined 203.2% YoY, or $64 million. 

The reduction in provisions for credit losses comes as financing activity remains strong despite rising concerns about the future of the agriculture industry, including a projected decline in ag yields by the United States Department of Agriculture. A reduction in credit loss provisions largely indicates that lenders believe borrowers will be able to continue to make payments on their debt.  

John Deere Financial’s ending portfolio balance jumped 22% YoY to $54.9 billion in Q3, according to an Aug. 18 filing with the SEC.  

John Deere Financial Services revenue landed at $1.1 billion in Q3, up 51% YoY, according to the filing. Year-to-date financial services revenue clocked in at $2.8 billion, up 40% YoY.

Prices and sales rise, incentives to return 

John Deere’s equipment sales showed growth in the third quarter and beat market estimates. Sales revenues rose across all equipment segments in Q3: 

• Small ag and turf net sales revenue rose 3% YoY to $3.7 billion; 
• Production and precision ag net sales increased 12% YoY to $6.8 billion; and  
• Construction and forestry net sales grew 14% YoY to $3.7 billion.  

John Deere’s sales revenue increases in Q3 were primarily due to price adjustments, Director of Investor Relations Brent Norwood said during Friday’s earnings call. 

“All of this [pricing] is largely in line with our expectations, particularly as we lap some of the mid-year price increases that we took in 2022,” he said. “The second half should be something not dissimilar to that, so we are maintaining that price cost discipline throughout the entire year.” 

Early 2024 pricing indicates a return to normal trends and the possibility of discounts returning, Norwood said. 

“As it pertains to next year, there will be no change in some of the early pricing that we’ve put out there, which has been in the 2% to 4% [increase] range,” he said. “We are certainly managing our incentive spend as well. We would expect overall realization to be within that range inclusive of whatever discounts begin to get layered back into the market for 2024.” 

Deere & Co. saw its stock decline by 5.28% or $22.14 from market open to $397.02 at market close on Friday following Q3 earnings release. Then, Deere & Co. shares closed trading at $390.79, down $6.23 or 1.57% on Monday. 

Shares of Deere & Co. [Nasdaq: DE] were trading at $385.21 at market close today, up $5.58 or 1.43% from market open. Deere has a market capitalization of $112.94 billion.