Deere financial services provisions for credit losses double

Deere & Co.’s financial services provisions for credit losses increased in the first quarter amid a downturn for the agriculture equipment manufacturer. 

John Deere Financial, the financial services division of Deere & Co., experienced revenue and net income growth year over year in the company’s Q1, which ended Jan. 26, as provisions for credit losses more than doubled to $69 million, Josh Rohleder, manager of investor communications at Deere & Co., said during today’s earnings call. 

Net income for Deere’s Worldwide Financial Services division was $230 million in Q1, up 11% YoY, according to the firm’s 8-K filed with the Securities and Exchange Commission.  

“Net income was favorably impacted by a decreased valuation allowance on assets held for sale of Banco John Deere,” Rohleder said.  

Much of the improvement was due to an agreement with Brazilian bank Bradesco for the sale of 50% ownership in Banco John Deere, he said.  

“Excluding this special item, net income decreased due to a higher provision for credit losses, which was partially offset by lower expenses,” he said. “For fiscal year 2025, our [net income] outlook remains at $750 million, as benefits from a lower provision for credit losses are partially offset by less favorable financing spreads.” 

NOTEWORTHY

While Deere & Co. forecasts demand for equipment to decline in most segments, the company remains focused on supporting North American sales, Rohleder said. 

“End markets remain strong with only around 50% of [Infrastructure Investment and Jobs Act] funds committed and equipment utilization reflecting the fact that construction employment is at record levels and continuing to rise,” he said. “However, equipment purchases remain constrained given macro uncertainty and persistently high interest rates. That said, we found success with selective incentive programs targeting specific products to drive sales.” 

As a result, the company predicts sales declines during fiscal 2025 in these divisions: 

• Production and Precision Ag, down 15% to 20% YoY;  

• Small Ag and Turf, down about 10% YoY; and 

• Construction and Forestry, down 10% to 15% YoY. 

BY THE NUMBERS

John Deere Financial’s revenues rose year over year in Q1, according to Deere’s earnings release: 

• Revenues were $1.6 billion, up 1.4% YoY; 

• Q1 net income was $230 million, up 11.1% YoY; 

• Projected net income for fiscal 2025 of $750 million, up 7.8% YoY; 

• Provision for credit losses of $69 million, up 122.6% YoY. 

Deere and Co.’s sales were mixed for Q1, according to the release: 

• Total net sales and revenues totaled $8.5 billion, down 30.2% YoY; 

• Production & Precision Agriculture net sales were $3.1 billion, down 36.7% YoY; 

• Small Agriculture and Turf net sales were $1.7 billion, down 27.9% YoY; and 

• Construction & Forestry net sales were $2 billion, down 37.9% YoY. 

THE BOTTOM LINE 

Deere continues to work with dealers to manage used inventories and navigate the farm industry downturn, Chief Financial Officer Josh Jepsen said. 

“We have a high level of alignment and focus on reducing used inventories, and we feel confident in how we, collectively, Deere and dealers, have managed this downturn differently, and note our more proactive response to get ahead of the market turning in 2024,” he said. “This enables them to continue investing in their ability to support customers’ needs today and tomorrow.” 

MARKET REACTION: Shares of Deere & Co. [NYSE: DE] were trading at $466.22 at market close today, down 2.17% or $10.34 from market open. Deere has a market capitalization of $129.8 billion.  

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