Deere financial services revenue grows despite sales slump

Deere & Co.’s financial services revenue increased in the fourth quarter and all of fiscal 2024 despite a double-digit decline in net sales across all segments for the quarter and year.

STATE OF PLAY: While John Deere Financial, the financial services division of Deere & Co., experienced revenue growth in Q4 and fiscal 2024, net income declined year over year in Q4, which ended Oct. 27, as provisions for credit losses remain elevated, Josh Rohleder, manager of investor communications at Deere & Co., said during today’s earnings call.

“The year-over-year decline was mainly due to a higher provision for credit losses, partially offset by income earned on a higher average portfolio balance, a reduction in derivative valuation adjustments and lower SA&G expenses,” he said. “Results were also negatively impacted by the increased valuation allowance on assets held for sale of Banco John Deere.”

Meanwhile, Deere expects equipment demand to remain soft into 2025, especially in the United States and Canada, as farm fundamentals remain depressed, Director of Investor Relations Josh Beal said during the call.

“Given the strong yields from U.S. harvest this past year, we’ve seen a rebuilding of global stocks with the [U.S. Department of Agriculture] forecasting global stocks to reach the fourth highest level on record,” he said.

NOTEWORTHY: While Deere & Co. forecasts demand for equipment to decline in most segments, the company forecasts an increase in net income in 2025 for John Deere Financial, Rohleder said.

“For fiscal year 2025, the net income forecast is $750 million,” he said. “Results are expected to be higher year over year, primarily due to a lower provision for credit losses, partially offset by less favorable financing spreads.”

The company predicts sales declines during fiscal 2025 in these divisions:

Production and Precision Ag sales down about 15% YoY;

Small Ag and Turf sales down about 10% YoY; and

Construction and Forestry sales down 10% to 15% YoY.
(Photo/Bloomberg)

BY THE NUMBERS: John Deere Financial’s revenues rose year over year in Q4 and for the fiscal year ended Oct. 27, according to Deere’s earnings release:

Q4 financial services revenues were $1.5 billion, up 13% YoY;

Full-year financial services revenues were $5.8 billion, up 22.5% YoY;

Q4 financial services net income was $173 million, down 8.9% YoY;

Full-year financial services net income was $696 million, up 12.4% YoY;

Financial services projected net income for fiscal 2025 of $750 million, down 2.6%;

Provision for credit losses of $296 million, compared with a $23 million credit in fiscal 2023; and

Deere & Co. posted a consolidated provision for credit losses of $310 million, compared with a $16 million credit in fiscal 2023;

Deere and Co.’s equipment sales were mixed for Q4 and fiscal 2024, according to the release:

Q4 net sales and revenues totaled $11.1 billion, down 28% YoY;

Fiscal year net sales and revenues totaled $51.7 billion, down 16% YoY;

Q4 production and precision ag net sales were $4.3 billion, down 38.2% YoY;

Fiscal 2024 production and precision ag net sales were $20.8 billion, down 22.2% YoY;

Q4 small ag and turf net sales were $2.3 billion, down 25.5% YoY;

Fiscal year small ag and turf net sales were $11 billion, down 21.5% YoY;

Q4 construction and forestry net sales were $2.7 billion, down 28.8% YoY; and

Fiscal year construction and forestry net sales were $13 billion, down 12.4% YoY.

THE BOTTOM LINE:

Deere continues to evaluate incentives and pricing strategies to better support dealers, Beal said.

“We’ve contemplated some increased level of incentives next year. That increased level is going towards used, that’s going towards pool funds,” he said. “We’ll continue to work that down and continue to support our dealers and helping to make those trades, but given all those ingredients, we still believe we can deliver positive price in the year.”

MARKET REACTION:

Shares of Deere & Co. [Nasdaq: DE] were trading at $437.54 at market close today, up 8.05% or $32.58 from market open. Deere has a market capitalization of $110.8 billion.

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