Deere & Co. projects financial services growth in fiscal 2024 despite expecting a double-digit decline in net sales across all segments.
BY THE NUMBERS:
John Deere Financial’s revenues rose year over year in the fourth quarter and for the fiscal year ended Oct. 29, according to Deere’s earnings release:
- Q4 financial services revenues increased to $1.3 billion, up 36.3% YoY;
- Full-year financial services revenues increased to $4.7 billion, up 30.2% YoY;
- Q4 financial services net income decreased to $190 million, down 18.1% YoY;
- Financial services projected net income for fiscal 2024 increased to $770 million, up 24.4% YoY;
- The lender posted a credit in financial services provisions for credit losses of $23 million, compared with a $189 million provision in Q4 2022;
- The lender took back $16 million in consolidate provisions for credit losses, compared with a $192 million provision in Q4 2022;
Deere and Co.’s sales were mixed for Q4 and fiscal 2023, according to the release:
- Q4 production and precision ag net sales dipped to $7 billion, down 6.3% YoY;
- Fiscal 2023 production and precision ag net sales increased to $26.8 billion, up 21.8% YoY;
- Q4 small ag and turf net sales dropped to $3.1 billion, down 12.7% YoY;
- Fiscal year small ag and turf net sales inched up to $14 billion, up 4.5% YoY;
- Q4 construction and forestry net sales rose to $3.7 billion, up 10.9% YoY;
- Fiscal year construction and forestry net sales landed at $14.8 billion, up 18% YoY
STATE OF PLAY:
While John Deere Financials’ net income declined YoY in fiscal 2023, the parent company projects growth for the captive during fiscal 2024, Josh Rohleder, manager of investor communications at Deere & Co., said during the company’s earnings call Wednesday.
“Results are expected to be higher year-over-year primarily due to income earned on a higher average portfolio and a non-repeating one-time accounting correction that occurred in 2023,” he said. “These will be partially offset by less favorable financing spreads and lower gains on operating lease residual values.”
Meanwhile, Deere expects equipment demand to remain soft into 2024, despite improved North American agriculture yields, Director of Investor Relations Brent Norwood said during the call.
“There’s certainly a lot of puts and takes to farm fundamentals this year. Lower commodity prices and higher interest rates are weighing on equipment demand, but cash margins are still supportive of replacement at mid-cycle volumes,” he said.
FLASHBACK:
Following John Deere’s third quarter earnings release on Aug. 18, the company’s shares declined 5.28% or $22.14 as concerns about ag yields hampered investor sentiment.
NOTEWORTHY:
While the pandemic created supply chain issues and changed seasonal patterns for John Deere, the company returned to traditional seasonality in Q4.
“We consistently hit forecasted line rates in our factories and delivered on our commitment to customers,” Norwood said. “In markets like North America large ag, nearly all shipments were presold, enabling us to demonstrate disciplined inventory management.”
MARKET REACTION:
Shares of Deere & Co. [Nasdaq: DE] were trading at $370.76 at market close today, down $11.89 or 3.11% from market open. Deere has a market capitalization of $110.20 billion.
FUTURE LOOK:
Deere forecasts net income growth for John Deere Financial but projects a decline in its other segments in 2024.
The company predicts the following sales declines during fiscal 2024:
- Production & Precision Ag sales down 15% to 20%;
- Small Ag & Turf sales down 10% to 15%;
- Construction & Forestry sales down about 10%
THE BOTTOM LINE:
Deere is preparing for more normalized operations in fiscal 2024, Norwood said.
“Following multiple years of a disruptive and challenging environment, we worked through our order books with on-time deliveries, enabling most products to move off restricted allocation,” he said. “Pricing caught up with inflation, and we saw supply chain revert to normal, which ultimately meant we were able to deliver products to customers on time and at expected costs.”
John Deere Financial is the second-largest equipment finance company, behind Bank of America Global Leasing. It is the largest captive equipment finance company in the United States, according to the 2023 Monitor 100, which ranks the 100 largest equipment finance companies in the United States by total assets.
