Deere FY 3Q15 Earnings Call Notes

Net revenue down 20%

“Net sales and revenues were down 20% to $7.594 billion. Net income attributable to Deere & Company was $512 million. EPS was $1.53 in the quarter.”

Expect farm cash receipts down 7% y/y

“Given the record crop harvest of 2014 and consequently the lower commodity prices we’re seeing today, our 2015 forecast calls for cash receipts to be down about 7%.”

Expect down further in 2016

“Looking ahead to next year, based on our expectation of above trend yield – above trend-line yields for 2015 and declining livestock prices, our very early forecast calls for total cash receipts to be down slightly in 2016.”

Unfavorable growing conditions could force prices higher

” global grain stocks-to-use ratios remain at somewhat sensitive levels, even after the abundant harvests of the past two years. Global grain and oilseed demand remains strong, while supplies are now fully adequate. Even so, unfavorable growing conditions in any key region of the world as well as unknown impacts from any geopolitical tensions could disrupt trade, lower production, reduce stocks-to-use ratio, and result in prices quickly moving higher.”

Decrease forecast in China

“In China, the government’s continued investment in equipment subsidies and mechanizations are supportive of agriculture. However, the economic slowdown and lower commodity prices have led to a decrease in forecast industry sales.”

Weak monsoons hurting India, ruble hurting Russia

“Turning to India, positive consumer and investors segment are encouraging economic growth. While the government continues to support agriculture, two consecutive below normal monsoon seasons are hurting the farm sector. In the CIS, continued deterioration of economic growth and further tightening of credit continue to weigh on equipment sales. Notably, western equipment manufacturers are being heavily affected by the weak Russian currency and geopolitical uncertainties.”

Brazil hurt by rising interest rates and economic uncertainty

“farmer confidence is lower as a result of these rising interest rates, economic uncertainty and political concerns, all of which are leading to lower equipment sales. Still, long term fundamentals for the Ag business in Brazil are solid.”

Seeing slowdown in order books in construction segment

“In spite of these encouraging economic indicators and positive dealer and customer sentiment, we are seeing weakening in our order books. Some contributing factors to the slowdown in demand are the conditions in the energy sector and energy producing regions, wet weather that slowed construction activities this spring and summer, the decline in rental utilization rates and sluggish economic growth outside the United States.”

Probably going to see further decrease in sales next year

“at this point given that outlook in cash receipts, given what we’re seeing and in the very early stages of our early order programs it is likely that you would see some reduction, further reduction in large Ag sales retail sales next year.”

El Nino usually good for US growing conditions

“Keep in mind as we go into 2016, we did have some favorable weather conditions, El Nino actually strengthened through the summer. And that certainly bodes well normally for U.S. market or growing areas. But keep in mind that can have some more negative and dry impact on other parts of the world.”

Construction segment actually not bad outside of energy

when you think about C&F, there is little bit of dichotomy because you talk to our contractors, our dealers, the sentiment is generally – fairly positive especially outside of those energy impacted areas. The underlying fundamentals that we would normally point to are actually fairly positive year-over-year. We’re just seeing softness in orders.”

Rental companies shifting equipment out of energy dependent areas

“There is commentary about some of the independent rental companies for example shifting inventory out of those areas that are more energy dependent into the rest of the country.”