Deere FY 1Q16 Earnings Call Notes

Joshua Jepsen – Manager, Investor Communications, Deere & Co.

Estimate farm cash receipts will be down slightly from 2015

“Given the record crop harvests of the last three years and the resulting lower commodity prices, our estimate for 2015 cash receipts is now down about 10% from 2014’s peak levels. Our 2016 forecast contemplates total cash receipts to be about $381 billion, down slightly from 2015.”

Continue to anticipate lower industry sales in China

“Because of the economic slowdown in China, we continue to anticipate lower industry sales. While the government support of mechanization is helping the sector, changes in government subsidies are causing uncertainty.”

Although economic indicators are encouraging, construction segment impacted by other areas of weakness

“looking at the economic indicators at the bottom part of the slide, GDP growth is positive, construction spending is up from 2015 levels, and housing starts are expected to exceed 1.2 million units this year. In spite of these encouraging signs, the industry is operating at a slow pace. Contributing factors are weak conditions in the North American energy sector and the movement of equipment from energy producing regions to other parts of the country. Rental utilization rates continue to decline, economic growth outside the United States is sluggish and the mix of housing starts in the U.S. is skewed to multifamily homes reducing demand for earthmoving equipment. As a result, Deere’s Construction & Forestry sales are now forecast to be down about 11% in 2016.”

Most of the optimism has been removed from the construction forecast

“when you look at the forecast change for construction, most of that change is really as you look out toward the back part of the year. So as we talked about last quarter, there was some optimism, if you will, towards the back half of the year that we’d start to see, not an incredible amount, but some increase in sales as we went through the year. Most of that optimism candidly has been removed from the forecast, and so what we are forecasting today for construction is we think normal seasonality. So you will see some improved sales as you go through the year, but really nothing beyond again a typical seasonality.”

Used pricing has held relatively firm

“we did see – and I want to be clear. When we came into the downturn, we did see some small decreases in used pricing, but they’ve held very firm at those small single-digit type of declines, at least to date. So we are pleased with that aspect.”