Deere FY 1Q17 Earnings Call Notes

Joshua Jepsen

Farm income should be up slightly in 2017

“Before we review the industry sales outlook, let’s look at fundamentals affecting the Ag business. Slide six outlines U.S. farm cash receipts. Given the large crop harvest and consequently the lower commodity prices we’re seeing today, our 2016 forecast calls for cash receipts to be down about 5% from 2015’s levels. Moving to 2017, we expect total cash receipts to be about $367 billion, roughly flat with 2016. It is worth noting that net farm cash income, a good measure of farm business health, is forecast to be up slightly in 2017. You can see this information in the appendix.”

Chinese stocks have increased, but unlikely to be exported

“Chinese grain and oilseed stocks continue to increase in 2016 with supply, domestic production plus imports outpacing the demand. Chinese stocks of grains and oilseeds now represent almost half of the world’s stocks. Remember, these Chinese stocks are unlikely to be exported. That means the world market, particularly oilseeds remain sensitive to any production setbacks, major geopolitical disruptions or trade disputes”

There are signs that the market is nearing bottom

“Still, there are signs the large Ag market is nearing bottom. For example, the magnitude of the industry decline expected in 2017 is considerably less than that experienced in 2016. Also, the used equipment environment is stabilizing. The EU28 industry outlook is forecast to be down about 5% in 2017, due to low crop prices and farm incomes as well as the geopolitical risks mentioned earlier.”

Tony Huegel

Not burning inventories anymore

“I think as you think about new equipment – and where we’ve really talked about through 2016 and even in 2015 is as we ended the year, the target was to have inventories in line with our current retail sales environment. And so, the real difference this year is, we aren’t seeing a significant decline in that retail environment year-over-year as we had both in 2015 and 2016. And as a result of that we’re able to produce largely to retail demand. Obviously there’s going be puts and takes by individual products. But as you think about large Ag in total for the U.S. and Canada, we’re producing in line with retail, which does give us some year-over-year benefit obviously in our sales as we’re able to do that. So really the answer to your question would depend on what happens to the retail environment. In a year where you start to see the retail environment improving, that’s when we would consider starting to lift that inventory level in line with that. ”

Deere 4Q16 Earnings Call Notes

Deere & Company’s (DE) Q4 2016 Results

Josh Jepsen

Farm cash receipts should be about the same in 2017 as 2016

“Given the large crop harvests in 2015 and consequently to lower commodity prices we are seeing today, our 2016 forecast calls for cash receipts to be down about 6% from 2015 levels. Moving to 2017, we expect total cash receipts to be approximately $367 billion, about the same as in 2016 as lower livestock cash receipts are offset by higher crop receipts.”

Anticipate lower industry sales in China

“In China, slower economic growth persists and ag policy changes are causing short-term uncertainty for most domestic and global markets. As a result, we anticipate lowered industry sales. Turning to India, the government continues to focus on reviving growth in the ag sector and improving farm incomes.”

Market demand for construction equipment continues to be weak

“Moving to Slide 16 and looking at the economic indicators on the bottom part of the slide. GDP growth is positive. Construction spending is increasing and housing starts are expected to exceed 1 million units again this year. In spite of these positive signals, the market demand for construction equipment continues to be weak. Factors contributing to the weakness have not changed dramatically over the past quarter. Conditions in the oil and gas sector, for example, continued to be slow. Also, construction contractors are delaying fleet replenishment because of the uncertain markets. Rental utilization rate declines persist, leading to a reduction in fleets and elevated levels of used inventory. Housing starts in the U.S. for single-family homes remain below the long-term average and multifamily home construction is slowing due to overbuilding in some parts of the country. On balance, Deere’s construction and forestry sales are forecast to be up about 1% in 2017 with positive currency translation of about 1 point. Global forestry markets are expected to be roughly flat in 2017. C&F’s full year operating margin is projected to be about 3.5%.”

Tony Huegel

We’re modelling different scenarios for the Trump presidency, but at this point they are speculation

“Yes. I am going to take that question and make it broader than just tax. And what I would tell you is the thing – the most important thing is anything that’s being talked about in media and anywhere else is obviously speculation at this point in terms of what may or may not happen. And so certainly internally, we are evaluating different scenarios. So, the short answer to your question is the, of course, we are looking at what that impact may or may not be, but we are looking at all kinds of scenarios, because at the end of the day, we want to be prepared for whatever does become reality. But we are – at this point, it would be premature to talk about that publicly just because it would be pure speculation, so – but we do appreciate the question.”

John Deere (DE) Q3 2016 Earnings Call

John Deere’s (DE) Josh Jepsen said low agricultural commodity prices still hurting sales of agricultural equipment

“Low commodity prices, weakening farming income and elevated used equipment levels in the U.S. and Canada are continuing to pressure demand for farm equipments especially high horsepower models.”

Construction market continues to get weaker

“Notwithstanding these positive signals the market demand for construction equipment continues to soften. Among the factors contributing to the weakness, conditions in the oil and gas sector continue to be slow with the impact most pronounced in the energy producing regions of the U.S. and Canada. Contractors are less apt to replenish or grow their machine fleets when faced with uncertain markets.”

John Deere’s (DE) Chief Economist JB Penn said consumption of agricultural commodities continues to increase despite not growing at the same pace of a few years ago

“Consumption remains very strong, still rising steadily year-after-year and it has risen without fail every year since 1994, 1995 even including the great recession of 2009. Now fuelled by earlier high prices and after four consecutive great growing seasons worldwide, commodities supplies now are fully adequate to meet all needs. Prices of course have moved off the previously high levels and farmer margins have narrowed.”


Sk Additions:

With commodity prices coming down, mood is less positive

“es, as you might imagine, and we talked last quarter and even the early part of the third quarter where sentiment was a bit more positive as those commodity prices were up, and as we mentioned there, that can change in a hurry, and it certainly with the commodity prices coming down, I think it’s fair to say the overall mood would be less positive than it was a couple months ago even.”

Have seen some pricing stabilization in used equipment

“We’ve seen some pricing stabilization on used equipment, so, again, I think things are stabilizing but I want to be clear we have a lot of work on the actual level of used inventory at our dealers that will continue into 2017.”

Brazil looking better

” I mean if you ask me today which market was likely if I had to pick one which one has the best likelihood of being up, I think I would have to say Brazil or South America in general. One of the things to keep in mind is and we talked about this throughout the year is a lot of downturn there has been related to the uncertainty around the government and the overall economy. Farmers have been pretty profitable. As a result of that with the new government at least today there appears to be a more positive sentiment, inflation is coming down as an example so the overall economy seems to be showing some level of improvement.”

Deere (DE) Q2 2016 Earnings Call

Deere’s Joshua Jepsen said both of the company’s end markets, agricultural and construction, are displaying weakness

“Deere’s performance for the second quarter and first six months reflected the continuing impact of the downturn in the global firm economy as well as weakness in markets for construction equipment.”

Expecting a weak farm economy as well for this year

“Given the record crop harvest of the last three years and the resulting lower commodity prices, our estimates for 2015 cash receipts remains down about 10% from 2014 peak levels. Our 2016 forecast contemplates total cash receipts to be about $375 billion down only slightly from 2015.”

There’s an excess of farm equipment

“Low commodity prices, stagnant farm incomes, and elevated used equipment levels in U.S. and Canada are continuing to pressure demand for farm equipment. The decline is most pronounced in the sale of high horsepower models. Our forecast for industry sales in the U.S. and Canada remains down 15% to 20%, with large Ag equipment sales down 25% to 30%.”

Lower spending by companies in the energy sector is starting to seep into other industries

“The industry continued operating at a slow pace. Contributing factors are rental utilization rates continued to decline. Weak conditions persist in the energy sector. Used equipment is readily available and continues to be redeployed from energy producing regions to other parts of the country.”

Experiencing higher credit losses in their equipment that they lease out

“Recent experience have seen both the higher rate of matured lease inventory being returned to John Deere Financial in addition to higher loss rates upon the remarketing of these lease returns. We’ve taken a number of actions to mitigate risk on our operating lease portfolio, a few examples include lowering residual values for future leases most heavily impacting short-term leases, significantly restricting our short-term lease offerings, and increasing risk sharing with dealers.”

Customers are increasingly preferring to lease equipment as opposed to buying it outright 

“I think there’s a little bit of misunderstanding or information in the marketplace around the level of leasing too. I’ve heard numbers as high as 50% is going into operating lease today. We would tell you year-to-date if you look at operating leases versus retail note its closer to a quarter of the volume is operating lease. Now again to be fair that is higher than what it would have been historically, but it is nowhere near that half type of range that some are talking about.”

Using their financial strength during this agricultural downturn to opportunistically acquire other companies

“o in this type of an industry environment where we have a very strong financial position, some of these inorganic options become more actionable for us. And if they are in the long-term interest of our shareholders for profitable growth in the long-term, we will act on some of those.”

Corporate Annual Reports And CEO Interviews 3.24.16

Source: John Deere Annual Report

John Deere (DE) CEO Sam Allen said the farm equipment recession of the last few years has been the worst in nearly a century

“In relation to the farm economy’s robust years earlier in the decade, the current downturn has been quite dramatic. Since peaking in 2013, industry sales of large agricultural equipment in the United States have fallen more than 60 percent. Deere’s total equipment sales have declined more than 25 percent from their high. Last year’s sales decline was the company’s largest in percentage terms since the 1930’s.”


Source: Richemont (owner of luxury jewelry brands such as Cartier, Van Cleef & Arpels) CEO Youtube Interview= https://www.youtube.com/watch?v=-MvyTHPueKI

Richemont CEO Johann Rupert said the true price of capital is obscured in today’s economic environment

“We have a lot more competition, especially from ridiculously mispriced capital. When people misprice something, it is abused. In England, water is free, it rains all the time yet there is a drought. Now, if you misprice capital, people will abuse it and will regret it, unfortunately in our business as well.”


Richemont CEO Johann Rupert stated you should always be improving your business whether we are in an economic expansion or economic recession

“Never waste a good recession. Never waste an opportunity to fine tune your business.


Source: Schlumberger Annual Report

Schlumberger (SLB) CEO Paal Kibsgaard remains constructive on both the supply and demand of the oil markets ultimately coming into equilibrium in the medium term

“We remain constructive in our view of the market outlook in the medium term and continue to believe that the underlying balance of supply and demand will tighten. This will be driven by growth in demand, weakening supply as the massive E&P investment cuts take effect, and the size of the annual supply replacement challenge. In continuing to accelerate the benefits of our transformation program across both our Technologies and GeoMarket regions in 2016, we believe that we will emerge as a stronger company once the price of oil and the market conditions in our industry improve.”


Source: Autozone Annual Report

Autozone (AZO) CEO William Rhodes said the company is prioritizing their E-commerce auto parts websites in order to get their products to consumers quicker

“We are expanding our fast-growing internet offerings. Utilizing our autozone.com, autozonepro.com and autoanything.com websites, we believe we are well positioned to serve our customers however they elect to interact with us. In 2016, we will continue our focus on both expanding our online product offerings and improving the shopping experience. While this business is growing at a faster pace than our “brick and mortar” business, it remains small in absolute terms. However, over time, as mobile shopping intensifies, it will only expand. We have to stay out in front in this sector of our industry. Our customers expect us to offer this shopping convenience and additional avenues for trustworthy advice to maintain, enhance or repair their vehicle.”


Source: Leucadia Annual Report

Leucadia (LUK) CEO Richard Handler said his company is undervalued and prepared to weather the stormy economic environment

“As we write, there is continuing volatility in the fixed income and equity trading markets, as well as in energy prices. Scratches and dents seem inevitable and we won’t dare make predictions for the rest of the year, but based on the actions we have taken to date, our businesses are prepared to weather the storm, and several are doing quite well. We are both aligned long-term investors in Leucadia stock and will continue to work our hardest to deliver good results in the coming years. There remains significant long-term upside in the value of Leucadia, which exists in the intrinsic value of our businesses and is not fully reflected in our current dismal stock price. We will discuss all of our businesses later in this letter.”


Source: Bank of New York Mellon Annual Report

Bank of New York Mellon (BK) CEO Gerald Hassell reiterated the company’s new mission statement

“We play an important role in the financial marketplace and describe ourselves as the Investments Company for the World. Our mission is to help people realize their full potential by leveraging our distinctive expertise to power investment success. In doing so, we seek to improve the lives of countless people globally – a goal that motivates us to be the very best at what we do.”

Bank of New York Mellon (BK) CEO Gerald Hassell said the company remains the dominant vendor for central banks and pension funds

“Our clients include three-quarters of the Fortune 500, central banks that hold approximately 90 percent of all capital and more than two-thirds of the top 1,000 pension funds.”


Source: Moody’s Annual Reports

Moody’s (MCO) CEO Ray McDaniel said the company is benefiting from several tailwinds in the financial markets

“We manage through cyclical conditions, while focusing on and investing around the deeper pull of structural market evolution: phenomena such as the disintermediation of credit, the demand for enhanced risk management techniques, the need to curate increasingly vast quantities of financial information and data and the development of emerging economies. These are powerful dynamics and they reveal an open road beyond the rubbernecking that often surrounds day-to-day market sentiment.”

Moody’s (MCO) CEO Ray McDaniel noted a choppy economic environment is creating uncertain buying patterns across their customer base
“Financial markets continue to be buffeted by volatility stemming from, among other things, uncertain global economic conditions, diverging monetary policies and geopolitical events. These dynamics (and their inter-relationship) create cross-currents and choppiness that unsettle market participants. This in turn impacts both the short- and long-term outlook for Moody’s.”

He elaborated that markets getting harder to interpret

“Markets are becoming more complex, not less, and are moving more quickly and featuring more choices. The need for products and services that illuminate and enhance the understanding of risk is essential to market confidence, and that confidence is essential to the sound management and efficient movement of global capital. Moody’s focus and opportunity involves filling the gaps that complexity, volume and information inefficiencies create.”


Source: Potash Annual Report

Potash (POT) CEO Jochen Tilk said increased global demand for protein will benefit his agricultural nutrient focused company

“By 2050, the world’s population is expected to grow by another 2.3 billion, reaching 9.7 billion. At the same time, diets are improving in many regions. These facts add up to greater demand for food, which will require increased crop production even as the amount of arable land per person is declining. With the world counting on increased yields from farmers, fertilizers will continue to be essential in keeping soils healthy. The role of fertilizers cannot be overestimated: they are responsible for half of all crop yields and without them, we believe the world would be incapable of feeding itself. ”


Source: Wells Fargo Annual Report


Wells Fargo (WFC) CEO John Stumpf said the company is still a relationship oriented business

“The most powerful expression of our heritage isn’t in documents or artifacts or even our stagecoach. It is in any of the millions of relationships we have formed over generations with customers, team members, communities, and shareholders. Relationships define Wells Fargo. Earning lifelong relationships, one customer at a time, is fundamental to achieving our vision.”


Source: Mark Fields Business Insider Interview http://www.businessinsider.com/ford-ceo-mark-fields-interview-2016-3

Ford (F) CEO Mark Fields said cars on the road today are lasting longer than ever, suppressing demand for their products

“We have worked very hard at quality over the last number of years, and our quality is in the top echelons of the industry. So part of it is vehicles are lasting longer. When I was growing up, when you saw a 20-year-old car it was like, Oh my gosh — that thing’s on its last legs. Now you see a 20-year-old vehicle and in many cases it looks pretty good. So part of it is that, but the other part is when we went through the downturn, clearly there were a lot of deferrals of people replacing vehicles.”

Ford (F) CEO Mark Fields noted that economic volatility and currency wars are making the automobile manufacturing business a more competitive landscape

“For us the main policy is making sure that currency is not used as a weapon, if you will, to manipulate the cost of products, whether they’re imported or exported. We can compete with anybody around the world. We can’t compete with central banks.”

John Deere (DE) 4th Quarter 2015 Earnings Call Notes

Deere’s (DE) Josh Jepsen said the global agricultural economy and parts of the construction sector remain on uneven ground

“Our results were lower than last year reflecting the continuing impact of the downturn in the global farm economy and weakness in construction equipment markets.”

Yet despite the deceleration of equipment sold, they were able to remain profitable

“All of Deere’s businesses remained solidly profitable for the quarter. This shows our continuing progress, managing costs and creating a more flexible responsive cost structure.”

Deere’s (DE) Josh Jepsen said the amount of equipment sold into China remains an uncertainty

Because of the economic slowdown in China, we continue to anticipate lower industry sales. While government support of mechanization is helping the sector, changes in government subsidies are causing uncertainty.  In Asia, sales are expected to be flat to down slightly due in part to weakness in China.

Deere is seeing the most pronounced weakness in their most expensive equipment products

Low commodity prices and stagnant farm incomes in the U.S. and Canada are continuing to pressure demand for farm equipment with the decline being most pronounced in the sale of high horsepower models.”

Pricing for their equipment remains challenged 

Certainly, the price environment is very challenging, especially for construction. We have a large competitor who’s been pretty open about some negative pricing for their business. And so far, our business has been able to hold the line and keep pricing on a positive plan.”

Deere discussed their thinking on the trade off between market share and maintaining price

Pricing continues to be important to us. We continue to, in most cases, trade at a premium to our competition and certainly we would continue to be focused on price realization in small Ag. Now, where we’ve really increased our focus is on innovation in that area and we brought in some very attractive product. So in that case, quite often, it’s not so much about discounting but making sure you have the right features on that product the customers are willing to pay for, and not having excessive amounts of features that they aren’t willing to pay for, if you will. So that tends to be our focus. It’s making sure we really understand that market that we’re delivering the product that customer is looking for and that we can do that with positive pricing.”

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.”

Deere FY 4Q15 Earnings Call Notes

Deere & Company (DE) Management On Q4 2015 Results

Expecting 2016 farm receipts roughly flat with this year

“our 2015 forecast calls for cash receipts to be down about 8% from 2014s peak levels. Moving to 2016, we expect total cash receipts to be about $394 billion, roughly flat with this year.”

Unfavorable growing conditions could result in prices moving quickly higher

“global grain stocks-to-use ratios remain at somewhat sensitive levels, even after the abundant harvest 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 result in prices quickly moving higher.”

Lower sales forecast in China because of economic slowdown

“In China, the governments continued investment in equipment subsidies and mechanization is supportive of agriculture. However, the economic slowdown there and lower commodity prices have lead to a decrease in the industry sales forecast”

Appears there will be continued weakness in the dairy market

“it appears that we’ll continue to have some weakness in the dairy market, as an example as we go well into 2016. And that’s a significant part of the business in Europe. So I think that is probably the biggest difference.”

There’s still more inventory than we would like but we’re making progress

“We would continue to say there is more large row crop tractors in used row crop tractors in the market in the US and Canada than we would prefer. So it does continue to be a focus of ours, as we go through 2016. But we are making progress, so we are seeing that large Ag inventory coming down. In fact if you look at the high point in 2014, we’re down about 18% from that point. So again, making progress.”

Resale values are holding in quite well

“The good news there too is our resale values are holding in quite well. We talked last quarter about if you look over a 2 year kind of horizon, down a small single digit, I’d tell you those used pricing continues – the used pricing continues to remain very steady at those levels and versus competition we’re maintaining a very healthy premium.’

We don’t anticipate a significant decrease in acres planted next year

“We have not at this point disclosed acres and so on for next year’s crop. I don’t think we certainly don’t anticipate a significant decrease in the acres planted. And think I’ll follow up a little bit on the last question you had though, because I think the situation in Argentina with the elections over last weekend could have some impact on that.”

Buildup of used equipment in the UK because usually export to Europe and Euro is weaker

“When you think about used equipment, I’ll split it a little bit. In the UK, certainly we’re seeing some increased levels of used equipment and that’s really coming from the – again it’s FX driven. So the Euro has been impacted more than the British pound and a lot of the used equipment from the UK goes to Europe and into Euro based countries. And so obviously, now with that shift in FX, it is creating more challenge for the export of that used equipment out of the UK.”

JS Earnings Call Notes 8.25.2015 – Intuit, John Deere, Ross Stores

Jeremy S., an investment analyst who contributes to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Intuit (INTU) CEO Brad Smith has decided to divest all businesses not correlated to the company’s core mission of helping customers organize their financial lives

“We’re focusing our attention and investments on assets that accelerate our ability to deliver our two strategic goals, first, to be the operating system behind small business success, and second, to do the nations’ taxes. With this focus, we have decided to divest Demandforce, QuickBase and Quicken.  Let me provide some context about why we made these decisions. Demandforce and QuickBase are great businesses, but they do not support the QuickBooks Online Ecosystem and both serve customers that are up-market from our core small business customers.  Quicken is a desktop-centric business and it doesn’t strengthen the small business or tax ecosystems. Our strategy is focused on building ecosystems and platforms in the cloud.”

Already being the category leader in helping individuals file their taxes, Quickbooks continues to gain market share versus competitors

“Within the software category, we estimate that TurboTax Online gained about a point-and-a-half of share, translating into four points of share gains over the past two seasons.”

Intuit (INTU) CEO Brad Smith reiterated their $5 per share earnings target for 2017 even though they are selling non-core businesses.  Earnings targets are dangerous because they cause management to focus on “meeting the number” as opposed to building the business for the long term 

“We still see a path to achieve a $5 EPS target in 2017.”

Management reminded the investors that Intuit has a 15% return on capital hurdle whenever they are making a business decision

We invest in things that we can see a 15% rate of return and whether those are internal investments to expand R&D or new market or they are stock repurchases or acquisitions we’re going to continue to use our capital judiciously, so we get the best return on that capital.”

Intuit (INTU) CEO Brad Smith said the firm has a process where they go back and look at their own tracked record of acquisitions

I have learned a lot of lessons from our M&A track record, but during my time here, as well as those that were done before us and we do a rigorous study of those and we sit down with the Board once a year and we do a 10-year look back. We compare those to the business cases. We put together for the Board, as well as what we share with the street and the pattern recognition increasingly clear.  We have a mixed record in terms of bolt-on businesses, new businesses that may not plug-in directly with QuickBooks or tax businesses and those are the things that we’ve now got a new set of patterns that we’ve defined as printable and we are saying, if we are going to look in the space going forward these are the criteria that these acquisitions have to meet.”

 

 

 

 

 

Ross Stores (ROST) CEO Barbara Rentler sees macroeconomic conditions taking a toll on the business  

“The macroeconomic environment remains uncertain, and we expect the retail landscape to be highly promotional during the fall season, especially given the recent results from other retailers. Based on these factors, while we hope to do better, we believe it is prudent to remain cautious in forecasting our business for the second half of 2015.”

Ross Stores (ROST) CEO Barbara Rentler says she isn’t concerned about some of the department store competitors (such as Macy’s & Nordstrom’s) business plans to go down market

What I would say about that is, we’re clearly operating in a very promotional and competitive environment. And that’s really true across the entire retail landscape including our biggest competitor. But our focus really is on our own business. So our top priority really remains providing the best compelling bargains possible to the customers and that’s really not going to change.”

Ross Stores (ROST) CEO Barbara Rentler says they aren’t seeing any weakness in economic regions tied to energy such as Texas

Texas, overall, has consistently been a good performer for us. In the second quarter and year-to-date, it’s performed above the chain average for us. So it continues to be one of our best-performing regions.”

 

 

 

 

 

Deere’s (DE) Susan Karlix said lower crop prices are hurting demand for their products

“Lower commodity prices and falling farm income are continuing to pressure demand for farm equipment, especially larger models.”

Deere’s (DE) Susan Karlix said energy price weakness is starting to dampen their order book

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.”

Deere (DE) says their equipment continues to sell at a premium versus their competitors 

“Pricing is holding in okay, its, if you look at it kind of from a two-year average, we would be slightly below that. But believe we continue to maintain a healthy premium versus our competition.”

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.”