Deere & Co. 10-Q 2023-01-29

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 29, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

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Commission file no: 1-4121

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DEERE & COMPANY

(Exact name of registrant as specified in its charter)

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Delaware(State of incorporation)	​	36-2382580(IRS employer identification no.)

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One John Deere Place

Moline**,** Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

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Securities Registered Pursuant to Section 12(b) of the Act:

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Title of each class	​	Trading symbol	​	Name of each exchange on which registered
Common stock, $1 par value	​	DE	​	New York Stock Exchange
6.55% Debentures Due 2028	​	DE28	​	New York Stock Exchange

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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

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At January 29, 2023, 296,322,273 shares of common stock, $1 par value, of the registrant were outstanding.

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PART I. FINANCIAL INFORMATION

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ITEM 1. FINANCIAL STATEMENTS	​	​	​	​	​	​	​
DEERE & COMPANY	​	​	​	​	​	​	​
STATEMENTS OF CONSOLIDATED INCOME	​	​	​	​	​	​	​
For the Three Months Ended January 29, 2023 and January 30, 2022	​	​	​	​	​	​	​
(In millions of dollars and shares except per share amounts) Unaudited	​	​	​	​	​	​	​
​		2023			2022
Net Sales and Revenues	​	​	​	​	​	​	​
Net sales		$	11,402	​	$	8,531	​
Finance and interest income	​	​	994	​		800	​
Other income	​	​	256	​		238	​
Total	​	​	12,652	​		9,569	​
​	​	​	​	​	​	​	​
Costs and Expenses	​	​	​	​	​	​	​
Cost of sales	​	​	7,934	​		6,695	​
Research and development expenses	​	​	495	​		402	​
Selling, administrative and general expenses	​	​	952	​		781	​
Interest expense	​	​	479	​		229	​
Other operating expenses	​	​	299	​		311	​
Total	​	​	10,159	​		8,418	​
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Income of Consolidated Group before Income Taxes	​	​	2,493	​		1,151	​
Provision for income taxes	​	​	537	​		250	​
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Income of Consolidated Group	​	​	1,956	​		901	​
Equity in income of unconsolidated affiliates	​	​	1	​		3	​
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Net Income	​	​	1,957	​		904	​
Less: Net income (loss) attributable to noncontrolling interests	​	​	(2)	​		1	​
Net Income Attributable to Deere & Company		$	1,959	​	$	903	​
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Per Share Data	​	​	​	​	​	​	​
Basic		$	6.58	​	$	2.94	​
Diluted		​	6.55	​	​	2.92	​
Dividends declared	​	​	1.20	​	​	1.05	​
Dividends paid	​	​	1.13	​	​	1.05	​
​	​	​	​	​	​	​	​
Average Shares Outstanding	​	​	​	​	​	​	​
Basic	​	​	297.6	​		307.4	​
Diluted	​	​	299.1	​		309.4	​
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See Condensed Notes to Interim Consolidated Financial Statements.

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DEERE & COMPANY	​	​	​	​	​	​	​
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME	​	​	​	​	​	​	​
For the Three Months Ended January 29, 2023 and January 30, 2022	​	​	​	​	​	​	​
(In millions of dollars) Unaudited	​	​	​	​	​	​	​
​		2023			2022
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Net Income		$	1,957	​	$	904	​
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Other Comprehensive Income (Loss), Net of Income Taxes	​	​	​	​	​	​	​
Retirement benefits adjustment	​	​	(11)	​		(345)	​
Cumulative translation adjustment	​	​	681	​		(267)	​
Unrealized gain (loss) on derivatives	​	​	(13)	​		14	​
Unrealized gain (loss) on debt securities	​	​	27	​		(15)	​
Other Comprehensive Income (Loss), Net of Income Taxes	​	​	684	​		(613)	​
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Comprehensive Income of Consolidated Group	​	​	2,641	​		291	​
Less: Comprehensive income attributable to noncontrolling interests	​	​	6	​		1	​
Comprehensive Income Attributable to Deere & Company		$	2,635	​	$	290	​
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See Condensed Notes to Interim Consolidated Financial Statements.

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DEERE & COMPANY	​	​	​	​	​	​	​	​	​	​
CONDENSED CONSOLIDATED BALANCE SHEETS	​	​	​	​	​	​	​	​	​	​
(In millions of dollars) Unaudited	​	​	​	​	​	​	​	​	​	​
​		January 29			October 30			January 30
​	​	2023		​	2022		​	2022
Assets	​	​	​	​	​	​	​	​	​	​
Cash and cash equivalents		$	3,976	​	$	4,774	​	$	4,472	​
Marketable securities	​	​	852	​		734	​		735	​
Trade accounts and notes receivable – net	​	​	7,609	​		6,410	​		4,855	​
Financing receivables – net	​	​	36,882	​		36,634	​		33,191	​
Financing receivables securitized – net	​	​	5,089	​		5,936	​		3,516	​
Other receivables	​	​	1,992	​		2,492	​		1,936	​
Equipment on operating leases – net	​	​	6,502	​		6,623	​		6,624	​
Inventories	​	​	10,056	​		8,495	​

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RESULTS OF OPERATIONS

Overview

Organization

The Company generates net sales from the sale of equipment to John Deere dealers and distributors. The Company manufactures and distributes a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, roadbuilding, and forestry. These operations (collectively known as the “equipment operations”) are managed through the production and precision agriculture, small agriculture and turf, and construction and forestry operating segments. The Company’s financial services segment provides credit services, which finance sales and leases of equipment by John Deere dealers. In addition, the financial services segment provides wholesale financing to dealers of the foregoing equipment, finances retail revolving charge accounts, and offers extended equipment warranties.

Smart Industrial Operating Model and Leap Ambitions

The Company’s Smart Industrial operating model is focused on making significant investments, strengthening the Company’s capabilities in digital, automation, autonomy, and alternative propulsion technologies. These technologies are intended to increase worksite efficiency, improve yields, lower input costs, and ease labor constraints. The Company’s Leap Ambitions are goals designed to boost economic value and sustainability for the Company’s customers. The Company anticipates opportunities in this area, as the Company and its customers have a vested interest in sustainable practices.

In February 2023, the Company released its 2022 Sustainability Report, available at JohnDeere.com/sustainability. This report identifies important progress on the Company’s Leap Ambitions in fiscal year 2022. The information in our 2022 Sustainability Report is not incorporated by reference into, and does not form a part of, this Form 10-Q.

Trends and Economic Conditions

Industry Trends for Fiscal Year 2023 – Industry sales of large agricultural machinery in the U.S. and Canada for 2023 are forecasted to increase 5 to 10 percent compared to 2022. Industry sales of small agricultural and turf equipment in the U.S. and Canada are expected to be down about 5 percent in 2023. Industry sales of agricultural machinery in Europe are forecasted to be flat to up 5 percent, while South American industry sales of tractors and combines are expected to be flat to up 5 percent in 2023. Asia industry sales are forecasted to be down moderately in 2023. On an industry basis, North American construction equipment and compact construction equipment sales are both expected to be flat to up 5 percent in 2023. Global forestry and global roadbuilding industry sales are each expected to be flat.

Company Trends – Customers’ demand for integration of technology into equipment is a market trend underlying the Company’s Smart Industrial operating model and Leap Ambitions framework. Customers have sought to improve profitability, productivity, and sustainability through technology. The Company’s approach to technology involves hardware and software, guidance, connectivity and digital solutions, automation and machine intelligence, autonomy, and alternative propulsion technologies. This technology is incorporated into products within each of the Company’s operating segments.

Customers continue to adopt technology integrated in the John Deere portfolio of “smart” machines, systems, and solutions. The Company expects this trend to persist for the foreseeable future.

Demand for the Company’s equipment remains strong, as order books are full through a majority of 2023. Agricultural fundamentals are expected to remain solid into 2023, and retail demand will comprise most of 2023 sales. The North American retail customer fleet age of combines and large tractors remains above average, and dealer inventories are historically low due to the manufacturing and supply chain constraints over the past few years. The Company expects the replenishment of dealer stock inventory to occur in 2024. Crop prices remain favorable to our customers in part due to low stock-to-use ratios for key grains. The Company expects to sell more large agricultural equipment in 2023 than 2022 in North America, Europe, and South America. Demand for small agricultural equipment remains stable, while turf and utility equipment product sales are expected to be lower due to the overall U.S. economic conditions. Construction equipment markets are forecasted to be steady. Rental fleets replenishment, the energy industry, and U.S. infrastructure spend are expected to offset moderation in residential

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home construction. Roadbuilding demand remains strongest in the U.S., largely offset by softening demand in Europe and parts of Asia. Net income for the Company’s financial services operations is expected to be lower than fiscal year 2022 due to less-favorable financing spreads as a result of heightened interest rates, higher selling, administrative and general expenses, and lower gains on operating-lease dispositions, partially offset by higher average portfolio balances.

Additional Trends – The Company experienced supply chain disruptions and inflationary pressures in 2022. These trends continued into 2023. While these are two distinct issues and discussed separately below, their impact may be intertwined.

Supply chain disruptions impacted many aspects of the business, including parts availability, increased production costs, and higher inventory levels. Past due deliveries from suppliers were at elevated levels during 2022. Although past due deliveries remain elevated, the Company experienced improvement during the first quarter of 2023. The reduction in supply chain disruptions contributed to higher levels of production. The Company implemented the following mitigation efforts to minimize the impact of supply chain disruptions on its ability to meet customer demand:

• Worked with the supply base to obtain allocations and improve on-time deliveries of parts.

• Multi-sourced some parts and materials.

• Provided resources to suppliers to address constraints.

• Entered into long-term contracts for some critical components.

• Utilized alternative freight carriers to expedite delivery.

While supply chain disruptions are expected to persist into 2023, the Company is working diligently to secure the parts and components that customers need to deliver essential food and infrastructure more profitably and sustainably. Although the Company experienced some improvement in this area during the first quarter of 2023, concerns remain and this issue could impact our ability to meet customer demand in the remainder of 2023.

Inflation has continued to be a pervasive feature in 2023, increasing the cost of purchased components, energy, salaries, and wages. Higher costs due to general business inflation were offset by price realization, which mitigated the impact of inflation on the Company’s operating results. The Company expects inflation to continue in 2023 resulting in higher costs. If customers are unwilling to accept increases in cost of John Deere products, or the Company is otherwise unable to offset increases in production costs, inflation could have an adverse effect on the Company’s operations and financial condition.

Central bank policy interest rates increased in the first quarter of 2023 and are projected to continue to increase during 2023 but at a moderating pace compared to 2022. Most retail receivables are fixed rate, while wholesale financing receivables are floating rate. The Company has both fixed and floating rate borrowings. The Company manages the risk of interest rate fluctuations by balancing the types and amounts of its funding sources to its financing receivable and equipment on operating lease portfolios. Accordingly, the Company enters into interest rate swap agreements to manage its interest rate exposure. Historically, rising interest rates impact the Company’s borrowings so

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See the Company’s most recently filed Annual Report on Form 10-K (Part II, Item 7A). There has been no material change in this information.

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The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of January 29, 2023, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the first quarter of 2023, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

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The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, trademark, and antitrust matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.

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See the Company’s most recently filed Annual Report on Form 10-K (Part I, Item 1A). There has been no material change in this information. The risks described in the Annual Report on Form 10-K, and the “Forward-Looking Statements” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s business, financial condition, or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s purchases of its common stock during the first quarter of 2023 were as follows:

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​		​		​	​		Total Number of		​
​	​	​	​	​	​	​	Shares Purchased as	​	Maximum Number of
​	​	Total Number of	​	​	​	​	Part of Publicly	​	Shares that May Yet Be
​	​	Shares	​	​	​	​	Announced Plans or	​	Purchased under the
​	​	Purchased (2)	​	Average Price		​	Programs (1)	​	Plans or Programs (1)
Period	​	(thousands)	​	Per Share		​	(thousands)	​	(millions)
Oct 31 to Nov 27	​	569		$	402.45	​	569	​	47.8	​
Nov 28 to Dec 25	​	1,831	​	​	436.23	​	1,774	​	46.0	​
Dec 26 to Jan 29	​	538	​	​	427.11	​	538	​	45.4	​
Total	​	2,938	​	​	​	​	2,881	​	​	​

	(1)	The Company has a share repurchase plan that was announced in December 2019 to purchase up to $8,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be purchased under the December 2019 plan was 2.4 million shares based on the end of the first quarter 2023 closing share price of $418.18 per share. At the end of the first quarter of 2023, $995 million of common stock remains to be purchased under the December 2019 plan. In December 2022, the Board of Directors authorized the repurchase of up to $18,000 million of additional common stock. Based on the first quarter 2023 closing share price, the maximum number of shares that may be repurchased under the December 2022 plan was 43.0 million shares.

	(2)	In the first quarter of 2023, 57 thousand shares were acquired from plan participants at a market price to pay payroll taxes on certain restricted stock awards. The shares were valued at a weighted-average market price of $434.88.

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Item 3.  Defaults Upon Senior Securities

None.

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Item 4.  Mine Safety Disclosures

Not applicable.

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Not applicable.

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Certain instruments relating to long-term borrowings constituting less than 10 percent of the registrant’s total assets are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will file copies of such instruments upon request of the Commission.

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3.1		Certificate of Incorporation (Exhibit 3.1 to Form 10-Q of registrant for the quarter ended July 28, 2019, Securities and Exchange Commission File Number 1-4121*)
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3.2		Bylaws, as amended (Exhibit 3.1 to Form 8-K of registrant filed on December 3, 2020, Securities and Exchange Commission File Number 1-4121*)
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10.1		John Deere ERISA Supplementary Pension Benefit Plan, as amended October 31, 2022
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31.1		Rule 13a-14(a)/15d-14(a) Certification
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31.2		Rule 13a-14(a)/15d-14(a) Certification
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32		Section 1350 Certifications (furnished herewith)
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101.SCH		Inline XBRL Taxonomy Extension Schema Document
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101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
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101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
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104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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* Incorporated by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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​			DEERE & COMPANY
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Date:	February 23, 2023	​	By:	/s/ Joshua A. Jepsen
​	​	​	​	Joshua A. Jepsen Senior Vice President and Chief Financial Officer
​	​	​	​	(Principal Financial Officer and Principal Accounting Officer)

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