Deere & Co. caused a bit of a stir when it used the term “trough” to describe its forecasted sales volumes for 2015. During its analysts’ breakfast in January, Deere management said that it did itself a disservice by not explaining the context of the term “trough.” The company also reinforced its previously announced goal to become a $50 billion company by 2018, at the meeting.
During the company’s fourth-quarter conference call with analysts, Susan Karlix, Deere’s manager of investor communications said, “Ag and turf sales were down 9% in 2014 and are anticipated to be down another 20% in 2015. In relation to our structure line, that would bring sales down to what we consider trough levels with the division operating at less than 80% of normal volume.”
In a Jan. 6 note to investors, Michael Shlisky, analyst for Global Hunter Securities, said, “For Deere, ‘trough’ levels indicate production at about 80% of capacity, but production levels can go below trough; for example, large ag is well below this level at the current time. Indeed, the company would have taken different actions than it has, including more temporary initiatives such as shutdown weeks in 2015, if the company thought demand would snap back in 2016.
“We got the sense that Deere is leaving the door open for a flat-to-down year for 2016, a cautious view that we agree with given the uncertainties that face the row-crop market.”
In the longer term, Deere reiterated that it still has its eyes set on becoming a $50 billion company by 2018 that it announced in 2011 (“How Will Deere Double Sales by 2018?” March 2011, Ag Equipment Intelligence). With the recent slowdown in the farm equipment business, the company has its work cut out for it. It reported total revenues for fiscal year 2014 at $36.1 billion, down from $37.8 billion the year before. According to Shlisky, Deere “continues to pursue several initiatives, regardless of global ag fundamentals.”
Among these are increased share in Brazil, Europe and Russia/CIS. Deere’s FarmSight precision farming system is also expected to add to growth, says Shlisky. “While Deere has largely met its margin plans (12% by 2014; the company reached 13%), management noted that the challenge ahead will be staying at these elevated levels.”
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