Deere forecasts slight drop in sales after record year

Originally Posted Online: Feb. 26, 2014, 1:12 pm
Last Updated: Feb. 26, 2014, 10:41 pm
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By Jonathan Turner,

MOLINE -- John Deere is coming off the best year in its 177-year history, and plans to weather a projected drop in farm equipment sales with continued investments around the world.

The Moline-based equipment maker -- with 65,000 employees worldwide and 8.500 in the Quad-Cities -- forecasts a 6 percent reduction in agricultural and turf machine sales, with most of the decline falling on larger equipment, Deere chairman and CEO Sam Allen said Wednesday at the company's annual meeting.

"2014 therefore promises to be a pivotal year in which the investments and operating changes we've made -- focused on a more flexible cost structure and wider range of revenue sources -- will be called on to keep our performance moving ahead," he said.

Deere's annual report says that while commodity prices and farm incomes are "expected to remain at healthy levels in 2014 by historical standards, they are forecast to be lower than in 2013." That will lower demand for farm equipment.

Company spokesman Ken Golden said after the meeting that Deere's fiscal 2013 sales were at such a high level, "that just isn't sustainable. People have invested a lot in large equipment and commodity prices have softened a little bit."

Last year, Deere had a record profit of $3.5 billion (up 15 percent from the year before), on net sales and revenues of nearly $38 billion. Earlier this month, the company reported first-quarter earnings of $681.1 million (up from $649.7 million a year earlier), the best initial quarter in the company's history.

Mr. Allen said the current fiscal year forecast is for a slight drop in profit to $3.3 billion. Anticipated declines in the farm economy are a force behind the planned indefinite layoff of about 120 employees at John Deere Harvester Works in East Moline, effective March 31, which the company announced previously.

Deere indicated in November that it expected a downturn in the market for large farm equipment such as the combines made at Harvester Works. Sales of ag machinery in the U.S. and Canada are forecast to decrease 5 to 10 percent over the record levels reached in 2013.

The Harvester Works currently has nearly 2,800 employees, with about 2,000 working in production jobs. Deere is investing $58 million in improvements at John Deere Seeding Group in Moline, which makes planting equipment, among several aggressive upgrades and expansions worldwide, Mr. Allen said Wednesday.

Deere has opened seven new factories over the past year -- three in China, for construction equipment, engines and large farm machinery; two in Brazil (one a joint venture with Hitachi) for construction equipment; one in India for farm tractors, and one in Russia for seeding and tillage equipment.

The new plants in Indaiatuba, Brazil are "integral to helping our construction-equipment operations gain a foothold in an attractive market and achieve more global scale," Mr. Allen said.

Deere expects total sales of construction and forestry equipment to jump by 10 percent this year, reflecting higher housing starts in the U.S. and increased sales outside North America, the annual report said.

"The global population is adding thousands of mouths to feed, and bodies to clothe and shelter, every hour," Mr. Allen said, noting the world population is expected to grow two billion by 2050.

Deere has a goal to boost its annual sales to $50 billion by 2018 -- which would be double compared to the base year of 2010.

"Nearly four years into this strategic journey, we're making steady progress, especially in gaining sales and growing our international business," Mr. Allen said. "Despite our strong performance, the company is running somewhat short of its profitability targets."

Deere is focused on helping farmers become more profitable, with an "unprecedented number of new products, most of which are marvels of advanced technology," Mr. Allen said. Earlier this month, Deere introduced a line of planters that can double field speeds (up to 10 miles an hour) and improve planting accuracy, he said.

"Since planting is the farm activity most sensitive to timing and precision, our ExactEmerge planters could be a real game-changer in helping farmers achieve higher yields," Mr. Allen said.

Deere also has worked to create cleaner-burning engine technology. In one of 2013's "milestone achievements," the company completed certification of its larger engines to meet tougher emissions standards taking effect this year, Mr. Allen said.

Deere has redesigned practically all its engines in recent years, reducing emissions by 99 percent, he said.

Before the CEO's talk, meeting attendees saw a brief futuristic video that displayed some of the high-tech touch-screen tools Deere is working on to improve productivity and communications for customers.

"Farming is clearly becoming a high-tech field," Mr. Allen said. "In our view, technology is key in making customers more profitable, productive, and more loyal to John Deere."

After re-election of the 11-member Deere board of directors (which includes the former CEO of DuPont, the chairman of Rockwell Collins, and a retired Air Force general and chairman of the Joint Chiefs of Staff), Deere retiree Jerry Miller of Moline asked Mr. Allen if the company would ask Bill Gates to join the board.

"We don't have anybody better than the board we have right here," Mr. Allen replied, adding that Mr. Gates (co-founder of Microsoft and its former CEO) is a significant Deere shareholder.

Mr. Gates' Cascade Investments owns more than 30 million shares of the company, which represent 8.1 percent of the outstanding common stock.

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