The John Deere Annual Report, issued last month in preparation for the February 27, 2002 Company Stockholders meeting, provides a candid assessment of the Company’s challenges and those of the farm mechanization industry in general. “Last year was a difficult one for John Deere,” explains Robert W. Lane, Deere’s Chairman and Chief Executive Officer. From his vantage point, he believes sales were held in check by deep manufacturing-production cutbacks and weak markets. “Although we’re hopeful worldwide economies will regain their footing later in 2002, Deere is bracing for difficult conditions and expects financial performance to remain under pressure.”
His CEO message in the Annual Report: For fiscal 2001, Deere reported a net loss of $64 million on total net sales and revenues of $13.3 billion. This compared with net income of $486 million and total revenues of $13.1 billion in 2000. Without $217 million in after-tax special charges for restructuring activities and early retirements, earnings would have been $153 million.
The agricultural equipment division is just one of four corporate business centers, but accounted for 47% of corporate net sales and revenues. Net sales for the division in 2001 totaled $6.3 billion, compared to $5.9 billion the previous year.
Deere took several major steps to deal with waning profits. Moves included exiting the unprofitable hand-held consumer products business; restructuring the construction and forestry division; targeting an 8% reduction in U.S. salaried workforce, and transferring ownership of $2.2 billion of dealer receivables to the company’s credit organization.
The corporate cutbacks came the same year John Deere was attempting to strengthen its global position by introducing a record number of new products in their equipment divisions. And, they are targeting Europe for greater market penetration in the coming year, where market share is less than that in North America.
Record Roster of New Products
During 2001, the company’s agricultural-equipment operations had their largest new-product year ever, with up to 63 models of farm machinery previewed to dealers from around the world. “Of particular importance are the new 20-series tractors whose advanced features are expected to help the company extend its competitive advantage,” Lane explains. “Despite late-year production cutbacks,” he adds, “agricultural equipment had 6% higher sales and operating profit before special items of $354 million. Sales were especially strong for John Deere combines, which continued to make substantial market-share gains and win high marks with customers.”
Late in 2001, production of large tractors at the Waterloo, Iowa manufacturing complex was shut down for six weeks; output of combines, cotton pickers and other products was reduced as well.
Lane continues, “Although John Deere is a fabulous enterprise in so many ways, our results have lagged due to the fact that, as a company, we are asset heavy and margin lean.”
Reducing the workforce. While taking aim at a leaner cost structure, John Deere has already implemented a headquarters-staff reduction of about 250 positions, and in total, about 4,000 positions company-wide are likely to be eliminated through a combination of retirement, layoffs, restructuring activities and asset sales.
Deere’s corps of workers totals some 40,000, associated with a company that Lane defines as one with “…a fabled heritage of quality, integrity and honest value, plus an internationally venerated brand.”
Outlook: The Annual Report notes: “Farm fundamentals are not expected to change significantly in 2002, although the global supply and demand situation for key commodities should keep prices in check and prevent improvement in United States grain exports. In this environment, the company expects overall industry retail sales of farm equipment in the United States and Canada to be flat to down approximately 5% in 2002.”
Noting the high rate of tractor and combine production in the first quarter of 2001, the Report adds, “The company is making substantial production cutbacks of these products in the first quarter of 2002” —perhaps down about 20% from the same quarter in 2001.
