Company presentation Deere & Co
A company that has gained more than 100% in value in the last 2 years must be able to do more than just build tractors, right? At least in the case of Deere & Company it is. Because Deere & Co is an agricultural machinery manufacturer and technology company. The keywords here are artificial intelligence and automated work in agriculture.
Outline
- History
- Technology
- Strategy
- Research
- Key figures
- Sources
History
The eponymous founder John Deere was born on February 7, 1804 in Rutland, USA. In 1837, the trained blacksmith developed the first self-cleaning steel plow with a sharpening and polishing process previously only known for leather needles, and at the same time laid the foundation for his company Deere & Company, better known under the main brand John Deere. This period marked the beginning of a success story that to this day holds no end in sight. In 2020, Deere & Co celebrated 20 years of market leadership in Germany with 21.4% market share. Deere & Co also achieved a similar market share in the tractor business worldwide in 2019. Deere & Co ranks as the largest agricultural machinery manufacturer in the world *7
Deere & Co entered the tractor business after the acquisition of Waterloo Gasoline Engine Company after World War I in 1918. Through numerous other acquisitions such as Heinrich Lanz Ag from Mannheim or the e-mobility and battery specialist Kreisel Electric from Rainbach, which was not acquired until 2021, Deere & Co grew steadily and expanded its competencies. In the years 2000-2010, the company's sales doubled and profits more than tripled. Both Bill Gates and Warren Buffet with his Berkshire Hathaway are invested in Deere & Co, as well as Vanguard Corporation, BlackRock and JP Morgan. Currently, Deere & Co has approximately 74,000 employees. *4
Technology
Why there has long been more imagination in Deere & Co than in a simple agricultural machinery manufacturer can be explained by the technological approach they take. Their strategy, published in 2022, states:
"John Deere will deliver intelligent, connected machines and applications that will revolutionize production systems in agriculture and construction to unlock customer economic value across the lifecycle in ways that are sustainable for all" *2
Meaningful translation: John Deere will deliver intelligent, connected machines and applications that will revolutionize production systems in agriculture and construction to unlock lasting economic value in ways that are sustainable for all.
The focus here is on economic value and sustainability. To achieve this, Deere & Co relies on electrification, automation and artificial intelligence. Dr. Martin Kremmer, Head of the Deere & Co European Technology Innovation Center in Kaiserslautern, Germany, gives an example of exactly what this can look like:
"Machine learning and artificial intelligence will help us, for example, distinguish weeds from crops. Through automation, we enable our customers to apply crop protection products accurately. This helps reduce the use of crop protection products by up to 90%." *5
From this practically oriented example, it is clear how the economic and sustainable value will be created for Deere & Co customers. However, Deere & Co provides solutions to a wide range of the agricultural and construction industries. They provide products for agribusiness (farm machinery to manage fields), landscaping (farm machinery to manage small fields and lawns), construction and forestry (machinery for "earthmoving", road construction and forestry work). They also offer "enabling businesses." These include an "Intelligent Solutions Group," aftermarket and customer support, financial services, and "Power Systems," their own engine and drive division. All products and services are to be made as efficient and sustainable as possible with the help of technology. The individual (agricultural) machines are to work automatically and partly autonomously with the help of AI. The machines are to communicate with each other, with the manufacturer and with the user in order to make work processes more efficient, to identify problems at an early stage and to extend the life cycle of the machines.
That's why Deere & Co is not only a hardware manufacturer, but also a software manufacturer. *2
Strategy
Their current strategy aims to the year 2030, in which they:
- 50% of operational CO2 emissions reduced
- 30% of upstream and downstream CO2 emissions reduced.
Note: Upstream CO2 emissions, are CO2 emissions that occur during the manufacturing of a product. Downstream CO2 emissions, occur during the use of the product.
- Want to have reduced 15% of waste intensity.
- 10% reduction in fresh water use in water-intensive production processes.
They want to achieve this by connecting their first technology advance by 2026. This includes, for example, 20+ new electric and hybrid-electric product models, the delivery in the landscaping sector of exclusively inter- and system-connected agricultural machinery, and the delivery of a fully-autonomous, battery-powered tractor. At the same time, safety in the use of the machines should increase.
By 2030, 65% of the materials used should be sustainable and sales should have increased by 50% through remanufacturing. Further key figures were mentioned, but I will not show them here. *2
Research
Deere & Co has increased its research spending by 20% in Q2 2022 compared to Q1 2021 and aims to do so by 17% forecast for the full year. The reason for this is that Deere & Co wants to become a "Smart Industrial Company." *5
Deere & Co relies on innovative ideas and technological advancement to differentiate its products from the competition. To this end, Deere & Co employs graduate students, undergraduates, and research staff. Competent personnel and financial resources drove and will continue to drive progress.
"Take, for example, the tractor-integrated implement steering system or the intelligent vibration control system for high-capacity balers, each of which won a silver medal at Agritechnica 2017 and 2019, respectively. These are developments created by our employees, PhD students and students in collaboration with colleagues from the tractor platform, Crop Care and ISG" (Dr. Martin Kremmer, 2019).*5
John Deere GmbH is also involved with events at Kaiserslautern University of Applied Sciences. *8
Basically, it can be said that Deere & Co has been operating a business that has been functioning for almost 200 years and would like to modernize this, even be a technological pioneer in the industry. To do this, they acquire companies that bring new skills and knowledge to Deere & Co. They actively conduct research, constantly develop their products and know their home markets, also through the local stores where customer traffic takes place.
Key figures
Current market capitalization:
$113.08 billion
Q2 2021 ➡️ Q2 2022 respectively
Net revenue:
$12,058 million ➡️ $13,370 million (+11%)
Net revenue equipment operations:
$10.998m ➡️ $12.034m (+9%)
Net sales construction and forestry:
$3.079M ➡️ $3.347M (+9%)
Net Sales Financial Services:
$222m ➡️ $208m (-6%)
Net income from other business:
$1,790m ➡️ $2,098 (+17%)
Earnings per share (EPS):
$3,87 ➡️ $6.10
Diluted earnings per share
$5.56 ➡️ $6.81 (+20%)
Note: Earnings per share are considered "diluted" when they are no longer comparable due to a stock split or capital increase. *3
Operating margin was 13.1% in 2021. Forecast for 2022 is 15.5%-16.5
P/E ratio of 19
Dividend of 1.23
The current strategy is to steadily increase the dividend. In addition, Deere & Co is considering launching a share buyback program.
Figure 2 shows sales broken down by region. The home of the company, USA and Canada stand out. *2
Sources:
*1: https://s22.q4cdn.com/253594569/files/doc_financials/2022/q2/DE-2Q22-Earnings-Call-Presentation.pdf
*3: https://www.boersennews.de/lexikon/begriff/diluted-share/1273/
*4: https://de.m.wikipedia.org/wiki/John_Deere
*5: https://www.deere.de/de/blog/articles/technik/etic-john-deere-forschung-zukunft-landwirtschaft/
*9: https://s22.q4cdn.com/253594569/files/doc_financials/2021/q1/1Q_2021_News-Release-and-Financials.pdf
*10: https://medium.com/@intralatam/caso-de-éxito-deere-company-acc79f6ed4d0
