john deere

FINANCIAL STATEMENT ANALYSIS

Group No. 1

Akansha Agarwal PGP-14-163Kavya Gupta PGP-14-112Iha Bansal PGP-14-109Mounika T PGP-14-116 Santosh Subramanian PGP-14-058Sumona Chakraborty PGP-14-228

INCOME STATEMENT ANALYSIS

2010 2011 2012 2013 20140

5000

10000

15000

20000

25000

30000

35000

40000

-10%

-5%

0%

5%

10%

15%

20%

25%

26,005

32,013

36,083 37,715

35,990

13%

23%

13%

5%

-5%

Revenues Growth

Revenues and Growth

2010 2011 2012 2013 20140%

5%

10%

15%

20%

25%

30%

26% 26% 26%28%

26%

16% 17% 16%18% 17%

7% 8% 8% 9% 8%

Gross Margin EBITDA margin NI Margin

Reduction in Operating Revenues• Mainly due to Foreign currency translation, lower shipment volumes (weaker outlook of

the global farm economy reducing the demand for machinery), part offset by price increase

• Two subsidiaries sold in 2013, John Deere Water and John Deere Landscapes, acquired Bauerbuiilt Manufacturing inclusive in 2013

Increase in Finance division revenue• The improvement was due primarily to growth in the credit portfolio, a more favorable

effective tax rate, partially offset by lower crop insurance margins, higher selling, administrative and general expenses and a higher provision for credit losses

Reduction in Gross Profit Margin (2014)• COGS remaining constant, gross profit margin has also reduced, partially offset by

the increase in price realisation (2%) • Still higher (25%) than that of largest firm in the industry (Caterpillar)Reduction in EBITDA margin (2014)• Increase in R&D expense due to higher depreciation, higher insurance claims, write-

down• Offset by fall in SG&A expense (due to Water and Landscapes subsidiaries sold off)

Income Statement Balance Sheet Cash Flow Statement Comparable Analysis Debt holder viewpoint

Share price movement

BALANCE SHEET ANALYSIS

Decrease in Inventory from 2012 to 2014• Company transferred inventory to equipment on operating leases

of $794 million, $659 million and $563 million in 2014, 2013 and 2012

Fluctuation in Accounts receivable value• The value of accounts receivable varies widely from year to year

owing to the company’s practice of selling receivables lying on its books to its financial services company.

Increase in Days payable outstanding• John Deere maintains strategic sourcing models to meet its

production needs and build upon long- term supplier relationships.

• Uses a variety of agreements with suppliers to minimize other supply- related risks.

Negative Cash conversion cycle• Indicates that company uses external cash to source operations.• Mainly due to positive relationships with suppliers



CASH FLOW STATEMENT ANALYSIS



Provision for credit losses & Change in Acc Rec:• Most of the receivables have been

securitized in 2012 leading to change in Accounts Receivables. The future outlook reflected improvement due to continued growth in the portfolio, partially offset by an increase in the provision for credit losses from the low level in 2013.

Cash Acquisition:• -$83.5 Mn cash acquisition of Bauer Built

Manufacturing company, manufacturer of planters based in Paton, Iowa in 2013

Divestitures:• High value of divestitures in 2014 due to

disposition of CD&R worth $505 mn assets and $120 million liabilities .

Issuance/Repurchase of Common stock:• Basic no. of shares shows a consistent

decline over the years owing to the regular repurchase/buyback and marginal issuance of common stock every year.

For the Fiscal Period Ending 12 months 12 months 12 months 12 months 12 monthsOct-31-2010 Oct-31-2011 Oct-31-2012 Oct-31-2013 Oct-31-2014

Net Income 1865 2799.9 3064.7 3537.3 3161.7Depreciation & Amort., Total 846.8 841.9 915.2 1047.3 1200.5Provision for Credit Losses 106.4 13.5 5.1 20.5 38.1Change in Acc. Receivable -1095 -808.9 -1901.6 -1510.2 -749 Cash from Ops. 2282.2 2326.3 1167.7 3254.3 3525.9Cash Acquisitions -45.5 -60.8 - -83.5 -Divestitures 34.9 911.1 30.2 22 345.8Invest. in Marketable & Equity Securt. -25 -554.5 -681.9 -182.4 407.9 Cash from Investing -2109.1 -2620.7 -4004.1 -4820.7 -2881Total Debt Issued 3377.1 5655 11536.9 7483.4 8321.2Total Debt Repaid -3675.7 -3446.9 -5396 -4958.5 -5209.1Issuance of Common Stock 129.1 170 61 174.5 149.5Repurchase of Common Stock -358.8 -1667 -1587.7 -1531.4 -2731.1 Cash from Financing -1009.7 139.6 3880.2 406.5 -288.3 Net Change in Cash -861.1 -143.4 1005 -1148.2 283

COMPS ANALYSIS – FINANCIAL RATIOS

• Toro Company has the best ratios amongst all competitiors; however their profitable product lines are different from John Deere.• Industry leader and the closest firm to John Deere in terms of size is Caterpillar. Most of the ratios are comparable between the two firms

with Deere & Co. outperforming Caterpillar on some of the parameters.• John Deere is outperforming the industry median in aspects like accounts payable, cash conversion (lowest) and inventory management.• The major concern facing the firm is high leverage; the company will require free cash flows of 6-7 years to repay the debt taken on.



COMP GROWTH PROFILE

The growth has been negative for the company mainly due to the falling sales. This trend has been constant throughout the industry mainly due to the macroeconomic factors.

The net income for John Deere is much less than caterpillar due to the lower shipment and production volumes.

The competitive analysis shows that Toro has been outperforming the rest of its peers with very high net income growth

Company Comp SetCompany Name The Toro Company

(NYSE:TTC)Caterpillar Inc. (NYSE:CAT)

Kubota Corporation (TSE:6326)

AGCO Corporation (NYSE:AGCO)

CNH Industrial N.V. (NYSE:CNHI)

Deere & Company (NYSE:DE)

Median

LTM Gross Margin % 34.9% 23.8% 30.4% 20.4% 17.7% 24.9% 23.8%

LTM EBITDA Margin % 14.5% 16.2% 15.3% 8.9% 8.7% 15.5% 14.5%

LTM EBIT Margin % 12.1% 10.3% 12.9% 5.7% 6.2% 11.7% 10.3%

LTM Net Income Margin % 8.13% 6.81% 8.99% 3.33% 1.97% 7.82% 6.81%

LTM Total Revenues, 1 Yr Growth % 9.54% (4.35%) 8.67% (19.27%) (14.20%) (10.84%) (4.35%)

LTM EBITDA, 1 Yr Growth % 13.61% (8.30%) 1.87% (31.08%) (26.73%) (21.73%) (8.30%)

LTM EBIT, 1 Yr Growth % 15.47% (11.52%) 0.65% (41.14%) (29.82%) (28.64%) (11.52%)

LTM Net Income, 1 Yr Growth % 17.48% (7.11%) 9.67% (47.53%) (45.07%) (25.63%) (7.11%)

LTM Total Debt/Capital % 46.95% 69.07% 38.51% 32.05% 78.78% 82.06% 46.95%

LTM Total Debt/EBITDA 1.2x 4.5x 3.0x 2.0x 10.7x 7.3x 3.0x

NTM LT EPS Growth Rate (Capital IQ) - - - - - - -

5 Year Beta 0.75 1.72 0.66 1.86 - 1.24 1.23



SHARE PRICE MOVEMENT

• The share price of Deere & Co. has delivered lower returns than the S&P 500 index over a 5 year horizon. • However, it has outperformed its rival firm Caterpillar in terms of stock price over the corresponding period.



VIEWPOINT OF A DEBT HOLDER

Debt servicing

For the Fiscal Period Ending 12 monthsOct-31-2010

12 monthsOct-31-2011




Long Term Solvency Total Debt/Equity 387.6% 391.2% 474.4% 337.1% 408.6% Total Debt/Capital 79.5% 79.6% 82.6% 77.1% 80.3% LT Debt/Equity 266.8% 248.9% 327.2% 210.2% 268.9% LT Debt/Capital 54.7% 50.7% 57.0% 48.1% 52.9% Total Liabilities/Total Assets 85.4% 85.9% 87.8% 82.7% 85.2%

EBIT / Interest Exp. 23.6x 32.3x 26.3x 22.4x 21.4x EBITDA / Interest Exp. 29.6x 38.4x 31.3x 26.6x 26.5x (EBITDA-CAPEX) / Interest Exp. 20.3x 26.2x 19.9x 17.2x 15.1x Total Debt/EBITDA 5.8x 5.0x 5.6x 5.1x 6.0x Net Debt/EBITDA 5.0x 4.3x 4.6x 4.5x 5.4x Total Debt/(EBITDA-CAPEX) 8.5x 7.3x 8.8x 7.9x 10.5x Net Debt/(EBITDA-CAPEX) 7.4x 6.3x 7.3x 6.9x 9.5x

• The total debt to debt (book value) is ~400% which is quite high

• But, the total debt to capital (market cap) is 80% which is within control

• The (EBITDA – capex)/Interest ratio -the interest coverage ratio is quite high. So, although the company has high leverage (as per book value), still it has good paying capacity. So, for a debt holder, he can be assure of principal payments

• The Total debt to EBITDA ratio is 6x, which is represents that the company will take on an average 6 years to pay off the debt- which is quite high and gives ample room to rethink



VIEWPOINT OF A DEBT HOLDER

Debt servicing – compared to peers

• Although, John Deer has better debt servicing capacity compared to the median of peers, but still it requires more no of years to repay the debt. This is an alarming signal for John Deer

Company Comp SetCompany Name The Toro Company (NYSE:TTC) Caterpillar Inc. (NYSE:CAT) Kubota Corporation (TSE:6326) AGCO Corporation (NYSE:AGCO) CNH Industrial N.V. (NYSE:CNHI) Deere & Company (NYSE:DE) MedianLTM EBITDA / Interest Exp. 18.9x 15.5x NM 11.8x 4.1x 23.9x 15.5x

LTM (EBITDA-CAPEX) / Interest 15.19x 9.45x NM 7.92x 2.83x 10.94x 9.45x

LTM Net Debt/EBITDA 0.91x 3.73x 2.52x 1.35x 8.71x 6.62x 2.52x

LTM Total Debt/EBITDA 1.2x 4.5x 3.0x 2.0x 10.7x 7.3x 3.0x

FY Senior Debt/EBITDA 1.2x 4.4x 3.2x 1.1x 9.4x 6.0x 3.2x



john deere

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