Third Quarter 2 0 1 6 Earnings Conference Call 19 August 2016
Safe Harbor Statem ent & Disclosures The earnings call and accompanying material include forward-looking comments and information concerning the company’s plans and projections for the future, including estimates and assumptions with respect to economic, political, technological, weather, market acceptance and other factors that impact our businesses and customers. They also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America (GAAP). Words such as “forecast,” “projection,” “outlook,” “prospects,” “expected,” “estimated,” “will,” “plan,” “anticipate,” “intend,” “believe,” or other similar words or phrases often identify forward-looking statements. Actual results may differ materially from those projected in these forward-looking statements based on a number of factors and uncertainties. Additional information concerning factors that could cause actual results to differ materially is contained in the company’s most recent Form 8-K and periodic report filed with the U.S. Securities and Exchange Commission, and is incorporated by reference herein. Investors should refer to and consider the incorporated information on risks and uncertainties in addition to the information presented here. Investors should consider non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. The company, except as required by law, undertakes no obligation to update or revise its forward-looking statements whether as a result of new developments or otherwise. The call and accompanying materials are not an offer to sell or a solicitation of offers to buy any of the company’s securities. 2 | 3rd Quarter 2016 Earnings Conference Call
Third Quarter Overview (in millions of dollars except Q3 2016 Q3 2015 Change per share amounts) Net Sales and Revenues $6,724 $7,594 -11% Net Sales $5,861 $6,840 -14% Net Income $489 $512 -4% Attributable to Deere & Company Diluted EPS $1.55 $1.53 + 1% 3 | 3rd Quarter 2016 Earnings Conference Call
Third Quarter Overview Net Sales Equipment operations net sales: Down 14% in Q3 2016 vs. Q3 2015 • Price realization: + 2 points • Currency translation: (2) points 4 | 3rd Quarter 2016 Earnings Conference Call
W orldw ide Agriculture & Turf Third Quarter Overview Q3 2016 Q3 2015 Change (in millions of dollars) Net Sales $4,704 $5,308 -11% Operating Profit* $571 $472 + 21% * Q3 2016 operating profit impacted by: Favorable Unfavorable • Price Realization • Shipment Volumes • Gain on sale of partial interest in SiteOne • Foreign-Currency Exchange • Production Costs • Selling, Administrative & General Expenses 5 | 3rd Quarter 2016 Earnings Conference Call
Global Agriculture I ndustry Tailw inds Still Robust Global GDP Global Population 10% 10 World Less developed regions (excluding LDCs) 8% Advanced Least developed countries 8 Annual Change Emerging More developed regions 6% Billions 6 4% 4 2% 2 0% 1990 1995 2000 2005 2010 2015 2020 0 -2% 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 -4% Urbanization 8 Urban Population Rural Population 6 Billions 4 2 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Source: IMF, July 2016; United Nations, 2014 and 2015 6 | 3rd Quarter 2016 Earnings Conference Call
Production/ Consum ption Balance Stable But Still Sensitive Global Grains 2,500 2,300 Million Metric Tons 2,100 1,900 1,700 2016/ 17F 2000/ 01 2001/ 02 2002/ 03 2003/ 04 2004/ 05 2005/ 06 2006/ 07 2007/ 08 2008/ 09 2009/ 10 2010/ 11 2011/ 12 2012/ 13 2013/ 14 2014/ 15 2015/ 16 Production Consumption Source: USDA, August 2016 7 | 3rd Quarter 2016 Earnings Conference Call
Production/ Consum ption Balance Stable But Still Sensitive Global Grains 650 30% 600 550 25% Million Metric Tons 500 1 0 Yr. Avg. = 2 1 % 20% 450 400 15% 350 10% 300 2016/ 17F 2000/ 01 2001/ 02 2002/ 03 2003/ 04 2004/ 05 2005/ 06 2006/ 07 2007/ 08 2008/ 09 2009/ 10 2010/ 11 2011/ 12 2012/ 13 2013/ 14 2014/ 15 2015/ 16 Ending Stocks S/ U Ratio Source: USDA, August 2016 8 | 3rd Quarter 2016 Earnings Conference Call
Production/ Consum ption Balance Stable But Still Sensitive U.S. Corn Prices 4.35 4.10 $ per Bushel 3.85 Jan – Apr avg. = $ 3 .6 5 3.60 3.35 3.10 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 U.S. Soybean Prices 12.25 11.50 $ per Bushel 10.75 10.00 Jan – Apr avg. = $ 9 .0 1 9.25 8.50 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Source: Bloomberg, 12 August 2016 9 | 3rd Quarter 2016 Earnings Conference Call
2 0 1 6 I ncreased Planted Acres Explained by Pared but Positive Farm er Margins United States • Market prices • Farm program subsidies • Revenue insurance • Production cost declines Other Exporting Countries • Currency values • Policy shifts 10 | 3rd Quarter 2016 Earnings Conference Call
U.S. Farm Sector Strong Balance Sheet 30% 3,000 2,500 25% 2 0 1 1 = $ 2 T 2,000 20% $ Billions (Nominal) 1,500 15% 2 0 0 0 = $ 1 T 10% 1,000 500 5% 0 0% 1960 1970 1980 1990 2000 2010 2016F Farm Sector Debt Farm Sector Equity Debt/ equity ratio Debt/ asset ratio Source: USDA ERS, February 2016 11 | 3rd Quarter 2016 Earnings Conference Call
Sum m ary Observations Global Ag Sector • Supplies fully adequate to meet needs • Risk premia recently erased from grain markets • Planted acres: Minimal farmer response to lower prices • Aberrational factors at play • Fourth consecutive favorable global weather year nearing completion • Barring adverse weather events, little near-term improvement in ag market conditions anticipated • Long-term drivers (population and income growth, urbanization) still intact 12 | 3rd Quarter 2016 Earnings Conference Call
Sum m ary Observations U.S. Ag Sector • Farmer financial conditions remain solid • Farmer margins explain higher planted acres despite lower prices • Production cost decreases • Yield expectations • Farm bill subsidies • Revenue insurance risk reduction 13 | 3rd Quarter 2016 Earnings Conference Call
W hat to W atch Short Term • Weather: Now the major market disruptor, outlook still one year at a time • Next: Southern Hemisphere planting/ growing season • Then: Attention returns to Northern Hemisphere spring (2017) conditions Longer Term Disruptors • Geopolitical hot spots: Potential drag on GDP growth • U.S. dollar relative to other currency values • Fed actions, U.S. politics, central bank behavior • China economy, Brexit fallout, EU • Nationalism: Future of globalization 14 | 3rd Quarter 2016 Earnings Conference Call
Agriculture & Turf Retail Sales I ndustry Outlook – Fiscal 2 0 1 6 2016 Forecast Previous Forecast U.S. and Canada Ag Down 15-20% EU 28 Ag Flat to down 5% No change between South America Ag Previous Forecast and Down 15-20% Current Forecast (Tractors and Combines) Asia Ag Flat to down slightly U.S. and Canada Turf and Flat to up 5% Utility Equipment Deere & Company Forecast as of 19 August 2016 (Previous Forecast as of 20 May 2016) 15 | 3rd Quarter 2016 Earnings Conference Call
W orldw ide Agriculture & Turf Deere & Com pany Outlook Fiscal Year 2016 Forecast • Net sales: Down ~ 8% • Currency translation: ~ (2) points • No change from previous forecast Deere & Company Forecast as of 19 August 2016 (Previous Forecast as of 20 May 2016) 16 | 3rd Quarter 2016 Earnings Conference Call
W orldw ide Construction & Forestry Third Quarter Overview Q3 2016 Q3 2015 Change (in millions of dollars) Net Sales $1,157 $1,532 -24% Operating Profit* $54 $129 -58% * Q3 2016 operating profit impacted by: Favorable Unfavorable • Production Costs • Shipment Volumes • Selling, Administrative & General Expenses • Product Mix • Price Realization 17 | 3rd Quarter 2016 Earnings Conference Call
W orldw ide Construction & Forestry Deere & Com pany Outlook Fiscal Year 2016 Forecast • Net sales: Down ~ 18% • Currency translation: ~ (1) point • Previous forecast: Down ~ 13% • Currency translation: ~ (1) point 2016 Previous U.S. Economic Indicators Forecast Forecast GDP Growth (annual percentage rate)* + 1.9% + 2.1% Housing Starts (thousands) 1,181 1,161 Total Construction Investment (annual percentage rate)* + 2.8% + 3.2% Government Construction Investment (annual percentage rate)* + 3.6% + 4.1% Source: IHS Global Insight, Calendar Year Estimates, July 2016 * Change from prior year in real dollars Deere & Company Forecast as of 19 August 2016 (Previous Forecast as of 20 May 2016) 18 | 3rd Quarter 2016 Earnings Conference Call
W orldw ide Financial Services Credit Loss History Provision for Credit Losses / Average Owned Portfolio 2.0% 1.5% 1.0% 0.24% 0.5% 15 Year Average 10 Year Average 0.0% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016* * Annualized provision for credit losses as of 31 July 2016 19 | 3rd Quarter 2016 Earnings Conference Call
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