A Closer Look At Deere’s Revenue Breakdown

by Trefis Team
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Deere’s (NYSE: DE) overall revenue grew 26% year-over-year to $37 billion while net income surged by 10% to $2.4 billion in fiscal 2018, driven by strong performance across operating segments. The company continued its strong performance in Q1’19, reporting revenue of $7.9 billion (+15% y-o-y) and its adjusted diluted earnings were up over 14% year-on-year to $1.54. Trefis’ model for the company breaks it down into three key components of this revenue figure:

  • Agriculture and Turf Equipment (60% of total revenues)
  • Construction and Forestry Equipment (31% of total revenues)
  • Financial Services (9% of total revenues)

Going forward, we expect Deere’s revenues to increase by 7.5% to reach $40.2 billion in FY 2019. We currently have a price estimate of $174 per share for Deere, which is ahead of the current market price. We have summarized our revenue expectations for Deere, based on the company’s guidance and our own estimates, on our interactive dashboard Summarizing Deere’s Revenue Breakdown. You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see all Trefis Industrial company data here.

How Has Deere’s Total Revenue Changed Over The Years?

  • Deere’s total revenue increased by more than $10 billion from 2016 to 2018 (CAGR of 18.4%) while recording $37.4 billion in revenue in FY 2018.
  • Revenue growth was primarily driven by strong sales across equipment operations (Agriculture and Turf and Construction and Forestry Equipment)
  • In 2019, we expect the company’s total revenues to grow at a slower rate and add nearly $2.8 billion to net sales.

What Drove Growth In Revenues Of Agriculture and Turf Equipment Segment?

This segment primarily manufactures and distributes a full line of agriculture and turf equipment and related service parts, including: large, medium, and utility tractors, along with a broad line of associated implements and other outdoor power products.

  • Deere’s Agriculture Segment consistently contributes a majority of its revenues, with an average revenue share of more than 65% in the last 3 years.
  • However, the segment’s share has declined from approximately 69% in 2016 to nearly 62% in 2018 due to faster growth of the Construction and Forestry Equipment segment.
  • The segment grew by 15% year-over-year in fiscal 2018, contributing more than $3.0 billion to total incremental revenues.
  • We expect the segment to continue its sustained growth and record $24.5 billion in revenues in FY 2019, with the EBITDA margin improving by 20 basis points to 17.6%.
  • The growth is expected to be driven by higher shipment volumes and price realization, partially offset by higher warranty-related expenses.

What Drove Changes To Revenues of Construction and Forestry Equipment?

This segment primarily manufactures and distributes a broad range of machines and service parts used in construction, earthmoving, road building, material handling and timber harvesting.

  • The Construction and Forestry Equipment segment has achieved robust growth in the last three years, doubling its revenues from less than $5.0 billion in 2016 to more than $10 billion in 2018 (CAGR 44%)
  • The segment continued its solid performance in Q1’19, as sales increased by nearly 31% y-o-y to $2.3 billion, primarily driven by the acquisition of Wirtgen and higher shipment volumes.
  • We expect this segment to continue its growth trajectory, with revenues increasing at a rate of 18% to $12.3 billion in FY 2019.
  • The segment’s contribution to total revenues has significantly increased over the years, which is expected to continue in the foreseeable future.

What Has Been The Contribution Of Financial Services To Deere’s Revenue?

This segment primarily finances sales and leases by John Deere dealers of new and used agriculture and turf equipment as well as construction and forestry equipment.

  • The segment has grown steadily over recent years, adding approximately $560 million of revenue over 2016-2018 (CAGR of 9.9%).
  • In 2019, we expect this segment to add nearly $220 million to total revenues.
  • The segment’s share to total revenues has marginally declined over the years. Going forward, we expect this share to remain constant.

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