Samuel R. Allen |
2010 Annual Meeting of Shareholders
Moline, IL
Remarks by Samuel R. Allen
President & Chief Executive Officer
Deere & Company
February 24, 2010
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2009 will be remembered as a year of significant achievement for our company. We remained solidly profitable in the face of the worst economic slump in generations. We introduced the power and value of the John Deere brand to a growing global audience. We made further strides in asset management. We also moved ahead with significant investments aimed at widening our manufacturing and parts-distribution footprint and our business lineup.
As a result, we believe our company is well-positioned to capitalize on an upturn in our markets and to benefit over time from some very supportive economic trends.
For the year 2009, Deere reported net income of $873 million on total net sales and revenues of $23.1 billion. Overall, earnings were down 57 percent on a 19 percent decline in sales and revenue.
Lower results are never good news. However, for 2009 we recorded our eighth-highest earnings total in spite of the largest one-year dollar-sales decline in the company's history. Deere's performance under such difficult circumstances is a tribute to our success developing a more flexible cost and asset model.
We've also kept our eye on the ball, continuing to serve customers at the highest level and helping them be productive and successful in their own businesses.
Another key measure, SVA, or Shareholder Value Added, turned negative last year, by $84 million. SVA was slightly positive for our equipment operations, however, which we consider quite noteworthy in light of business conditions.
SVA is a form of economic profit based on the difference between operating profit and an implied cost of capital. It is essential to generating the funds to pay dividends and make investments that lead to longer-term earnings growth. Our annual report has more information on the way SVA is calculated.
We believe our focus on SVA, and the changes it has brought to our cost and asset structure, put John Deere in a strong position to compete successfully in all types of market environments.
And, in spite of the stubbornly weak global economic conditions, the company has gotten off to a strong start in 2010. Our first-quarter earnings of $243 million, announced last week, were the second-highest ever for that particular quarter.
This is my first opportunity to address you, our stockholders, as Deere's president and chief executive officer. It was my honor to be named president in June and CEO in August. My background includes 34 years of experience in all of our company's major businesses in a variety of roles.
My efforts as CEO are being supported by a capable team of leaders, many of whom you know. All share a deep commitment to the company's values and a deep passion for serving our stakeholders -- customers, employees, and investors, among others -- at the highest level.
Deere has a history of strong management, of course. So it's perfectly understandable that much is expected from those in leadership positions. We stand, after all, on the shoulders of giants.
It started with John Deere's pioneering spirit, followed by his son, Charles, known for his sharp business acumen. In later years, Bill Hewitt brought a sophisticated touch, and Bob Hanson a steady hand. Hans Becherer followed comfortably in these footsteps, bearing his own brand of grace and high standards.
Bob Lane took over in 2000 and led the company with great distinction for nine years. Bob's vision and integrity took John Deere to new levels of performance and of promise. If any corporate figure has charisma in the most literal sense, it is Bob Lane. Charisma comes from the Greek word meaning "gift" and is defined as a "personal magic of leadership." What a fitting description.
Bob's special gift was recognizing talent, engaging and inspiring employees, and relating to people of every station. It is hard to do justice to such an outstanding individual in a few words. But, quite simply, John Deere is a better company because of Bob Lane. A better company to work for, do business with, and invest in.
As you know, Bob is retiring as chairman of the board at the end of this meeting. I know all of you will join me now in wishing him, and his wife Patty, great health, happiness and fulfillment as they enter a new phase of life.
Now, I'd like to share three messages concerning the state of John Deere today.
First, Deere is in a strong financial condition, and is well-prepared to continue serving customers and others at the highest level.
Second, we are making prudent investments with an eye toward future growth as our company faces, and indeed embraces, a positive future in which opportunity abounds.
Finally, the company's record of performance under a range of business conditions provides a competitive advantage that is reassuring in times of economic stress.
Our proud heritage and promising future are illustrated by the cover of our most recent annual report, which stockholders have received. We refer to it as having our eyes on the horizon but our feet planted firmly on the ground.
It's a simple message. But one that says a lot about the kind of company John Deere has been in the past, remains today, and has every intention of continuing to be in the future. Let's spend a few minutes discussing these main points now.
First, the company is in a good position to continue moving ahead, successfully navigating today's rather sluggish economic waters. With the notable exception of large agricultural-equipment sales in the United States and certain other areas, our markets are expected to remain relatively weak in the year ahead.
We have, however, spent a number of years preparing for such situations through our strategy of exceptional operating performance. It is based on holding down costs and closely tying factory production to retail orders. This is one of the reasons the company has remained profitable during the current downturn and, based on our latest outlook, expects to earn $1.3 billion in 2010.
No business has better exemplified our success controlling costs and assets than construction and forestry, or C&F. C&F sales collapsed in 2009 due to the weak economy and a plunge in construction.
But the division moved decisively in response. It slammed the brakes on factory production. It slashed non-essential costs. True, the division posted an operating loss for the year. But C&F results were quite respectable considering that sales were down close to 50 percent.
Across the company, we are keeping a careful eye on expenses and adjusting production as warranted by demand. We have restrained hiring, deferred salary increases for management employees, and made selective reductions in employment levels.
We are also looking at ways to do work differently in order to lower our cost structure and bring about a sustainable improvement in operating margins. One significant step in this direction occurred last year when we combined our agricultural equipment and commercial and consumer equipment businesses. By leveraging common processes, standards and resources, the new Ag & Turf division, or A&T, is expected to deliver annual savings of at least $50 million.
Furthermore, as a more streamlined, focused organization, we're confident A&T can operate with greater agility and do an even better job of serving customers.
John Deere's conservative capital structure and rock-solid balance sheet are real advantages as well. They have allowed our company to have continued access to the capital markets on a competitive basis. Indeed, in the darkest hours of last year's financial crisis, John Deere Credit was raising funds and offering uninterrupted financing to our equipment customers.
And, yes, loan losses in the form of write-offs at John Deere Credit did increase last year – all the way to 7/10th of one percent. I'm sure everyone would agree that's still a pretty awesome level of loan quality.
As a second point, John Deere is continuing to make meaningful investments in a future that holds great opportunity. As we've been saying for some time, extending the John Deere brand to a wider global audience remains a top growth priority.
A number of important projects were announced or moved ahead last year aimed at promoting growth on a global scale. These include a new manufacturing and parts complex in Russia. It is expected to be operational later this year. We also formed a joint venture in India for making backhoes and four-wheel-drive loaders and recently broke ground for a new production facility.
These investments build on earlier ones, including new factories in Brazil and China, that have strengthened our worldwide capacity and marketing presence.
Innovation and quality, two of our core values and longtime company strengths, lie at the heart of our plans to capture new customers and capitalize on positive economic trends.
In 2009, the company received a number of honors for its advanced products and features. These honors included six medals awarded at the world's largest agricultural-equipment trade show in Germany.
John Deere, as well, is making an innovative commitment to new-engine technology. This is in response to more demanding clean-air standards, known as "Interim Tier 4", which start taking effect for our products in 2011.
Quality is a John Deere tradition. And our reputation as a quality leader is a key to attracting new customers wherever we operate. Today, standardized processes in use throughout the world are making our operations more consistent and more efficient, while taking product quality to an entirely new level.
For a closer look at our quality efforts, let's turn to a brief video presentation.
It was produced last year for our employees. But we feel it carries a powerful message that is also of great importance to investors. (JDQPS VIDEO PRESENTATION)
That gives you an idea of just how serious our employees throughout the world are about upholding the John Deere-quality tradition.
Our growth plans are being propelled by powerful economic tailwinds. We believe they hold great promise for the company and for those with a stake in its future. The world's population continues to mount, adding thousands of new mouths to feed by the hour.
Combined with improved living standards, this explosive growth is leading to greater demand for food, shelter, infrastructure and energy. By some estimates, agricultural output will need to double by mid-century to satisfy demand.
For the most part, this increased production will come not from additional land or labor but from further advances in farm machinery and farm practices, as well as from improved genetics and logistics. Positive trends like these should drive demand for productive agricultural equipment and be good for our other businesses as well.
A growing, more affluent population will lead to an expanded need for housing and global infrastructure. This should support the sale of construction and forestry, and turf-care, equipment.
As for the current economic slump, it may delay the pace at which these developments move ahead. However, we believe they remain very much intact and are likely to play a vital role in John Deere's future.
John Deere has an exciting future. We also have an impressive record of overcoming obstacles that stand in the way of our goals. In its 173 years of existence, the company has weathered no fewer than four U.S. economic depressions, some 43 U.S. presidential elections, and countless farm cycles. That's not to mention the challenges overcome outside the U.S., where we've had sales for over 100 years.
John Deere's heritage of performance has been nurtured by tens of thousands of committed employees and managers. Talent is our ultimate competitive weapon. Talent, reinforced through teamwork, is the key to keeping our competitive edge razor-sharp as we expand our operations and enter new markets.
As part of our focus on aligned high-performance teamwork, we're developing employees to help meet tomorrow's business challenges. And we're receiving important recognition for these efforts. Deere's leadership-development program was recently ranked eighth-best in North America and 14th-best worldwide in a major study published by Fortune magazine.
In this same spirit, we are helping our dealers and suppliers upgrade their own capabilities in support of the company's business goals and growth plans.
All of us at John Deere are proud of the way our financial and operating performance has withstood recent economic pressures. And we're certainly pleased with the way things are shaping up for 2010.
In the months ahead, we'll continue setting the stage to capitalize on recovery in our markets. And we'll be preparing for a promising future based on the world's prospects for population and economic growth over time.
The global economic slump, after all, has not changed the fact that people still need food to eat, clothes to wear, shelter to live in, and infrastructure to support their lifestyle. Nor has the recession changed our firm belief that no other company is in a better position to respond to these needs, day after day, than John Deere.
On behalf of the Deere management team and employees everywhere, we thank our stockholders for their continuing support and for their confidence in our company.
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