Deere & Company leaders will lean on further developments in advanced farming techniques to create more efficient machines while cutting costs through its voluntary buyout program for a better financial future.
Deere CEO John May, who took over the top position in November after previously serving as chief operating officer for the Moline-based ag manufacturer, gave remarks to stakeholders Wednesday at the Consumer Electronics Show, a trade show in Las Vegas.
Advanced farming techniques fall under the umbrella of precision agriculture, or the use of technology to more precisely operate in fields.
“We’ll increase our investments in next-generation precision agriculture to accelerate autonomy, intelligence and plant-level management. Because we believe wholeheartedly in the value that precision agriculture will create for John Deere and our stakeholders, we must accelerate our allocation of capital to this area,” May said Wednesday.
“ … With the right portfolio of large agricultural equipment coupled with integrated foundational technologies, we are uniquely positioned to lead the innovation to the next generation of precision agriculture."
Deere officials also noted the age of tractors still in use, something that allows for retrofitting vehicles with recent upgrades or parts for older equipment. In fact, May said his goal is to have more technicians at dealerships to help with aging equipment, which is the oldest it's been in 10 years.
The age of the equipment is also a sign of farmers extending the life of existing equipment as trade issues between the U.S. and China remain and the new North American trade agreement has yet to make it through the U.S. Senate. China and U.S. officials are set to sign a so-called phase one trade agreement this coming week.
“Some of those indicators would say that if maybe some of the other variables that are influencing the uncertainty right now in agriculture were to change, the demand is there. We’re seeing some positive signs on our early order programs, particularly in combines,” May said.
“… We need to see what’s going to happen with trade and see if it’s more of a positive free trade type outcome for our customers … and then standing right behind that is a lot of pent up demand. The equipment is getting older.”
May also discussed the ongoing voluntary employee separation program, or buyouts for salaried employees, that was launched the morning of Deere’s last financial earnings call in late November.
May intertwined comments on the company buyout program with shifting of resources within Deere, citing “significant hires” in the last year for machine learning, computer vision and data science.
“These organizational changes give greater levels of autonomy, empowerment, and accountability to business owners resulting in an organization that is more efficient to make decisions and respond to dynamic market conditions,” May said.
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“ … The entire enterprise will become more nimble as we narrow the gap between the speed of our technology business and the speed of our traditional industrial businesses. Ultimately, we anticipate increases in the span of our control as well as fewer layers in the organization.”
Ryan Campbell, Deere chief financial officer and senior vice president, gave further details on the buyouts. He said Deere had estimated $150 million in run-rate savings, or savings if current financials continue over a projected future, from buyouts that began in 2019 and continue during January 2020.
But that number is instead likely to come in at $120 million.
“Beyond the voluntary separation programs, we are working on additional organizational changes and our assessment of our overseas footprint continues” and will be updated during future quarterly calls, Campbell said Wednesday.
And those overseas markets were also discussed by May, who specifically noted Brazil is a market that has matured as Deere expected, but other overseas markets “have been slower to develop” without naming any individually.
“Looking back on a period of global expansion, we see opportunities to streamline our overseas operations. As certain markets have matured differently than we originally anticipated, at this time we estimate the organizational design and footprint initiatives will provide significant run-rate savings in 2022.”
Mark Grywacheski, investor advisor with Quad-Cities Investment Group, said Deere, much like other global companies, was affected by trade disputes throughout the world.
“On top of all of those trade disputes, you have a very weak global economy … lowest pace of economic growth in 10 years, so John Deere was obviously affected by these trade disputes and global economic weakness and one of the ways to get through these challenging times is to reduce costs,” he said.
And while the phase one trade agreement between the U.S. and China is expected to be signed in days, the actual economic impact of that will likely not be immediate.
“It’s going to take some time, potentially a number of months, to filter through the economy, manufacturing supply chains and farmer’s production cycles,” Grywacheski said, but there are immediate effects, such as China’s promised purchase of soybeans, pork and manufactured goods.
And while trade disputes have affected a slew of American businesses, Deere is unique in that it has significant ties to manufacturing and agriculture, Grywacheski pointed out.
“The fact that this phase one will be signed does start to alleviate some pressure off of Deere as well as a lot of uncertainty,” he said.
A reduction in tariffs, as well as a cooling on any rhetoric about tariff-escalation, means “a lot of that uncertainty appears to have been taken off the table with this phase one resolution that should be signed in the next couple days.”