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Robert W. Lane |
2008 Annual Meeting of Shareholders
Moline, IL
Remarks by Robert W. Lane
Chairman & Chief Executive Officer
Deere & Company
February 27, 2008
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John Deere aspires to distinctively serve customers through a great business. In this pursuit, the company had a strong year in 2007, and has started out 2008 on a positive note.
The focused actions of the global John Deere management team and our dedicated employees are taking the company's performance to new highs. These actions, as we have discussed with you in the past, are aimed at building, growing, and sustaining a great business.
In addition, major economic and demographic trends — such as growing demand for food, especially meat, and for biofuels, and infrastructure — are providing a powerful tailwind for the efforts of the John Deere team.
These broad trends are certainly welcome. This is especially true when their impact is magnified by our progress managing costs and controlling assets, while expanding operations and attracting customers throughout the world.
Last year, total revenues increased 9 percent to some $24 billion, resulting in net income of $1.8 billion. We have set earnings records for four straight years. Based on the outlook in our most recent earnings report, we expect to do so again in 2008.
Another key measure, SVA, or Shareholder Value Added, increased to $1.3 billion in 2007. In each of the last four years, it has been more than twice as high as in our best years of the 1990s, which was a period of strong performance.
SVA — the difference between operating profit and an implied cost of capital — is our primary metric in managing the company for sustained performance.
The ultimate evidence of strong earnings and SVA, and possibly the most tangible outcome of our success, is the impressive amount of cash flow produced by our operations. This cash is being deployed in a number of ways for the benefit of our shareholders.
First and foremost, we are continuing to make investments in new plants and projects, which are expected to sustain our performance and drive profits in the future. Capital spending last year, while remaining focused and disciplined, exceeded $1 billion for the first time.
We are also providing the financial support to keep our global pension plans in sound condition, for the benefit of current and future retirees. These plans have an impressive record of investment growth and, in total, are in a strong surplus position.
Sadly, some companies have not had the cash flow to shore up their plans. Their retirees have been impacted as a result.
In addition, many dollars generated by our operations are being shared directly with you, our investors. During the last four years, the company has increased the quarterly dividend rate on five occasions, by a total of 127 percent. Almost 100 million shares have been repurchased over this period, through the end of the first quarter.
Performance of this sort is a tribute to our dedicated workforce — some 50,000 strong, worldwide. It also reflects the caliber of our far-reaching global management team. These talented individuals are working on your behalf throughout the world and, therefore, many cannot be on hand today.
Our company's success, further, is attributable to a heritage of integrity and honest value — a heritage nurtured by previous generations of employees and company leaders.
Some of these men and women are in the auditorium this morning. To you, and to those who could not be here but have served the company equally well, we say thank you for your enduring contribution.
John Deere is striving to produce solid profits under all conditions and exceptional ones when markets are strong.
In fact, conditions are not universally good today. Yet our businesses are delivering solid performance in every case.
For example, construction and forestry sales dropped significantly in 2007, due to a weakening U.S. economy and a slowdown in residential construction. In response, the division moved decisively, slamming the brakes on factory production and keeping a close eye on costs.
Deere's construction and forestry business remained on a profitable course as a result. This record extended into the first quarter of 2008, in which the division had operating profit of $117 million. That was 23 percent more than in the same period a year ago.
Under current conditions, this is nothing less than a remarkable business transformation!
Such attention to cost and asset control, and an intense focus on serving customers at a high level, are at the heart of our plans for growing a truly great business across the John Deere enterprise around the world.
Our goal is to deliver performance that endures and nothing less.
In pursuit of this objective, the company is moving ahead with a vigorous three-pronged strategy. Its elements are exceptional operating performance, disciplined profitable growth, and an emphasis on aligned, high performance teamwork.
Exceptional operating performance means providing the highest-possible level of service and value to our customers. It also means making our operations more efficient, more effective, and more environmentally sound.
To this end, we're making significant, yet disciplined, investments in our global operations. These include, among many others, the sweeping redevelopment of our tractor-manufacturing facilities in Waterloo, Iowa, now in its final stages. Further worldwide investments will be made as needed to serve our growing customer base.
As a result of these investments, Deere is able to offer customers even greater productivity through advanced machinery while we, ourselves, take productivity to decidedly higher levels. These productivity increases are, in fact, vital for seizing today's economic tailwinds, and translating them into earnings, SVA, and cash.
With respect to productivity, the Deere Production System, or DPS, has been adopted by virtually all of the company's major production facilities in just four short years. This is a significant accomplishment!
DPS standards are considered to be exceptionally exacting, and are also proving to be exceptionally effective.
Typical DPS outcomes include rigorous asset management and an improved ability to keep factory production in line with retail orders. In this regard, trade receivables and inventories last year remained at their lowest point relative to sales in recent times. Asset intensity measured on this basis has been reduced by almost half in this decade.
Disciplined SVA growth constitutes the second leg of the John Deere strategy. Our SVA goals require increased sales, with a heightened emphasis on customer-oriented technology and innovation. Innovation is a key ingredient in attracting new customers throughout the world.
Extending the John Deere brand to a wider global audience remains a top priority. Last year, sales outside the U.S. and Canada surpassed $7 billion for the first time. Deere's sales in the emerging markets of Brazil, Russia, India and China nearly doubled, as important projects and developments in these areas moved ahead at a rapid pace.
With respect to growth in new businesses, the company is targeting attractive areas highly complementary to our core operations. These include John Deere Intelligent Mobile Equipment Technologies, John Deere Landscapes, John Deere Water Technologies, and John Deere Renewables.
All saw significant growth last year and all have major potential for making meaningful additions to SVA.
What about the global economic tailwinds that were mentioned earlier? They hold great promise for the company.
The world's population, as an example, is growing rapidly, creating more demand for food, fiber, infrastructure and energy. No fewer than 2.5 billion additional people are likely to be living on this earth by 2050.
Importantly, many of the earth's people are now earning higher incomes, as well. This is driving demand for higher-value foods, such as meat. In addition, rising affluence is leading to a greater need for shelter, infrastructure, for lawn and landscapes products, and for related financing worldwide.
Global prosperity, therefore, means good things for all of John Deere's businesses.
Let's not forget the growing amounts of corn, sugar and soybeans being used for biofuels such as ethanol and biodiesel in many countries. What's more, the production of cellulosic energy, while not yet commercially viable, would likely utilize John Deere equipment in a big way.
Renewable fuels, including wind energy, seem certain to make a major impact on John Deere customers for years to come.
That leads to a third point of our operating strategy — aligned, high performance teamwork.
Talent is the ultimate competitive weapon. And talent, reinforced through teamwork, is the key to honing our competitive edge, and keeping it razor sharp as the company completes its second century of operation.
That will happen in a few short decades, when today's talented younger employees will be leading the company in what promises to be a very demanding business environment.
Bear in mind, as well, that many of the millions who are today upgrading diets and vaulting into the world's economic middle class, thus benefiting Deere, are emerging as tomorrow's motivated and skilled workforce.
This is good news! Humans thrive — creating growing markets for Deere.
They are the entrepreneurs, financiers and innovators of the future. Again, this is good news. Without these people thriving, Deere's markets would not be growing as fast.
To secure our place among the world's great companies, Deere is working diligently to attract its share of these people and bring them into the leadership ranks of our own company.
Many of these eager, highly talented, and well-educated individuals will also emerge as employees of capable competitors to our own company.
Rest assured, we take the competition seriously. And though the outcome is never certain, we fully intend to battle our competitors successfully. We aim to win.
At the same time, we realize the challenges of global competition, the warp speed of technological change, and the rising needs of our customers have never been so great. As a result, we can expect to see unrelenting pressure for decades to come on companies such as John Deere.
This pressure is not new, of course, but it will surely accelerate in the years ahead. In my own career of 34 years, nearly half of the 100 largest industrial companies in the U.S. have gone bankrupt or have been taken over.
Success for John Deere is far from guaranteed.
Nevertheless, as shareholders, you and I are fortunate, indeed, to have such an uncommonly skilled and committed management team tackling these emerging issues on our behalf.
Working around the world — and, many times, around the clock — they are finding new ways to take Deere's performance to the higher level demanded of a truly great business.
All the good things John Deere can do — and there are many — are rooted in growing and sustaining a great business. Through these efforts, humans will flourish worldwide.
The road ahead is daunting in many ways, but we are prepared to compete, to win, and to continue being worthy of your continued support.
Thank you for your attention, ladies and gentlemen.
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