Dear Shareholders, John Deere extended its record of strong performance in 2022. The company achieved outstanding financial results while overcoming major supplier challenges and responding to healthy customer demand. Net sales and revenues, net income, and SVA* were the highest in company history. Deere shareholders fared well, too, realizing a total return on their investment of 17 percent at fiscal year end. Deere also enhanced its competitive position, adding customers throughout the world. Demand for our precision technologies continued to move ahead. To give our smart-industrial operating model more strength and definition, a series of exacting metrics, known as Leap Ambitions, was introduced. They set aggressive goals for unlocking value for our customers as well as producing strong financial and sustainability outcomes for John Deere.
From a financial standpoint, 2022 was a memorable year. Net income totaled $7.13 billion versus $5.96 billion in the previous year. Net sales and revenues increased 19 percent to $52.58 billion. Profitability in relation to sales (operating profit/net sales) was the best in modern times.
The investment community took note of our success. Deere shareholders realized a total return on their investment of 17 percent, compared with a decline in the overall market. The quarterly dividend rate on Deere stock was increased by 8 percent during the fiscal year and roughly 10 million shares, representing an expenditure of $3.6 billion, were repurchased. (The dividend was increased by an additional 6 percent in December.)
STRONG MARKETS, SOUND STRATEGY PACE RECORD YEAR
Precision & Production Agriculture — our largest business, accounting for almost half of our sales — benefited from the success of new products such as large tractors, sprayers, and combines. Customers continued to adopt the latest in high-value precision technologies, many of which include autonomous capabilities. Results for Small Agriculture & Turf reflected positive consumer sentiment and the impact of new products.
Construction & Forestry (C&F) operations set new highs in sales and profit, aided by solid markets for earthmoving, forestry, and roadbuilding equipment. Helping the division were higher sales of backhoes, utility and production loaders, large dump trucks, and compact equipment.
Deere’s financial-services unit made a substantial contribution to company earnings while financing roughly half of the new equipment sold by our dealers. Credit quality remained impressive, and the loan and lease portfolio grew to more than $50 billion for the first time.
NAVIGATING CHALLENGES
Our results were achieved in the face of persistent supply-chain pressures and higher material costs. Over the course of the year, many Deere factories experienced slowdowns or disruptions due to parts or component shortages. We are proud of the tireless efforts of our employees to help manage the situation, ramp up production, and get much-needed products to our customers’ farms and jobsites. As well, Deere faced stiff headwinds related to higher costs for raw materials and freight.
OPERATING MODEL MAKING IMPACT
Again in 2022, Deere’s smart-industrial operating model produced strong results. Deere added customers, brought more focus to its business portfolio, and made further technological advances. Based in large part on changes driven by the strategy, the company has generated higher levels of profit and profitability.
The operating model is organized by production systems (“the way our customers work”), establishing a centralized technology group, and putting more emphasis on delivering value to customers across the lifecycle of the product. The strategy also stresses increasing speed and accountability.
Deere continued to make investments in support of its strategy. They included acquiring a majority stake in an Austrian-based leader in battery-electric technology and entering a joint venture with a company that makes semi-autonomous orchard and vineyard sprayers. Deere also invested in a handful of other firms to strengthen its technology stack.
We invested in our people, too. To ensure that Deere remains a premier employer, the company made enhancements in compensation, benefits, and work arrangements. Office locations were opened in Austin and Chicago as part of an effort to attract a wider range of employee talent. On the production side, collective-bargaining agreements approved by the autoworkers (UAW) and machinists (IAM) unions set a new standard for wage roles in our industries.
AMBITIONS SHOWCASE GROWTH, SUSTAINABILITY
During the year, a series of exacting metrics was introduced to demonstrate what the smart-industrial operating model can deliver. The Leap Ambitions, as they are known, are focused on creating value for our customers. Perhaps most important, they show Deere has ample room for growth, identifying incremental value creation of at least $150 billion.
The ambitions set aggressive goals for financial performance and sustainability. These include a 20 percent return on mid-cycle sales and 10 percent recurring revenue by 2030 as well as a significant reduction in emissions from our operations and products. Our focus on recurring revenue is intended to enhance the value we deliver to customers, support the adoption of technology, and optimize equipment value over its lifecycle. The ambitions also call for increasing the number of connected machines and engaged acres, enabling customers to make data-driven decisions to improve their profitability and sustainability.
In response to the ambitions’ focus on sustainability, Deere has accelerated efforts to improve the efficiency and limit the environmental impact of its products. To reduce emissions in line with our goals, the company is exploring ways to supplement its traditional diesel-powered engines with alternative propulsion systems such as battery-electric and alternative fuels.
Our plans include having at least 20 battery-electric or hybrid-electric construction and forestry machines on the market by 2026 and offering a range of electric options in turf-care and compact-tractor products. Last year, our Wirtgen roadbuilding unit introduced electric tandem rollers and mini pavers. Deere also unveiled concept models of battery-electric mowers, utility vehicles, and small tractors, and has plans to offer a battery-electric residential zero-turn mower in 2023.
SETTING PACE IN INNOVATION
Product innovation, a traditional Deere strength, made further strides and earned additional recognition. A noted group of U.S. agricultural and biological engineers honored eight company products for innovative design, including new planters, sprayers, four-wheel-drive tractors, and an integrated liquid-fertilizer system that allows for simultaneous planting and nitrogen application. In addition, the company’s autonomous 8R tractor was recognized for innovation by the Consumer Technology Association.
Precision agriculture moved ahead as more customers embraced its productivity-enhancing benefits. Sales grew for popular features that guide machines, plant seeds, and apply chemicals, all with exceptional accuracy. Sprayers debuted that use camera technology and artificial intelligence to distinguish weeds from healthy plants, helping reduce costly inputs and benefiting yields. The products build on the success of earlier models that identify and spray weeds on fallow ground. The John Deere Operations Center gained further popularity with customers, ending the year with about 330 million engaged acres worldwide.
C&F expanded its lineup of tiered products — models whose size, power, and features are matched with the demands of the job — with the introduction of P-Tier wheel loaders and excavators, as well as G-Tier compact wheel loaders. Wirtgen added new milling machines and crushers.
BUILDING ON RECORD OF SOCIAL RESPONSIBILITY
Deere is dedicated to sharing with others and being a socially responsible company. To this end, charitable contributions from the company and foundation reached $55.5 million, a 30 percent increase over the previous year. Significant donations were made to combat global food insecurity, promote agricultural education, and strengthen support for underserved farmers. Deere and its foundation remain committed to making charitable contributions of at least one percent of net income over time.
Highlighting our commitment to a more equitable society, Deere continued its support of the LEAP coalition, a group that primarily helps Black farmers secure clear title to their land. The company also helped create a fellowship program for Native American youth studying agriculture. In another action, Deere announced plans to invest in an equity fund managed by Advantage Capital that helps minority-owned businesses gain access to capital.
EMBRACING PROMISING FUTURE
Based on our forecasts, the year ahead holds a great deal of promise. Agricultural fundamentals are favorable, customer confidence is sound, and infrastructure spending is set to rise. At the same time, machine inventories are lean, customer fleets are being actively replenished, and demand is expected to continue testing the industry’s capacity. Supply-chain issues, though likely to remain a concern, have started showing signs of improvement.
All in all, I firmly believe John Deere’s best days lie ahead. We’re part of a great company that does great things. Market conditions are solid, and our portfolio of solutions has never been stronger. In addition, Deere is unleashing technological breakthroughs, transforming the industries we serve and bringing value to our customers that would have been scarcely imaginable not long ago. Finally, we have a winning formula in the smart-industrial operating model. It is driving our performance to new levels and its promise is only beginning to be felt.
Deere’s higher purpose, “We Run So Life Can Leap Forward,” underscores our obligation to offer advanced products and solutions that improve the living standards of people everywhere. I’m proud to say we are managing our businesses and serving our customers in ways that bring honor to our purpose and the legacy that has inspired us for close to two centuries.
Our achievements in 2022 give us further confidence we can continue moving in this direction for many years to come.
On behalf of the John Deere team,
John C. May
Chairman & Chief Executive Officer
December 15, 2022
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