DBRS Morningstar Confirms Deere & Company’s Issuer Rating at “A” with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Deere & Company (Deere or the Company) at “A” with a Stable trend. This confirmation reflects the fact that the Company’s current business risk profile and financial risk profile remain compatible with the current rating. Near term, DBRS Morningstar expects Deere’s financial profile to weaken with Deere’s operating results affected by weakening conditions in the equipment markets because of an ongoing trade dispute between China and the U.S. and the disruptions caused by the novel coronavirus epidemic.

DBRS Morningstar notes that Deere’s stable and strong business profile continues to be the key support to the current rating. Deere is the global leader in agricultural equipment, and its continued efforts to refresh its product lines with attractive productivity features such as precision agriculture should further strengthen its market position. Additionally, the integration of the Wirtgen Group, a global road paving equipment manufacturer, is progressing as planned, and the addition has strengthened Deere’s competitive position in the construction equipment sector.

Deere’s operating results in F2019 (year ended November 3, 2019) were modestly higher than F2018 but below DBRS Morningstar’s expectations. The China-U.S. trade dispute that led China to sharply curtail buying U.S. agricultural products has depressed the farm economy and the demand for equipment in the U.S., Deere’s largest market. Flooding in the farm belt further weakened demand. Deere announced its F2020 outlook in November 2019, forecasting a decline in equipment sales and net income of between $2.7 billion and $3.1 billion ($3.25 billion in F2019). A couple of events have occurred since the announcement: (1) China and the U.S. signed a limited trade agreement (the Phase 1 trade deal) in late January 2020 in which China committed to purchase a significant amount of U.S. agricultural commodities and (2) an outbreak of the novel coronavirus, first in China and progressively spreading to the rest of the world. The uncertainty of the severity and duration of this epidemic has overshadowed the mild positive from the Phase 1 trade deal and has dimmed the outlook for the Chinese economy as well as the global economy. Deere reported weaker results in Q1 F2020 (lower equipment sales and pretax profit than Q1 F2019), but confirmed its outlook in February 2020.

DBRS Morningstar anticipates sales and net profit at Deere in F2020 to be at the low end of its forecast. Nevertheless, DBRS Morningstar expects Deere’s rating to remain stable because its financial profile has a cushion to absorb the expected moderate deterioration. However, a more sever deterioration in Deere’s financial profile to the BBB rating range for an extended period could result in DBRS Morningstar taking negative rating actions. DBRS Morningstar notes that positive rating actions are unlikely given the current economic outlook.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Industrial Products Industry (February 2020) and DBRS Morningstar Criteria: Holding Companies and Parent/Subsidiary Rating Relationships (November 2019), which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This an unsolicited credit rating.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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