John Deere’s Path to Earn Back Trust
John Deere is making headlines daily, and most of them for reasons the company would like to avoid.
Widespread layoffs, production shifts to Mexico, and an about-face on its commitment to DEI are just a few of the negative storylines in recent months.
The situation caught our attention because of farmers' growing frustrations while the company announced record payouts and buybacks.
Easy Newz coverage of farmer frustration
It isn’t just agricultural publications that have taken note of the abrupt changes. Below is a quote from the National Review (link to article here):
In a 2022 annual report, John Deere listed “Diversity, Equity, & Inclusion” as one of its “highest-priority topics” and its “priorities” include “embedding Diversity, Equity, and Inclusion (DEI) principles into all aspects of how we run.” The company’s board of directors is 36 percent female and nearly 20 percent African American.
Here is the company’s updated position posted on X less than a month ago.
The USDA forecasted farm income to fall 24% earlier this year due to lower commodity prices and higher costs. Profitability is under pressure across the supply chain.
Big Green’s sales are slowing, which has serious ramifications for its workers and customers. Criticism got so loud that the company could no longer ignore it. Here are excerpts from a recent interview outlining how the company was implementing meaningful change.
John Deere’s Cory Reed, President Worldwide Agriculture and Turf Division, gave an interview with Farm Journal in response to a growing backlash.
Here are some key takeaways (link here).
The company wakes daily with employees, innovation, and customers as its primary concern.
“We have 80,000 employees in the company. We wake up every day with the same purpose. That purpose is quality, innovation, integrity and commitment to our customers. We want to grow value on each and every one of those farms…”
Investing more than ever before...
"It's the reason that even when we see these cycles potentially coming, we invest directly through them. We've never invested more in research dollars than we did this year, and in the next five years we will invest more than we have over the past five years. That's a testament to what we believe about the future of the agricultural industry. We're doing that around the world."
JD would like to shift the focus to investment, not payouts and buybacks
The company does not like cutting jobs and doesn’t sacrifice quality…
“We don't like making workforce adjustments. We don't. But that's all about the cost structure we have, so we can hold the line on costs. We're deploying more of our engineering resources to cost-reduce each part without sacrificing any reliability, durability or quality. We're doing that in a big way,” Reeds adds.
On potential price cuts…
“If you take See & Spray, which is a great example, that product would normally cost hundreds of thousands of dollars to add to a machine. We lowered the upfront price for a retrofit kit to be able to put it on for tens of thousands of dollars…”
Is the company going far enough? Let’s take a look at the company’s “financial struggles.”
Front-month corn (orange), John Deere (green), and DE/SPY (blue)
Since 2016, corn prices are up 10%. John Deere’s stock price is up 430%. Big Green has outperformed the S&P Index by 125%. Few commodity stocks have performed better… –cough Wingstop cough–
A quick aside: how long can the high-flying WING remain in the stratosphere? Consumer spending is under pressure, and genetic challenges will limit growth in the poultry industry. Earnings indicate quick-serve margins are under growing pressure across the sector.
WING since early 2016
John Deere 2023 Earnings:
“For fiscal-year 2023, net income attributable to Deere & Company was $10.166 billion, or $34.63 per share, compared with $7.131 billion, or $23.28 per share, in fiscal 2022...
Worldwide net sales and revenues decreased 1 percent, to $15.412 billion, for the fourth quarter of fiscal 2023 and rose 16 percent, to $61.251 billion, for the full year.”
Buybacks and Executive Compensation (source Perplexity AI):
The total stock buybacks from January 31, 2016 to April 30, 2024 amount to approximately $17.941 billion
John C. May (Chairman, CEO, and President) received a total compensation of $26,285,804.
Joshua A. Jepsen (CFO): Total compensation of $6,835,311
Ryan D. Campbell: Total compensation of $6,880,722
Cory J. Reed: Total compensation of $6,455,424
Justin R. Rose: Total compensation of $10,546,817
The median employee pay at John Deere is $94,247, resulting in a CEO-pay ratio of 284:1.
This ratio indicates the disparity between the compensation of the CEO and the average employee. The average CEO-to-worker pay for S&P 500 companies is 195:1.
Is JD going far enough to earn trust?
John Deere can do more…
Kudos to Tractor Supply John Deere for listening. But words are not enough.
Farmers in the USA and abroad are struggling. Global commodity prices are under pressure everywhere. The main drivers:
Improved South American and USA weather
Supply chain normalization post-Russian invasion
Slowing inflation and economic growth
Yet, costs for many inputs and equipment remain stubbornly high. Extreme weather events are becoming more common. Farmers will be asked to do more with less.
The company isn’t responsible for many of these issues but did not hesitate to take advantage of every opportunity to profit while rewarding everyone but the farmer.
Take the ongoing machine repair fight, which is ongoing in multiple countries. Here are the quotes from the company’s website (link here).
“We know uptime is critically important to you. It's also important to us and our dealers.
From Do-It-Yourself tractor repairs to connected dealer support, we're committed to keeping your machines up and running when you need them most.
We also know you want to service and repair your own equipment in your own shop, and on your own time. That's why Deere makes it easy for you to work on your machine’s parts and systems.”
Court documents suggest the company has been doing the opposite.
An Illinois district court dismissed John Deere’s attempts to have the “right-to-repair” lawsuit thrown out. Farmers allege the company unlawfully restricts their ability to work on their equipment, along with other accusations of monopolistic practices and antitrust violations. The latest updates can be found here.
John Deere appears to be listening, finally. The recent changes have been met with broad support and understandable skepticism. Once trust has been broken, it must be won back. This will be a process and take time.
Committing to a path forward based on investment, customer feedback, and sustainable growth is crucial for John Deere to earn back trust.
This is not investment advice. We have no position or inside knowledge regarding publicly traded companies covered in this article.
