DBRS Confirms Deere & Company at “A” and R-1 (low), Trends Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt of Deere & Company (Deere or the Company) and its subsidiaries at “A.” The Commercial Paper ratings are confirmed at R-1 (low). All trends are Stable. The confirmation reflects the Company’s solid financial profile and credit metrics above the current rating, despite the current and Company-forecasted deterioration in operating results. The Company’s operating results came under pressure in 2014 as a result of softening sales in light of weaker commodity prices; however, the reduction in debt throughout the year has effectively left key credit metrics unchanged despite lower earnings. The rating is expected to remain stable, with credit metrics projected to remain within the current rating range, although some deterioration of the cushion is expected because of a further expected reduction in Deere’s agricultural machinery sales and earnings.

Despite recent market declines, Deere’s business profile remains very strong and continues to support its rating. The Company has leading market positions in a broad range of agricultural and forestry product categories in many markets globally, as well as solid market shares in construction equipment in North America. The Company has made strides in achieving respectable shares in construction machinery and has bolstered its presence outside of North America in various emerging markets, aiming to establish the Company’s presence around the world.

Nonetheless, the agriculture machinery market reached a cyclical peak, and results in 2015 are expected to be under further pressure because of declining grain and commodity prices, with particular pressure in the first quarter of 2015. Sales in the Equipment Operations division are expected to decline in the 15% range, driven by particularly strong declines in the agricultural and turf segment in North America, although sales in the construction and forestry segment are projected to increase in the 5% range. DBRS notes that increasing diversity of sales by geography and other positive developments (i.e., the U.S. housing recovery) should help mitigate some of the decline.

Despite forecasted deterioration of results, DBRS expects the ratings to remain stable over the near to medium term, reflecting sufficient credit-metric cushion to absorb low- to medium-sized operating profit impacts. In addition, DBRS expects the Company to maintain conservative financial policies. As such, DBRS could revise the rating downward in the event of material increase in debt levels or in an event of a more severe downturn than currently anticipated.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Companies in the Industrial Products Industry (January 2015), and Global Methodology for Rating Finance Companies (October 2014), both of which can be found on our website under Methodologies.

The applicable criteria are DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2014) and DBRS Criteria: Guarantees and Other Forms of Explicit Support (July 2013), both of which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.