DBRS Confirms Long-Term Ratings of Deere & Company at “A” with Stable Trend, Confirms CP Ratings at R-1 (low) with Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating of Deere & Company (Deere or the Company) at “A,” the Senior Unsecured Debt rating of Deere and its subsidiaries at “A” and the Commercial Paper rating of the same entities at R-1 (low). The trends remain Stable. DBRS confirmed the ratings on December 5, 2017, subsequent to Deere completing the acquisition of the Wirtgen Group (Wirtgen) (see DBRS press release dated December 5, 2017). In confirming the ratings, DBRS anticipated continued improvement in operating results as well as a gradual recovery of the key credit metrics, which were weakened by the debt incurred to fund the Wirtgen acquisition, to the “A” rating range. The Company announced much stronger than expected operating results for the first quarter of F2018 (year-end October 28). In addition, Deere has raised its forecast for revenue and net income (adjusted for tax reform-related charges) for F2018, replacing the previous forecast made just a few months ago in November 2017 and driven by stronger demand for equipment due to better than expected market conditions. The improved outlook and stronger operating results will speed the recovery of Deere’s financial profile.

DBRS notes that the addition of Wirtgen, a global leader in road construction equipment, strengthens the competitive position of Deere’s construction equipment business which, with the addition of Wirtgen, becomes the third-largest globally by revenue. However, DBRS notes that the impact of a larger construction and forestry (C&F) business is modest on Deere’s overall business profile. The agricultural and turf (A&T) business is still the dominant business and the primary influence on Deere’s business profile, which remains at the “A” range. C&F needs to replicate the dominance of the agricultural equipment business in its markets in order to boost Deere’s business profile to the high end of the “A” range.

DBRS expects the current ratings to remain stable for the foreseeable future. Currently, the key credit metrics are at the low end of the “A” range. Anticipated improvement in operating results in the next few years would enable Deere to restore its financial profile to levels more commensurate with the current ratings. Nevertheless, DBRS would take positive rating actions on the long-term ratings if all the key credit metrics strengthen to levels at the high end of the “A” rating range on a sustained basis. Conversely, a persistent deterioration of Deere’s financial profile to near the BBB range because of declining operating results and/or a meaningful increase in debt levels, although none is anticipated at this time, could lead to negative rating actions.

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

The principal methodology is Rating Companies in the Industrial Products Industry (February 7, 2018). Other applicable methodologies include the DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 22, 2017) and DBRS Criteria: Guarantees and Other Forms of Support (January 26, 2018). These can be found at: http://www.dbrs.com/about/methodologies.

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 primary sources of information used for this rating include company disclosures, internal company documents, discussion with the company and other sources such as regulators and Bloomberg. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

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