DBRS Confirms Ratings on Deere & Company at “A” and R-1 (low) with Stable Trends
IndustrialsDBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Deere & Company (Deere or the Company) at “A” as well as its Commercial Paper (CP) rating at R-1 (low). DBRS also confirmed the Senior Unsecured Debt and CP ratings of John Deere Capital Corporation and John Deere Financial Inc. & John Deere Credit Inc. & John Deere Canada ULC at “A” and R-1 (low), respectively, as well as the Senior Unsecured Debt rating of John Deere Canada Funding Inc. at “A.” All trends remain Stable. The confirmation reflects the Company’s business risk and financial risk profiles, which remain commensurate with the current ratings. DBRS expects Deere’s ratings to remain stable in the medium term.
Deere’s business risk profile is well within the “A” rating range. The Company is the global leader in the agricultural machinery sector and is gaining market position in the construction equipment sector as a result of its acquisition of Wirtgen Group (Wirtgen), the global leader in road construction equipment. The integration of Wirtgen is progressing as planned. Deere’s ongoing investment in expanding its product range and capabilities, especially in precision agriculture and digitalization of its products, continues to solidify its market position and ensure that its business risk profile remains compatible with the current ratings.
Deere reported stronger operating results in F2018 (year ended October 28, 2018) compared with DBRS’s expectations. All key coverage metrics showed solid improvement, well within the “A” rating range. Although market conditions, especially in the U.S. farm sector, have deteriorated partly because of tense trade relations between China and the United States, Deere expects to deliver higher net sales and net income in F2019 (year ended November 3, 2019). While DBRS anticipates that the trade dispute between China and the United States will likely be resolved by the end of calendar-year 2019 with encouraging progress in recent trade talks, DBRS expects market conditions in the agricultural and construction markets to remain challenging in 2019 while gradually improving through 2020. However, DBRS expects Deere to overcome current soft market conditions, based on demand to replace aging equipment and benefits from increased efficienciees of the new equipment, and sustain the improving trend in its operating results through its strong competitive position and diversified geographical markets, thereby keeping its key credit metrics within the “A” rating range.
DBRS notes that the Company needs to strengthen its business profile to the high end of the “A” range to warrant any consideration for positive rating actions. DBRS does not anticipate this development in the near future. DBRS notes that Deere has a cushion to absorb some deterioration in its financial profile, thereby safeguarding the ratings against unexpected weakening in key credit metrics. However, DBRS would consider taking negative rating actions if the Company’s financial profile suffers a sharp and sustained deterioration caused by declining operating results and/or increasing debt levels, although neither is expected at this time.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Industrial Products Industry (February 2019), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2018) and DBRS Criteria: Guarantees and Other Forms of Support (January 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 participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
DBRS 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.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.
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