In a speech given in late February, Samuel R. Allen, Chairman & CEO of Deere & Co., had some good words for 2014, and some cautious words for 2015.
While in 2014 Deere “posted our second-highest-ever level of earnings,” said Allen, “2015 is shaping up to be a challenging year. Our forecast calls for sales to be down 17%, or close to $6 billion, with earnings of $1.8 billion.
“We could be facing the largest single-year sales decline in the company's history with income at barely half of its 2013 peak.”
According to Allen, the decline is expected due in large part to a “sharply lower demand” for larger, more profitable agricultural equipment, though he stresses that the farm economy remains fundamentally healthy.
“What's going on today, we believe, is that the farm sector is taking one of its periodic breathers after a long stretch of exceptional performance and profitability. And though we can't say for sure, nothing at this point suggests the downturn will be long in duration.”
However long or short the duration, Deere still expects “to remain solidly profitable,” said Allen. “Not long ago a sharp downturn in the U.S. farm sector would have meant little, if any, profit for John Deere and inventories piling up in our factories and on dealer lots. That is a part of our history we're determined not to repeat.”
Changing its course of history essentially entailed expanding its perceived purpose from being regarded as a regional manufacturer of agricultural equipment, to committing to and proving that it served “a broad and growing range of customers and markets—from row-crop farmers in the U.S., to dairy and livestock producers in Europe, construction and forestry contractors as far away as Brazil [not to mention China and India, on several levels], and large property owners in the U.S. and other nations,” he said.
In this sense, while Deere has long been one of the major players in the off-highway universe, it has expanded its own universe—the system that is Deere, so to speak—by embracing more aspects of the overall off-highway system, big and small. From the tiniest of electronics to the largest of machinery.
That said, the best engineered combine or ag tractor or lawn mower in the world may not lead to company-wide sustainability if no one in the world needs one or is willing to pay for one for a couple years.
Of course, it’s often referred to as diversification when a company expands its portfolio to minimize its exposure to extinction.
But offering a variety of equipment and systems to a variety of industry segments in a variety of countries and cultures provides more assurance that the entire system survives—not just the company system, but the world’s system, and its need to feed and provide clean water to its ever growing subsystems, often referred to as people—provided that decision makers are aware of all the variables that confront it and control outcome.
As an example, it will not be news to any off-highway engineer who worked toward Tier 4 Final over the past 20 years or so that the end goal of meeting stricter and stricter regulations with no efficiency penalties could ultimately only be realized by taking into consideration the entire off-highway system, in this context the vehicle. Optimizing subsystems cannot happen if the ultimate system is not optimized, as a whole. And the overall system, as a whole, cannot be optimized without first considering the subsystems.
For survival, the entire system and its subsystems needs to be considered. For the human system, this may entail ensuring plenty of sleep and water, lots of exercise, as much tree nuts and non-mercury-laden fish intake as one can stomach, and moderation everywhere else.
We are all part of a larger system, as every piston, SCR system, operator seat, spring, seal, tire, engine, person, in an off-highway machine knows. All can work fine on their own, and we can all ask for, and no doubt receive, test results that prove as much.
But if the off-highway industry—and people in general, every one of whom is touched by the off-highway industry when they eat a carrot, have a glass of wine or a cup of coffee, drive on a road or in a tunnel or over a bridge, have heat in the home of those they most love, or admire their diamond—has any wisdom to share with the rest of the universe, it is that nothing works, really, unless it all works together. That IS the off-highway system.Continue reading »