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Morningstar | Deere's Growth Slows as Farmers Are Impacted by Trade Tensions and Poor Weather

John Deere pioneered the use of the steel plow when he fashioned one out of a saw blade in 1837. Farmers quickly saw the benefits of this invention and rapidly adopted the technology, subsequently ushering in the era of mechanized farming in the early 1900s. Fast forward to 21st century, wide-moat John Deere has become the world’s preeminent manufacturer of agricultural equipment. In a global agricultural equipment marketplace, John Deere stands out as a one of the world’s most valuable brands. Unlike its agricultural equipment competitors, Deere focuses its marketing efforts on a single brand. Most of Deere’s growth has been organic. However, in 2017 it made a key acquisition of road building equipment vendor Wirtgen, which improves Deere’s position in global infrastructure and urbanization trends.As a modern industrial powerhouse, Deere provides a complete suite of agriculture equipment including tractors, planting equipment, sprayers, harvesters, and a host of other implements. It also manufactures construction equipment, which accounts for 30% of company revenue. Its most complex pieces of equipment such as combines are effectively factories on wheels that can cost more than $500 thousand. These machines must be created with durability in mind. Hence, the quality associated with the John Deere brand is critical to the company’s success. In the developed world, margins from farming are quite low, which allows Deere to sell farmers on efficiency gains through continuous product innovation in what has become an agricultural arms race. The growth of precision farming has led to a dramatic increase in on-board software, processing, and sensor technology, which are being developed by Deere’s Intelligent Solution Group. One of Deere’s great strengths is the robustness of its dealer network, which includes approximately 1,500 dealers in the U.S and 3,700 globally. Deere’s strong dealer network provides a one-stop-shop for farmers offering parts, service, equipment, and financing. Approximately, 55% of Deere’s revenue originates from sales to customers in the United States and Canada, with the remainder distributed across every continent except Antarctica.