In today’s newscast we report on an update on section 179, Deere’s outlook for the current downturn in the ag equipment industry, certified pre-owned programs and offer a preview into Farm Equipment’s coverage of the Dealership Minds Summit.
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Deere Holds Steady Through Downturn
I’m managing editor Kim Schmidt, welcome to On the Record. Here’s a look at what’s currently impacting the ag equipment industry.
AFN: $53.91 +2.56
Closing Stocks as of 2/26/15 (Compared to Close on 2/12/15)
House Approves Permanent Sec. 179 Increase
While it took Congress nearly all of 2014 to pass the Section 179 bonus depreciaion level increases, some progress is already being made this year to make the increases permanent.
On February 13, the House of Representatives approved the America’s Small Business Tax Relief Act of 2015, which permanently increases the maximum amount and phase-out threshold to levels in effect in 2010 through 2014, $500,000 and $2 million, respectively. It also allows for inflation adjustments.
The bill now moves to the Senate.
Deere Holds Steady Through Downturn
During Deere & Co.'s shareholder meeting on Wednesday, Chairman Samuel Allen told stockholders that in 2015 the company could experience its largest single year sales drop in its history, as income is expected to come in at about half that of 2013, which was the company’s high water mark.
Allen went on to say, however, the company remains positioned “to earn solid profits even in a soft agricultural environment.”
The company stressed that the steps its taken so far will produces better results than in has seen in previous downturns.
Deere’s U.S. and Canadian large ag equipment sales are forecast to be down 50% from 2013 levels and net sales down 22%, which are larger drops than in previous downturns. The forecast for net income is for a 49% drop, whereas the drop in net income the previous two downturns was 77% and 91%.
Deere credits the improvement to reacting early to the pullback in the ag sector, controlling costs and assets and aligning production levels with demand. The company also points out that today “Deere is more than just an ag company,” with a wider range of revenue sources.
In addition to Deere’s latest report, tire manufacturer Titan International and Buhler Industries reported quarterly earnings this week.
Titan’s fourth quarter sales fell 22% and were down 12% for the full year.
Buhler reported revenue for the first quarter was $60.1 million, the forth best in company history but an $8.8 million decline from the prior year.
Dealers on the Move
Dealers on the Move this week include Birkey’s Farm Store and Hoober Inc.
Case IH dealer, Birkey’s Farm Store acquired Dillsburg Ag Service of Rantoul, Ill. The former owners of Dillsburg will begin working at Birkey’s Urbana, Ill., location. The acquisition is expected to close by the end of this month.
Hoober Inc., with 9 locations in Pennsylvania, Delaware, Maryland and Virginia, announced the opening of a new location in New Windsor, Md. The facility will be a full-service Case IH dealership.
OEMs Introduce Certified Pre-Owned Program
Responding to the used equipment inventory builds up on their dealers’ lots, John Deere, AGCO and Case IH have all introduced or expanded certified pre-owned programs to help alleviate some of their dealers’ backlog.
At the urging of its dealers, Deere announced last week it has added self-propelled sprayers to its program. During a conference call with investors, Tony Huegel, director of investor relations for Deere, said, “We do not want to characterize the Certified Pre-Owned program as some sort of silver bullet. But it certainly is beneficial, especially as our dealers look to market some of this newer used John Deere equipment, in a lot of cases marketing against brand-new competitive equipment. And that’s really the biggest strength that the Certified Pre-Owned program provides.
At the 2015 National Farm Machinery Show Farm Equipment editors had a chance to talk with AGCO’s Eric Lescourret, the director of commercial strategic initiatives for North America, about AGCO’s new certified pre-owned program, and how it will help dealers better manage their used inventory.
The CPO program recently became available to dealers after the pilot program was run with select large AGCO dealers in 2014. Today, AGCO has between 30-35 dealers in the program.
“The dealers are the ones doing the reconditioning and we’re finding out right now that this is really a turns game. Dealers are recuperating their margins and are able to turn their inventory much faster because of that offering now in the market place.
We’ve seen some dealers going from one turn, one and a half turns, to two, two and a half turns and it’s a tremendous amount of money, obviously, tied up in the business.
It’s really allowing dealers, again, to better manage their working capital. AGCO has done a very good job helping dealers really manage their working capital and really manage their wash-out cycle, so it’s more than just the new, it’s also how do we help the dealer move the trades and create a story.”
Case is announcing the details of its new program during the Commodity Classic in Phoenix today. More information on how the program will be available on www.farm-equipment.com as soon as it is available.
Plugging Dealers into Compatibility Solutions
When it comes to precision farming technology, farmers want products that work, and increasingly, different brands of products that work together, without sacrificing performance or efficiency.
For the last several years, the Agricultural Electronics Industry Foundation (AEF) has been working with farm equipment manufacturers to achieve plug-and-play capability for machinery.
The organization recently launched a searchable database of ISOBUS-certified components, which farm equipment dealers can gain access to through their manufacturer.
The resource allows precision technicians to run automatic compatibility checks on equipment with a software tool that is connected to the AEF database.
According to Andrew Olliver, AEF communications and marketing representative, the database lets precision technicians more quickly troubleshoot compatibility problems in the field and also match functionality across brands for customers.
“It helps the dealer in terms of being able to sell confidently. If he wants to sell a new implement or a new tractor to a customer, he can use the database as his point of reference on the ISOBUS functionality on one of the components he wants to sell.”
The AEF expanded access of their compatibility database to the general agricultural public in an announcement at the SIMA meeting in France this past week.
Despite the expansion, Olliver acknowledges that it’s going to take time for the resource to be fully utilized. So far, 23 manufacturers have certified ISOBUS components in the database, but Olliver says that number could grow as manufacturers seek certification in advance of the international farm machinery show, Agritechnica this fall in Germany.
Technology Gives ‘Snapshot’ Into Planning
During Farm Equipment’s Dealership Minds Summit, held January 13-14 in Cincinnati, Tom Owen and Nick Mast of ChannelMASTERS debuted audience response technology to gain real-time answers to questions during their workshop presentation on strategies for capital access and transitional wealth management.
Here’s a few nuggets about the dealers in attendance based on the polls are reported in real-time during the presentation include:
- 45% have a binding agreement in place on valuation, liquidity and control among all stakeholders
- 62% completed a professional valuation within the last 5 years
- 51% carefully planned and forecast their investments made in capital expenditures
- 21% plan capital expenditures as a percent of revenues/profit
- 80% have a succession plan and 51% review and update it annually
- 44% of facilities are owned through a real estate investment trust
- 44% renovated or rebuilt new facilities within the last 5 years
You can download the raw and graphed data for free at farm-equipment.com in the "Must Read Free Ebooks" section. Full coverage of the Dealership Minds Summit will appear in the March issue of Farm Equipment.
Ag Equipment Archives
In 1914, manufacturers began building motor plows to replace animal power for small-acreage farmers. The slow, awkward to use and unstable motor plows were low-cost alternatives to conventional tractors. The first version was built by the Universal Tractor Manufacturing Co. of Columbus, Ohio, but the design was later bought by Moline Plow Co. of Moline, Ill. The company introduced a number of improvements and made the Moline Universal Motor Plow the most successful American motor plow.
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