John Deere continues to report quarter after quarter of solid earnings, with strong results in both its equipment operations and financial services group a testament to the business acumen that has made the global manufacturer of farm machinery, forestry and construction equipment an underappreciated innovator.
Yes, Deere & Co. is a smart tech innovator on the cutting edge of its businesses—how else do you stay in business for more than 180 years? Case in point: its iconic tractor business turned 100 this year, marking the anniversary of founder John Deere buying the Waterloo Boy Tractor Company in 1918.
Yet not many people may realize that its tractors these days have touchscreens, with new displays offering a range of subscription and activation options to best fit its customers’ precision agricultural needs, or what Deere calls its Precision Ag Technology.
What innovation looks like for Deere as it continues to roll out advanced products and solutions for industrial and agricultural markets was discussed by John May, President of Deere’s Agricultural Solutions and Chief Information Officer, on its third quarter earnings call:
In collaboration with our product platforms, the intelligent solutions group (ISG) is advancing Deere’s precision ag strategy and leading the industry in machine optimization, job execution and mobile management for the farmer. Over the last two decades, we have aggressively invested to ensure our equipment is easier, smarter and more precise than any other solution available—and we are committed to extending our industry-leading position in the future.
Today’s portfolio of ISG’s tools, include precision hardware, telematics, digital solution and advanced customer support. Recent precision hardware introductions demonstrated significant economic value to farming operations and in some cases already achieving take rates in excess of 50%. For example, the recently released Combine Advisor feature utilizes sensors and algorithms to automatically optimize multiple combine settings resulting in better grain quality while minimizing losses. Additionally, the introduction of our ExactApply spraying technology provides individual nozzle control to increase yields and reduce input costs by 2% to 5%.
With regards to telematics, there are currently over 130,000 ag machines in the field today. Our automatic guidance system AutoTrack delivers sub-inch accuracy and is available in 100 countries. And it is worth noting that 2018 is a record year in the adoption of this technology. In recent years, digital products have become increasingly critical to farming operations. And the John Deere operations center seamlessly manages production data and enables better decision making on the farm.
Additionally, the system, the most collaborative in the industry, allows over 85 partnering companies to connect enabling farmers to collaborate with their trusted advisors. On a rolling 12 (month) basis in the U.S. and Canada alone Deere has nearly 100 million engaged acres that are actively uploading data into our digital tools. Worldwide, we are seeing significant progress in engaged acres at an accelerated rate of adoption.
Related to machine optimization, we are now using technology to enhance our customer support capabilities and our expert alerts feature is an excellent example of recent innovation impacting farmers. These alerts provide predictive maintenance notifications to both the customer and the dealer, allowing farmers to avoid costly down times and enabling dealers to provide better service. Given the state of our current precision portfolio, we are increasingly optimistic about the future impact of precision technologies as the inclusion of machine learning, computer vision and robotics holds potential to unlock billions of dollars and in agricultural value.
To further advance Deere on the machine automation journey, last year we acquired Blue River Technology. Blue River is the leading integrated ag machine learning company in the industry. The acquisition provides Deere a competency in artificial intelligence which we view as core capability that will increasingly drive the basis for competition in ag equipment. This capability will enable our machines to; one, sense conditions in the field, two, make decisions, three, execute the appropriate action and four, learn and adjust. These steps could eventually shift decision making today from the field level down to the individual plant level.
Blue River’s first product See & Spray is still a few years away from commercialization, but we currently are testing this product in thousands of acres this season. The product identifies and then selectively sprays weeds instead of spraying the entire field. This vastly decreases the amount of herbicide used in operation which improves economics for the farmer, while reducing chemical usage in our food chain.
Last month, I had the pleasure of attending a Customer Day in Texas where over 60 customers viewed the product demonstrations firsthand, the feedback was highly encouraging and let us know we are on the right path. Ultimately, we see See & Spray as just the tip of the iceberg, but the inclusion of artificial intelligence in ag equipment. The ability to automate many farming jobs from planting to harvesting will be enabled through the use of this technology.
A few other recently-completed acquisitions have enhanced our crop care product portfolio and supported the development of a global crop care solution to further enable our precision ag strategy. Over the last three years, Deere has very effectively utilized M&A to help execute our crop care strategy completing four acquisitions including Monosem, Hagie, Mazzotti and King Agro and the recently announced PLA acquisition. Each of the abovementioned transactions provided Deere with either a leading market position or an industry-leading capability.
To highlight a few, Monosem provided Deere the market-leading position in Europe for planters and will enable Deere to create the most capable tractor planter combination in the region. Similarly, the acquisitions of Hagie and PLA provided Deere leading market positions in their respective product forms and geographies.
Importantly, these transactions supply Deere with the right products to combine with our foundational precision technologies and other Deere manufactured components. Perhaps most importantly, the transactions have served as a key enabler to enhance and advance precision technologies globally and a critical complement to R&D investments. With rapidly increasing adoption rates for technology, Deere is keeping pace, both organic and inorganically, to further extend our lead in precision ag.
“We continue to believe Deere is well-positioned to capitalize on growth in the world’s agricultural and construction equipment markets,” chairman and CEO Samuel Allen stated. “Replacement demand for large agricultural equipment is driving sales even in the face of tensions over global trade and other geopolitical issues. At the same time, we are heartened by our customers’ enthusiastic response to the advanced features and technology found on our new products. What’s more, the powerful global trends of population growth and increased urbanization remain quite vibrant and are putting a positive light on the company’s prospects for the future. As a result, we’re confident Deere is on track to continue its strong performance and deliver significant value to customers and investors in the years ahead.”