Agricultural, forestry and construction equipment maker,
Deere & Company
) is reviewing strategic options for its irrigation operations -
John Deere Water. The division, part of Deere's Agriculture and
Turf Division, manufactures and distributes precision
agricultural irrigation equipment and supplies.
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John Deere Water is considered to be one of the world's largest
full-line drip irrigation manufacturers. It operates from 24
sales and marketing locations and 19 warehousing locations in 15
countries encompassing Argentina, Australia, Brazil, Chile,
China, Ecuador, France, India, Israel, Italy, Mexico, Russia,
Spain, Turkey and the U.S. Its products are marketed through 700
independent dealers and distributors in over 100 countries.
John Deere Water irrigation operations came under the Deere
umbrella back in 2006 with the acquisition of Calif.-based
Roberts Irrigation Products. Roberts Irrigation was a
manufacturer of high performance plastic micro and drip
irrigation products for the agricultural, nursery and greenhouse
market. The acquisition had cost Deere $41 million. The
acquisition of Roberts Irrigation provided Deere the opportunity
to grow its new business initiative in precision water systems.
Given that effective water management remains a pressing need for
agriculture, Deere will continue to focus on products and
services to help customers better manage agronomic activities in
the field. Deere will also continue to develop its in-field
moisture sensing and climate monitoring system, known as John
Deere Field Connect. This was one of the focal points in the
company's John Deere FarmSight strategy launched in Nov 2011, to
provide integrated solutions in the areas of machine
optimization, logistics optimization and agricultural decision
support, enabling additional productivity enhancements through
machine connectivity and intelligence. These include
user-friendly monitors, sensors and wireless networks for
machinery, and agronomic data to aid operational decision making.
Deere's agriculture and turf segment manufactures and distributes
a full line of agricultural and turf equipment and related
service parts. The segment contributed 75% of Deere's sales in
2012 and 78% of sales in the first none months of 2013. In the
third quarter of 2013, the segment's results were affected by an
impairment charge for long-lived assets related to the John Deere
Water operations. Deere recognized a $50 million pre-tax (or $44
million after-tax) charge for the unit due to a decline in the
forecasted financial performance.
Other than Deere,
Valmont Industries, Inc
) command about 70 to 75% of the irrigation machinery market. The
sale of the John Deere Water operations will be a win-win
situation for both participants.
The agriculture sector is in for a boom with the U.S. Department
of Agriculture (USDA) forecasting a record net farm income of
$120.6 billion in 2013, a 6% year-over-year rise triggered by
record crop production. This will boost farm equipment sales for
Deere. Given the increased global demand for food, shelter and
infrastructure, we believe that the long-term outlook for Deere
remains compelling. Deere's sales are expected to benefit from
global expansion and lines of advanced new equipment. However,
continued weakness in the European markets remains concern.
Deere currently holds a Zacks Rank #3 (Hold). For investors keen
on the industrial products sector,
Alamo Group, Inc
) with a Zacks Rank #1 (Strong Buy) is a good option.