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Tight financing spreads push down John Deere Capital income

Less favorable financing spreads pushed down John Deere Capital Corp.’s net income in the first quarter of fiscal 2023, prompting the company to revise the income outlook for its global finance arm.  

JDCC income clocked in at $185 million, down 19% year over year from $231 million, according to the OEM’s earnings supplement. The drop in finance income comes against the backdrop of a 17% YoY increase in finance receivables, which landed at $47.2 billion.  

Rising rates, coupled with higher SG&A expenses and lower gains on operating lease returns, offset gains in the captive’s portfolio, resulting in expected income of approximately about $820 million, a 6.8% decrease from the captive’s 2022 income of $880 million, John Deere Manager of Investor Communications Rachel Bach said on the company’s earnings call Friday.  

“The less than favorable financing spreads in both the first-quarter results and outlook are a function of the velocity of interest rate increases and … price changes,” she said.  

The captive’s distributions to the OEM dropped to $3 million, down from $42 million in the same reporting period last year, according to the earnings supplement.  

Still, credit performance remains strong. “Credit quality remains favorable with very low write off as a percentage of the portfolio.” JDCC did not break out write off in its earnings supplement.  

Shares of John Deere were trading at $433.31 at market close in New York Friday, up 3.4% from market open. The company has a market capitalization of $128.8 billion.