- Company reports seventh consecutive quarterly earnings record.
- Improvement broad-based with all divisions contributing.
- Full-year profit forecast increased.
MOLINE, Ill. (Feb. 15, 2012) -- Net income attributable to Deere & Company (NYSE: DE) was $532.9 million, or $1.30 per share, for the first quarter ended January 31, compared with $513.7 million, or $1.20 per share, for the same period last year.
Worldwide net sales and revenues for the first quarter increased 11 percent, to $6.767 billion, compared with $6.119 billion last year. Net sales of the equipment operations were $6.119 billion for the quarter compared with $5.514 billion a year ago.
"By completing another quarter of record performance, John Deere has started 2012 on a strong note," said Samuel R. Allen, chairman and chief executive officer. "These results are evidence of the skillful execution of our operating and marketing plans. They also reflect an enthusiastic response by customers worldwide to our advanced lines of equipment. Maintaining such a high level of execution is especially noteworthy as we move ahead with major new-product launches and significantly expand our global market presence." Over the last year, Allen pointed out, Deere introduced a record number of products and announced plans to build seven new factories throughout the world. The company also expanded or modernized additional locations in the U.S. and other countries.
Summary of Operations
Net sales of the worldwide equipment operations rose 11 percent for the quarter. Sales included price increases of 4 percent and an unfavorable currency-translation effect of 1 percent. Equipment net sales in the United States and Canada increased 5 percent for the quarter. Outside the U.S. and Canada, net sales were up 21 percent for the quarter, including an unfavorable currency-translation effect of 2 percent.
Deere's equipment operations reported operating profit of $698 million for the quarter, compared with $646 million last year. Results benefited from price realization and higher shipment volumes, partially offset by increased production costs related to new products and more stringent engine-emission requirements, as well as higher raw-material costs.
Trade receivables and inventories ended the quarter at $9.011 billion compared with $7.416 billion last year. Both figures are equal to 30 percent of trailing 12-month sales.
Financial services reported net income attributable to Deere & Company of $119.1 million for the quarter compared with $118.2 million last year. Results benefited from growth in the credit portfolio, revenue from wind energy credits and a lower provision for credit losses. These factors were largely offset by higher crop insurance claims and increased selling, administrative and general expenses.
Company Outlook & Summary
Company equipment sales are projected to be up about 15 percent for fiscal 2012 and for the second quarter compared with the same periods of the previous year. Included is an unfavorable currency-translation impact of about 3 percent for the year and the second quarter. For the full year, net income attributable to Deere & Company is anticipated to be approximately $3.275 billion.
According to Allen, Deere's strong performance and positive outlook build momentum for the company's plans to increase growth and profitability. "Our substantial investment in new products and additional capacity puts Deere on a sound footing to respond to further improvement in key markets that are in the early stages of recovery," Allen said. "Such investment will help Deere more fully capitalize on the world's growing need for food, shelter, and infrastructure in the years ahead. In our view, powerful trends of this nature have staying power and represent an exceptional opportunity for the company and its investors."
Equipment Division Performance
Agriculture & Turf. Sales increased 8 percent for the quarter largely due to higher shipment volumes and price realization. Operating profit was $574 million compared with $558 million for the quarter last year. The improvement was primarily due to price realization and higher shipment volumes, partially offset by increased production costs related to new products and engine-emission requirements, as well as higher raw-material costs.
Construction & Forestry. Construction and forestry sales climbed 22 percent. Operating profit for the quarter was $124 million compared with $88 million a year ago. Contributing to the increase were higher shipment volumes as well as price realization, partially offset by higher raw-material costs.
Market Conditions & Outlook
Agriculture & Turf. Worldwide sales of agriculture and turf equipment are forecast to increase by about 15 percent for full-year 2012, including an unfavorable currency-translation effect of about 3 percent. Farmers in the world's major markets are expected to experience favorable incomes due to strong demand for agricultural commodities. In addition, John Deere's sales are projected to benefit from advanced new products being launched throughout the world and from major expansions.
Industry farm-machinery sales in the U.S. and Canada are forecast to increase by about 10 percent in 2012. Overall conditions remain positive and demand continues to be strong, especially for high-horsepower equipment.
Full-year industry sales in the EU 27 nations of Western and Central Europe are forecast to be flat to up 5 percent as favorable conditions in the grain, livestock and dairy sectors outweigh general economic concerns. Sales in the Commonwealth of Independent States are expected to be considerably higher in 2012, while sales in Asia are forecast to increase moderately. In South America, industry sales for the year are projected to be flat to down 5 percent, versus attractive levels of 2011, due to drought conditions in Argentina and southern Brazil.
U.S. and Canada industry sales of turf and utility equipment are expected to increase slightly in 2012.
Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to rise by about 18 percent for 2012. The increase reflects somewhat improved market conditions, growth in international markets, and strength in the rental, energy and material-handling sectors. In addition, Deere's sales are expected to be supported by a range of advanced new products and by geographic expansion. After considerable growth in 2011, world forestry markets are projected to be about the same in 2012 mainly due to economic concerns in Europe.
Financial Services. Full-year 2012 net income attributable to Deere & Company for the financial services operations is expected to be approximately $460 million. The forecast decline from 2011 is primarily due to an anticipated increase in the provision for credit losses, which is expected to move toward a more normal level.
In addition, selling, administrative and general expenses in support of enterprise growth initiatives are projected to be higher for the year. Partially offsetting these items is expected growth in the credit portfolio.
John Deere Capital Corporation
The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market.
Net income attributable to John Deere Capital Corporation was $93.3 million for the first quarter, compared with $83.8 million last year. Results improved for the quarter primarily due to growth in the credit portfolio and a lower provision for credit losses, partially offset by higher selling, administrative and general expenses.
Net receivables and leases financed by JDCC were $22.486 billion at January 31, 2012, compared with $20.749 billion last year.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under "Company Outlook & Summary," "Market Conditions & Outlook," and other forward-looking statements herein that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the company's businesses.
The company's agricultural equipment business is subject to a number of uncertainties including the many interrelated factors that affect farmers' confidence. These factors include worldwide economic conditions, demand for agricultural products, world grain stocks, weather conditions (including its effects on timely planting and harvesting), soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, the growth of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of various governments, changes in government farm programs and policies (including those in Argentina, Brazil, China, the European Union, India, Russia and the U.S.), international reaction to such programs, global trade agreements, animal diseases and their effects on poultry, beef and pork consumption and prices, crop pests and diseases, and the level of farm product exports (including concerns about genetically modified organisms).
Factors affecting the outlook for the company's turf and utility equipment include general economic conditions, consumer confidence, weather conditions, customer profitability, consumer borrowing patterns, consumer purchasing preferences, housing starts, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.
General economic conditions, consumer spending patterns, real estate and housing prices, the number of housing starts and interest rates are especially important to sales of the company's construction and forestry equipment. The levels of public and non-residential construction also impact the results of the company's construction and forestry segment. Prices for pulp, paper, lumber and structural panels are important to sales of forestry equipment.
All of the company's businesses and its reported results are affected by general economic conditions in the global markets in which the company operates, especially material changes in economic activity in these markets; customer confidence in general economic conditions; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; and inflation and deflation rates. General economic conditions can affect demand for the company's equipment as well.
Customer and company operations and results could be affected by changes in weather patterns (including the effects of dry weather in parts of the U.S. and South America); the political and social stability of the global markets in which the company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts and the threat thereof; and the spread of major epidemics.
Significant changes in market liquidity conditions and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company's earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the company's products and customer confidence and purchase decisions; borrowing and repayment practices; and the number and size of customer loan delinquencies and defaults. The sovereign debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, and company operations and results. State debt crises also could negatively impact customers, suppliers, demand for equipment, and company operations and results. The company's investment management activities could be impaired by changes in the equity and bond markets, which would negatively affect earnings.
Additional factors that could materially affect the company's operations, access to capital, expenses and results include changes in and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs in particular jurisdictions or for the benefit of certain industries or sectors (including protectionist policies and trade and licensing restrictions that could disrupt international commerce); actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading Commission and other financial regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions (in particular Interim Tier 4, Final Tier 4 and Stage IIIb non-road diesel emission requirements), carbon and other greenhouse gas emissions, noise and the risk of climate change; changes in labor regulations; changes to accounting standards; changes in tax rates, estimates, and regulations; compliance with U.S. and foreign laws when expanding to new markets; and actions by other regulatory bodies including changes in laws and regulations affecting the sectors in which the company operates. Customer and company operations and results also could be affected by changes to GPS radio frequency bands or their permitted uses.
Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the company's supply chain due to weather, natural disasters or financial hardship or the loss of liquidity by suppliers; start-up of new plants and new products; the success of new product initiatives and customer acceptance of new products; changes in customer product preferences and sales mix whether as a result of changes in equipment design to meet government regulations or for other reasons; oil and energy prices and supplies; the availability and cost of freight; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; labor relations; acquisitions and divestitures of businesses, the integration of new businesses; the implementation of organizational changes; difficulties related to the conversion and implementation of enterprise resource planning systems that disrupt business, negatively impact supply or distribution relationships or create higher than expected costs; security breaches and other disruptions to the company's information technology infrastructure; changes in company declared dividends and common stock issuances and repurchases.
Company results are also affected by changes in the level and funding of employee retirement benefits, changes in market values of investment assets and the level of interest rates, which impact retirement benefit costs, and significant changes in health care costs including those which may result from governmental action.
The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital to meet future cash flow requirements and fund operations and the costs associated with engaging in diversified funding activities and to fund purchases of the company's products. If market uncertainty increases and general economic conditions worsen, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.
The company's outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the company and its businesses, including factors that potentially could materially affect the company's financial results, is included in the company's other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q).
