JOHN DEERE

Deere's Record Q2 2013 Earnings Cover Falling Construction Sales, Outlook

Net income attributable to Deere & Company was $1.084 billion, or $2.76 per share, for the second quarter ended April 30, compared with $1.056 billion, or $2.61 per share, for the same period last year.

For the first six months of the year, net income attributable to Deere & Company was $1.734 billion, or $4.41 per share, compared with $1.589 billion, or $3.91 per share, last year.

Worldwide net sales and revenues increased 9 percent, to $10.914 billion, for the second quarter and rose 9 percent to $18.335 billion for six months. Net sales of the equipment operations were $10.265 billion for the quarter and $17.058 billion for six months, compared with $9.405 billion and $15.524 billion for the periods last year.

"After a record-setting second quarter, John Deere is well on its way to another year of strong performance," said Samuel R. Allen, chairman and chief executive officer. Second-quarter sales and income were the highest for any quarterly period in company history, he pointed out. "Deere's results are a reflection of positive conditions in the global farm economy, which continues to show impressive strength. The company's performance also offers further proof of the adept execution of our operating and marketing plans, which are aimed at expanding our global market presence."

John Deere Second-Quarter 2013 Financial Results

Summary of Operations

Net sales of the worldwide equipment operations increased 9 percent for the quarter and 10 percent for six months compared with the same periods a year ago. Sales included price realization of 3 percent for the quarter and year to date and an unfavorable currency-translation effect of 2 percent for the quarter and 1 percent for six months. Equipment net sales in the United States and Canada increased 9 percent for the quarter and 13 percent year to date. Outside the U.S. and Canada, net sales increased 9 percent for the quarter and 6 percent for six months, with unfavorable currency-translation effects of 4 percent and 3 percent for the periods.

Deere's equipment operations reported operating profit of $1.663 billion for the quarter and $2.500 billion for six months, compared with $1.522 billion and $2.220 billion last year. The improvement for both periods was due primarily to the impact of price realization and higher shipment volumes. These factors were partially offset by increased production costs and higher selling, administrative and general expenses as well as unfavorable effects of foreign-currency exchange. The higher production costs were related primarily to manufacturing overhead expenses in support of growth and new products, engine-emission requirements, and postretirement benefit expenses. These items were partially offset by lower raw-material costs. In addition, higher warranty costs and research and development expenses affected year-to-date results.

Net income of the company's equipment operations was $953 million for the second quarter and $1.478 billion for the first six months, compared with $947 million and $1.362 billion in 2012. The operating factors mentioned above, along with a higher effective tax rate and increased interest expense, affected both quarterly and year-to-date results.

Financial services reported net income attributable to Deere & Company of $125.0 million for the quarter and $257.9 million for six months compared with $109.2 million and $228.3 million last year. Results were higher for both periods primarily due to growth in the credit portfolio, partially offset by increased selling, administrative and general expenses. In addition, last year's six-month results benefited from revenue related to wind energy credits.

Company Outlook & Summary

Company equipment sales are projected to increase by about 5 percent for fiscal 2013 and by about 3 percent for the third quarter compared with the same periods a year ago. Included is an unfavorable currency-translation impact of about 1 percent for the year. For the full year, net income attributable to Deere & Company is anticipated to be about $3.3 billion.

Although Deere expects to deliver record earnings for the year, global financial pressures as well as adverse weather patterns have added a note of caution to the outlook. "Deere's near-term forecast is being tempered by lingering economic concerns in many parts of the world, which are restraining business confidence and growth," Allen stated. "In addition, cool, wet weather in North America has delayed crop planting, slowed construction activity and hurt sales of turf-care equipment."

Allen said he remained confident about the company's longer-term prospects for growth. "We continue to believe our investment in new products and additional capacity will allow Deere to fully capitalize on the world's increasing need for food, shelter and infrastructure in the years ahead," he said. "These trends appear to have considerable resilience and we're confident they should prove rewarding to our customers and investors."

Equipment Division Performance

Agriculture & Turf. Sales increased 12 percent for the quarter and 14 percent for six months largely due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation.

Operating profit was $1.582 billion for the quarter and $2.347 billion year to date, compared with $1.403 billion and $1.977 billion, respectively, last year. The improvement in both periods was primarily driven by the impact of higher shipment volumes and price realization. These factors were partially offset by increased production costs as well as higher selling, administrative and general expenses and the unfavorable effects of foreign exchange. In addition, six-month results were impacted by higher warranty costs and research and development expenses.

Construction & Forestry. Construction and forestry sales decreased 6 percent for the quarter and six months mainly due to lower shipment volumes. Operating profit was $81 million for the quarter and $153 million for six months, compared with $119 million and $243 million last year. The decline in operating profit for both periods was due primarily to lower shipment volumes, increases in production costs and higher selling, administrative and general expenses, partially offset by price realization. In addition, an unfavorable product mix and higher research and development expenses affected year-to-date results.

Market Conditions & Outlook

Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to increase by about 7 percent for full-year 2013, including a negative currency-translation impact of about 1 percent. Relatively high commodity prices and strong farm incomes are continuing to support a favorable level of demand for farm machinery in much of the world. Deere's sales are further benefiting from global expansion and a number of advanced new products.

Industry sales for agricultural machinery in the U.S. and Canada are forecast to be up about 5 percent in relation to last year's healthy levels. The increase reflects continued strength in demand for large equipment such as high-horsepower tractors and combines.

Full-year industry sales in the EU27 are forecast to be down about 5 percent due to weakness in the overall economy and last year's poor harvest in the U.K. In South America, industry sales are projected to be up 15 to 20 percent as a result of strong market conditions in Brazil. Industry sales in the Commonwealth of Independent States are expected to be down slightly from 2012, while Asian sales are projected to be little-changed.

In the U.S. and Canada, industry sales of turf and utility equipment are expected to be flat to down slightly for 2013, reflecting a cool, wet spring in North America and a continuation of cautious consumer sentiment.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to decrease by about 5 percent for 2013. The decline reflects a cautious outlook for U.S. economic growth, cool, wet weather conditions in North America, and flat sales in world forestry markets. In forestry, further weakness in European markets is expected to offset higher U.S. demand.

Financial Services. Full-year 2013 net income attributable to Deere & Company for the financial services operations is expected to be approximately $550 million. The forecast improvement over last year is primarily due to expected growth in the credit portfolio and lower crop insurance claims, partially offset by higher selling, administrative and general expenses.

 

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