Deere 2014 Revenues Drop 5% Despite Construction Rally

23% increase in Construction & Forestry Division sales could not counter a 13% plunge in ag division revenues

Johndeere 10073478

Deere & Company’s worldwide net sales and revenues dropped 5% to $8.965 billion in the company’s fiscal fourth quarter (ended October 31) compared to the fourth quarter of 2013. Revenues were down 5% to $36.067 billion for the fiscal year. Equipment operations sales were down 7% to $8.043 billion for the quarter and down 6% to $32.961 billion for the year.

Agriculture & Turf Division sales fell 13% for the quarter to $6.169 million and 9% for the year to $26.380 million. But Construction & Forestry Division sales increased 23% for the quarter to $1.874 million and 12% to $6.581 million for the year.

Deere & Company net income plunged 20% in 2014’s fiscal fourth quarter to $649.2 million, or $1.83 per share, compared with the same period of 2013. Net income for all of 2014 was down 11% to $3.162 billion, or $8.63 per share.­

"John Deere has completed another year of solid performance in spite of weaker conditions in the global farm sector, which caused sales and earnings to decline from the record totals of 2013," said Samuel R. Allen, chairman and chief executive officer. "The slowdown has been most pronounced in the sale of large farm machinery, including many of our most profitable models. Nevertheless, our success managing costs and assets and establishing a broad-based business lineup has allowed us to deliver strong results and remain in a sound financial condition."

Allen noted that the company produced healthy levels of cash flow for the year, much of which was returned to investors in the form of dividends and share repurchases. Dividends and buybacks in 2014 totaled a record $3.5 billion.

Financial Results: Deere 2014 Revenues Drop 5% on Plunging Ag Equipment Sales

Equipment net sales in the United States and Canada decreased 10% for the quarter and 8% for the year. Outside the U.S. and Canada, net sales were down 2% for the quarter and down 3% for the year, with unfavorable currency-translation effects of 2% and 1% for these periods.

2015 Outlook

Company equipment sales are projected to decrease about 15% for fiscal 2015 and to be down about 21% for the first quarter compared with year-ago periods. For fiscal 2015, net income attributable to Deere & Company is anticipated to be about $1.9 billion.

"Even with a significant decline in sales and a continued pullback in the global agricultural sector, John Deere expects to remain solidly profitable in 2015," Allen said. "The company's earnings forecast reflects the impact of our efforts to establish a more resilient business model and it represents a level of performance much better than we've seen in prior downturns."

Equipment Division Performance

Agriculture & Turf. Sales fell 13% for the quarter and 9% for the full year due largely to lower shipment volumes, the previously announced sales of the company's landscapes and water operations, and the unfavorable effects of currency translation. Partially offsetting these factors was price realization for both the quarter and year.

Operating profit was down 32% to $682 million for the quarter and -22% to $3.649 billion for the year. Lower results for the quarter were driven primarily by lower shipment and production volumes, a less favorable product mix, higher production costs primarily related to engine emission programs, increased warranty costs and an impairment charge for China operations. The full-year decrease was driven mainly by lower shipment and production volumes, a less favorable product mix, the unfavorable effects of foreign-currency exchange and higher production costs primarily related to engine emission programs. Declines for both periods were partially offset by price realization. As noted, last year also was affected by impairment charges for the landscapes and water operations.

Construction & Forestry. Construction and forestry sales increased 23% for the quarter and 12% for the year mainly as a result of higher shipment volumes and price realization. Increased sales for both periods were partially offset by the unfavorable effects of currency translation.

Operating profit soared 93% to $228 million for the quarter and 71% to $648 million for the year. Operating profit for the quarter improved due to higher shipment volumes and lower selling, administrative and general expenses. Full-year results benefited from higher shipment volumes, lower selling, administrative and general expenses, and price realization, partially offset by the unfavorable effects of foreign-currency exchange.

Market Conditions & Outlook

Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to decrease by about 20% for fiscal-year 2015 as a result of weaker conditions in the global farm economy. Lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery, especially for larger models. Conditions are more positive in the U.S. livestock sector, providing support to the sale of smaller sizes of equipment. Based on these factors, industry sales for agricultural machinery in the U.S. and Canada are forecast to be down 25 to 30% for 2015.

Full-year 2015 industry sales in the EU28 are forecast to be down about 10% due to lower crop prices and farm incomes as well as potential pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to be down about 10% as a result of the headwinds affecting agricultural producers. Industry sales in the Commonwealth of Independent States are expected to deteriorate further due in part to tight credit conditions. Asian sales are projected to be down slightly, with most of the decline centered in China.

Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5% for 2015, benefiting from general economic growth.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to increase by about 5% for 2015. The gain reflects further economic recovery and higher housing starts in the U.S. as well as sales increases outside the U.S. and Canada. Global forestry sales are expected to hold steady with the attractive levels of 2014.

Financial Services. Fiscal-year 2015 net income attributable to Deere & Company for the financial services operations is expected to be approximately $610 million. The outlook reflects a decline from the prior year due primarily to an expected increase in the provision for credit losses, versus the low level of 2014, and a less favorable tax rate. These factors are projected to be partially offset by growth in the credit portfolio and higher crop insurance margins.

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