News Column

Deere posts fourth-best quarter ever for net sales, income

May 14, 2014

By Jim Offner, Waterloo-Cedar Falls Courier, Iowa

May 14--MOLINE, Ill. -- Deere & Co on Wednesday posted its fourth-highest quarter ever for both net sales of equipment operations and net income.

The Moline-based company, which is the world's largest manufacturer of farm equipment and just completed a three-year, $150 million modernization of its foundry on Westfield Avenue in Waterloo, reported a stronger-than-expected second-quarter profit as cost cuts helped offset lower sales of its tractors, harvesters and earth-moving equipment.

But the company also lowered its forecasts for its full-year agricultural equipment sales and for the U.S. construction industry.

Deere posted a profit of $980.7 million, or $2.65 per share, for the quarter ending April 30, down from $1.08 billion, or $2.76 a share, a year earlier.

Sales in Deere's Agriculture & Turf Division, of which the Waterloo Operations are a part, fell 12 percent for the quarter and 7 percent for six months, which the company said was due largely to lower shipment volumes, the previously announced sale of John Deere Landscapes and "the unfavorable effects of currency translation, partially offset by price realization."

Operating profit was $1.229 billion for the quarter and $2.026 billion year to date, compared with $1.582 billion and $2.347 billion, respectively, last year. The deterioration for both periods was driven primarily by the impact of lower shipment volumes, the unfavorable effects of foreign-currency exchange, and a less favorable product mix, partially offset by price realization, the company said.

Analysts on average had anticipated $2.48 per share, according to Thomson Reuters I/B/E/S.

"I'm at $2.51; we knew it was a good quarter," said Eli Lustgarten, who tracks Deere for Longbow Research.

Lustgarten attributed Deere's quarterly showing to "terrific execution, better profitability and a lower tax rate," which offset lower-than-anticipated sales in both farm and construction equipment.

"Bottom line, it was terrific execution offsetting a weak environment," Lustgarten said. "They maintained their profitability guidance amidst slightly lower revenue outlook. What you also saw was tighter control on all their expenses."

Sales fell 9 percent to $9.95 billion.

"John Deere is on its way to another year of solid financial and operating performance," Deere's chairman and CEO Samuel Allen said in a news release. "Our second-quarter earnings showed further proof of the adept execution of our operating plans. We kept costs and assets well under control while successfully managing major new-product transitions associated with more stringent emissions standards."

The company said its construction and forestry and financial services operations showed improvements, which Allen credited to "our broad-based business lineup."

Deere said it expected full-year sales of agricultural equipment to be down about 7 percent in fiscal 2014. Three months ago, the company had forecast a decline of about 6 percent. The company has cautioned that demand for its products would slip in most markets after a bumper crop that led to lower commodity prices.

"You've got other classic signs of a cyclical peak in a wakening marketplace," Lustgarten said when asked what to expect going forward. "We knew the first half of fiscal '14 would be fine and that came true. But, there's a softening coming. The key will be the weather this summer. You saw U.S. (Department of Agriculture) forecast: You're going to have good crops as long as weather cooperates. That would mean lower prices in soybeans and corn."

Reuters reported most analysts predicting a 10 percent decline in crop receipts, which tend to correlate with farm equipment purchases.

"Although the agricultural economy remains in a relatively healthy condition, farm income is forecast to be lower than last year," Deere said in its news release. "The decline is putting pressure on demand for farm equipment, especially for larger models. At the same time, strength in the U.S. livestock sector is providing support to sales of mid- and smaller-size tractors. Based on these factors, industry sales for agricultural machinery in the U.S. and Canada are forecast to be down 5 to 10 percent for the year."

Some investors hoped a rebound in construction demand, particularly in the U.S., would help offset that softness for Deere, which also builds construction equipment.

But Deere scaled back its outlook for that industry on Wednesday as well. The company said it expected total U.S. construction investment to grow at a 4.3 percent annual rate in 2014, down from a previous forecast rate of 6.3 percent.

Deere also said it expected 1.05 million housing starts, down from a previous forecast of 1.16 million.

Shares of Deere closed at $93.73 Tuesday on the New York Stock Exchange. The stock had a year-on-year range of $94.89May 8 and $79.50June 24, 2013.


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Source: Waterloo-Cedar Falls Courier (IA)

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