Deere Reports Improved Results for First Quarter
- First-quarter net income rises to $68 million vs. year-ago net loss
- Strong improvement posted by all equipment businesses
- European operations continue making positive contribution
MOLINE, Ill., Feb. 11 -- Deere & Company
today reported net income of $68.0 million, or $0.28 per share, for the first
quarter ended January 31, compared with a net loss of $38.1 million, or
$0.16 per share, last year.
"Results for the quarter reflected strong improvement in all our equipment
businesses and are especially gratifying in light of market conditions that
remain stubbornly weak," commented Robert W. Lane, chairman and chief
executive officer. "We are clearly seeing benefit from our efforts to win new
customers with advanced new products, while taking cost and asset discipline
to an even higher level."
Worldwide net sales and revenues for the first quarter were
$2.794 billion, compared with $2.522 billion for the same period last year.
Net sales of the equipment divisions were $2.274 billion, compared with
$1.938 billion in last year's first quarter. Equipment sales in the U.S. and
Canada rose 17 percent, due to significant increases in the sale of commercial
and consumer equipment, and construction and forestry products. Agricultural
equipment sales in the region were lower. Overseas sales rose 19 percent for
the quarter (11 percent at constant exchange rates), with the increase
primarily due to the higher sale of agricultural equipment in Europe and
improved construction and forestry sales.
Deere's equipment operations reported operating profit of $42 million for
the quarter, compared with a $135 million operating loss last year.
(Operating results exclude the impact of external interest expense, taxes and
certain other corporate expenses.) The increase was primarily due to higher
sales and production volumes and related manufacturing efficiencies. In
addition, results for the quarter benefited from improved price realization
and cost and expense reductions. Also, the application of the goodwill
non-amortization provisions of FASB Statement No.142 had a favorable pretax
impact of $14 million on the quarter's operating profit. The improvement in
financial results occurred in spite of higher post-retirement benefit costs,
which increased by $75 million pretax for the quarter. Year-ago first-quarter
profit was adversely affected by a $16 million pretax charge in connection
with closing a factory in Tennessee and a $12 million pretax loss in the
equipment operations related to the peso devaluation in Argentina.
Company equipment operations had a net loss of $5.2 million for the
quarter, compared with a $110.5 million net loss last year. The improvement
was primarily due to the operating factors noted above.
Summary of Equipment Operating Profit
-- Agricultural Equipment. Compared with last year, division net sales
increased 8 percent for the quarter while production volumes were up
a similar percentage. Sales increased in Europe, reflecting
continued positive response to new products and the translation
impact of a stronger exchange rate for the euro currency. Sales to
dealers in the U.S. and Canada declined as a result of slower-than-
expected retail activity. The retail weakness reflected continuing
economic uncertainties, as well as concerns over drought conditions
and signup delays for aid under the recent U.S. Farm Bill. Sales
were off in Latin America primarily due to the translation impact of
a weaker Brazilian currency. On a worldwide basis, operating profit
for the quarter was $6 million, compared with an operating loss of
$15 million last year. The profit increase was primarily driven by
improved price realization, cost reductions, and the impact of
higher sales and production volumes in Europe. Partially offsetting
these factors was a $49 million pretax increase in post-retirement
benefit costs. Last year's first-quarter results were negatively
affected by operating losses of $12 million in Argentina related to
the peso devaluation.
-- Commercial & Consumer Equipment. Compared with the first quarter
last year, division sales were up 35 percent while production
volumes more than doubled. Sales for the current period benefited
from the shipment of recently introduced products, while last year's
sales were negatively affected by deep production and shipment
cutbacks made to reduce company and field inventories. Operating
profit for the quarter was $23 million, versus an operating loss of
$43 million last year. The improvement was mostly due to higher
sales and production volumes and related manufacturing efficiencies.
Partially offsetting these factors was a $10 million pretax increase
in post-retirement benefit costs. The receipt of a fire-insurance
settlement benefited last year's operating results.
-- Construction & Forestry. Division sales increased 32 percent for
the quarter, while production volumes at core manufacturing
facilities were up by a similar percentage. Although retail sales
remained below normal, the division was able to better align sales
and production volumes with retail demand compared with last year,
when dealers were reducing field inventories and rental fleets. In
addition, sales for the quarter benefited from the inclusion of
sales from the Deere-Hitachi marketing relationship in the U.S. and
Canada. First-quarter operating profit rose to $16 million, versus
a $66 million operating loss last year. The profit improvement was
primarily due to the higher sales and production volumes and related
manufacturing efficiencies. Also of benefit was higher price
realization as well as cost and expense reductions. Partially
offsetting these factors was a $16 million pretax increase in post-
retirement benefit costs. Last year's results included a $16
million pretax charge related to the closing of a Tennessee factory.
-- Special Technologies. These operations had a $3 million operating
loss for the quarter, compared with an operating loss of $11 million
last year. The improvement was primarily due to lower costs and
expenses and the absence of goodwill amortization.
Trade receivables at January 31, 2003, were $2.911 billion, representing
24 percent of the previous 12-month sales, compared with $2.679 billion a year
ago, or 25 percent of previous 12-month sales. Approximately $100 million of
the increase was due to the fluctuation of exchange rates. Inventories at
January 31, 2003, were $1.929 billion versus $1.831 billion a year ago. In
both cases, inventories represented 20 percent of prior-year cost of sales.
Approximately $25 million of the inventory increase was due to exchange-rate
fluctuation.
Summary of Financial Services Net Income
-- Credit. Deere's credit operations had net income of $69.0 million
for the quarter, compared with $76.0 million last year. The
decrease was primarily due to lower gains resulting from a reduced
volume of retail-notes sold and higher administrative expenses
related to growth in the portfolio. Partially offsetting these
factors was a lower provision for credit losses. Last year's
results were negatively affected by after-tax losses of $6 million
in Argentina related to the peso devaluation.
-- Health Care. Deere's health-care operations reported net income of
$4.3 million compared with $4.6 million last year. The decrease was
primarily due to a slightly higher tax rate this year.
Market Conditions & Outlook
Based on the conditions outlined below, net equipment sales for the second
quarter of 2003 are currently forecast to be up 10 to 15 percent from the same
period last year, with company-wide net income from $200 million to
$250 million. Deere now expects equipment sales to be up by 7 to 9 percent
for the year, slightly below earlier estimates. However, full-year net income
still is projected to be in the range of $500 million to $600 million as a
result of continuing efforts to control costs and asset levels. Economic
uncertainties associated with current world events have increased the downside
risk to this forecast.
-- Agricultural Equipment. With machinery sales in the U.S. and Canada
running well below prior-year levels, industry retail sales for the
full year are now expected to be flat for 2003. Factors
contributing to the lower sales to date include economic
uncertainties, concerns over dry weather and slow signups for
assistance under the new Farm Bill. The lag in signups has delayed
substantial government payments, which together with last year's
reduced harvest, has caused near-term cash-flow pressure for many
farmers. Sales activity is expected to pick up in the spring as
farmers prepare for planting and start receiving government
payments. In other areas, Deere's retail sales in Western Europe
are expected to grow in 2003 as the company builds on last year's
strong performance and further expands its presence in this
important area. Deere sales in South America are forecast to be
about the same as last year. As a result of these factors,
worldwide sales of John Deere agricultural equipment are forecast to
be up 7 to 9 percent for the year.
-- Commercial & Consumer Equipment. Compared with last year, when
production and shipping levels were well below retail sales, John
Deere commercial and consumer equipment shipments are projected to
be up 13 to 15 percent in 2003. Sales are expected to benefit from
the success of new products such as the 100-series lawn tractors,
which will be available this spring through Deere dealers and Home
Depot stores. Production levels are expected to be particularly
high early in the year in advance of the important spring selling
season.
-- Construction & Forestry. Construction-equipment markets are
expected to remain under pressure this year due to lagging business
investment and continued weakness in the independent-rental channel.
Global forestry markets are expected to remain sluggish as well.
Nevertheless, the company has announced two modest price increases
in recent weeks, as a period of particularly aggressive discounting
for the industry seems to be easing. In this environment, sales of
Deere construction and forestry equipment are forecast to be up
slightly for 2003 with the full-year inclusion of Hitachi sales, and
down slightly without the Hitachi benefit.
-- Credit. Credit results for 2003 are expected to benefit from lower
write-offs, further growth in the loan portfolio and stable margins.
On this basis, the division continues to expect net income for the
year of about $300 million.
New Customers, Continued Discipline to Support Higher Results
Deere's efforts to expand its customer base, along with a continued focus
on asset and operating efficiency, are expected to lead to higher results for
the year, according to Lane. "Although retail sales have gotten off to a slow
start, we expect to continue benefiting from improved efficiency and advanced
new products," he said. "We remain committed to driving sustainable
improvements in our financial results and producing higher returns for
investors."
John Deere Capital Corporation
The following is disclosed on behalf of the company's credit subsidiary,
John Deere Capital Corporation (JDCC), in connection with the disclosure
requirements applicable to its periodic issuance of debt securities in the
public market.
JDCC's net income was $62.3 million for the first quarter of 2003,
compared with $71.9 million last year. The decrease was primarily due to
lower gains resulting from a reduced volume of retail-notes sold and higher
administrative expenses related to growth in the portfolio. Partially
offsetting these factors was a lower provision for credit losses. Last year's
results were negatively affected by after-tax losses of $6 million in
Argentina related to the peso devaluation.
Net receivables and leases financed by JDCC were $11.423 billion at
January, 31, 2003, compared with $9.978 billion one year ago. The increase
resulted from acquisitions exceeding collections during the last 12 months --
including new acquisitions of Deere dealer receivables in Europe -- partially
offset by sales of retail notes. Net receivables and leases administered,
which include receivables previously sold, totaled $13.732 billion at
January 31, 2003, compared with $12.730 billion a year ago.
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995:
Statements herein that relate to future operating periods are subject to
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.
Forward-looking statements involve certain factors that are subject to
change, including for the company's agricultural equipment segment the many
interrelated factors that affect farmers' confidence, including worldwide
demand for agricultural products, world grain stocks, prices realized for
commodities and livestock, weather and soil conditions, real estate values,
available acreage for farming, the level, complexity and distribution of
government farm programs, animal diseases (including further outbreaks of "mad
cow" and "foot-and-mouth" diseases), crop pests, harvest yields and the level
of farm product exports (including concerns about genetically modified
organisms).
Factors affecting the outlook for the company's commercial and consumer
equipment segment include general economic conditions in the United States,
consumer confidence, consumer borrowing patterns and weather conditions.
Another important assumption is continued consumer acceptance of the company's
new products, including the new 100-series lawn tractors that will be
available this spring. Sales of commercial and consumer equipment during the
spring are also affected by the severity and timing of weather patterns.
The number of housing starts is especially important to sales of the
company's construction equipment. The levels of public and non-residential
construction also impact the results of the company's construction and
forestry segment. Prices for pulp, lumber and structural panels are important
to sales of forestry equipment.
All of the company's businesses are affected by general economic
conditions in and the political stability of the global markets in which the
company operates (including Brazil, Argentina and other South American
countries), monetary and fiscal policies of various countries, wars and other
international conflicts and the threat thereof, actions by the United States
Federal Reserve Board and other central banks, actions by the United States
Securities and Exchange Commission and other regulatory bodies, actions by
rating agencies, capital market disruptions, investor sentiment, inflation and
deflation rates, interest rate levels and currency exchange rates; customer
borrowing and repayment practices, and the number of customer loan
delinquencies and defaults; 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;
production and technological difficulties, including capacity and supply
constraints; oil and energy prices and supplies; labor relations; changes to
accounting standards; the effects of terrorism and the response thereto; and
legislation affecting the sectors in which the company operates. Company
results are also affected by significant changes in health care costs and in
market values of investment assets, which impact pension expenses.
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,
however, 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 most recent annual report on Form 10-K and other filings with the
Securities and Exchange Commission.
First Quarter 2003 Press Release
(millions of dollars and shares except per share amounts)
Three Months Ended
January 31
%
2003 2002 Change
Net sales and revenues:
Agricultural equipment
net sales $1,271 $1,180 +8
Commercial and consumer
equipment net sales 483 358 +35
Construction and
forestry net sales 512 387 +32
Other net sales 8 13 -38
Total net sales * 2,274 1,938 +17
Credit revenues 323 375 -14
Other revenues 197 209 -6
Total net sales
and revenues * $2,794 $2,522 +11
Operating profit (loss): **
Agricultural equipment $6 $(15)
Commercial and
consumer equipment 23 (43)
Construction and forestry 16 (66)
Credit 107 118 -9
Other 4 (5)
Total operating
profit (loss) * 156 (11)
Interest, corporate expenses
and income taxes (88) (27) +226
Net income (loss) $68 $(38)
Per share:
Net income (loss) - basic $.28 $(.16)
Net income (loss) - diluted $.28 $(.16)
* Includes overseas equipment
operations
Net sales $724 $610 +19
Operating profit $47 $16 +194
** In the first quarter of 2002, the operating profit (loss) of the
agricultural equipment, commercial and consumer equipment,
construction and forestry and other segments included pretax goodwill
amortization of $3, $4, $4 and $3, respectively, for a total of $14.
In the first quarter of 2002, the operating profit (loss) of the
commercial and consumer equipment and construction and forestry
segments also included pretax costs for special items related to
restructuring of $1 and $16, respectively, for a total of $17.
January 31, October 31, January 31,
2003 2002 2002
Consolidated:
Trade accounts and notes
receivable - net $2,911 $2,734 $2,679
Inventories $1,929 $1,372 $1,831
Financial Services:
Financing receivables and
leases financed - net $10,381 $10,604 $9,398
Financing receivables and
leases administered - net $12,820 $13,225 $12,308
Average shares outstanding 239.2 238.2 237.5