Deere Reports 62% Increase in Third-Quarter Earnings
-- Quarterly net income reaches $401 million -- Business-improvement initiatives continuing to make strong impact -- Equipment markets in farm, construction and forestry sectors showing continued strength
MOLINE, Ill., Aug. 17 -- Deere & Company today announced worldwide net income of $401.4 million, or $1.58 per share, for the third quarter ended July 31, compared with net income for the same period last year of $247.5 million, or $1.02 per share. For the first nine months, net income was $1.049 billion, or $4.14 per share, versus $572.4 million, or $2.37 per share, last year.
Worldwide net sales and revenues grew 23 percent to $5.418 billion for the third quarter compared with a year ago and increased 27 percent to $14.779 billion for the first nine months. Net sales of the equipment operations were $4.854 billion for the quarter and $13.061 billion for nine months, compared with $3.833 billion and $9.974 billion for the periods last year.
Though strong markets are helping drive Deere's performance, the company is seeing major benefits from its ongoing business-improvement efforts, noted Robert W. Lane, chairman and chief executive officer. "Our intense focus on asset management, cost control and responsive order fulfillment is helping Deere successfully manage the current high level of demand for our equipment. Through these efforts, we have been able to continue delivering exceptional service to customers, while securing raw materials as needed, and offsetting material-cost pressures to a large extent. As a result, the company is fully participating in the strong market upswing now taking place."
Summary of Equipment Operations
The company's equipment divisions generated higher sales for the quarter and year to date due to higher shipments, currency translation and improved price realization. Equipment sales in the U. S. and Canada rose 25 percent for the quarter and 31 percent for the first nine months. Outside the U.S. and Canada, sales increased by 30 percent for both periods (up 24 percent for the quarter and up 18 percent year to date excluding currency translation).
Deere's equipment operations reported operating profit of $532 million for the quarter and $1.456 billion for nine months, compared with $288 million and $669 million last year. For both periods, the operating-profit increase was primarily due to higher shipments and improved price realization. The increase in operating profit was partially offset by a higher provision for employee bonuses, which was driven by strong SVA (Shareholder Value Added) performance in the equipment operations. (For further information on SVA, see the supplemental schedule in Other Financial Information.)
-- Agricultural Equipment. Division sales increased 34 percent for the
quarter and 30 percent for the nine months. The sales increases were
mainly due to higher shipments, reflecting strong retail demand, the
impact of currency translation and improved price realization. Division
operating profit was $290 million for the quarter and $805 million for
nine months, compared with $125 million and $321 million last year. The
operating-profit improvements for both periods were primarily driven by
higher worldwide sales, efficiencies related to stronger production
volumes, and improved price realization, partially offset by a higher
provision for performance bonuses.
-- Commercial & Consumer Equipment. Division sales were up 3 percent for
the quarter and 17 percent for nine months. Operating profit was
$87 million for the quarter and $258 million for the year to date
versus $104 million and $237 million last year. Operating profit for
the third quarter was lower primarily because of a higher performance-
bonus provision, related to overall enterprise profitability, as well
as increased component costs. Nine-month operating profit improved
primarily due to higher sales and production volumes, partially offset
by an increase in the performance-bonus provision, higher costs for
freight, and higher expenses for component purchases related to the
impact of a weaker U.S. dollar.
-- Construction & Forestry. Division sales rose 40 percent for the
quarter and 51 percent year to date reflecting strong activity at the
retail level. Operating profit improved to $155 million for the quarter
and $393 million for nine months, compared with $59 million and
$111 million last year. The increases were mainly a result of higher
sales, efficiencies related to stronger production volumes, and
improved price realization, partially offset by a higher performance-
bonus provision. Nine-month results included a $30 million pretax gain
from the sale of an equipment-rental company.
The company's aggressive asset-management efforts continue to yield strong results. Despite the 31 percent increase in year-to-date sales, trade receivables and inventories showed an increase of only 7 percent versus last year excluding the impact of currency translation and the Nortrax consolidation, earlier in the fiscal year. Trade receivables at the end of the quarter were $3.558 billion, or 22 percent of previous 12-month sales, compared with $3.355 billion a year ago, which was equal to 26 percent of sales. Inventories were $2.218 billion, representing 17 percent of the prior 12-month cost of sales, versus $1.711 billion a year ago, or 16 percent of cost of sales.
Summary of Financial Services Operations
-- Credit. Credit operations generated net income of $73.8 million for the
quarter and $223.1 million for nine months, compared with $85.5 million
and $227.3 million, respectively, last year. The lower results for the
quarter were primarily due to lower gains on retail-note sales and an
increase in administrative costs, partly related to a higher provision
for performance bonuses in connection with overall-company
profitability. Partially offsetting these factors was a lower provision
for credit losses, reflecting solid portfolio quality. Year-to-date net
income was lower, mainly due to higher administrative costs, partially
offset by a lower provision for credit losses.
-- Health Care. Deere's health-care business reported net income of
$5.2 million for the quarter and a net loss of $2.1 million year to
date. This is in comparison with net income of $5.7 million and
$13.5 million for the same periods last year. The loss for nine months
was primarily attributable to higher medical-claims costs.
Market Conditions & Outlook
As a result of the factors and conditions outlined below, company equipment sales for 2004 are expected to increase around 32 percent with net income forecast around $1.3 billion. Fourth-quarter sales are currently forecast to be up approximately 35 percent in comparison with the same period last year. Production levels are expected to increase about 25 percent for the quarter. Although Deere continues to see higher costs for steel and other raw materials, aggressive cost management is expected to offset the biggest part of the increase for the year.
-- Agricultural Equipment. U.S. farm-cash receipts are forecast to reach a
record level for the year and to remain strong in 2005. On this basis,
Deere continues to expect industry retail sales in the U.S. and Canada
to be up 15 to 20 percent for fiscal 2004. In Western Europe, industry
retail sales are expected to be flat to down 5 percent due to weakness
in farm income. South American industry sales are forecast to be up 5
to 10 percent with benefit from higher sales in Brazil plus a strong
sales improvement in other nations of the region. On a worldwide basis,
sales of John Deere agricultural equipment are now forecast to be up
about 32 percent for the year, with an increase of roughly 27 percent
excluding the effect of changes in currency.
-- Commercial & Consumer Equipment. Although sales to date have lagged in
the important riding lawn-equipment segment, division sales are
expected to continue benefiting from the success of new commercial
products. C&CE sales are now forecast to be up around 15 percent for
the year. In line with the reduced outlook, fourth-quarter production
schedules for riding lawn equipment have been reduced.
-- Construction & Forestry. Retail activity continues to be robust as a
result of fleet replenishment by construction and forestry contractors
and rental operations. As a result, Deere's overall construction and
forestry sales are expected to increase about 50 percent for the year,
and to be up approximately 42 percent excluding the impact of
consolidating Nortrax.
-- Financial Services. Although Deere's credit operations are expected to
benefit from further growth in the loan portfolio, net income for 2004
is forecast to be down slightly as a result of lower gains on
receivable sales. The credit division is expected to report net income
of about $300 million for the year. In health-care operations, Deere
expects net income of about breakeven for the full-year period.
Beyond the beneficial impact of stronger markets and internal initiatives, a positive response to John Deere's innovative product lineup is also contributing to company performance. "We're continuing to have great success earning our customers' business and expanding our presence in geographic regions across the globe," said Deere CEO Lane. "We're confident our efforts to build a better business - while keeping an unequaled focus on product development and customer service -- will produce strong results for customers and investors alike well into the future."
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 $64.7 million for the quarter and $201.4 million for the year to date, compared with net income of $79.8 million and $209.6 million last year. The lower results for the quarter were primarily due to lower gains on retail-note sales and an increase in administrative costs, partly related to a higher provision for performance bonuses in connection with overall-company profitability. Partially offsetting these factors was a lower provision for credit losses, reflecting solid portfolio quality. Year-to-date net income was lower, mainly due to higher administrative costs, partially offset by a lower provision for credit losses.
Net receivables and leases financed by JDCC were $12.734 billion at July 31, 2004, compared with $11.971 billion one year ago. Net receivables and leases administered, which include receivables previously sold, totaled $15.843 billion at July 31, 2004, compared with $14.750 billion one year ago.
Third Quarter 2004 Press Release
(millions of dollars and shares except per share amounts)
Three Months Nine Months
Ended July 31 Ended July 31
% %
2004 2003 Change 2004 2003 Change
Net sales and revenues:
Agricultural equipment
net sales $2,641 $1,964*** +34 $7,053 $5,422*** +30
Commercial and
consumer equipment
net sales 1,109 1,081 +3 2,997 2,555 +17
Construction and
forestry net sales 1,104 788 +40 3,011 1,997 +51
Total net sales * 4,854 3,833 +27 13,061 9,974 +31
Credit revenues 306 355 -14 946 1,007 -6
Other revenues 258 214 +21 772 614 +26
Total net sales
and revenues * $5,418 $4,402 +23 $14,779 $11,595 +27
Operating profit (loss): **
Agricultural equipment $290 $125*** +132 $805 $321*** +151
Commercial and
consumer equipment 87 104 -16 258 237 +9
Construction and
forestry 155 59 +163 393 111 +254
Credit 112 132 -15 340 350 -3
Other 9 9*** (4) 22***
Total operating profit * 653 429 +52 1,792 1,041 +72
Interest, corporate
expenses and income
taxes (252) (181) +39 (743) (469) +58
Net income $401 $248 +62 $1,049 $572 +83
Per Share:
Net income - basic $1.61 $1.03 +56 $4.25 $2.39 +78
Net income - diluted $1.58 $1.02 +55 $4.14 $2.37 +75
* Includes equipment operations outside the U.S. and Canada as follows:
Net sales $1,466 $1,132 +30 $3,931 $3,029 +30
Operating profit $158 $93 +70 $493 $289 +71
The company views its operations as consisting of two geographic areas,
the "U.S. and Canada", and "outside the U.S. and Canada".
** Operating profit is income before external interest expense, certain
foreign exchange gains or losses, income taxes and corporate expenses.
However, operating profit of the credit segment includes the effect of
interest expense and foreign exchange gains or losses.
*** Beginning in fiscal 2004, the special technologies group's segment
results were transferred from the other operations to the agricultural
equipment operations due to changes in internal reporting. The
other operations now represent the health care operations only. The
2003 third-quarter and first nine-months results of these operations
were restated for net sales of $9 million and $30 million and
operating losses of $2 million and $8 million, respectively, related to
the special technologies group. This had no effect on the total net
sales and operating profit.
July 31, 2004 October 31, 2003 July 31, 2003
Consolidated:
Trade accounts and
notes receivable - net $3,558 $2,619 $3,355
Inventories $2,218 $1,366 $1,711
Average shares outstanding
- basic 247.2 240.2 239.4
Average shares outstanding
- diluted 253.5 243.3 241.8