Deere Posts Record Results for Quarter and Year
- Full-year earnings of $1.406 billion are more than twice level of 2003
- Strong incremental margins in equipment operations
- Further increase in sales and profit forecast for 2005
MOLINE, Ill., Nov. 23 -- Deere & Company today announced worldwide net income of $356.7 million, or $1.41 per share, for the fourth quarter ended October 31, compared with net income for the same period last year of $70.6 million, or $.27 per share. For the full year, net income was $1.406 billion, or $5.56 per share, versus $643.1 million, or $2.64 per share, last year.
Worldwide net sales and revenues grew 32 percent to $5.207 billion for the fourth quarter, and increased 29 percent to $19.986 billion for the year. Net sales of the equipment operations were $4.612 billion for the quarter and $17.673 billion for the year, compared with $3.375 billion and $13.349 billion for the periods last year.
Stronger market conditions, combined with a focus on building a better business, have been responsible for much of the company's success this year, said Robert W. Lane, chairman and chief executive officer. "We are winning new customers with exceptional products and services, while producing the kind of financial results that will reward investors over the long run."
Summary of Operations
The company's equipment divisions generated higher sales for both the quarter and full year primarily due to increased shipments. Equipment sales in the U. S. and Canada rose 39 percent for the quarter and 33 percent for the year. Outside the U.S. and Canada, sales increased by 25 percent for the quarter and 20 percent for the year, excluding currency translation, and by 32 percent and 30 percent, respectively, on a reported basis.
Company equipment operations reported operating profit of $449 million for the quarter and $1.905 billion for the year, compared with $39 million and $708 million last year. For both periods, the operating-profit improvement was primarily due to increased shipments and price realization. The improvement in operating profit was partially offset by a larger provision for employee bonuses and higher raw-material costs. The larger bonus provision was driven by strong SVA, or Shareholder Value Added, performance in the equipment operations. (For more on SVA, see the supplemental schedule in Other Financial Information.)
Deere's asset-management efforts are continuing to yield positive results, especially in light of the strong increase in sales. Trade receivables and inventories at the end of the year were $5.206 billion, or 29 percent of fiscal-year sales, compared with $3.985 billion a year ago, which was equal to 30 percent of sales.
Financial services operations reported net income of $88.2 million for the quarter and $309.2 million for the year, versus $89.0 million and $329.7 million for the respective periods last year. The decline in net income for the year was primarily due to higher administrative costs, lower credit margins and increased medical-claims costs.
During the year, the company contributed approximately $1.5 billion to its core U.S. pension plans. Net of the after-tax impact of these contributions, cash flow from operations for 2004 totaled about $1.2 billion.
Company Outlook
As a result of the factors and conditions outlined below, company equipment sales for 2005 are expected to increase by 2 to 7 percent with net income forecast to be around $1.5 billion. First-quarter equipment sales are currently forecast to be up 20 to 25 percent in comparison with the same period last year. Production levels are expected to increase by 11 to 13 percent for the quarter. Consolidated net income for first-quarter 2005 is forecast to be in a range of $200 million to $225 million.
Beyond the ongoing impact of the company's business-improvement efforts, a positive customer response to John Deere products is expected to continue driving performance in 2005. "We remain focused on offering innovative products and services, while introducing our brand to a wider global audience," said CEO Lane. "We're confident our efforts to build -- and grow -- a great business are well on track and will produce strong results in 2005 and the years beyond."
Divisional Performance
-- Agricultural Equipment. Division sales increased 35 percent for the
quarter and 31 percent for the full year. The sales increase for the
quarter and the year was mainly due to higher shipments, reflecting
strong retail demand, improved price realization and the impact of
currency translation. Operating profit was $267 million for the quarter
and $1.072 billion for the year, compared with $8 million and $329
million last year. The operating-profit improvements were primarily
driven by higher worldwide sales, efficiencies related to stronger
production volumes, and improved price realization, partially offset by
a larger provision for performance bonuses and increased raw-material
costs.
-- Commercial & Consumer Equipment. Sales were up 10 percent for the
quarter and 16 percent for the year. The division had an operating loss
of $12 million for the quarter and operating profit of $246 million for
the year versus an operating loss of $10 million and operating profit
of $227 million for the respective periods last year. The fourth-
quarter operating loss increased primarily due to higher raw-material
costs as well as a larger performance-bonus provision related to
overall enterprise profitability. Partially offsetting these factors
was the impact of higher sales volume. Full-year operating profit
improved primarily due to higher sales and production volumes,
partially offset by an increase in the performance-bonus provision in
addition to higher costs for freight and raw materials.
-- Construction & Forestry. Division sales rose 65 percent for the
quarter and 54 percent for the year reflecting strong activity at the
retail level. Operating profit improved to $194 million for the quarter
and $587 million for the year, compared with $41 million and $152
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 larger performance-bonus provision
and higher raw-material costs. Full-year results included a $30 million
pretax gain from the sale of an equipment-rental company.
-- Credit. Deere's credit operations generated net income of
$83.1 million for the quarter and $306.2 million for the year, compared
with $83.1 million and $310.5 million, respectively, last year. Having
a favorable impact on results for the quarter was a lower provision for
credit losses, reflecting solid portfolio quality. Offsetting the lower
provision were lower margins, 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 enterprise
profitability. Net income for the year was lower mainly due to higher
administrative costs and lower margins, 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 $3.1 million for the year. This was in
comparison with net income of $5.9 million and $19.3 million for the
same periods last year. Lower net income for the year was primarily
attributable to increased medical-claims costs and a higher
performance-bonus provision related to overall enterprise
profitability.
Divisional Market Conditions & Outlook
-- Agricultural Equipment. On a worldwide basis, sales of John Deere
agricultural equipment are forecast to be up 2 to 5 percent for the
year. Despite a downturn in commodity prices, U.S. farmers are
benefiting from record production of corn and soybeans. In addition,
the livestock and dairy sectors are strong and government payments are
expected to increase substantially in 2005. As a result, U.S. farm cash
receipts are forecast to be about the same as 2004's record level.
Given these conditions, Deere expects industry retail sales in the U.S.
and Canada to be up about 5 percent for fiscal 2005 in comparison with
the very strong levels of the prior year.
In other parts of the world, industry retail sales in Western Europe
are forecast to be flat to down 5 percent for the year. Farmers in the
region have benefited from a good harvest this fall; however, they are
expected to see little change in income as a result of lower grain
prices, higher input costs and flat government support payments. In
South America, industry sales are forecast to be down 10 to 20 percent
on the basis of lower commodity prices, increased input costs and a
weaker U.S. dollar.
-- Commercial & Consumer Equipment. Sales of John Deere commercial and
consumer equipment are expected to increase 2 to 5 percent for the year
with help from new models of compact tractors, an updated utility-
vehicle line, and higher sales of commercial mowing equipment.
-- Construction & Forestry. Markets are expected to be supported in the
coming year by moderate economic growth, relatively low interest rates
and a favorable level of housing starts. In this environment, sales of
construction and forestry equipment are expected to see further growth
as contractors and rental operations continue to replenish their
fleets. As a result, division sales are forecast to be up 6 to 9
percent for the year.
-- Financial Services. Although Deere's credit operations are expected to
benefit from further growth in the loan portfolio, net income for 2005
is forecast to be down primarily due to increased leverage in the
portfolio. The credit division is expected to report net income of
around $280 million for the year. In its health-care operations, Deere
expects net income of about $15 million for 2005 as a result of an
improved underwriting margin.
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 $69.2 million for the quarter and $270.6 million for the year, compared with net income of $70.9 million and $280.5 million last year. The lower results for the quarter and year were primarily due to lower margins and an increase in administrative costs, partly related to a higher provision for performance bonuses in connection with overall enterprise profitability. Partially offsetting these factors was a lower provision for credit losses, reflecting solid portfolio quality.
Net receivables and leases financed by JDCC were $13.230 billion at October 31, 2004, compared with $11.856 billion one year ago. Net receivables and leases administered, which include receivables previously sold, totaled $16.282 billion at October 31, 2004, compared with $14.451 billion one year ago.
Safe Harbor Statement
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.
Fourth Quarter and 2004 Press Release
(millions of dollars and shares except per share amounts)
Three Months Ended Twelve Months Ended
October 31 October 31
2004 2003 % 2004 2003 %
Change Change
Net sales and revenues:
Agricultural
equipment net
sales $2,664 $1,968*** +35 $9,717 $7,390*** +31
Commercial and
consumer equipment
net sales 745 676 +10 3,742 3,231 +16
Construction and
forestry net
sales 1,203 731 +65 4,214 2,728 +54
Total net sales* 4,612 3,375 +37 17,673 13,349 +32
Credit revenues 330 339 -3 1,276 1,347 -5
Other revenues 265 225 +18 1,037 839 +24
Total net sales
and revenues* $5,207 $3,939 +32 $19,986 $15,535 +29
Operating profit
(loss):**
Agricultural
equipment $267 $8*** $1,072 $329*** +226
Commercial and
consumer
equipment (12) (10) +20 246 227 +8
Construction and
forestry 194 41 +373 587 152 +286
Credit 127 124 +2 466 474 -2
Other 8 8*** 5 30*** -83
Total operating
profit* 584 171 +242 2,376 1,212 +96
Interest, corporate
expenses and
income taxes (227) (100) +127 (970) (569) +70
Net income $357 $71 +403 $1,406 $643 +119
Per Share:
Net income - basic $1.44 $.29 +397 $5.69 $2.68 +112
Net income
- diluted $1.41 $.27 +422 $5.56 $2.64 +111
* Includes equipment operations outside the U.S. and Canada as follows:
Net sales $1,410 $1,072 +32 $5,340 $4,100 +30
Operating profit $128 $33 +288 $621 $322 +93
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 primarily the health care operations along
with certain miscellaneous service operations added in 2004. The 2003
fourth-quarter and fiscal year results of these operations were
restated for net sales of $11 million and $41 million and operating
losses of $.5 million and $8 million, respectively, related to the
special technologies group. This had no effect on the total net sales
and operating profit.
October 31, October 31,
2004 2003
Consolidated:
Trade accounts and notes receivable - net $3,207 $2,619
Inventories $1,999 $1,366
Average shares outstanding - basic 247.2 240.2
Average shares outstanding - diluted 253.1 243.3