Deere Delivers 27% Increase in Second-Quarter 2005 Earnings
- Quarterly net income hits record $604 million; sales and revenues up 13 percent.
- Business-improvement efforts driving healthy operating leverage.
- Company increases earnings projection for full year.
MOLINE, Ill., May 17 -- Deere & Company today announced worldwide net income of $604.0 million, or $2.43 per share, for the second quarter ended April 30, compared with $477.3 million, or $1.88 per share, for the same period last year. For the first six months, net income was a record $826.8 million, or $3.31 per share, compared with $648.1 million, or $2.56 per share, last year.
Worldwide net sales and revenues grew 13 percent to $6.621 billion for the second quarter and increased 15 percent to $10.748 billion for the first six months. Net sales of the equipment operations were $6.019 billion for the quarter and $9.546 billion for six months, compared with $5.296 billion and $8.208 billion for the corresponding periods last year.
Strong customer response to John Deere products and a continuing focus on operating efficiency are contributing to the company's performance. "We're continuing to add new customers worldwide who appreciate the quality and value of our advanced products and services," said Robert W. Lane, chairman and chief executive officer. "At the same time, our efforts to hold the line on operating costs and asset levels are helping us deliver record financial results."
Summary of Operations
Company equipment sales in the U.S. and Canada rose 13 percent for the quarter and 15 percent for the six months. Outside the U.S. and Canada, sales increased by 11 percent and 13 percent for the respective periods excluding currency translation and by 16 percent and 19 percent on a reported basis.
Deere's equipment divisions reported operating profit of $856 million for the quarter and $1.118 billion for six months, compared with $726 million and $924 million last year. The improvements were primarily due to improved price realization, increased shipments, efficiencies related to stronger production volumes and lower postretirement benefit costs. Partially offsetting these factors for both periods were higher raw material costs.
Deere's asset-management efforts are continuing to yield positive results. Trade receivables and inventories at the end of the quarter were $7.280 billion, or 38 percent of previous 12-month sales, compared with $6.113 billion, or 40 percent of sales, a year ago.
Financial services operations reported net income of $74.5 million for the quarter and $162.5 million for six months versus $62.5 million and $142.0 million last year. The increases were primarily due to growth in the credit portfolio, reflecting strong demand for John Deere products, as well as a lower provision for credit losses, partially offset by lower financing spreads. Last year, Deere's credit operations benefited from gains on retail notes sold during the quarter and first six months. Also included in financial services results were improved health-care underwriting margins for both periods.
Company Outlook
Deere's net income is now projected to be $1.55 billion to $1.6 billion for 2005 and in a range of $450 million to $475 million for the third quarter. Excluding the impact of currency translation, company equipment sales are expected to increase by 9 to 11 percent for the year and by 13 to 15 percent for the third quarter. Currency is forecast to add about two percentage points to sales for both periods. Production levels are expected to be down 7 to 9 percent in the second half of the year with most of the reduction occurring in the fourth quarter. The planned lower production rates are expected to bring down year-end trade receivable and inventory levels as company factories prepare for the introduction of new products in 2006. Production in the second half of last year was unusually high as a result of strong retail demand related in part to expiring tax incentives.
"Our efforts to build, and grow, a great business are moving ahead as planned and are driving our financial and operating performance to new levels," Lane said. "We are also providing value to investors in the form of higher dividends and stock repurchases. As a result of these steps, we're confident the company is in a good position to continue delivering exceptional financial results and solid investor returns over the long term."
Equipment Division Performance
-- Agricultural Equipment. Division sales increased 17 percent for the
quarter and 20 percent for six months. The increases were mainly due to
higher shipments, reflecting continued strong retail demand, as well as
improved price realization and the impact of currency translation.
Operating profit was $488 million for the quarter and $651 million for
six months, compared with $430 million and $516 million last year. The
operating-profit improvements were primarily driven by higher worldwide
sales, efficiencies related to stronger production volumes, and lower
postretirement benefit costs. Improved price realization offset the
increase in raw material costs for the quarter and largely offset the
increase experienced year to date.
-- Commercial & Consumer Equipment. Sales declined 6 percent for the
quarter and 7 percent for six months, reflecting the impact of
unseasonably cold, wet weather on the sale of consumer riding lawn
equipment during an important selling period. Operating profit was $135
million for the quarter and $133 million for six months, compared with
$152 million and $171 million last year. Having a positive impact for
the quarter and six months was improved price realization, which offset
an increase in raw material costs.
-- Construction & Forestry. Division sales rose 28 percent for the quarter
and 30 percent for six months reflecting strong activity at the retail
level. Operating profit improved to $233 million for the quarter and
$334 million for the year to date compared with $144 million and $237
million last year. The operating profit increases were mainly a result
of higher sales and efficiencies related to stronger production
volumes. Improved price realization offset higher raw material costs in
both periods. Six-month operating profit last year included a $30
million pretax gain for the sale of an equipment rental company.
Market Conditions & Outlook
-- Agricultural Equipment. The U.S. farm sector is expected to remain in
solid condition for the remainder of 2005 as a result of a high level
of cash receipts, including increased government payments, and strong
farmer balance sheets. Cash receipts are forecast to be near last
year's record total, while farm debt levels remain steady and land
values continue to move up. Given these conditions, Deere expects
industry retail sales in the U.S. and Canada to be up 5 to 10 percent
for fiscal 2005 in comparison with last year.
In other parts of the world, industry retail sales in Western Europe
are forecast to be down 5 percent for the year. Farmers in the region
are expected to see good levels of income this year; however equipment
sales in Spain and Portugal are being hurt by dry weather. In South
America, industry sales are now forecast to be down about 40 percent,
primarily due to conditions in Brazil, where negative factors include a
weaker U.S. dollar, lower commodity prices, and increased input costs.
In addition, drought conditions have had a negative impact on Brazilian
soybean production.
Based on these factors and market conditions, worldwide sales of John
Deere agricultural equipment are forecast to be up 9 to 11 percent for
the year excluding the impact of exchange rates. Currency is expected
to add about three percentage points to the company's farm-machinery
sales for the year.
-- Commercial & Consumer Equipment. Sales of John Deere commercial and
consumer equipment are now forecast to be flat to up 3 percent for the
year. Increased shipments of commercial products are expected to offset
weakness in consumer riding lawn equipment, where sales have gotten off
to a slow start due to cold, wet weather. Deere's commercial equipment
sales are benefiting from the extensive product introductions of recent
years.
-- Construction & Forestry. Markets for construction equipment are
experiencing further growth as a result of generally positive U.S.
economic conditions and an increased level of spending on construction
projects. These factors are expected to continue driving fleet
replenishment by contractors and rental companies. Forestry markets in
the U.S. and Canada have moderated in recent months. However, demand in
other parts of the world has continued to grow. In this environment,
Deere sales of construction and forestry equipment are forecast to rise
by 18 to 20 percent for fiscal 2005.
-- Financial Services. Full-year net income is expected to be about $315
million, reflecting strong performance in the company's credit
operations and an improvement in health-care results.
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 $61.5 million for the quarter and $129.7 million for the year to date, compared with net income of $67.4 million and $136.7 million last year. Last year's results benefited from gains on retail notes sold during the quarter and six months, while results for first-quarter and first six months of 2005 benefited from growth in the portfolio and a lower provision for credit losses, partially offset by lower financing spreads.
Net receivables and leases financed by JDCC were $15.260 billion at April 30, 2005, compared with $12.339 billion one year ago. Net receivables and leases administered, which include receivables previously sold, totaled $17.400 billion at April 30, 2005, compared with $15.448 billion one year ago.
Second Quarter 2005 Press Release
(millions of dollars and shares except per share amounts)
Three Months Ended Six Months Ended
April 30 April 30
% %
2005 2004 Change 2005 2004 Change
Net sales and revenues:
Agricultural
equipment
net sales $3,292 $2,816 +17 $5,302 $4,412 +20
Commercial and
consumer equipment
net sales 1,235 1,318 -6 1,758 1,888 -7
Construction and
forestry net
sales 1,492 1,162 +28 2,486 1,908 +30
Total net
sales* 6,019 5,296 +14 9,546 8,208 +16
Credit revenues 343 324 +6 673 639 +5
Other revenues 259 257 +1 529 514 +3
Total net sales
and revenues* $6,621 $5,877 +13 $10,748 $9,361 +15
Operating profit
(loss): **
Agricultural
equipment $488 $430 +13 $651 $516 +26
Commercial and
consumer equipment 135 152 -11 133 171 -22
Construction and
forestry 233 144 +62 334 237 +41
Credit 109 110 -1 235 227 +4
Other 6 (17) 15 (12)
Total operating
profit* 971 819 +19 1,368 1,139 +20
Interest, corporate
expenses and income
taxes (367) (342) +7 (541) (491) +10
Net income $604 $477 +27 $827 $648 +28
Per Share:
Net income - basic $2.46 $1.93 +27 $3.36 $2.63 +28
Net income - diluted $2.43 $1.88 +29 $3.31 $2.56 +29
* Includes equipment operations outside the U.S. and Canada as follows:
Net sales $1,800 $1,550 +16 $2,924 $2,465 +19
Operating profit $253 $227 +11 $364 $335 +9
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.