Deere Reports Earnings Of $345 Million For Quarter And Record $2.05 Billion For Full Year
* Fifth consecutive year of record net income
* Disciplined asset management and conservative capital structure
* Non-agricultural businesses also profitable for year
* Results include pretax charge of approximately $50 million for previously disclosed factory shutdown.
MOLINE, Illinois . — Deere & Company today announced worldwide net income of $345.0 million, or $0.81 per share, for the fourth quarter ended October 31, compared with $422.1 million, or $0.94 per share, for the same period last year. For the full year, net income was a record $2.053 billion, or $4.70 per share, compared with $1.822 billion, or $4.00 per share, last year.
Worldwide net sales and revenues increased 21 percent, to $7.401 billion, for the fourth quarter and were up 18 percent, to $28.438 billion, for the full year. Net sales of the equipment operations were $6.734 billion for the quarter and $25.803 billion for the full year, compared with $5.423 billion and $21.489 billion for the respective periods last year.
“In the face of highly uncertain global economic conditions, John Deere has completed a fifth consecutive year of record earnings, reflecting our efforts to build and grow a great business,” said Robert W. Lane, chairman and chief executive officer. Agricultural equipment operations had their best year ever in 2008, he pointed out, and the company’s other equipment businesses remained solidly profitable on a full-year basis. “Demand for productive agricultural machinery has continued to be strong due in large part to the financial health of the farm sector, which has remained positive to date,” Lane said. “Deere’s performance has received further support from our successful credit operation, which is benefiting from strong asset quality and continued low losses.”
Summary of Operations
Net sales of the worldwide equipment operations increased 24 percent for the quarter and 20 percent for the year. Included were positive effects for currency translation and price changes of 3 percent for the quarter and 6 percent for the full year. Equipment net sales in the United States and Canada were up 16 percent for the quarter and 9 percent for the full year. Net sales outside the United States and Canada increased by 39 percent for the quarter and 40 percent for the year, including a positive currency-translation effect of 10 percent for the year.
Deere’s equipment operations reported operating profit of $549 million for the quarter and $2.927 billion for the year, compared with $511 million and $2.318 billion for the periods last year. The improvement for both periods was largely due to the favorable impact of higher shipment volumes and improved price realization, partially offset by increased raw material costs and higher research and development expenses. The quarter’s results included pretax expenses of approximately $50 million to close a facility in Canada, while higher selling, administrative and general expenses had an impact on the full year.
Equipment operations reported net income of $268 million for the quarter and $1.676 billion for the year, compared with $319 million and $1.429 billion last year. The same operating factors mentioned above, along with a higher effective tax rate, affected both the quarterly and full-year results. In addition, unfavorable currency translation had a negative effect on the quarter’s performance.
Trade receivables and inventories at the end of the quarter were $6.276 billion, or 24 percent of previous 12-month sales, compared with $5.392 billion, or 25 percent of sales, a year ago.
Financial services reported net income of $69.9 million for the quarter and $337.4 million for the full year versus $96.9 million and $363.7 million for the comparable periods last year. Results were lower for both periods primarily due to higher selling, administrative and general expenses, an increase in average leverage, unfavorable currency translation and a higher provision for credit losses. In addition, quarterly results were lower as a result of narrower financing spreads. Both periods benefited from growth in the average credit portfolio and increased commissions from crop insurance.
Company Outlook & Summary
“Given the sudden, sharp downturn in global economic activity, and the ongoing turmoil in world financial markets, the outlook for the year ahead is highly uncertain and its impact on John Deere’s operations is difficult to assess,” Lane said. “We have no doubt, however, that our ongoing focus on cost control and disciplined asset management, supported by a conservative capital structure and a lineup of advanced products and services, will allow the company to move ahead and compete successfully in today’s volatile markets.”
Subject to the economic uncertainties noted, company equipment sales are projected to be about flat for the full year of 2009 and up about 7 percent for the first quarter. Included in the forecast is a negative currency-translation impact of about 6 percent for both the full year and first quarter. Deere’s net income is forecast to be about $1.9 billion for 2009 and about $275 million for the first quarter.
In spite of the present economic situation, Deere remains encouraged by its growth prospects and believes that trends favorable to its businesses remain intact. These trends include increasing global demand for farm commodities and renewable fuels, as well as a growing need over time for shelter and infrastructure. “We’re proceeding with investments to capitalize on these positive developments,” Lane said. “They continue to hold considerable promise, in our view, and should bring benefit to the company and its investors for years to come.”
Equipment Division Performance
* Agricultural. Sales increased 43 percent for the quarter and 37 percent for the full year, with improvement in both periods due to higher shipment volumes and improved price realization. The favorable effects of currency translation also contributed to the full-year sales increase. Operating profit was $476 million for the quarter and $2.224 billion for the full year, compared with $388 million and $1.443 billion for the respective periods last year. Operating profit for both periods was higher primarily due to the favorable impact of higher shipment volumes and improved price realization, partially offset by higher raw material costs, and increases in selling, administrative and general expenses and research and development costs. Also affecting the quarter were expenses to close a facility in Canada.
* Commercial & Consumer. Division sales declined 11 percent for the quarter and increased 2 percent for the full year. Sales for both periods were affected by lower shipment volumes, partially offset by improved price realization. A landscapes operation, acquired in the third quarter of 2007, accounted for a 6 percent sales increase for full-year 2008. The division had an operating loss of $16 million for the quarter and an operating profit of $237 million for the full year, compared with last year’s operating loss of $11 million for the quarter and operating profit of $304 million for the year. The quarter’s operating loss was higher primarily due to expenses to close the Canadian factory noted above as well as higher raw material costs and lower shipment volumes. These factors were partially offset by improved price realization and lower selling, administrative and general expenses. The full-year decline in operating profit was primarily due to higher selling, administrative and general expenses in the landscapes operation and increased raw material costs. Partially offsetting these items for the year were improved price realization and a more favorable product mix.
* Construction & Forestry. Sales were up 3 percent for the quarter and down 4 percent for the full year. Operating profit was $89 million for the quarter and $466 million for the year, versus $134 million and $571 million a year ago. Operating profit was lower for the quarter primarily due to higher raw material costs. The decline in operating profit for the year largely resulted from lower shipment volumes and higher raw material costs, partially offset by improved price realization.
Market Conditions & Outlook
As cited in statements above, the outlook for the coming year is highly uncertain and its impact on John Deere’s various businesses is unusually difficult to assess at this time.
* Agricultural. Worldwide sales of the company’s agricultural equipment are forecast to increase by about 5 percent for full-year 2009. This includes a negative currency-translation impact of about 8 percent.
Farm-machinery industry sales in the United States and Canada are forecast to be up about 5 percent for the year, led by an increase in large tractors and combines. The company expects agricultural commodity prices to remain at healthy levels in 2009, though below the previous year, while costs moderate for key inputs such as fuel and fertilizer. Sales of cotton equipment, small tractors, and equipment commonly used by livestock producers are expected to be lower.
Industry sales in Western Europe are forecast to be down 5 to 10 percent for the year. Sales are expected to be down moderately in Central Europe and the CIS (Commonwealth of Independent States) countries, including Russia. While demand in these areas for highly productive farm equipment remains good, sales will depend on the availability and cost of credit. Sales in South American markets are expected to be down 10 to 20 percent in 2009, with the decline related to credit access in Brazil and drought conditions in Argentina.
* Commercial & Consumer. Reflecting the U.S. housing slump and recessionary economic conditions, John Deere commercial and consumer equipment sales are projected to be down about 6 percent for the year. The division expects sales gains from new products to partly offset the impact of the slumping economy.
* Construction & Forestry. U.S. markets for construction and forestry equipment are forecast to remain under pressure due to further deterioration in the already-weakened housing sector, a steep decline in nonresidential construction, and negative economic growth. The global economic slowdown is expected to lead to a lower level of forestry equipment sales in both the United States and Europe. Subject to the economic uncertainties discussed earlier, Deere’s worldwide sales of construction and forestry equipment are forecast to decline by approximately 12 percent for the year. Despite the poor economic climate, company sales are expected to benefit from innovative new products.
* Credit. Subject to the uncertainty associated with present economic conditions, full-year 2009 net income for Deere’s credit operations is forecast to be approximately $300 million. The forecast decrease from 2008 is primarily due to narrower financing spreads related to the current funding environment.
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 $57.7 million for the fourth quarter and $282.4 million for the full year, compared with net income of $82.8 million and $311.2 million for the respective periods last year. Results for both periods were lower primarily due to an increase in average leverage, higher selling, administrative and general expenses, unfavorable currency translation and an increase in the provision for credit losses. In addition, the quarterly results were lower due to narrower financing spreads. Both periods benefited from growth in the average credit portfolio and increased commissions from crop insurance.
Net receivables and leases financed by JDCC were $18.849 billion at October 31, 2008, compared with $18.648 billion last year. Net receivables and leases administered, which include receivables administered but not owned, totaled $19.012 billion at October 31, 2008, compared with $18.871 billion one year ago.
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