MOLINE, Illinois (February 14, 2006) – Deere & Company today announced worldwide net income of $235.9 million, or $0.99 per share, for the first quarter ended January 31, compared with $222.8 million, or $0.89 per share, for the same period last year.
Worldwide net sales and revenues increased 7 percent to $4.202 billion for the first quarter compared with $3.935 billion a year ago. Net sales of the equipment operations were $3.691 billion for the quarter, compared with $3.526 billion last year.
Positive customer response to Deere’s advanced product lineup and a continuing focus on operating efficiency are helping drive the company’s results, noted Robert W. Lane, chairman and chief executive officer. “We’re continuing to attract new customers worldwide, who value the productivity and precision that our offerings deliver,” he said. “At the same time, our rigorous management of operating costs and asset levels is helping sustain strong financial performance.”
Summary of Operations
Excluding the effect of currency translation and price changes, worldwide equipment sales were up 4 percent for the quarter. On a reported basis, equipment sales in the U.S. and Canada increased 9 percent for the quarter. Outside the U.S. and Canada, sales increased by 1 percent excluding currency translation but were down 5 percent as reported.
Deere’s equipment divisions had operating profit of $261 million for the quarter, compared with $262 million last year. Operating profit was negatively affected by lower manufacturing volumes and the expensing of stock options. These items were mostly offset by higher shipments, improved price realization and lower retirement benefit costs.
Trade receivables and inventories at the end of the quarter were $5.911 billion, or 30 percent of previous 12-month sales, compared with $5.934 billion, or 32 percent of sales, a year ago.
Financial services reported net income of $96.6 million for the quarter versus $88.1 million last year. This included $12.0 million for the company’s discontinued health-care operations, versus $7.8 million last year. Financial services had higher income from continuing operations primarily due to growth in the credit portfolio, partially offset by lower financing spreads and a higher provision for credit losses.
Company Earnings Outlook
Company equipment sales are projected to increase by 3 to 5 percent for full-year 2006 and to be flat to up 2 percent for the second quarter. Consistent with ongoing asset-management initiatives, production levels are expected to be down about 4 percent for the year and down about 9 percent in the second quarter. Based on the above, net income is forecast to be around $1.7 billion for the year and in a range of $725 million to $750 million for the second quarter.
Deere’s net income projection includes the impact of two previously announced items. These are the sale of the company’s health-care business, which is expected to add approximately $225 million after-tax to second-quarter and full-year earnings, and the closure of a forestry-equipment plant in Canada, expected to result in an after-tax charge of about $40 million over the course of the year.
Company Summary
“Deere’s recent performance shows we are continuing our progress toward building and growing a more resilient company,” Lane said. “We are providing further value to shareholders in the form of higher dividends and stock repurchases. As a result of these steps, we believe the company is positioned to continue delivering strong financial results and solid investor value for the long term.”
Equipment Division Performance
Agricultural. Division sales in the first quarter declined 6 percent as a result of lower shipments and currency translation, partially offset by improved price realization. Operating profit was $106 million for the quarter, compared with $163 million last year. Quarterly profit was down primarily due to lower shipments and inefficiencies related to lower worldwide production volumes, partially offset by improved price realization and lower retirement benefit costs.
Commercial & Consumer. Sales rose 20 percent for the quarter primarily due to higher sales in the landscapes business. Shipments excluding landscapes were up 9 percent. The division had operating profit of $19 million for the quarter versus an operating loss of $2 million for the quarter last year. The improvement was primarily due to an increase in the profitability of the landscapes business.
Construction & Forestry. Division sales rose 18 percent for the quarter reflecting strong activity at the retail level. Operating profit was $136 million, compared with $101 million last year. Higher operating profit was primarily due to increased shipments and efficiencies related to stronger production volumes, partially offset by expenses to close a facility in Canada. Improved price realization offset the impact of higher raw material costs for the quarter.
Market Conditions & Outlook
Agricultural. Global farm fundamentals remain generally positive due in large part to favorable levels of carryover stocks of wheat and corn. Although worldwide farm-commodity production has been strong in recent years, demand has been increasing at a rapid rate as a result of dietary upgrading and the growing popularity of renewable fuels, such as ethanol in the U.S.
In the U.S. and Canada, the farm sector remains in sound overall condition. However, industry sales of agricultural equipment are now expected to be down about 5 percent for 2006 due to concerns over farm input costs, especially for fuel and fertilizer, and a slight decrease in cash receipts. The outlook for cash receipts, while lower than last year, has improved modestly from the previous forecast. At the same time, farmers are expected to benefit from debt levels that remain well under control and from rising land values.
In other parts of the world, industry retail sales in Western Europe are forecast to be down about 5 percent for the year. Concerns over farm income and government policies as well as drought conditions are expected to put pressure on sales in the region. In South America, industry sales are now forecast to be down about 20 percent. Factors having a negative impact on the market include a further strengthening in the Brazilian currency and drought concerns in Argentina.
Based on these factors and market conditions, worldwide sales of John Deere agricultural equipment are forecast to be flat to down 2 percent for the year. Although company sales are expected to benefit from newly introduced products, results will be affected by ongoing efforts to reduce company-owned and field inventories.
Commercial & Consumer. Sales of John Deere commercial and consumer equipment are forecast to be up 10 to 12 percent for the year with support from newly introduced products, an assumed return to more normal weather patterns and higher sales from the company’s landscapes business. Division sales are also expected to benefit from an expanded presence of John Deere products in the mass channel.
Construction & Forestry. Markets for construction equipment are forecast to experience further growth in 2006 as a result of a positive level of construction spending, especially in the nonresidential sector. Sales are expected to benefit particularly from contractors updating and expanding their fleets. Worldwide forestry-equipment markets are projected to remain near last year’s level in the U.S. and Canada and be lower in Europe. In this environment, Deere’s worldwide sales of construction and forestry equipment are forecast to rise by 8 to 10 percent for fiscal 2006.
Credit. Full-year net income for Deere’s credit operations is forecast to be about $330 million. The improvement is expected to be driven by growth in the credit portfolio.
