John Deere’s 410L backhoeDeere earning highlights
- Equipment net sales for second quarter climb 34 percent on strength in key markets.
- Conditions for agricultural and construction equipment show broad-based improvement.
- Company benefiting from positive customer response to innovative product lines.
Stoked by a favorable market and its Wirtgen acquisition, Deere & Company is reporting net income of $1.21 billion for the second quarter ending April 29, or $3.67 per share.
That’s compared with net income of $808.5 million, or $2.50 per share, for the second quarter of 2017.
And for the first six months of 2018, net income was $673.2 million, or $2.05 per share, compared with $1 billion, or $3.14 per share, for the same six-month period a year ago, the company says.
Deere points to benefits of tax reform in its positive earnings report.
Second-quarter results included a favorable net adjustment to provisional income taxes of $174 million, while the first six months reflected an unfavorable net provisional income tax expense of $803 million, Deere says.
Without these adjustments, net income attributable to Deere for the second quarter and first six months of the year would have been $1.034 billion, or $3.14 per share, and $1.476 billion, or $4.49 per share, respectively, the company says in a press release.
Worldwide, net sales and revenues jumped 29 percent, to $10.720 billion, for the second quarter and rose 27 percent, to $17.633 billion, for six months.
Net sales of the equipment operations were $9.747 billion for the second quarter and $15.721 billion for the first six months, compared with $7.260 billion and $11.958 billion for the periods last year, Deere says.
“John Deere reported another quarter of strong performance helped by a broad-based improvement in market conditions throughout the world and a favorable customer response to our lineup of innovative products,” says Samuel R. Allen, chairman and CEO.
“Farm machinery sales in both North and South America are making solid gains and construction equipment sales are continuing to move sharply higher. During the quarter, Deere made significant progress working with its suppliers to ramp up production and ensure that products reach customers in a timely manner.
“At the same time, we are experiencing higher raw-material and freight costs, which are being addressed through a continued focus on structural cost reduction and future pricing actions.”
Net sales of global equipment operations soar
Net sales of the worldwide equipment operations increased 34 percent for the quarter and 31 percent for the first six months compared with the same periods a year ago.
Deere’s acquisition of the Wirtgen Group in December 2017 added 12 percent to net sales for the quarter and 9 percent year to date.
Sales included a favorable currency-translation effect of 3 percent for both periods, the company says.
Equipment net sales in the United States and Canada increased 27 percent for the quarter and 26 percent year to date, with Wirtgen adding 5 percent and 3 percent for the respective periods.
Outside the U.S. and Canada, net sales rose 45 percent for the quarter and 40 percent for the first six months, with Wirtgen adding 23 percent and 19 percent for the periods. Net sales included a favorable currency-translation effect of 7 percent for the quarter and 6 percent for six months.
Deere’s equipment operations reported operating profit of $1.315 billion for the quarter and $1.734 billion for the first six months, compared with $1.120 billion and $1.375 billion, respectively, last year.
Wirtgen, whose results are included in these amounts, had operating profit of $41 million for the quarter and an operating loss of $51 million year to date. The Wirtgen year-to-date operating loss was attributable to the unfavorable effects of purchase accounting and acquisition costs, the press release says.
“Excluding Wirtgen results, the improvement for both periods was primarily driven by higher shipment volumes and lower warranty costs, partially offset by higher research and development expenses and higher production costs,” it continues.
“The corresponding periods of 2017 included a gain on the sale of SiteOne Landscapes Supply. Additionally, in the first six months of last year Deere incurred expenses associated with a voluntary employee-separation program.”
Net income of the company’s equipment operations was $1.103 billion for the second quarter and $139 million for the first six months, compared with net income of $700 million and $785 million for the same periods of 2017.
In addition, the quarter was favorably affected by $207 million and the six-month period unfavorably affected by $1.032 billion due to provisional income tax adjustments related to tax reform.
Financial services reported net income attributable to Deere & Company of $104.1 million for the quarter and $529.4 million for the first six months compared with $103.5 million and $217.9 million last year. Results for both periods benefited from a higher average portfolio, lower losses on lease residual values, and a lower provision for credit losses, partially offset by a less-favorable financing spread. Additionally, provisional income tax adjustments related to tax reform had an unfavorable effect of $33.2 million for the quarter and a favorable effect of $228.8 million for six months.
For full-year, Wirtgen expected to add about 12 percent
Company equipment sales are projected to increase by about 30 percent for fiscal 2018 and by about 35 percent for the third quarter compared with the same periods of 2017.
Of these amounts, Wirtgen is expected to add about 12 percent to Deere sales for the full year and about 18 percent for the third quarter. Also included in the forecast is a positive foreign-currency translation effect of about 1 percent for the year and third quarter.
Net sales and revenues are expected to increase by about 26 percent for fiscal 2018 with net income attributable to Deere forecast to be about $2.3 billion.
Summing up equipment division performance
- Agriculture & Turf. Sales rose 22 percent for the quarter and 20 percent for the first six months due to higher shipment volumes and the favorable effects of currency translation. Operating profit was $1.056 billion for the quarter and $1.443 billion year to date, compared with respective totals of $1.009 billion and $1.227 billion for the same periods last year. Results for the quarter were helped by higher shipment volumes, partially offset by higher research and development expenses and production costs. For the first six months, results benefited from higher shipment volumes and lower warranty-related expenses, partially offset by higher research and development expenses and production costs. Prior-year periods benefited from gains on the SiteOne sale, while the first six months of last year were affected by voluntary employee-separation expenses.
- Construction and Forestry. Construction and forestry sales increased 84 percent for the quarter and 73 percent for six months, with Wirtgen adding 60 percent and 44 percent for the respective periods. Also helping sales for both periods were higher shipment volumes and the favorable effects of currency translation. Operating profit was $259 million for the quarter and $291 million for six months, compared with $111 million and $148 million last year.
- Wirtgen contributed operating profit of $41 million for the quarter and a six-month operating loss of $51 million related to the effects of purchase accounting and acquisition costs. Excluding Wirtgen, the improvements were primarily driven by higher shipment volumes and lower warranty expenses, partially offset by higher production costs. Results for the first six months of last year also included voluntary employee-separation costs.
Market conditions and outlook strong
- Agriculture and turf. Deere’s worldwide sales of agriculture and turf equipment are forecast to increase by about 14 percent for fiscal-year 2018, including a positive currency-translation effect of about 1 percent. Industry sales for agricultural equipment in the U.S. and Canada are forecast to be up about 10 percent for 2018, led by higher demand for large equipment. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5 percent for 2018.
- Construction and forestry. Deere’s worldwide sales of construction and forestry equipment are anticipated to be up about 83 percent for 2018, including a positive currency-translation effect of about 1 percent. Wirtgen is expected to add about 56 percent to the division’s sales for the year. The outlook reflects continued improvement in demand driven by higher housing starts in the U.S., increased activity in the oil and gas sector, and economic growth worldwide. In forestry, global industry sales are expected to be up about 10 percent mainly as a result of improved demand throughout the world, led by North America.
- Financial services. Fiscal-year 2018 net income attributable to Deere for the financial services operations is projected to be approximately $800 million, including a provisional income tax benefit of $229 million associated with tax reform.
