Deere Reports Higher 3Q Earnings on Strong Global Ag Equipment Sales

Aug. 15, 2008
Moline, Ill.-based Deere & Co. last week announced worldwide net income of $575.2 million, or $1.32 per share, for the third quarter ended July 31, compared with $537.2 million, or $1.18 per share, for the same period last year. For the first nine months, net income was $1.7 billion, or $3.89 per share, compared with $1.4 billion, or $3.06 per share, last year.

Moline, Ill.-based Deere & Co. last week announced worldwide net income of $575.2 million, or $1.32 per share, for the third quarter ended July 31, compared with $537.2 million, or $1.18 per share, for the same period last year. For the first nine months, net income was $1.7 billion, or $3.89 per share, compared with $1.4 billion, or $3.06 per share, last year.

Worldwide net sales and revenues increased 17 percent, to $7.7 billion, for the third quarter and were also up 17 percent, to $21.0 billion, for the first nine months. Net sales of the equipment operations were $7.1 billion for the quarter and $19.1 billion for nine months, compared with $6.0 billion and $16.1 billion for the respective periods last year.

A continuation of positive conditions in the global farm sector is helping the company maintain record financial results at a time of rising raw material costs and a sluggish U.S. economy. “Though agricultural commodity prices have moderated, they remain quite favorable by historical standards and are continuing to provide strong support to farm incomes and to the sale of productive farm machinery worldwide,” said Robert Lane, chairman and CEO. “What’s more, Deere’s entire business lineup is benefiting from the consistent execution of our plans to rigorously manage costs and assets and create a more resilient company overall. Our non-agricultural operations have remained on a profitable course as a result, in spite of the economic downturn in the United States.”

Net sales of the worldwide equipment operations increased 18 percent for the quarter and 19 percent for the first nine months. Included were positive effects for currency translation and price changes of 7 percent for the quarter and year to date. Equipment net sales in the United States and Canada were up 6 percent for the quarter and 7 percent for the nine-month period. Net sales outside the U.S. and Canada increased by 38 percent for the quarter and 41 percent for nine months, including a positive currency-translation effect of 13 percent for the quarter and year to date.

Deere’s equipment divisions reported operating profit of $818 million for the quarter and $2.4 billion for nine months, compared with $708 million and $1.8 billion for the respective periods last year. The quarterly improvement was largely due to the favorable impact of higher shipment volumes, partially offset by higher selling, administrative and general expenses. Additionally, an increase in raw material costs offset improved price realization in the quarter. For nine months, the improvement was primarily due to the favorable impact of higher shipment volumes and improved price realization, partially offset by higher selling, administrative and general expenses and increased raw material costs. A higher effective tax rate had a negative impact on equipment operations’ net income for both periods.

Financial services reported net income of $83.4 million for the quarter and $267.5 million for nine months versus $92.1 million and $266.8 million last year. Within financial services, results for the credit operations were lower for both periods primarily due to higher selling, administrative and general expenses, an increase in leverage, a higher provision for credit losses, and lower income from receivable sales. Partially offsetting these factors were growth in the credit portfolio and higher commissions from crop insurance. For both periods, the decrease in results for the credit operations was offset by an improvement in income from other miscellaneous service operations.

Company equipment sales are projected to increase by about 21 percent for the full year and 29 percent for the fourth quarter of 2008. Included in the forecast is about 5 percent of currency translation impact for the year and about 3 percent for the quarter. Deere’s net income is forecast to be about $425 million for the fourth quarter. Escalating raw material costs are expected to have an impact on margins for the quarter.

“We are continuing to make investments in new products, additional manufacturing capacity, and new businesses to serve an expanding global customer base,” Lane said. “These steps put the company on an even stronger footing to benefit from powerful trends sweeping the world such as growing affluence and increasing demand for food, energy and infrastructure. In our view, these trends have staying power and should help the company continue delivering a high level of customer value and strong financial results well into the future.”

Agricultural sales increased 35 percent for the quarter and 34 percent for nine months. Operating profit was $634 million for the quarter and $1.7 billion for nine months, compared with $431 million and $1.1 billion last year.

With help from continuing strength in the global farm sector, worldwide sales of the company's agricultural equipment are forecast to increase by about 38 percent for full-year 2008. This includes about 8 percent related to currency translation.

Commercial & Consumer Division sales declined 1 percent for the quarter and increased 6 percent year to date. A landscape operation, acquired in the third quarter of 2007, accounted for a sales increase of 5 percent for the quarter and 9 percent year to date. Operating profit was $91 million for the quarter and $253 million year to date, compared with $127 million and $315 million a year ago.

John Deere commercial and consumer equipment sales are projected to be up about 4 percent for the year. The landscapes operation acquired in third-quarter 2007 is expected to account for about 6 percent of the yearly improvement. Sales gains from new products are partially offsetting the impact of the U.S. housing slowdown and weakening economy.

Pressured by U.S. market conditions, Construction & Forestry sales were down 7 percent for both the quarter and year to date. Operating profit was $93 million for the quarter and $376 million for nine months, versus $150 million and $437 million a year ago.

U.S. markets for construction and forestry equipment are forecast to remain under continued pressure due to a sharp decline in housing starts, which are expected to reach 60-year lows in 2008. Although the U.S. housing sector is negatively affecting forestry equipment markets in the United States and Canada, forestry sales in other key markets are expected to rise in 2008.