Deere & Co.’s $472 Million Second-Quarter Earnings Off 38 Percent

Deere & Co. last week announced worldwide net income of $472.3 million, or $1.11 per share, for the second quarter ended April 30, compared with $763.5 million, or $1.74 per share, for the same period last year. For the first six months of the year, net income was $676.2 million, or $1.60 per share, compared with $1.13 billion, or $2.56 per share, last year.

Worldwide net sales and revenues declined 17 percent, to $6.75 billion, for the second quarter and were down 11 percent to $11.89 billion for six months compared with a year ago. Net sales of the equipment operations were $6.19 billion for the quarter and $10.75 billion for six months, compared with $7.47 billion and $11.99 billion last year.

“John Deere has completed a profitable quarter and is successfully executing plans to maintain solid performance in today’s difficult economic environment,” said Robert Lane, chairman and CEO. “We are benefiting from a strong market for large farm machinery in the United States and from our continued focus on balancing production with retail activity.” At the same time, the global recession and volatile foreign exchange rates have put pressure on overall results. “Clearly, operations dependent on construction activity and consumer spending are feeling the full impact of the sharp downturn,” Lane said. Also of note, the company has continued to benefit from a strong liquidity position and access to global capital markets on a competitive basis.

Net sales of the worldwide equipment operations decreased 17 percent for the quarter and 10 percent for six months. Sales for both periods included price increases of 6 percent offset by an unfavorable currency-translation effect of 6 percent. Equipment net sales in the United States and Canada decreased 8 percent for the quarter and 5 percent year to date. Net sales outside the United States and Canada decreased 30 percent for the quarter and 18 percent for six months with an unfavorable currency-translation effect of 13 percent for both periods.

Financial services reported net income of $68.9 million for the quarter and $115.8 million for six months compared with $86.4 million and $184.1 million last year. Results were lower for both periods largely because of a higher provision for credit losses, lower commissions from crop insurance and narrower financing spreads. Benefits from investment tax credits related to wind energy projects partially offset these factors.

The outlook for market conditions over the remainder of the year remains highly uncertain and the impact on the company’s sales and earnings is difficult to assess.

Company equipment sales are projected to be down about 19 percent for the full year and down about 26 percent for the third quarter, including a negative currency-translation impact of about 5 percent for the year and about 6 percent for the quarter. Deere’s net income is expected to be about $1.1 billion for 2009, with more risk on the downside.

“Although financial results are forecast to be lower in 2009, Deere will continue rigorously managing its businesses with an objective of driving improved performance throughout the cycle,” Lane said. “In this regard, we are successfully executing longstanding plans to manage costs and assets effectively in all types of market conditions.” Recent company actions to improve results and respond to economic challenges include selective workforce reductions, aggressive factory-schedule adjustments, and a continued emphasis on process and efficiency enhancements across the enterprise.

“John Deere employees throughout the world are working to create a cost and asset structure that helps the company produce solid financial results while at the same time serving customers through a relentless focus on innovative products and services,” said Lane.

Sales for the commercial and consumer equipment division declined 24 percent for both the quarter and the first half of the year. Operating profit was $68 million for the quarter and $10 million for six months, compared with $154 million and $162 million a year ago. The operating-profit decline in both periods primarily was because of lower shipment and production volumes, the unfavorable effects of foreign exchange and higher raw-material costs, partially offset by improved price realization and lower selling, administrative and general expenses.

Construction and forestry sales were down 55 percent for the quarter and 44 percent for six months. The division had an operating loss of $75 million in the quarter and $58 million year to date, compared with an operating profit of $166 million and $283 million last year. The profit decrease for both periods was primarily due to significantly lower shipment and production volumes and higher raw-material costs, partially offset by improved price realization and lower selling, administrative and general expenses.

Deere’s worldwide sales of construction and forestry equipment are forecast to decline by about 42 percent for the year, largely as a consequence of a slumping global economy and historically low levels of construction activity in the United States.

John Deere Capital Corp.’s net income was $33.9 million for the second quarter and $69.0 million year to date, compared with net income of $77.3 million and $154.5 million for the respective periods last year. Results were lower for both periods primarily because of a higher provision for credit losses, lower commissions from crop insurance and narrower financing spreads.

Net receivables and leases financed by JDCC were $19.292 billion at April 30, 2009, compared with $19.296 billion last year. Net receivables and leases administered, which include receivables administered but not owned, totaled $19.455 billion at April 30, compared with $19.452 billion a year ago.