Deere Announces Third-Quarter Earnings of $851 Million
- Slowdown in farm economy contributes to lower profits for agricultural
- Construction and forestry and financial-services businesses have higher
- Full-year earnings forecast about $3.1 billion.
MOLINE, Ill., Aug. 13, 2014
MOLINE, Ill., Aug. 13, 2014 /PRNewswire/ --Net income attributable to Deere &
Company (NYSE: DE) was $850.7 million, or $2.33 per share, for the third
quarter ended July 31, compared with $996.5 million, or $2.56 per share, for
the same period of 2013. For the first nine months of the year, net income
attributable to Deere & Company was $2.513 billion, or $6.79 per share,
compared with $2.730 billion, or $6.97 per share, last year.
Worldwide net sales and revenues decreased 5 percent, to $9.500 billion, for
the third quarter and were down 4 percent, to $27.102 billion, for nine
months. Net sales of the equipment operations were $8.723 billion for the
quarter and $24.918 billion for nine months, compared with $9.316 billion and
$26.373 billion for the same periods last year.
"Deere's third-quarter performance reflected moderating conditions in the
global farm sector, which have negatively affected demand for farm machinery
and contributed to lower sales and profits for our agricultural-equipment
business," said Samuel R. Allen, chairman and chief executive officer. "At the
same time, our construction and forestry and financial services divisions had
higher profit, showing the benefit of a broad-based business lineup. Overall,
it was a quarter of solid performance, with income exceeded only by last
year's record for the corresponding period."
Summary of Operations
Net sales of the worldwide equipment operations declined 6 percent for the
quarter and nine months compared with the same periods a year ago. Sales
included price realization of 2 percent for the quarter and nine months.
Additionally, sales included an unfavorable currency-translation effect of 1
percent for the nine months. Equipment net sales in the United States and
Canada decreased 8 percent for the quarter and 7 percent year to date. Outside
the U.S. and Canada, net sales were down 4 percent for the quarter, including
favorable currency-translation effects of 1 percent, and down 3 percent for
nine months, including unfavorable currency-translation effects of 1 percent.
Deere's equipment operations reported operating profit of $1.135 billion for
the quarter and $3.387 billion for nine months, compared with $1.443 billion
and $3.943 billion last year. The decline for the quarter was due primarily to
the impact of lower shipment volumes, higher production costs primarily
related to engine-emission requirements, and the unfavorable effects of
foreign currency exchange. The year-to-date decline was largely due to the
impact of lower shipment volumes, unfavorable foreign-exchange effects, higher
production costs, and a less favorable product mix. Declines for both periods
were partially offset by price realization.
Net income of the company's equipment operations was $680 million for the
third quarter and $2.061 billion for the first nine months, compared with $846
million and $2.324 billion in 2013. In addition to the operating factors
mentioned above, a lower effective tax rate benefited both quarterly and
Financial services reported net income attributable to Deere & Company of
$162.3 million for the quarter and $452.2 million for nine months compared
with $150.0 million and $407.9 million last year. The improvement for the
quarter was due to growth in the credit portfolio, partially offset by a
higher provision for credit losses and higher selling, administrative and
general expenses. Year-to-date results improved as a result of growth in the
credit portfolio and a more favorable effective tax rate. These factors were
partially offset by lower crop insurance margins, higher selling,
administrative and general expenses and a higher provision for credit losses.
Company Outlook & Summary
Company equipment sales are projected to decrease about 6 percent for fiscal
2014 and to be down about 8 percent for the fourth quarter compared with the
year-ago periods. Included is an unfavorable currency-translation effect of
about 1 percent for the year. For 2014, net income attributable to Deere &
Company is anticipated to be about $3.1 billion.
Although Deere's full-year earnings are forecast to be somewhat lower than in
2013, Allen said the company is looking forward to completing another
successful year and continues to believe the longer-term outlook for its
businesses holds considerable promise. "For the balance of the year, the
company will be scaling back production in line with demand for our
agricultural products," he stated. "These actions illustrate our commitment to
responding with speed and decisiveness to changes in market conditions."
Allen pointed out the company's plans to expand its market presence throughout
the world are on track and continuing to move ahead. "We remain confident the
company is well-positioned to earn solid returns throughout the business cycle
and to realize substantial benefits from the world's growing need for food,
shelter and infrastructure well into the future," he said.
Equipment Division Performance
Agriculture & Turf. Sales fell 11 percent for the quarter and 8 percent for
nine months due largely to lower shipment volumes, and the previously
announced sales of John Deere Landscapes and John Deere Water. Additionally,
year-to-date sales were lower due to the unfavorable effects of currency
translation. These factors were partially offset by price realization in both
the quarter and nine months.
Operating profit was $941 million for the quarter and $2.967 billion year to
date, compared with $1.336 billion and $3.684 billion, respectively, last
year. Lower results for the quarter were driven primarily by the impact of
lower shipment volumes, higher production costs largely related to
engine-emission requirements, and the unfavorable effects of foreign-currency
exchange. The year-to-date decrease was mainly due to lower shipment volumes,
unfavorable currency exchange, higher production costs, and a less favorable
product mix. Declines for both periods were partially offset by price
Construction & Forestry. Construction and forestry sales increased 19 percent
for the quarter and 8 percent for nine months mainly as a result of higher
shipment volumes and price realization. Increased sales for both periods were
partially offset by the unfavorable effects of currency translation.
Operating profit was $194 million for the quarter and $420 million for nine
months, compared with $107 million and $259 million last year. Quarterly
operating profit improved primarily due to higher shipment volumes and price
realization, partially offset by a less favorable product mix. Year-to-date
results increased mainly due to higher shipment volumes, lower production
costs, and lower selling, administrative and general expenses.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment
are forecast to decrease by about 10 percent for fiscal-year 2014, including a
negative currency translation effect of about 1 percent.
Although the agricultural economy remains in a relatively healthy state,
falling commodity prices are contributing to a reduction in farm income. The
decline is putting pressure on demand for farm equipment, especially larger
models. At the same time, strength in the U.S. livestock sector is providing
support to sales of mid- and smaller-size tractors. Based on these factors,
industry sales for agricultural machinery in the U.S. and Canada are forecast
to be down about 10 percent for the year.
Full-year industry sales in the EU28 are forecast to be down about 5 percent
due to lower crop prices and farm incomes. In South America, industry sales of
tractors and combines are projected to be down about 15 percent from strong
2013 levels. Market conditions in the Commonwealth of Independent States have
deteriorated and industry sales there are expected to be significantly lower
for the year. Asian sales are projected to be about flat.
Industry sales of turf and utility equipment in the U.S. and Canada are
expected to be flat to up 5 percent for 2014.
Construction & Forestry. Deere's worldwide sales of construction and forestry
equipment are forecast to increase by about 10 percent for full-year 2014.
The gain reflects further economic recovery and higher housing starts in the
U.S. as well as sales increases outside the U.S. and Canada. Global forestry
sales are expected to be up for the year due to general economic growth and
improved sales in European markets.
Financial Services. Fiscal-year 2014 net income attributable to Deere &
Company for the financial services operations is expected to be approximately
$600 million. The outlook reflects improvement over last year due primarily to
expected growth in the credit portfolio and a more favorable tax rate. These
factors are projected to be partially offset by higher selling, administrative
and general expenses, an increase in the provision for credit losses from the
low level in 2013, and lower crop insurance margins.
John Deere Capital Corporation
The following is disclosed on behalf of the company's financial services
subsidiary, John Deere Capital Corporation (JDCC), in connection with the
disclosure requirements applicable to its periodic issuance of debt securities
in the public market.
Net income attributable to John Deere Capital Corporation was $129.2 million
for the third quarter and $390.0 million year to date, compared with $124.7
million and $335.6 million for the respective periods last year. Results
improved for both periods primarily due to growth in the credit portfolio,
partially offset by a higher provision for credit losses, and higher selling,
administrative and general expenses. In addition, nine-month results benefited
from a more favorable effective tax rate. Net receivables and leases financed
by JDCC were $33.534 billion at July 31, 2014, compared with $30.096 billion
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements under "Company Outlook & Summary," "Market Conditions &
Outlook," and other forward-looking statements herein that relate to future
events, expectations, trends and operating periods involve certain factors
that are subject to change, and important risks and uncertainties that could
cause actual results to differ materially. Some of these risks and
uncertainties could affect particular lines of business, while others could
affect all of the company's businesses.
The company's agricultural equipment business is subject to a number of
uncertainties including the many interrelated factors that affect farmers'
confidence. These factors include worldwide economic conditions, demand for
agricultural products, world grain stocks, weather conditions (including its
effects on timely planting and harvesting), soil conditions (including low
subsoil moisture), harvest yields, prices for commodities and livestock, crop
and livestock production expenses, availability of transport for crops, the
growth and sustainability of non-food uses for some crops (including ethanol
and biodiesel production), real estate values, available acreage for farming,
the land ownership policies of various governments, changes in government farm
programs and policies (including those in Argentina, Brazil, China, the
European Union, India, Russia and the U.S.), international reaction to such
programs, changes in and effects of crop insurance programs, global trade
agreements, animal diseases and their effects on poultry, beef and pork
consumption and prices, crop pests and diseases, and the level of farm product
exports (including concerns about genetically modified organisms).
Factors affecting the outlook for the company's turf and utility equipment
include general economic conditions, consumer confidence, weather conditions,
customer profitability, consumer borrowing patterns, consumer purchasing
preferences, housing starts, infrastructure investment, spending by
municipalities and golf courses, and consumable input costs.
General economic conditions, consumer spending patterns, real estate and
housing prices, the number of housing starts and interest rates are especially
important to sales of the company's construction and forestry equipment. The
levels of public and non-residential construction also impact the results of
the company's construction and forestry segment. Prices for pulp, paper,
lumber and structural panels are important to sales of forestry equipment.
All of the company's businesses and its reported results are affected by
general economic conditions in the global markets in which the company
operates, especially material changes in economic activity in these markets;
customer confidence in general economic conditions; foreign currency exchange
rates and their volatility, especially fluctuations in the value of the U.S.
dollar; interest rates; and inflation and deflation rates. General economic
conditions can affect demand for the company's equipment as well. Government
spending and taxing could adversely affect the economy, employment, consumer
and corporate spending, and company results.
Customer and company operations and results could be affected by changes in
weather patterns (including the effects of drought conditions in parts of the
U.S. and drier than normal conditions in certain other markets); the political
and social stability of the global markets in which the company operates; the
effects of, or response to, terrorism and security threats; wars and other
conflicts and the threat thereof; and the spread of major epidemics.
Significant changes in market liquidity conditions and any failure to comply
with financial covenants in credit agreements could impact access to funding
and funding costs, which could reduce the company's earnings and cash flows.
Financial market conditions could also negatively impact customer access to
capital for purchases of the company's products and customer confidence and
purchase decisions; borrowing and repayment practices; and the number and size
of customer loan delinquencies and defaults. A debt crisis, in Europe or
elsewhere, could negatively impact currencies, global financial markets,
social and political stability, funding sources and costs, asset and
obligation values, customers, suppliers, and company operations and results.
State debt crises also could negatively impact customers, suppliers, demand
for equipment, and company operations and results. The company's investment
management activities could be impaired by changes in the equity, bond and
other financial markets, which would negatively affect earnings.
Additional factors that could materially affect the company's operations,
access to capital, expenses and results include changes in and the impact of
governmental trade, banking, monetary and fiscal policies, including financial
regulatory reform and its effects on the consumer finance industry,
derivatives, funding costs and other areas, and governmental programs,
policies, tariffs and sanctions in particular jurisdictions or for the benefit
of certain industries or sectors (including protectionist, economic, punitive
and expropriation policies and trade and licensing restrictions that could
disrupt international commerce); actions by the U.S. Federal Reserve Board and
other central banks; actions by the U.S. Securities and Exchange Commission
(SEC), the U.S. Commodity Futures Trading Commission and other financial
regulators; actions by environmental, health and safety regulatory agencies,
including those related to engine emissions (in particular Interim Tier
4/Stage IIIb and Final Tier 4/Stage IV non-road diesel emission requirements
in the U.S. and European Union), carbon and other greenhouse gas emissions,
noise and the effects of climate change; changes in labor regulations; changes
to accounting standards; changes in tax rates, estimates, and regulations and
company actions related thereto; compliance with U.S. and foreign laws when
expanding to new markets and otherwise; and actions by other regulatory bodies
including changes in laws and regulations affecting the sectors in which the
company operates. Trade, financial and other sanctions imposed by the U.S.,
the European Union, Russia and other countries could negatively impact company
assets, operations, sales, forecasts and results. Customer and company
operations and results also could be affected by changes to GPS radio
frequency bands or their permitted uses.
Other factors that could materially affect results include production, design
and technological innovations and difficulties, including capacity and supply
constraints and prices; the availability and prices of strategically sourced
materials, components and whole goods; delays or disruptions in the company's
supply chain or the loss of liquidity by suppliers; the failure of suppliers
to comply with laws, regulations and company policy pertaining to employment,
human rights, health, safety, the environment and other ethical business
practices; events that damage the company's reputation or brand; start-up of
new plants and new products; the success of new product initiatives and
customer acceptance of new products; changes in customer product preferences
and sales mix whether as a result of changes in equipment design to meet
government regulations or for other reasons; gaps or limitations in rural
broadband coverage, capacity and speed needed to support technology solutions;
oil and energy prices and supplies; the availability and cost of freight;
actions of competitors in the various industries in which the company
competes, particularly price discounting; dealer practices especially as to
levels of new and used field inventories; labor relations; acquisitions and
divestitures of businesses, the integration of new businesses; the
implementation of organizational changes; difficulties related to the
conversion and implementation of enterprise resource planning systems that
disrupt business, negatively impact supply or distribution relationships or
create higher than expected costs; security breaches and other disruptions to
the company's information technology infrastructure; changes in company
declared dividends and common stock issuances and repurchases.
Company results are also affected by changes in the level and funding of
employee retirement benefits, changes in market values of investment assets,
the level of interest and discount rates, and compensation, retirement and
mortality rates which impact retirement benefit costs, and significant changes
in health care costs including those which may result from governmental
The liquidity and ongoing profitability of John Deere Capital Corporation and
other credit subsidiaries depend largely on timely access to capital to meet
future cash flow requirements and fund operations and the costs associated
with engaging in diversified funding activities and to fund purchases of the
company's products. If general economic conditions worsen or capital markets
become volatile, funding could be unavailable or insufficient. Additionally,
customer confidence levels may result in declines in credit applications and
increases in delinquencies and default rates, which could materially impact
write-offs and provisions for credit losses. The failure of reinsurers of the
company's insurance business also could materially affect results.
The company's outlook is based upon assumptions relating to the factors
described above, which are sometimes based upon estimates and data prepared by
government agencies. Such estimates and data are often revised. The company,
except as required by law, undertakes no obligation to update or revise its
outlook, whether as a result of new developments or otherwise. Further
information concerning the company and its businesses, including factors that
potentially could materially affect the company's financial results, is
included in the company's other filings with the SEC (including, but not
limited to, the factors discussed in Item 1A. Risk Factors of the company's
most recent annual report on Form 10-K and quarterly reports on Form 10-Q).
Third Quarter 2014 Press Release
(in millions of dollars)
Three Months Ended Nine Months Ended
July 31 July 31
2014 2013 Change 2014 2013 Change
Net sales and revenues:
Agriculture and turf $ 6,969 $ 7,847 -11 $ 20,211 $ 22,029 -8
Construction and 1,754 1,469 +19 4,707 4,344 +8
Total net 8,723 9,316 -6 24,918 26,373 -6
Financial services 656 587 +12 1,815 1,650 +10
Other revenues 121 107 +13 369 322 +15
Total net sales and $ 9,500 $ 10,010 -5 $ 27,102 $ 28,345 -4
Operating profit: *
Agriculture and turf $ 941 $ 1,336 -30 $ 2,967 $ 3,684 -19
Construction and 194 107 +81 420 259 +62
Financial services 249 234 +6 660 629 +5
Total operating 1,384 1,677 -17 4,047 4,572 -11
Reconciling items ** (83) (127) -35 (324) (333) -3
Income taxes (450) (553) -19 (1,210) (1,509) -20
attributable to $ 851 $ 997 -15 $ 2,513 $ 2,730 -8
Deere & Company
Operating profit is income from continuing operations before corporate
expenses, certain external interest expense, certain foreign exchange gains
* and losses and income taxes. Operating profit of the financial services
segment includes the effect of interest expense and foreign exchange gains
Reconciling items are primarily corporate expenses, certain external
** interest expense, certain foreign exchange gains and losses and net income
attributable to noncontrolling interests.
SOURCE Deere & Company
Contact: Ken Golden, Director, Global Public Relations, 309-765-5678
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