- Earnings per share decline 4% to $2.65; net sales and revenues down 9%.
- Solid execution and rigorous cost management aid performance.
- Income forecast for year remains at $3.3 billion.
Net income attributable to Deere & Company was $980.7 million, or $2.65 per share, for the second quarter ended April 30, compared with $1.084 billion, or $2.76 per share, for the same period last year.
For the first six months of 2014, net income attributable to Deere & Company was $1.662 billion, or $4.46 per share, compared with $1.734 billion, or $4.41 per share, last year.
Worldwide net sales and revenues decreased 9%, to $9.948 billion, for the second quarter and were down 4%, to $17.602 billion, for six months. Net sales of the equipment operations were $9.246 billion for the quarter and $16.195 billion for six months, compared with $10.265 billion and $17.058 billion for the same periods last year.
"John Deere is on its way to another year of solid financial and operating performance," said Samuel R. Allen, chairman and chief executive officer. "Our second-quarter earnings showed further proof of the adept execution of our operating plans. We kept costs and assets well under control while successfully managing major new-product transitions associated with more stringent emissions standards. In addition, our construction and forestry and financial services operations delivered improved results, reflecting the power of our broad-based business lineup."
Summary of Operations
Net sales of the worldwide equipment operations declined 10% for the quarter and 5% for six months compared with the same periods a year ago. Sales included price realization of 2% and an unfavorable currency-translation effect of 1% for the quarter and six months. Equipment net sales in the United States and Canada decreased 12% for the quarter and 6% year to date. Outside the U.S. and Canada, net sales were down 6% for the quarter and 3% for six months, including unfavorable currency-translation effects of 2% for both periods.
Deere's equipment operations reported operating profit of $1.361 billion for the quarter and $2.252 billion for six months, compared with $1.663 billion and $2.500 billion last year. The decline for both periods was due primarily to the impact of lower shipment volumes, the unfavorable effects of foreign-currency exchange, and a less favorable product mix, partially offset by price realization.
Net income of the company's equipment operations was $838 million for the second quarter and $1.381 billion for the first six months, compared with $953 million and $1.478 billion in 2013. In addition to the operating factors mentioned above, a lower effective tax rate benefited both quarterly and six-month results.
Financial services reported net income attributable to Deere & Company of $147.7 million for the quarter and $289.9 million for six months compared with $125.0 million and $257.9 million last year. The improvement for the quarter was due to growth in the credit portfolio, partially offset by higher selling, administrative and general expenses. Six-month results improved due to growth in the credit portfolio and a more favorable effective tax rate, partially offset by lower crop insurance margins and higher selling, administrative and general expenses.
Company Outlook & Summary
Company equipment sales are projected to decrease about 4% for fiscal 2014 and for the third quarter compared with the year-ago periods. Included is an unfavorable currency-translation effect of about 1% for the year. For the fiscal year, net income attributable to Deere & Company is anticipated to be about $3.3 billion.
"John Deere expects to achieve near-record earnings for the full year and the company is well-positioned to deliver solid financial results throughout the business cycle," Allen said. "We're confident our extensive investments in new products and markets, coupled with a tight rein on costs and assets, will keep the company on a sound financial footing and help sustain our growth plans." These plans are essential to meeting the world's growing need for food, shelter and infrastructure, he added, and they should lead to significant benefits for the company's investors and customers in the years ahead.
Equipment Division Performance
Agriculture & Turf. Sales fell 12% for the quarter and 7% for six months due largely to lower shipment volumes, the previously announced sale of John Deere Landscapes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit was $1.229 billion for the quarter and $2.026 billion year to date, compared with $1.582 billion and $2.347 billion, respectively, last year. The deterioration for both periods was driven primarily by the impact of lower shipment volumes, the unfavorable effects of foreign-currency exchange, and a less favorable product mix, partially offset by price realization.
Construction & Forestry. Construction and forestry sales increased 2% for the quarter and 3% for six months mainly as a result of higher shipment volumes. Operating profit was $132 million for the quarter and $226 million for six months, compared with $81 million and $153 million last year. Operating profit improved for both periods primarily due to higher shipment volumes, lower production costs and lower selling, administrative and general expenses, partially offset by higher sales incentive costs. Six-month results also benefited from lower research and development expenses.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to decrease by about 7% for fiscal-year 2014, including a negative currency-translation effect of about 1%. Although the agricultural economy remains in a relatively healthy condition, farm income is forecast to be lower than last year. The decline is putting pressure on demand for farm equipment, especially for 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 5 to 10% for the year. Full-year industry sales in the EU28 are forecast to be down about 5% due to lower crop prices and farm incomes. In South America, industry sales of tractors and combines are projected to be down about 10% from strong 2013 levels. Market conditions in the Commonwealth of Independent States have weakened and industry sales there are expected to be down significantly for the year. Asian sales are projected to be up slightly. In the U.S. and Canada, industry sales of turf and utility equipment are expected to be flat to up 5% for 2014, helped by improved market conditions.
Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to increase by about 10% 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, lower crop insurance margins and an increase in the provision for credit losses from the low level in 2013.
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 $124.3 million for the second quarter and $260.8 million year to date, compared with $105.9 million and $210.9 million for the respective periods last year. Results improved for both periods primarily due to growth in the credit portfolio, partially offset by higher selling, administrative and general expenses. In addition, six-month results benefited from a more favorable effective tax rate. Net receivables and leases financed by JDCC were $32.231 billion at April 30, 2014, compared with $28.721 billion last year.
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