- Lower demand for agricultural and construction equipment leads to decline in sales and earnings.
- All businesses remain solidly profitable.
- Results aided by sound execution and cost management.
MOLINE, Ill. — Net income attributable to Deere & Co. was $511.6 million, or $1.53 per share, for the third quarter ended July 31, compared with $850.7 million, or $2.33 per share, for the same period last year.
For the first 9 months of the year, net income attributable to Deere & Co. was $1.589 billion, or $4.67 per share, compared with $2.513 billion, or $6.79 per share, last year.
Worldwide net sales and revenues decreased 20%, to $7.594 billion, for the third quarter and were down 18%, to $22.147 billion, for 9 months. Net sales of the equipment operations were $6.840 billion for the quarter and $19.843 billion for 9 months, compared with $8.723 billion and $24.918 billion for the periods last year.
"John Deere's third-quarter results reflected the continuing impact of the downturn in the farm economy as well as lower demand for construction equipment," said Samuel R. Allen, chairman and chief executive officer. "Nevertheless, all of Deere’s businesses remained solidly profitable, benefiting from the sound execution of our business plans and the success of our efforts to develop a more agile cost structure. As a result, the company continues to be well-positioned to provide customers with technologically advanced products and services, while funding its growth plans and returning cash to stockholders."
Summary of Operations
Net sales of the worldwide equipment operations declined 22% for the quarter and 20% for nine months compared with the same periods a year ago. Sales included price realization of 2% for the quarter and 9 months. Additionally, sales included an unfavorable currency-translation effect of 6% for the quarter and 4% for 9 months. Equipment net sales in the United States and Canada decreased 21% for the quarter and 17% year to date. Outside the U.S. and Canada, net sales fell 23% for the quarter and 26% for 9 months, with unfavorable currency-translation effects of 12% and 9% for the periods.
Deere's equipment operations reported operating profit of $601 million for the quarter and $1.842 billion for 9 months, compared with $1.135 billion and $3.387 billion last year. For both periods, the decline was due primarily to lower shipment volumes, the impact of a less favorable product mix, and the unfavorable effects of foreign-currency exchange. These factors were partially offset by price realization and lower production costs for the quarter and by price realization, lower selling, administrative and general expenses, and lower production costs for the year to date.
Net income of the company's equipment operations was $344 million for the third quarter and $1.109 billion for the first 9 months, compared with $680 million and $2.061 billion in 2014. In addition to the operating factors mentioned above, a lower effective tax rate benefited both quarterly and year-to-date results.
Financial services reported net income attributable to Deere & Co. of $153.4 million for the quarter and $480.0 million for 9 months compared with $162.3 million and $452.2 million last year. Lower results for the quarter were primarily due to less favorable financing spreads, partially offset by lower selling, administrative and general expenses. Year-to-date results improved as a result of the previously announced crop insurance sale and higher crop insurance margins experienced prior to divestiture, growth in the average credit portfolio, and lower selling, administrative and general expenses, partially offset by less favorable financing spreads. Year-to-date results in 2014 also benefited from a more favorable effective tax rate.
Company Outlook & Summary
Company equipment sales are projected to decrease about 21% for fiscal 2015 and to be down about 24% for the fourth quarter compared with year-ago periods. Included in the forecast is a negative foreign-currency translation effect of about 4% for the full year and 5% for the fourth quarter. For fiscal 2015, net income attributable to Deere & Co. is anticipated to be about $1.8 billion.
According to Allen, Deere's performance in 2015 underscores its success establishing a wider range of revenue sources and more durable business model. "By continuing to report solid profits in a difficult environment, the company is showing great resilience and performing much better than in previous agricultural downturns."
Longer term, Allen said he remained quite confident about the company’s prospects. "We believe our steady investment in new products and geographies will make Deere the provider of choice for a growing global customer base and that the impact of these actions will become increasingly clear when our end markets recover," said Allen. "In our view, favorable trends based on a growing, more affluent, and increasingly mobile population, have ample staying power. For all these reasons, we have confidence in the company’s present course and its ability to deliver significant value to customers and investors in the years ahead."
Equipment Division Performance
Agriculture & Turf. Sales fell 24% for the quarter and 25% for 9 months due largely to lower shipment volumes and the unfavorable effects of currency translation. These factors were partially offset by price realization.
Operating profit was $472 million for the quarter and $1.378 billion year to date, compared with $941 million and $2.967 billion, respectively, last year. Lower results for both periods were driven primarily by the impact of lower shipment volumes, a less favorable product mix, and the unfavorable effects of foreign-currency exchange. Partially offsetting these factors were price realization and lower production costs in the third quarter and price realization, lower selling, administrative and general expenses, and lower production costs for the first 9 months.
Construction & Forestry. Construction and forestry sales decreased 13% for the quarter and were flat for the first 9 months. Sales for the quarter were lower mainly as a result of lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. On a year-to-date basis, higher shipment volumes and price realization were offset by the unfavorable effects of currency translation.
Operating profit was $129 million for the quarter and $464 million for 9 months, compared with $194 million and $420 million for the corresponding periods last year. Operating profit decreased for the quarter mainly due to lower shipment volumes and the unfavorable effects of foreign-currency exchange, partially offset by price realization. Year-to-date results improved due to price realization, lower selling, administrative and general expenses, and higher shipment volumes, partially offset by unfavorable foreign-currency effects.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to decrease by about 25% for fiscal-year 2015, including a negative currency-translation effect of about 5%.
Lower commodity prices and falling farm incomes are continuing to pressure demand for agricultural machinery, with the declines most pronounced in higher-horsepower models. Conditions are more positive in the U.S. livestock sector, supporting some improvement in the sales of smaller sizes of equipment. Based on these factors, industry sales for agricultural equipment in the U.S. and Canada are forecast to be down about 25% for 2015.
Full-year 2015 industry sales in the EU28 are forecast to be down about 10%, with the decline attributable to lower crop prices and farm incomes as well as pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to be down 20-25% mainly as a result of economic uncertainty in Brazil and higher interest rates on government-sponsored financing. Asian sales are projected to be down moderately, with most of the decline in India and China. Industry sales in the Commonwealth of Independent States are expected to be down significantly due to economic pressures and tight credit conditions.
Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5% for 2015, benefiting from general economic growth.
Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to be down about 5% for 2015, including a negative currency-translation effect of about 3%.
The forecast decline in sales reflects the impact of weakening conditions in the North American energy sector, as well as lower sales outside the U.S. and Canada. In forestry, global sales are expected to be flat to up 5% in comparison with last year’s attractive levels, as gains in the U.S. and Europe are offset by declines elsewhere.
- Financial Services. Fiscal-year 2015 net income attributable to Deere & Co. for the financial services operations is expected to be approximately $630 million. The forecast improvement over last year is primarily due to the divestiture of the crop insurance business and growth in the average credit portfolio. These factors are being partially offset by less favorable financing spreads, a less favorable tax rate, and an increased provision for credit losses.
John Deere Capital Corp.
The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corp. (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 Corp. was $126.9 million for the third quarter and $376.4 million year to date, compared with $129.2 million and $390.0 million for the respective periods last year. The decline for the quarter was primarily due to less favorable financing spreads, partially offset by lower selling, administrative and general expenses. The decline in year-to-date results was primarily due to less favorable financing spreads, partially offset by growth in the credit portfolio and lower selling, administrative and general expenses. Last year's year-to-date results also benefited from a favorable effective tax rate.
Net receivables and leases financed by JDCC were $33.400 billion at July 31, 2015, compared with $33.534 billion last year.
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