- Results decline on weakness in global markets for farm and construction equipment.

- All businesses remain profitable, helped by sound execution and effective cost management.

- Full-year 2016 forecast calls for 10% sales decline and earnings of $1.3 billion.

MOLINE, Ill. — Net income attributable to Deere & Co. (NYSE: DE) was $254.4 million, or $0.80 per share, for the first quarter ended Jan. 31, compared with $386.8 million, or $1.12 per share, for the same period of 2015. Worldwide net sales and revenues for the first quarter decreased 13%, to $5.525 billion, compared with $6.383 billion last year. Net sales of the equipment operations were $4.769 billion for the quarter compared with $5.605 billion a year ago.

"John Deere's first-quarter results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment markets," said Samuel R. Allen, chairman and chief executive officer. "At the same time, all of Deere's businesses remained solidly profitable, benefiting from the sound execution of our business plans and the success of actions to develop a more responsive cost structure."

Summary of Operations

Net sales of the worldwide equipment operations declined 15% for the quarter. Sales included price realization of 2% and an unfavorable currency-translation effect of 4%. Equipment net sales in the U.S. and Canada decreased 18%. Outside the U.S. and Canada, net sales were down 9%, with unfavorable currency-translation effects of 11%.

Deere's equipment operations reported operating profit of $214 million for the quarter, compared with $414 million in 2015. The decline for the quarter was due primarily to lower shipment volumes, the unfavorable effects of foreign-currency exchange and the impact of a less favorable product mix. Partially offsetting these factors were price realization, lower selling, administrative and general expenses and lower production costs. Net income of the company's equipment operations was $127 million for the quarter, compared with $241 million for the same period last year. In addition to the operating factors mentioned above, a lower effective tax rate benefited results. 

Financial services reported net income attributable to Deere & Co. of $129.4 million for the quarter compared with $156.8 million last year. Lower results for the quarter were primarily due to the unfavorable effects of foreign-currency exchange translation, higher losses on residual values primarily for construction-equipment operating leases, less favorable financing spreads and a higher provision for credit losses. These factors were partially offset by a reduction in selling, administrative and general expenses.

Company Outlook & Summary

Company equipment sales are projected to decrease about 10% for fiscal 2016 and to be down about 8% for the second quarter compared with the same period a year ago. Included in the forecast is a negative foreign-currency translation effect of about 3% for the full year and second quarter. For fiscal 2016, net income attributable to Deere & Company is anticipated to be about $1.3 billion. 

"Although Deere expects another challenging year in 2016, our forecast represents a level of performance much better than we have experienced in previous downturns," Allen said. "This illustrates the impact of our efforts to establish a more durable business model and a wider range of revenue sources. As a result, the company's financial condition remains strong and we are well-positioned to continue investing in innovative products, advanced technology and new markets. These actions, we're confident, will provide significant value to our customers and investors in the years ahead."

Equipment Division Performance

Agriculture & Turf. Sales decreased 12% for the quarter due largely to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization.

Operating profit was $144 million compared with $268 million for the period last year. Results were driven primarily by the impact of lower shipment volumes, the unfavorable effects of foreign-currency exchange and a less favorable product mix. These factors were partially offset by price realization, reduced selling, administrative and general expenses and lower production costs.

Construction & Forestry. Construction and forestry sales decreased 23% for the quarter, mainly as a result of lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit was $70 million for the quarter compared with $146 million in 2015. The decline in operating profit was mainly due to lower shipment volumes, partially offset by price realization 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% for fiscal-year 2016, including a negative currency-translation effect of about 4%. Industry sales for agricultural equipment in the U.S. and Canada are forecast to be down 15 to 20% for 2016. The decline, reflecting the impact of low commodity prices and stagnant farm incomes, is expected to be most pronounced in the sale of higher-horsepower models.

Full-year 2016 industry sales in the EU28 are forecast to be flat to down 5%, with the decline attributable to low commodity prices and farm incomes, including further pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to be down 10 to 15% mainly as a result of economic concerns and uncertainty about government-sponsored financing in Brazil. Asian sales are projected to be flat to down slightly, due in part to weakness in China.

Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5% for 2016, benefiting from new products and general economic growth.

Source: Deere & Co.