- Full-year earnings reach $3.162 billion, company's second-highest annual total.
- Slowdown in farm economy leads to lower profits for agricultural equipment; construction and forestry and financial-services divisions have higher results.
- Company expects 2015 income of about $1.9 billion.
- Deere's worldwide sales of agriculture and turf equipment are forecast to decrease by about 20% for fiscal-year 2015 as a result of weaker conditions in the global farm economy.
MOLINE, Ill., Nov. 26, 2014 — Net income attributable to Deere & Company was $649.2 million, or $1.83 per share, for the fourth quarter ended October 31, compared with $806.8 million, or $2.11 per share, for the same period of 2013. For fiscal 2014, net income attributable to Deere & Company was $3.162 billion, or $8.63 per share, compared with $3.537 billion, or $9.09 per share, in 2013.
Worldwide net sales and revenues decreased 5%, to $8.965 billion, for the fourth quarter and were down 5%, to $36.067 billion, for the full year. Net sales of the equipment operations were $8.043 billion for the quarter and $32.961 billion for the year, compared with $8.624 billion and $34.998 billion for the same periods in 2013.
"John Deere has completed another year of solid performance in spite of weaker conditions in the global farm sector, which caused sales and earnings to decline from the record totals of 2013," said Samuel R. Allen, chairman and chief executive officer. "The slowdown has been most pronounced in the sale of large farm machinery, including many of our most profitable models. Nevertheless, our success managing costs and assets and establishing a broad-based business lineup has allowed us to deliver strong results and remain in a sound financial condition."
Further, Allen noted that the company produced healthy levels of cash flow for the year, much of which was returned to investors in the form of dividends and share repurchases. Dividends and buybacks in 2014 totaled a record $3.5 billion.
Summary of Operations
Net sales of the worldwide equipment operations declined 7% for the quarter and decreased 6% for the year compared with the same periods in 2013. Sales included price realization of 1% for the quarter and 2% for the full year. Additionally, sales included an unfavorable currency-translation effect of 1% for the quarter and for the year. Equipment net sales in the U.S. and Canada decreased 10% for the quarter and 8% for the year. Outside the U.S. and Canada, net sales were down 2% for the quarter and down 3% for the year, with unfavorable currency-translation effects of 2% and 1% for these periods.
Deere's equipment operations reported operating profit of $910 million for the quarter and $4.297 billion for the full year, compared with $1.114 billion and $5.058 billion in 2013. The decline for the quarter was due primarily to the impact of a less favorable product mix, lower shipment and production volumes, higher production costs primarily related to engine emission programs, increased warranty costs and an impairment charge for the China operations. The year's decline was due primarily to the impact of lower shipment and production volumes, a less favorable product mix, the unfavorable effects of foreign-currency exchange and higher production costs primarily related to engine emission programs. Declines for both periods were partially offset by price realization. Last year's results also were affected by impairment charges for the John Deere Landscapes and John Deere Water operations.
Net income of the company's equipment operations was $488 million for the fourth quarter and $2.548 billion for the year, compared with $650 million and $2.974 billion in 2013.
Financial services reported net income attributable to Deere & Company of $172.2 million for the quarter and $624.5 million for the year compared with $157.1 million and $565.0 million in 2013. The improvement for both periods was due to growth in the credit portfolio, partially offset by lower crop insurance margins, higher selling, administrative and general expenses and a higher provision for credit losses. Additionally, yearly results benefited from a more favorable effective tax rate.
Company Outlook & Summary
Company equipment sales are projected to decrease about 15% for fiscal 2015 and to be down about 21% for the first quarter compared with year-ago periods. For fiscal 2015, net income attributable to Deere & Company is anticipated to be about $1.9 billion.
"Even with a significant decline in sales and a continued pullback in the global agricultural sector, John Deere expects to remain solidly profitable in 2015," Allen said. "The company's earnings forecast reflects the impact of our efforts to establish a more resilient business model and it represents a level of performance much better than we've seen in prior downturns."
Longer term, the company's future continues to hold great promise, Allen said. "Global trends based on population growth and rising living standards remain intact and are largely unaffected by periodic swings in the farm economy. At the same time, Deere's plans for serving a larger global customer base are making good progress. As a result, we are confident the company is 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 in the years ahead."
Equipment Division Performance
Agriculture & Turf. Sales fell 13% for the quarter and 9% for the full year due largely to lower shipment volumes, the previously announced sales of the company's landscapes and water operations, and the unfavorable effects of currency translation. Partially offsetting these factors was price realization for both the quarter and year.
Operating profit was $682 million for the quarter and $3.649 billion for the year, compared with $996 million and $4.680 billion in 2013. Lower results for the quarter were driven primarily by lower shipment and production volumes, a less favorable product mix, higher production costs primarily related to engine emission programs, increased warranty costs and an impairment charge for China operations. The full-year decrease was driven mainly by lower shipment and production volumes, a less favorable product mix, the unfavorable effects of foreign-currency exchange and higher production costs primarily related to engine emission programs. Declines for both periods were partially offset by price realization. As noted, last year also was affected by impairment charges for the landscapes and water operations.
Construction & Forestry. Construction and forestry sales increased 23% for the quarter and 12% for the year 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 $228 million for the quarter and $648 million for the year, compared with $118 million and $378 million in 2013. Operating profit for the quarter improved due to higher shipment volumes and lower selling, administrative and general expenses. Full-year results benefited from higher shipment volumes, lower selling, administrative and general expenses, and price realization, partially offset by the unfavorable effects of foreign-currency exchange.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to decrease by about 20% for fiscal-year 2015 as a result of weaker conditions in the global farm economy. Lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery, especially for larger models. Conditions are more positive in the U.S. livestock sector, providing support to the sale of smaller sizes of equipment. Based on these factors, industry sales for agricultural machinery in the U.S. and Canada are forecast to be down 25 to 30% for 2015.
Full-year 2015 industry sales in the EU28 are forecast to be down about 10% due to lower crop prices and farm incomes as well as potential pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to be down about 10% as a result of the headwinds affecting agricultural producers. Industry sales in the Commonwealth of Independent States are expected to deteriorate further due in part to tight credit conditions. Asian sales are projected to be down slightly, with most of the decline centered in China.
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 increase by about 5% for 2015. 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 hold steady with the attractive levels of 2014.
Financial Services. Fiscal-year 2015 net income attributable to Deere & Company for the financial services operations is expected to be approximately $610 million. The outlook reflects a decline from the prior year due primarily to an expected increase in the provision for credit losses, versus the low level of 2014, and a less favorable tax rate. These factors are projected to be partially offset by growth in the credit portfolio and higher 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 $154.2 million for the fourth quarter and $544.2 million for the full-year 2014, compared with $132.9 million and $468.5 million for the respective periods last year. Results for the quarter improved primarily due to growth in the credit portfolio, partially offset by higher selling, administrative and general expenses. Results for the full-year improved due to growth in the portfolio and a more favorable effective tax rate, partially offset by a higher provision for credit losses and higher selling, administrative and general expenses.
Net receivables and leases financed by JDCC were $32.984 billion and $30.594 billion at October 31, 2014 and 2013, respectively.
|Fourth Quarter 2014 Press Release (in millions of dollars)|
|Three Months Ended Oct. 31||
Twelve Months Ended Oct. 31
|2014||2013||% Change||2014||2013||% Change|
|Net Sales and Revenues:|
|Agriculture and Turf||6,169||7,102||-13%||26,380||29,132||-9%|
|Construction and Forestry||1,874||1,522||23%||6,581||5,866||12%|
|Total Net Sales||8,043||8,624||-7%||32,961||34,998||-6%|
|Total Net Sales and Revenues||8,965||9,451||-5%||36,067||37,795||-5%|
|Operating Profit *|
|Agriculture and Turf||682||996||-32%||3,649||4,680||-22%|
|Construction and Forestry||228||118||93%||648||378||71%|
|Total Operating Profit||1,171||1,355||-14%||5,218||5,928||-12%|
|Reconciling Items **||(105)||(111)||-5%||(429)||(445)||-4%|
Net Income Attributable
to Deere & Co.
|*||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 or losses.|
|**||Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses and net income attributable to noncontrolling interests.|
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