- Income jumps 65% on 25% increase in net sales and revenues.
- Sales and profit set all-time quarterly record.
- Performance paced by strong demand for farm machinery.
- Earnings forecast for year increased to about $2.65 billion.
Net income attributable to Deere & Company was $904.3 million, or $2.12 per share, for the second quarter ended April 30, compared with $547.5 million, or $1.28 per share, for the same period last year.
Second-quarter 2010 earnings were $677.0 million, or $1.58 per share, excluding a tax charge of $129.5 million, or $0.30 per share, related to the enactment of U.S. health-care legislation. (Information on non-GAAP financial measures is included in the appendix.)
For the first six months of the year, net income attributable to Deere & Company was $1.418 billion, or $3.32 per share, compared with $790.7 million, or $1.85 per share, last year. Six-month 2010 results also were affected by the tax charge.
Worldwide net sales and revenues increased 25 percent, to $8.910 billion, for the second quarter and were up 26 percent to $15.029 billion for six months. Net sales of the equipment operations were $8.328 billion for the quarter and $13.841 billion for six months, compared with $6.548 billion and $10.785 billion for the corresponding periods last year.
"With our record second-quarter performance, John Deere is well on its way to a year of exceptional results," said Samuel R. Allen, chairman and chief executive officer. "Our success reflects strong demand for our innovative lines of equipment and the continued skillful execution of our business plans. Deere's actions to expand its global competitive position are attracting new customers worldwide and making a major contribution to our results."
Sales of large farm machinery, particularly in the United States, Canada and Brazil, are continuing to support the company's performance. Construction equipment shipments are moving higher in spite of lingering weakness in the residential and commercial construction sectors. "Markets for construction equipment in the U.S. and for farm machinery in Europe are in the early stages of recovery," Allen said. "We're optimistic about the longer-term opportunity for further improvement in these and other key areas."
Summary of Operations
Net sales of the worldwide equipment operations increased 27 percent for the quarter and 28 percent for six months compared with the same periods a year ago. Sales included a favorable currency-translation effect of 3 percent for the quarter and 2 percent for six months and price realization of 4 percent for the quarter and 3 percent for the year to date. Equipment net sales in the United States and Canada increased 17 percent for the quarter and were up 24 percent year to date. Outside the U.S. and Canada, net sales were up 45 percent for the quarter and 36 percent for six months, with favorable currency-translation effects of 8 percent and 4 percent for these periods.
Deere's equipment operations reported operating profit of $1.268 billion for the quarter and $1.914 billion for six months, compared with $988 million and $1.303 billion last year.
Results were better in both periods primarily due to the impact of higher shipment and production volumes and improved price realization, partially offset by increased raw-material costs and higher selling, administrative and general expenses.
Net income of the company's equipment operations was $797 million for the quarter and $1.193 billion for six months, compared with $454 million and $623 million for the respective periods last year. The same operating factors mentioned above, along with a lower effective tax rate, affected both quarterly and six-month results. The lower tax rate was mainly due to the previously mentioned tax charge in 2010.
Financial services reported net income attributable to Deere & Company of $105.1 million for the quarter and $223.3 million for six months compared with $86.9 million and $172.0 million last year. Results were higher for both periods primarily due to growth in the portfolio and a lower provision for credit losses.
Company Outlook & Summary
Company equipment sales are projected to be up 21 to 23 percent for fiscal 2011 and up about 20 percent for the third quarter compared with the same periods a year ago. Included is a favorable currency-translation impact of about 3 percent for the year and about 6 percent for the quarter. For the full year, net income attributable to Deere & Company is anticipated to be about $2.650 billion.
The annual forecast includes a negative impact of approximately $300 million in sales and $70 million in operating profit resulting from the recent Japanese earthquake and tsunami.
According to Allen, the company's record of strong financial performance is helping support aggressive levels of organic growth. "Our consistent investment in new products and expanded global capacity puts the company on a solid footing for the future," he said. "As a result, John Deere is well-positioned to address the world's growing need for agricultural commodities, shelter and infrastructure. We believe these developments will have a positive impact on demand for productive farm and construction equipment in the years ahead and hold exciting promise for the company well into the future."
Equipment Division Performance
- Agriculture & Turf. Sales rose 24 percent for the quarter and 23 percent for six months largely due to higher shipment volumes, improved price realization and the favorable effects of currency translation.
Operating profit was $1.163 billion for the quarter and $1.720 billion year to date, compared with $952 million and $1.304 billion, respectively, last year. Operating profit was higher in both periods primarily due to the impact of higher shipment and production volumes and improved price realization, partially offset by increased raw-material costs and higher selling, administrative and general expenses.
- Construction & Forestry. Construction and forestry sales climbed 46 percent for the quarter and 61 percent for six months mainly due to higher shipment volumes and improved price realization. The division had operating profit of $105 million for the quarter and $194 million for six months, compared with last year's operating profit of $36 million in the quarter and an operating loss of $1 million for the six-month period. The improvement in both periods was primarily due to higher shipment and production volumes and improved price realization, partially offset by higher selling, administrative and general expenses and increased raw-material costs.
Market Conditions & Outlook
Agriculture & Turf. Worldwide sales of agriculture and turf equipment are forecast to increase by about 20 percent for full-year 2011, benefiting from favorable global farm conditions and a positive currency-translation impact of about 4 percent.
Farmers in most of the world's major markets are experiencing solid levels of income due to strong global demand for agricultural commodities, low grain stocks in relation to use, and relatively high prices for key crops. Farm commodity prices have escalated sharply since the beginning of the year and are expected to average well above prior-year levels for 2011.
After staging a healthy advance in 2010, industry farm-machinery sales in the U.S. and Canada are forecast to be up 5 to 10 percent for 2011. Overall conditions remain positive and demand for high-horsepower equipment continues to be strong. Production limits and transitional issues, both associated with the broad launch of Interim Tier 4 emissions-compliant equipment, are having a moderating effect on near-term sales potential.
Industry sales in the EU 27 nations of Western and Central Europe are forecast to increase by about 15 percent, while sales in the Commonwealth of Independent States are expected to see notably stronger gains from the previous year's depressed level. Farm conditions are strengthening in the European and CIS markets. Sales in Asia are forecast to grow strongly again this year.
In South America, industry sales for the year are projected to be down 5 to 10 percent versus the strong levels of 2010. Weakness in the small-tractor market in Brazil and recently enacted trade policies in Argentina are contributing to the decline. Deere's own sales in the region are benefiting from a broader lineup of recently introduced products.
Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat after experiencing modest recovery in 2010.
- Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to rise by about 35 percent for 2011. The increase reflects somewhat-improved market conditions in relation to the prior year's low level and increased activity outside of the U.S. and Canada. Construction equipment sales to independent rental companies are seeing growth, while world forestry markets are experiencing further improvement as a result of strong wood and pulp prices.
- Financial Services. Full-year 2011 net income attributable to Deere & Company for the financial services operations is forecast to be approximately $435 million. The forecast increase from 2010 is primarily due to growth in the portfolio and a lower provision for credit losses.
John Deere Capital Corporation
The following is disclosed on behalf of the company's credit 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 $85.9 million for the second quarter and $169.6 million year to date, compared with $69.4 million and $133.4 million for the respective periods last year. Results were higher for both periods primarily due to growth in the portfolio and a lower provision for credit losses.
Net receivables and leases financed by JDCC were $22.482 billion at April 30, 2011, compared with $19.818 billion last year.