- Fourth-quarter income rises 17%; earnings per share up 21%.
- Full-year earnings reach record $3.54 billion.
- New products, additional capacity help expand global customer base.
- Forecast calls for income of $3.3 billion in 2014.
Net income attributable to Deere & Company was $806.8 million, or $2.11 per share, for the fourth quarter ended October 31, compared with $687.6 million, or $1.75 per share, for the same period last year.
For fiscal 2013, net income attributable to Deere & Company was $3.537 billion, or $9.09 per share, compared with $3.065 billion, or $7.63 per share, in 2012.
Worldwide net sales and revenues decreased 3%, to $9.451 billion, for the fourth quarter and increased 5%, to $37.795 billion, for the full year. Net sales of the equipment operations were $8.624 billion for the quarter and $34.998 billion for the year, compared with $9.047 billion and $33.501 billion for the same periods in 2012.
"With our strong financial results in the fourth quarter, John Deere has wrapped up another year of impressive achievement," said Samuel R. Allen, chairman and chief executive officer. Income for the periods was higher than in any previous fourth quarter or full year, he pointed out. "During the year, Deere continued with a record number of product introductions and completed seven new factories, in Brazil, Russia, India and China. These products and additional capacity are essential to helping the company expand its global customer base and realize its long-term business objectives.
"Deere's performance is a testament to our ability to execute our business plans, which stress the rigorous management of costs and assets," Allen stated. "This has led to an all-time high in profitability, as measured by operating return on operating assets, and record earnings for the last three years. In addition, the company has delivered healthy levels of cash flow, which has been used to fund global growth programs and provide direct benefit to investors through dividends and share repurchases."
Summary of Operations
Net sales of the worldwide equipment operations decreased 5% for the quarter and increased 4% for the full year compared with the same periods in 2012. Sales included price realization of 4% for the quarter and 3% for the year and an unfavorable currency-translation effect of 2% for the quarter and 1% for the year. Equipment net sales in the United States and Canada decreased 6% for the quarter and increased 5% for the year. Outside the U.S. and Canada, net sales decreased 2% for the quarter and increased 4% for the year, with unfavorable currency-translation effects of 4% and 3% for these periods.
Deere's equipment operations reported operating profit of $1.114 billion for the quarter and $5.058 billion for the full year, compared with $1.051 billion and $4.397 billion in 2012. The improvement for the quarter was due primarily to the impact of price realization, partially offset by the unfavorable effects of foreign-currency exchange, lower shipment volumes and a less favorable product mix. Full-year results improved largely due to the impact of price realization and higher shipment volumes. Annual results also were impacted by unfavorable effects of foreign-currency exchange, increased production costs, higher selling, administrative and general expenses and higher warranty costs. Increased production costs were due primarily to higher manufacturing-overhead expenses in support of growth, new products and engine-emission requirements, partially offset by lower raw-material costs.
In conjunction with the previously announced agreement to sell a majority interest in John Deere Landscapes, these operations were written down to realizable value in the quarter. In addition, both the quarterly and year-to-date periods were affected by impairment charges for long-lived assets related to John Deere Water operations.
Net income of the company's equipment operations was $650 million for the fourth quarter and $2.974 billion for the full year, compared with $576 million and $2.616 billion in 2012. The operating factors mentioned above, along with a lower effective tax rate, had an impact on the quarter’s results. Increased interest expense and a higher effective tax rate also affected annual results.
Financial services reported net income attributable to Deere & Company of $157.1 million for the quarter and $565.0 million for the year compared with $121.7 million and $460.3 million in 2012. Results for both periods were aided by growth in the credit portfolio and higher crop insurance margins, partially offset by higher selling, administrative and general expenses. Further, the quarter's results were impacted by less favorable financing spreads, and full-year 2012 results benefited from revenue related to wind energy credits.
Company Outlook & Summary
Company equipment sales are projected to decrease about 3% for fiscal 2014 and be down about 2% for the first quarter compared with year-ago periods. For fiscal 2014, net income attributable to Deere & Company is anticipated to be about $3.3 billion. The outlook contemplates the sale of 60% of John Deere Landscapes operations, as previously announced.
Supported by record 2013 performance, John Deere remains in a prime position to carry out its wide-ranging growth plans and attract new customers throughout the world, Allen said. "Thanks in large measure to the commitment of our employees, dealers and suppliers, John Deere's plans for helping meet the world's need for food, shelter and infrastructure are firmly on track," he said. "We remain confident in the company's direction and its ability to serve a population growing in both size and prosperity in the years ahead. In spite of lingering global economic concerns, we believe these developments continue to hold great promise and should provide significant benefits to our investors and other stakeholders well into the future."
Equipment Division Performance
Agriculture & Turf. Sales decreased 4% for the quarter primarily due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Sales increased 7% for the full year largely due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation. Operating profit was $996 million for the quarter and $4.680 billion for the year, compared with $931 million and $3.921 billion, respectively, in 2012. The improvement for the quarter was driven primarily by price realization, partially offset by the unfavorable effects of foreign-currency exchange, a less favorable product mix and lower shipment volumes. Full-year results improved due primarily to the impact of price realization and higher shipment volumes. These factors were partially offset by the unfavorable effects of foreign-currency exchange, increased production costs, higher selling, administrative and general expenses, and higher warranty costs. Both periods also were affected by a charge to write down John Deere Landscapes operations to realizable value and an impairment charge for long-lived assets related to John Deere Water.
Construction & Forestry
Construction and forestry sales decreased 8% for the quarter and the full year mainly as a result of lower shipment volumes, partially offset by price realization. Operating profit was $118 million for the quarter and $378 million for the year, compared with $120 million and $476 million in 2012. Results were slightly lower for the quarter primarily because of reduced shipment volumes and higher selling, administrative and general expenses, mostly offset by price realization and lower production costs. Full-year results decreased mainly due to lower shipment volumes, a less favorable product mix, increases in production costs, and higher selling, administrative and general expenses. These factors were partially offset by price realization.
Market Conditions & Outlook
Agriculture & Turf - Deere's worldwide sales of agriculture and turf equipment are forecast to decrease by about 6% for full-year 2014. The outlook contemplates the sale of a majority interest in the John Deere Landscapes operations. Although commodity prices and farm incomes are expected to remain at healthy levels in 2014 by historical standards, they are forecast to be lower than in 2013. The company believes the decline will have a dampening effect on demand, primarily for large farm equipment. Industry sales for agricultural machinery in the U.S. and Canada are forecast to be down 5 to 10% for the year, with the decline mainly reflecting lower sales of large equipment such as high-horsepower tractors and combines. Full-year industry sales in the EU28 are forecast to be down about 5% due to lower commodity prices and farm incomes. In South America, industry sales of tractors and combines are projected to be down 5 to 10% from strong 2013 levels. Industry sales in the Commonwealth of Independent States are expected to be down slightly for the year, while 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 up about 5% for 2014, reflecting improved market conditions.
Construction & Forestry - Deere's worldwide sales of construction and forestry equipment are forecast to increase by about 10% for 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 higher sales in European markets
Financial Services - Full-year 2014 net income attributable to Deere & Company for the financial services operations is expected to be approximately $600 million. The outlook reflects improvement primarily due to continued growth in the credit portfolio, partially offset by a projected 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 $132.9 million for the fourth quarter and $468.5 million for full-year 2013, compared with $112.6 million and $382.7 million for the respective periods in 2012. Results improved for both periods due primarily to growth in the credit portfolio, partially offset by higher selling, administrative and general expenses. Less favorable financing spreads also impacted results for the quarter. Net receivables and leases financed by JDCC were $30.594 billion and $26.509 billion at October 31, 2013 and 2012, respectively.