Earnings per share rise 23% on 12% increase in net sales and revenues
Healthy global farm conditions drive performance, support positive outlook
- Full-year earnings forecast boosted to $3.350 billion.
Net income attributable to Deere & Company was $1.056 billion, or $2.61 per share, for the second quarter ended April 30, compared with $904.3 million, or $2.12 per share, for the same period last year.
For the first six months of the year, net income attributable to Deere & Company was $1.589 billion, or $3.91 per share, compared with $1.418 billion, or $3.32 per share, last year.
Worldwide net sales and revenues increased 12%, to $10.009 billion, for the second quarter and rose 12% to $16.775 billion for six months. Net sales of the equipment operations were $9.405 billion for the quarter and $15.524 billion for six months, compared with $8.328 billion and $13.841 billion for the same periods last year.
"John Deere is well on its way to a year of outstanding performance after reporting an eighth consecutive quarter of record earnings," said Samuel R. Allen, chairman and chief executive officer. "Our results are a reflection of positive conditions in the global farm economy, which is continuing to show impressive strength and endurance. Deere is gaining new customers throughout the world, who are responding with great enthusiasm to our innovative lines of equipment."
At the same time, Allen noted, the company is successfully managing major new-product launches featuring advanced engine-emission technology, while significantly expanding its global market presence. "Skillful execution of our operating plans is helping Deere capitalize on today's strong farm economy and meet the world's growing need for productive machinery," he said.
Summary of Operations
Net sales of the worldwide equipment operations increased 13% for the quarter and 12% for six months compared with the same periods a year ago. Sales included price realization of 5% for the quarter and 4% year to date and an unfavorable currency-translation effect of 2% for the quarter and 1% for six months. Equipment net sales in the United States and Canada increased 18% for the quarter and 13% year to date. Outside the U.S. and Canada, net sales increased 6% for the quarter and 12% for six months, with unfavorable currency-translation effects of 4% and 3% for these periods.
Deere's equipment operations reported operating profit of $1.522 billion for the quarter and $2.220 billion for six months, compared with $1.268 billion and $1.914 billion last year. The improvement for both periods was primarily due to the impact of price realization and higher shipment volumes. These factors were partially offset by higher production costs related to new products and engine-emission requirements, as well as increased raw-material costs and research and development expenses.
Financial services reported net income attributable to Deere & Company of $109.2 million for the quarter and $228.3 million for six months compared with $105.1 million and $223.3 million last year. Results were higher for the quarter primarily due to growth in the credit portfolio, partially offset by increased selling, administrative and general expenses. Six-month results benefited from growth in the credit portfolio, revenue from wind energy credits and a lower provision for credit losses. These factors were partially offset by increased selling, administrative and general expenses, higher crop insurance claims and narrower financing spreads.
Company Outlook & Summary
Company equipment sales are projected to increase by about 15% for fiscal 2012 and by about 25% for the third quarter compared with the same periods a year ago. Included is an unfavorable currency-translation impact of about 3% for the year and 4% for the third quarter. For the full year, net income attributable to Deere & Company is anticipated to be about $3.350 billion.
According to Allen, promising fundamentals are lending strong support to the company's plans for increased sales and profitability. "Our extensive investments in new products and additional global capacity are moving ahead at an accelerated rate," he said, pointing out there are more than a dozen major projects under way throughout the world, including seven new factories. "These investments are essential to the success of our longer-term growth objectives, which we believe are firmly on track. They also put Deere in a sound position to respond to a rising global need for food, shelter, and infrastructure in the years ahead. In our view, these powerful trends have considerable staying power and should prove highly rewarding to our customers and investors."
Equipment Division Performance
Agriculture & Turf. Sales increased 11% for the quarter and 10% for six months largely due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation.¨Operating profit was $1.403 billion for the quarter and $1.977 billion year to date, compared with $1.163 billion and $1.720 billion, respectively, last year. The improvement in both periods was primarily driven by the impact of higher shipment volumes and price realization. These factors were partially offset by increased production costs related to new products and engine-emission requirements, as well as higher raw-material costs and research and development expenses.
Construction & Forestry. Construction and forestry sales increased 26% for the quarter and 24% for six months mainly due to higher shipment volumes and price realization. Operating profit was $119 million for the quarter and $243 million for six months, compared with $105 million and $194 million last year. Results improved in both periods primarily due to price realization and higher shipment volumes, partially offset by increased raw-material costs and an unfavorable product mix. Also affecting the performance of both periods were higher research and development and selling, administrative and general expenses, as well as increased costs related to engine emissions requirements.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to increase by about 15% for full-year 2012, including a negative currency-translation impact of about 3%. ¨Farmers in the world's major markets are experiencing favorable incomes due to strong demand for agricultural commodities. In addition, John Deere's sales are benefiting from advanced new products being launched throughout the world and from major expansions.¨Industry farm-machinery sales in the U.S. and Canada are forecast to rise by more than 10% in 2012. Overall conditions remain positive and demand continues to be strong, especially for high-horsepower equipment.â€¨Full-year industry sales in the EU 27 nations of Western and Central Europe are forecast to be flat to up 5% as favorable conditions in the grain, livestock and dairy sectors outweigh general economic concerns. Sales in the Commonwealth of Independent States are expected to be considerably higher in 2012. Sales in Asia, while slowing, are forecast to be up moderately. In South America, industry sales are projected to be down 5 to 10% from last year's attractive levels due to uncertainty in Argentina and drought conditions in parts of the region. U.S. and Canada industry sales of turf and utility equipment are expected to be up by about 5% for the year.
Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to increase by about 20% for 2012. The gain reflects further strength in the rental, energy, material-handling, industrial, and international sectors. Of particular note, the company is benefiting from growth in sales to independent rental companies, which are upgrading and replenishing their fleets. Further, Deere's sales are being supported by a range of advanced new products and by geographic expansion. After considerable growth in 2011, world forestry markets are projected to be about the same for 2012. Weakness in Europe is being offset by improvement in other international markets.
Financial Services. Full-year 2012 net income attributable to Deere & Company for the financial services operations is expected to be approximately $465 million, slightly lower than the prior year. The forecast decline is primarily due to an anticipated increase in selling, administrative and general expenses and narrower financing spreads, largely offset by growth in the credit portfolio.
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 $78.3 million for the second quarter and $171.7 million year to date, compared with $85.9 million and $169.6 million for the respective periods last year. Results were lower for the quarter primarily due to higher selling, administrative and general expenses and narrower financing spreads, partially offset by growth in the credit portfolio. Six-month results improved primarily due to growth in the credit portfolio and a lower provision for credit losses, partially offset by higher selling, administrative and general expenses and narrower financing spreads.â€¨â€¨Net receivables and leases financed by JDCC were $24.558 billion at April 30, 2012, compared with $22.482 billion last year.