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DEERE REPORTS HIGHER FOURTH-QUARTER RESULTS;
NET INCOME REACHES $277 MILLION
- Quarterly net income rises 19%; earnings per share up 25%.
- Full-year earnings reach record level.
- Asset-management efforts show further progress, contributing to strong performance.
MOLINE, Illinois (November 21, 2006) — Deere & Company today announced worldwide net income of $277.3 million, or $1.20 per share, for the fourth quarter ended October 31, compared with $232.8 million, or $0.96 per share, for the same period last year. Income from continuing operations, which excludes the company's discontinued health-care business, was $276.7 million, or $1.20 per share, for the quarter, versus $220.7 million, or $0.91 per share, last year.
For the full year, net income was $1.694 billion, or $7.18 per share, compared with $1.447 billion, or $5.87 per share, a year ago. Full-year income from continuing operations was $1.453 billion, or $6.16 per share, compared with $1.414 billion, or $5.74 per share, last year.
Worldwide net sales and revenues increased 3 percent for the quarter, to $5.118 billion, and increased 5 percent for the year, to $22.148 billion. Net sales of the equipment operations were $4.486 billion for the quarter and $19.884 billion for the year, compared with $4.486 billion and $19.401 billion for the respective periods of 2005.
"Our strong results for the final quarter of 2006, and for the full year, provide mounting evidence of our success in building a fundamentally more agile and profitable business, while introducing advanced new products and services to a growing global customer base," said Robert W. Lane, chairman and chief executive officer. "We are particularly encouraged that the company achieved record net income for the year and strong cash flow in the face of market conditions that have been relatively weak in many parts of the world."
Summary of Operations
Net sales of the worldwide equipment operations were essentially unchanged for the quarter and 2 percent higher for the full year. Included were positive effects for currency translation and price changes of 4 percent for the quarter and 3 percent for the year. Equipment sales in the U.S. and Canada were 6 percent lower for the quarter and 3 percent higher for the year. Net sales outside the U.S. and Canada increased by 14 percent for the quarter and 2 percent for the year, including a positive currency-translation effect of 2 percent for the quarter and a negative effect of 1 percent for the year.
Deere's equipment divisions reported operating profit of $276 million for the quarter and $1.905 billion for the year, compared with $224 million and $1.842 billion for the same periods last year. Higher operating profit for the quarter was primarily the result of improved price realization and lower warranty expenses, partially offset by higher selling and administrative expenses, increased raw-material costs, and the impact of lower shipping and manufacturing volumes. Operating profit for the year was higher due to improved price realization and lower retirement-benefit costs. Partially offsetting these factors were increased raw-material costs, higher selling and administrative expenses, the impact of lower shipping volumes, and increased spending for research and development.
Deere's ongoing emphasis on rigorous asset management is continuing to yield positive results. Trade receivables and inventories at the end of the quarter were $4.995 billion, or 25 percent of previous 12-month sales, compared with $5.253 billion, or 27 percent of sales, a year ago. With the company’s fourth-quarter performance, trade receivables and inventories in relation to sales have now declined for 26 consecutive quarters as compared with the same quarter of the prior year.
Financial services reported net income of $87.5 million for the quarter and $584.3 million for the year versus $92.1 million and $345.0 million last year. Income from continuing operations was $86.9 million for the quarter and $343.7 million for the year, versus $80.0 million and $312.2 million a year earlier. For both periods, income from continuing operations benefited from growth in the portfolio, partially offset by a higher provision for credit losses. Narrower financing spreads had a negative effect on income from continuing operations in fiscal 2006.
Income from discontinued operations was $0.6 million for the quarter and $240.6 million for the year versus $12.1 million and $32.8 million last year. Income from discontinued operations in 2006 relates primarily to this year's gain on sale of the company's health-care operations.
Company Earnings Outlook
Deere's equipment sales are projected to be roughly flat for the full year and to increase approximately 5 percent for the first quarter of 2007. Consistent with ongoing asset-management initiatives, production levels are expected to be down about 4 percent for both the year and first quarter. Construction and forestry production in the U.S. and Canada is expected to be down about 16 percent in the quarter. Based on the above, net income is forecast to be around $1.325 billion for the year and in a range of $150 million to $175 million for the first quarter.
Company Summary
In addition to delivering record earnings in 2006, Deere also funded an aggressive global growth plan, returned $1.6 billion to investors through share repurchases and dividends, and achieved a further reduction in trade receivables and inventories. According to Lane, the company is now more agile and better able to rapidly adjust equipment production in response to higher demand whenever it occurs. "Our focus on rigorous asset management is receiving strong support from major investments at key manufacturing locations, such as the redevelopment of our Waterloo tractor operations," Lane stated. "We are more willing, and increasingly confident of our ability, to boost production as demand grows as a result of, among other catalysts, the exciting prospects for global agriculture. In that way, we can continue winning new customers with exceptional products and services, while producing financial results that will be rewarding to investors."
Equipment Division Performance
- Agricultural.
Division sales decreased 1 percent for the quarter and 3 percent for the full year. Sales for the quarter and for the year were down as a result of lower shipments, partially offset by improved price realization. Operating profit was $143 million for the quarter and $882 million for the year, compared with $57 million and $970 million for the periods last year. Quarterly profit was higher primarily as a result of improved price realization, lower warranty costs, and lower retirement-benefit costs. These factors were partially offset by higher selling and administrative expenses and the negative effect of lower shipments and production volumes. Operating profit for the year was down mainly due to the impact of lower shipments and production volumes and higher selling and administrative expenses, partially offset by improved price realization and lower retirement-benefit costs. The increased selling and administrative expenses for both periods were attributable in large part to the company's growth initiatives.
- Commercial & Consumer. Sales declined 1 percent for the quarter due to lower equipment sales but were up 8 percent for the year, primarily due to higher sales in the landscapes operations. The division had an operating loss of $3 million for the quarter and operating profit of $221 million for the year, compared with an operating loss of $10 million and operating profit of $183 million for the same periods of 2005. The quarter's improvement was mainly due to improved price realization, partially offset by margin lost as a result of lower shipments. For the year, operating profit moved higher primarily due to the improved profitability of the landscapes operations and lower retirement-benefit costs.
- Construction & Forestry. Sales rose 3 percent for the quarter and 10 percent for the year. Operating profit was $136 million for the quarter and $802 million for the year, compared with $177 million and $689 million last year. Quarterly operating profit decreased mainly due to higher raw-material costs and expenses to close a facility in Canada, partially offset by improved price realization. The full-year operating profit improvement was primarily due to improved price realization, margin on increased shipments, and efficiencies from stronger production volumes. Partially offsetting these factors were higher material costs and the Canadian plant-closure expenses.
Market Conditions & Outlook
- Agricultural.
Worldwide farm-economic conditions remain quite promising. Demand for crops is benefiting from a global population that is gaining in both size and affluence, and from a sharp rise in the use of renewable fuels in the U.S. and other parts of the world. Prices for key farm commodities have surged in recent weeks and worldwide carryover stocks for wheat and corn are at 30-year lows in relation to consumption. Nevertheless, fiscal 2007 sales in the U.S. and Canada are expected to get off to a slow start as a result of higher-than-desired used-equipment inventories and customer uncertainty regarding the direction of U.S. farm legislation. In addition, farmers' concerns over the sustainability of the recent commodity-price rally, and with respect to input costs, are expected to weigh on 2007 sales. Based on these factors, Deere projects that industry retail sales in the U.S. and Canada will be roughly flat for the year.
In Western Europe, industry retail sales are forecast to be flat to down slightly for the year due to the effect of a higher value-added tax in Germany and further farm consolidation. Following the sharp downturn of the last two years, industry sales in South America are expected to be down about 10 percent for 2007. The forecast reduction is primarily related to uncertainty over government-sponsored financing programs in Brazil. Sales in Australia are expected to be down by nearly 25 percent for the year, due in large part to the effect of serious drought on the nation's wheat crop.
Based on these factors and market conditions, worldwide sales of John Deere agricultural equipment are forecast to increase by about 4 percent for full-year 2007. First-quarter sales are expected to rise by about 10 percent, being driven by new products in Europe and by a late-calendar year 2006 sales pickup in Germany, expected in advance of the value-added tax hike on January 1. Farm machinery production in the U.S. and Canada is expected to be down approximately 8 percent for the first quarter in comparison with the same period a year ago.
- Commercial & Consumer.
John Deere commercial and consumer sales are forecast to be up about 4 percent for the year. Growth in the landscapes operations and the successful introduction of new products are expected to more than offset the impact of a softer market for residential housing.
- Construction & Forestry.
Markets for construction and forestry equipment are expected to see a slowdown in 2007. While nonresidential spending is forecast for further improvement, residential-housing construction is expected to be lower. In this environment, Deere's worldwide sales of construction and forestry equipment are forecast to decrease by about 5 percent for fiscal 2007.
- Credit.
Full-year 2007 net income for Deere's credit operations is forecast to be approximately $345 million. The expected improvement is being driven by growth in the credit portfolio, largely offset by higher selling and administrative expenses in support of division growth initiatives.
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.
JDCC's net income was $73.8 million for the quarter and $291.2 million for the year, compared with $68.8 million and $274.7 million for the respective periods last year. Results for both periods benefited from growth in the portfolio, partially offset by narrower financing spreads and a higher provision for credit losses.
Net receivables and leases financed by JDCC were $17.576 billion at October 31, 2006, compared with $15.906 billion one year ago. Net receivables and leases administered, which include receivables previously sold, totaled $18.529 billion at October 31, 2006, compared with $17.625 billion one year ago.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under "Company Earnings Outlook," "Company Summary," "Market Conditions & Outlook," and other statements herein that relate to future operating periods are subject to important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company's businesses.
Forward-looking statements involve certain factors that are subject to change, including for the Company's agricultural equipment segment, the many interrelated factors that affect farmers' confidence. These factors include worldwide demand for agricultural products, world grain stocks, weather and soil conditions, harvest yields, prices for commodities and livestock, crop production expenses (most notably fuel and fertilizer costs), availability of transport for crops, the growth of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of various governments, changes in government farm programs (including those that may result from the difficult farm income conditions in Brazil), international reaction to such programs, global trade agreements, animal diseases and their effects on poultry and beef consumption and prices (including bovine spongiform encephalopathy, commonly known as "mad cow" disease, and avian flu), crop pests and diseases (including Asian rust), and the level of farm product exports (including concerns about genetically modified organisms). The success of the fall harvest and the prices realized by farmers for their crops especially affect retail sales of agricultural equipment in the winter.
Factors affecting the outlook for the Company's commercial and consumer equipment segment include weather conditions, general economic conditions in these markets, consumer confidence, consumer borrowing patterns, consumer purchasing preferences, housing starts, and spending by municipalities and golf courses.
The number of housing starts, interest rates and consumer spending patterns are especially important to sales of the Company's construction equipment. The levels of public and non-residential construction also impact the results of the Company's construction and forestry segment. Prices for pulp, lumber and structural panels are important to sales of forestry equipment.
All of the Company's businesses and its reported results are affected by general economic conditions in and the political and social stability of the global markets in which the Company operates; production, design and technological difficulties, including capacity and supply constraints and prices, including for supply commodities such as steel and rubber; the availability and prices of strategically sourced materials, components and whole goods; the success of new product initiatives and customer acceptance of new products; oil and energy prices and supplies; inflation and deflation rates, interest rate levels and foreign currency exchange rates; the availability and cost of freight; trade, monetary and fiscal policies of various countries; wars and other international conflicts and the threat thereof; actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission; actions by environmental regulatory agencies, including those related to engine emissions and the risk of global warming; actions by other regulatory bodies; actions by rating agencies; capital market disruptions; customer borrowing and repayment practices, and the number of customer loan delinquencies and defaults; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; labor relations; changes to accounting standards; the effects of terrorism and the response thereto; and legislation affecting the sectors in which the Company operates. Company results are also affected by changes in the level of employee retirement benefits, changes in market values of investment assets and the level of interest rates, which impact retirement benefit costs, and significant changes in health care costs. Other factors that could affect results are changes in Company declared dividends, acquisitions and divestitures of businesses, common stock issuances and repurchases, and the issuance and retirement of Company debt.
The Company's outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The Company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, is included in the Company's most recent annual report on Form 10-K and other filings with the U.S. Securities and Exchange Commission.
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For further information, the news media should call:
Ken Golden
Director, Strategic Public Relations
Deere & Company
309-765-5678
309-765-5682 (fax)
For general information, learn more
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