Net income attributable to Deere & Co. was $457.2 million, or $1.07 per share, for the fourth quarter ended October 31, compared with a net loss of $222.8 million, or $0.53 per share, for the same period last year.
Fourth-quarter 2009 earnings were $99.0 million, or $0.23 per share, excluding the impairment of goodwill related to the John Deere Landscapes reporting unit and voluntary employee-separation expenses associated with the formation of the agriculture and turf division. These charges totaled $364.8 million pretax and $321.8 million after-tax, or $0.76 per share, and are included in results of the agriculture and turf operating segment. (Information on non-GAAP financial measures is included in the appendix.)
For fiscal 2010, net income attributable to Deere & Company was $1.865 billion, or $4.35 per share, compared with $873.5 million, or $2.06 per share, last year. Included in the 2009 results were the items cited above, which totaled $380.6 million pretax and $331.8 million after-tax, or $0.78 per share.
Worldwide net sales and revenues for the fourth quarter increased 35 percent, to $7.202 billion, and were up 13 percent, to $26.005 billion, for the full year. Net sales of the equipment operations were $6.564 billion for the quarter and $23.573 billion for full-year 2010, compared with $4.726 billion and $20.756 billion in the prior year.
"John Deere's strong performance for the quarter and full year reflects a disciplined approach to executing our business plans and was achieved despite continuing weakness in certain regions and business sectors," said Samuel R. Allen, chairman and chief executive officer. "Although conditions continued to be positive in the U.S. farm sector, and included a highly favorable sales mix of larger equipment, European agricultural markets remained soft. Deere's construction equipment sales benefited from somewhat-stronger overall demand but remained far below normal levels."
Nevertheless, Allen pointed out, the company extended its competitive position by successfully launching advanced new products and expanding its market presence, especially in developing parts of the world. During the quarter, Deere announced a new combine-harvester factory and opened a joint-venture production facility for construction equipment, both in India. Also during the quarter, a definitive agreement was reached to sell Deere's wind energy business, representing a decision to place more emphasis on core growth opportunities. "We are sharpening our strategic focus by targeting resources on the increasing need for agricultural and construction machinery around the world," said Allen.
Summary of Operations
Net sales of the worldwide equipment operations increased 39 percent for the quarter and 14 percent for the year. Sales included a favorable currency-translation effect of 1 percent for the quarter and 3 percent for the year and price increases of 3 percent for the quarter and 2 percent for the year. Equipment net sales in the United States and Canada increased 41 percent for the quarter and 14 percent for the year. Outside the U.S. and Canada, net sales were up 36 percent for the quarter and 14 percent for the year, with a favorable currency-translation effect of 5 percent for the year.
Deere's equipment operations reported operating profit of $716 million for the quarter and $2.909 billion for the year, compared with an operating loss of $22 million and operating profit of $1.365 billion for the periods last year. Benefiting the quarter were higher shipment and production volumes and improved price realization, partially offset by higher incentive-compensation expenses and an increase in raw material costs. Full-year results reflected higher shipment and production volumes, improved price realization, the favorable effects of foreign exchange and lower raw-material costs. These factors were partially offset by increased postretirement-benefit and incentive-compensation expenses. As noted, last year's results included a goodwill-impairment charge and voluntary employee-separation expenses.
Net income of the company's equipment operations, including noncontrolling interests, was $357 million for the quarter and $1.492 billion for the year, compared with a net loss of $201 million and net income of $677 million for the respective periods last year. In addition to the operating factors noted above, unfavorable tax effects were included in last year's fourth-quarter results.
Financial services reported net income attributable to Deere & Company of $98.4 million for the quarter and $372.5 million for the full year compared with a net loss of $15.3 million and net income of $202.5 million for the comparable periods last year. Results increased for the quarter primarily due to last year's reversal and deferral of wind energy tax credits eligible for cash grants, a lower provision for credit losses, improved financing spreads and growth in the portfolio. Partially offsetting these items was a write-down of wind energy assets held for sale to fair value. Full-year results were higher mainly due to improved financing spreads and a lower provision for credit losses.
Company Outlook & Summary
Company equipment sales are projected to be up 10 to 12 percent for fiscal 2011 and up about 34 percent for the first quarter compared with the same periods of the previous year. Included is an unfavorable currency-translation impact of about 1 percent for the year and about 2 percent for the quarter. Net income attributable to Deere & Company is anticipated to be approximately $2.1 billion for the full year.
2011 will be a year of record new-model introductions for the company, due in large part to the implementation of more rigorous global emissions standards. Deere's earnings forecast reflects the complexity of transitioning to these new equipment models as well as increased product costs to comply with the regulations. In addition, the company projects higher raw-material costs in 2011 and a less favorable sales mix in the Agriculture and Turf division.
With Deere's strong 2010 performance, the company remains well-positioned to capitalize on powerful global economic trends, Allen noted. "Thanks in large part to the dedication and hard work of our employees, dealers and suppliers worldwide, our plans for helping meet the world's growing need for food and infrastructure are well on track and moving ahead at an accelerated rate," he said. "We remain highly confident about the company's future prospects and our ability to deliver significant value to customers and investors."
Equipment Division Performance
- Agriculture & Turf. Sales increased 33 percent for the quarter and 10 percent for the full year largely due to higher shipment volumes and improved price realization. In addition, sales for the year were affected favorably by currency translation.
Operating profit was $662 million for the quarter and $2.790 billion for the full year, compared with last year's quarterly operating loss of $24 million and annual operating profit of $1.448 billion. For the quarter, operating profit rose primarily due to higher shipment and production volumes and improved price realization, partially offset by higher incentive-compensation expenses and increased raw-material costs. Full-year results showed improvement largely due to higher shipment and production volumes, improved price realization, the favorable effects of foreign exchange and lower raw-material costs. These factors were partially offset by higher postretirement-benefit and incentive-compensation expenses. As cited, last year's results were affected by a goodwill-impairment charge and voluntary employee-separation expenses.
- Construction & Forestry. Construction and forestry sales climbed 75 percent for the quarter and 41 percent for the full year, resulting in operating profit of $54 million for the quarter and $119 million for the year. Last year the division had operating profit of $2 million for the quarter and an operating loss of $83 million for the year. The quarter benefited from significantly higher shipment and production volumes, partially offset by higher incentive-compensation expenses, increased raw-material costs and higher postretirement-benefit expenses. Full-year results improved mainly due to higher shipment and production volumes, partially offset by an increase in postretirement-benefit and incentive-compensation expenses.
Market Conditions & Outlook
- Agriculture & Turf. Worldwide sales of Deere's Agriculture and Turf division are forecast to increase by 7 to 9 percent for full-year 2011, benefiting from generally favorable global farm conditions. Farmers in most of the company's key markets are experiencing solid levels of income due to strong global demand for agricultural commodities, low grain stocks in relation to use, and high prices for crops such as corn, wheat, soybeans, sugar and cotton.
After increasing in 2010, industry farm-machinery sales in the United States and Canada are forecast to be about flat in 2011 as a result of production limits and transitional issues associated with the broad launch of Interim Tier 4-compliant equipment.
Industry sales in Western Europe are forecast to increase 5 to 10 percent, while sales in Central Europe and the Commonwealth of Independent States are expected to see moderate gains from the depressed level of 2010. Industry sales in Asia also are forecast to grow moderately.
In South America, industry sales are projected to be flat in 2011 relative to the strong levels of 2010, although Deere's sales in the region are expected to benefit from a broader lineup of recently introduced products.
Industry sales of turf and utility equipment in the United States and Canada are expected to be flat after experiencing some recovery in 2010.
- Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to rise by 25 to 30 percent for full-year 2011. The increase reflects market conditions that are somewhat improved in relation to the relatively low level of the prior year. In addition, sales to independent rental companies are expected to see further growth. World forestry markets are expected to move significantly higher as a result of improved wood and pulp prices.
- Credit. Full-year 2011 net income for Deere's credit operations is forecast to be approximately $360 million. The forecast increase from 2010 primarily is due to growth in the portfolio.