Equipment Type

Deere Announces Q1 Earnings of $194 Million

Sales forecast for 2017 is up about 7 percent, to $1.5 billion

February 20, 2017

John Deere announced net sales of the worldwide equipment operations declined 1 percent in its first quarter. Deere's equipment operations reported operating profit of $247 million for the quarter, compared with $214 million in 2016. The improvement for the quarter was primarily driven by price realization, partially offset by expenses associated with the previously announced voluntary employee-separation program, higher warranty costs and the unfavorable effects of foreign-currency exchange. Additionally, the current quarter benefited from a gain on the sale of a partial interest in the unconsolidated affiliate SiteOne Landscape Supply, Inc.

Equipment net sales in the United States and Canada decreased 8 percent. Outside the U.S. and Canada, net sales increased 11 percent, with a favorable currency-translation effect of 1 percent.

Net income of the company's equipment operations was $80 million for the quarter, compared with $127 million for the same period last year. In addition to the operating factors mentioned above, a higher effective tax rate in 2017 reduced quarterly results.

Financial services reported net income attributable to Deere &  Company of $114.4 million for the quarter compared with $129.4 million last year. Lower results for the quarter were primarily due to less-favorable financing spreads and voluntary separation expenses.

Highlights

  • Results pressured by soft conditions in farm and construction equipment sectors.
  • Efforts to establish more efficient cost structure on track.
  • Key agricultural markets show signs of stabilization.
  • Full-year forecast calls for improved sales, earnings of $1.5 billion.

Net income attributable to Deere & Company was $193.8 million, or $0.61 per share, for the first quarter ended January 29, compared with $254.4 million, or $0.80 per share, for the period ended January 31, 2016. Worldwide net sales and revenues for the first quarter increased 2 percent, to $5.625 billion, compared with $5.525 billion last year. Net sales of the equipment operations were $4.698 billion for the quarter compared with $4.769 billion a year ago.

"John Deere has started out the year on a positive note in the continued face of soft market conditions," said Samuel R. Allen, chairman and chief executive officer. "Although the quarter's sales and earnings were somewhat lower than last year, all of our businesses remained solidly profitable. Deere's performance showed further benefits from the sound execution of its operating plans, the strength of a broad product portfolio and the impact of a more flexible cost structure. At the same time, we are seeing signs that after several years of steep declines key agricultural markets may be stabilizing."

Company Outlook & Summary

Company equipment sales are projected to increase about 4 percent for fiscal 2017 and be up about 1 percent for the second quarter compared with the same periods of 2016. Foreign-currency rates are not expected to have a material translation effect on equipment sales for the year or second quarter. Net sales and revenues are projected to increase about 4 percent for fiscal 2017 with net income attributable to Deere & Company of about $1.5 billion.

During the fourth quarter of 2016, the company announced voluntary employee-separation programs in the U.S. as part of an effort to reduce operating costs. Total pretax expenses related to the programs are estimated to be $111 million. Of this amount, $11 million was recorded in the fourth quarter of 2016, $94 million was recorded in first-quarter 2017, and $6 million is to be recognized over the remainder of the year. Savings from the separation programs are expected to be approximately $70 million in 2017.

"Deere continues to perform far better than in agricultural downturns of the past," Allen said. "This reflects our ongoing success developing a more durable business model and a wider range of revenue sources. What's more, our efforts to improve operating efficiency are gaining traction and we remain confident that we can deliver at least $500 million of structural cost reductions by the end of 2018. These actions reinforce our belief that Deere is well-positioned to deliver significant value to customers and investors in the future."

Equipment Division Performance

Agriculture & Turf. Sales were unchanged for the quarter with lower shipment volumes and higher warranty costs being offset by price realization and the favorable effects of currency translation.Operating profit was $213 million compared with $144 million last year. The quarter's improvement was mainly driven by a gain on the sale of a partial interest in SiteOne Landscape Supply, Inc. and price realization. These factors were partially offset by voluntary employee-separation expenses, higher warranty costs and the unfavorable effects of foreign-currency exchange.

Construction & Forestry. Construction and forestry sales decreased 6 percent for the quarter, mainly as a result of lower shipment volumes and higher sales-incentive costs. Operating profit was $34 million for the quarter compared to $70 million in 2016. Lower results for the quarter were mainly attributable to higher sales-incentive expenses and the voluntary separation program.

Market Conditions & Outlook

Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to increase by about 3 percent for fiscal-year 2017, with currency translation not expected to have a material impact. Industry sales for agricultural equipment in the U.S. and Canada are forecast to be down 5 to 10 percent for 2017. The decline, reflecting weakness in the livestock sector as well as the continuing impact of low crop prices, is expected to affect both large and small equipment.Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about flat for 2017, with Deere sales outpacing the industry.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to be up about 7 percent for 2017, with no material currency-translation impact. The forecast reflects moderate economic growth worldwide. In forestry, global industry sales are expected to be flat to down 5 percent, with soft conditions in North America offsetting strength in other regions.

Financial Services. Fiscal-year 2017 net income attributable to Deere & Company for the financial services operations is expected to be approximately $480 million. In comparison with the division's 2016 performance, the outlook reflects lower losses on lease residual values, partially offset by less-favorable financing spreads and an increased provision for credit losses.

 

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