Deere Construction Segment Improves in 4Q

November 26, 2014

Deere & Company announced fourth-quarter 2014 results, which indicate an improvement in sales and profit in the construction and forestry segment as the company's net income and sales dropped. 

Net income attributable to Deere & Company was $649.2 million, or $1.83 per share, for the fourth quarter ended October 31, compared with $806.8 million, or $2.11 per share, for the same period of 2013. For fiscal 2014, net income attributable to Deere & Company was $3.162 billion, or $8.63 per share, compared with $3.537 billion, or $9.09 per share, in 2013. 

Worldwide net sales and revenues decreased 5 percent, to $8.965 billion, for the fourth quarter and were down 5 percent, to $36.067 billion, for the full year. Net sales of the equipment operations were $8.043 billion for the quarter and $32.961 billion for the year, compared with $8.624 billion and $34.998 billion for the same periods in 2013.

"John Deere has completed another year of solid performance in spite of weaker conditions in the global farm sector, which caused sales and earnings to decline from the record totals of 2013," said Samuel R. Allen, chairman and CEO. "The slowdown has been most pronounced in the sale of large farm machinery, including many of our most profitable models. Nevertheless, our success managing costs and assets and establishing a broad-based business lineup has allowed us to deliver strong results and remain in a sound financial condition."

Construction and forestry sales increased 23 percent for the quarter and 12 percent for the year mainly as a result of higher shipment volumes and price realization. Increased sales for both periods were partially offset by the unfavorable effects of currency translation.

Operating profit in the construction and forestry segment was $228 million for the quarter and $648 million for the year, compared with $118 million and $378 million in 2013. Operating profit for the quarter improved due to higher shipment volumes and lower selling, administrative and general expenses. Full-year results benefited from higher shipment volumes, lower selling, administrative and general expenses, and price realization, partially offset by the unfavorable effects of foreign-currency exchange.

Deere's worldwide sales of construction and forestry equipment are forecast to increase by about 5 percent for 2015. 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 hold steady with the attractive levels of 2014. Worldwide sales of agriculture and turf equipment are forecast to decrease by about 20 percent for fiscal-year 2015 as a result of weaker conditions in the global farm economy. 

Agriculture and turf sales fell 13 percent for the quarter and 9 percent for the full year due largely to lower shipment volumes, the previously announced sales of the company's landscapes and water operations, and the unfavorable effects of currency translation. Partially offsetting these factors was price realization for both the quarter and year. Operating profit was $682 million for the quarter and $3.649 billion for the year, compared with $996 million and $4.680 billion in 2013. 

Fiscal-year 2015 net income attributable to Deere & Company for the financial services operations is expected to be approximately $610 million. The outlook reflects a decline from the prior year due primarily to an expected increase in the provision for credit losses, versus the low level of 2014, and a less favorable tax rate. These factors are projected to be partially offset by growth in the credit portfolio and higher crop insurance margins.

Net sales of the worldwide equipment operations declined 7 percent for the quarter and decreased 6 percent for the year compared with the same periods in 2013. Sales included price realization of 1 percent for the quarter and 2 percent for the full year. Additionally, sales included an unfavorable currency-translation effect of 1 percent for the quarter and for the year. Equipment net sales in the United States and Canada decreased 10 percent for the quarter and 8 percent for the year. Outside the U.S. and Canada, net sales were down 2 percent for the quarter and down 3 percent for the year, with unfavorable currency-translation effects of 2 percent and 1 percent for these periods.

Deere's equipment operations reported operating profit of $910 million for the quarter and $4.297 billion for the full year, compared with $1.114 billion and $5.058 billion in 2013. The decline for the quarter was due primarily to the impact of a less favorable product mix, lower shipment and production volumes, higher production costs primarily related to engine emission programs, increased warranty costs and an impairment charge for the China operations. The year's decline was due primarily to the impact of lower shipment and production volumes, a less favorable product mix, the unfavorable effects of foreign-currency exchange and higher production costs primarily related to engine emission programs. Declines for both periods were partially offset by price realization. Last year's results also were affected by impairment charges for the John Deere Landscapes and John Deere Water operations.

Net income of the company's equipment operations was $488 million for the fourth quarter and $2.548 billion for the year, compared with $650 million and $2.974 billion in 2013. Financial services reported net income attributable to Deere & Company of $172.2 million for the quarter and $624.5 million for the year compared with $157.1 million and $565.0 million in 2013. 

Company equipment sales are projected to decrease about 15 percent for fiscal 2015 and to be down about 21 percent for the first quarter compared with year-ago periods. For fiscal 2015, net income attributable to Deere & Company is anticipated to be about $1.9 billion.

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