Deere Reports Record Third-Quarter Earnings - Net sales and revenues increase by 15 percent.

- Demand remains strong for U.S. farm equipment while construction continues solid recovery.

- Company forecasts record full-year income of approximately $3.1 billion.

MOLINE, Ill., Aug. 15, 2012 /PRNewswire/ -- Deere & Company (NYSE: DE) today announced worldwide net income attributable to Deere & Company of $788.0 million, or $1.98 per share, for the third quarter ended July 31, compared with $712.3 million, or $1.69 per share, for the same period last year.

For the first nine months of the year, net income attributable to Deere & Company was $2.377 billion, or $5.88 per share, compared with $2.130 billion, or $5.01 per share, last year. 

Worldwide net sales and revenues increased 15 percent, to $9.590 billion, for the third quarter and rose 13 percent to $26.365 billion for nine months. Net sales of the equipment operations were $8.930 billion for the quarter and $24.454 billion for nine months, compared with $7.722 billion and $21.563 billion for the same periods last year.

"John Deere delivered record third quarter performance in both sales and income," said Samuel R. Allen, chairman and chief executive officer. "Although a strong quarter, we are not satisfied that sales fell short of our expectations due to weakening in certain international markets and short-term manufacturing inefficiencies resulting from the introduction of a record number of new products."

Allen noted that the company's global presence continues to grow due to strong customer preference for the innovative line-up of John Deere products that have been introduced in the past year.

Summary of Operations

Net sales of the worldwide equipment operations increased 16 percent for the quarter and 13 percent for nine months compared with the same periods a year ago. Sales included price realization of 5 percent for the quarter and 4 percent year-to-date and an unfavorable currency-translation effect of 5 percent for the quarter and 3 percent for nine months. Equipment net sales in the United States and Canada increased 28 percent for the quarter and 18 percent year to date. Outside the U.S. and Canada, net sales were essentially unchanged for the quarter and increased 7 percent for nine months, with unfavorable currency-translation effects of 11 percent and 6 percent for these periods.

Deere's equipment operations reported operating profit of $1.127 billion for the quarter and $3.347 billion for nine months, compared with $969 million and $2.883 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 and raw material costs, unfavorable effects of foreign currency exchange, as well as increased research and development expenses. The increase in production costs primarily related to new products and engine-emission requirements.

Financial services reported net income attributable to Deere & Company of $110.4 million for the quarter and $338.6 million for nine months compared with $125.6 million and $348.9 million last year. Results were lower for both periods primarily due to increased selling, administrative and general expenses, narrower financing spreads and higher reserves for crop insurance claims. These factors were partially offset by growth in the credit portfolio and a lower provision for credit losses.  

Company Outlook & Summary

Company equipment sales are projected to increase by about 13 percent for both fiscal 2012 and the fourth quarter compared with the same periods a year ago. Included is an unfavorable currency-translation impact of about 3 percent for the year and about 4 percent for the fourth quarter. For the full year, net income attributable to Deere & Company is anticipated to be about $3.1 billion.

"Global economic conditions and dryness in several key markets warrant some caution in coming months," Allen said. "However, this year's drought could positively influence our outlook as it spotlights the need for John Deere's highly productive agricultural equipment. Our new John Deere products have been well received by customers around the world. This, combined with our increased focus on improved execution, gives us confidence that Deere is well-positioned to capitalize on favorable global agricultural trends over the long term."

Equipment Division Performance

Agriculture & Turf. Sales increased 14 percent for the quarter and 11 percent for nine months largely due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation.

Operating profit was $1.014 billion for the quarter and $2.991 billion year to date, compared with $859 million and $2.579 billion, respectively, last year. Results were up in both periods primarily driven by the impact of price realization and higher shipment volumes. These factors were partially offset by increased production and raw-material costs, unfavorable effects of foreign currency exchange, and higher research and development expenses.

Construction & Forestry. Construction and forestry sales increased 23 percent for the quarter and 24 percent for nine months mainly due to higher shipment volumes and price realization. Operating profit was $113 million for the quarter and $356 million for nine months, compared with $110 million and $304 million last year. Results were up for both periods primarily due to the impact of price realization and higher shipment volumes. These factors were partially offset by increased production and raw-material costs, as well as higher research and development and selling, administrative and general expenses.

Market Conditions & Outlook

Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to increase by about 13 percent for full year 2012, including a negative currency-translation impact of about 4 percent.

Industry sales for agricultural machinery in the U.S. and Canada are forecast to be up more than 10 percent for 2012. Full-year industry sales in the EU27 are now forecast to be flat as strength in the northern European market offsets weakness in the South. Sales in the Commonwealth of Independent States are expected to be up strongly in 2012.

Industry sales in Asia are projected to be down moderately for the full year due to softening in India and China. In South America, industry sales are projected to be down 5 to 10 percent as a result of uncertainty in Argentina and drought conditions earlier in the year in parts of the region.

As a result of dry weather, global grain supplies are expected to further tighten. This supports higher commodity prices and should result in robust field activity in the 2013 crop year in markets throughout the world.

U.S. and Canada industry sales of turf and utility equipment are expected to be flat to up 5 percent for 2012, reflecting the drought conditions in the U.S.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to increase by about 17 percent for 2012. While construction equipment sales in the U.S. continue to show strong recovery, Deere has experienced slower than expected sales activity in some international markets. World forestry markets are projected to be flat in comparison to 2011.

Financial Services. Full year 2012 net income attributable to Deere & Company for the financial services operations is expected to be approximately $450 million, somewhat lower than the prior year. The forecast decline is primarily due to an anticipated increase in selling, administrative and general expenses, narrower financing spreads and higher reserves for crop insurance claims, partially 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 $98.5 million for the third quarter and $270.2 million year to date, compared with $100.5 million and $270.1 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. Nine-month results were approximately the same as last year primarily due to growth in the credit portfolio and a lower provision for credit losses, mostly offset by higher selling, administrative and general expenses and narrower financing spreads.

Net receivables and leases financed by JDCC were $25.766 billion at July 31, 2012, compared with $22.925 billion last year.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  Statements under "Company Outlook & Summary," "Market Conditions & Outlook," and other forward-looking statements herein that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and 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.

The company's agricultural equipment business is subject to a number of uncertainties including the many interrelated factors that affect farmers' confidence.  These factors include worldwide economic conditions, demand for agricultural products, world grain stocks, weather conditions (including its effects on timely planting and harvesting), soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, 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 and policies (including those in Argentina, Brazil, China, the European Union, India, Russia and the U.S.), international reaction to such programs, changes in and effects of crop insurance programs, global trade agreements, animal diseases and their effects on poultry, beef and pork consumption and prices, crop pests and diseases, and the level of farm product exports (including concerns about genetically modified organisms). 

Factors affecting the outlook for the company's turf and utility equipment include general economic conditions, consumer confidence, weather conditions, customer profitability, consumer borrowing patterns, consumer purchasing preferences, housing starts, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.

General economic conditions, consumer spending patterns, real estate and housing prices, the number of housing starts and interest rates are especially important to sales of the company's construction and forestry equipment.  The levels of public and non-residential construction also impact the results of the company's construction and forestry segment.  Prices for pulp, paper, 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 the global markets in which the company operates, especially material changes in economic activity in these markets; customer confidence in general economic conditions; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; and inflation and deflation rates.  General economic conditions can affect demand for the company's equipment as well.   

Customer and company operations and results could be affected by changes in weather patterns (including the effects of drought conditions in parts of the U.S. and dryer than normal conditions in certain other markets); the political and social stability of the global markets in which the company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts and the threat thereof; and the spread of major epidemics.

Significant changes in market liquidity conditions and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company's earnings and cash flows.  Financial market conditions could also negatively impact customer access to capital for purchases of the company's products and customer confidence and purchase decisions; borrowing and repayment practices; and the number and size of customer loan delinquencies and defaults.  The sovereign debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, and company operations and results.  State debt crises also could negatively impact customers, suppliers, demand for equipment, and company operations and results.  The company's investment management activities could be impaired by changes in the equity and bond markets, which would negatively affect earnings.

Additional factors that could materially affect the company's operations, access to capital, expenses and results include changes in and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs in particular jurisdictions or for the benefit of certain industries or sectors (including protectionist policies and trade and licensing restrictions that could disrupt international commerce); actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading Commission and other financial regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions (in particular Interim Tier 4, Final Tier 4 and Stage IIIb non-road diesel emission requirements), carbon and other greenhouse gas emissions, noise and the risk of climate change; changes in labor regulations; changes to accounting standards; changes in tax rates, estimates, and regulations; compliance with U.S. and foreign laws when expanding to new markets; and actions by other regulatory bodies including changes in laws and regulations affecting the sectors in which the company operates.  Customer and company operations and results also could be affected by changes to GPS radio frequency bands or their permitted uses.

Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the company's supply chain or the loss of liquidity by suppliers; start-up of new plants and new products; the success of new product initiatives and customer acceptance of new products; changes in customer product preferences and sales mix whether as a result of changes in equipment design to meet government regulations or for other reasons; oil and energy prices and supplies; the availability and cost of freight; 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; acquisitions and divestitures of businesses, the integration of new businesses; the implementation of organizational changes; difficulties related to the conversion and implementation of enterprise resource planning systems that disrupt business, negatively impact supply or distribution relationships or create higher than expected costs; security breaches and other disruptions to the company's information technology infrastructure; changes in company declared dividends and common stock issuances and repurchases.

Company results are also affected by changes in the level and funding 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 including those which may result from governmental action. 

The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital to meet future cash flow requirements and fund operations and the costs associated with engaging in diversified funding activities and to fund purchases of the company's products.  If market uncertainty increases and general economic conditions worsen, funding could be unavailable or insufficient.  Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.

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 other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q).

Third Quarter 2012 Press Release

(in millions of dollars)

Unaudited



Three Months Ended

July 31


Nine Months Ended

July 31






2012



2011


%

Change


2012



2011


%

Change





















Net sales and revenues:




















   Agriculture and turf

$

7,271



$

6,371



+14


$

19,730



$

17,740



+11

   Construction and forestry

1,659



1,351



+23


4,724



3,823



+24

















          Total net sales

8,930



7,722



+16


24,454



21,563



+13

   Financial services

565



550



+3


1,602



1,548



+3

   Other revenues

95



100



-5


309



290



+7





















     Total net sales and revenues

$

9,590



$

8,372



+15


$

26,365



$

23,401



+13

































Operating profit: *
















   Agriculture and turf

$

1,014



$

859



+18


$

2,991



$

2,579



+16

   Construction and forestry

113



110



+3


356



304



+17

   Financial services

170



194



-12


520



529



-2

















     Total operating profit

1,297



1,163



+12


3,867



3,412



+13

Reconciling items **

(82)



(81)



+1


(256)



(241)



+6

Income taxes

(427)



(370)



+15


(1,234)



(1,041)



+19

















     Net income attributable to

       Deere & Company

$

788



$

712



+11


$

2,377



$

2,130



+12





































*

Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses and income taxes.  Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains or losses.


**

Other reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses and net income attributable to noncontrolling interests.

SOURCE Deere & Company



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