1ST HALF: DEERE'S SALES UP 4%, EARNINGS UP 33%
May 19, 2017
Source: Deere & Co. news release
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*Improving demand for farm and construction equipment leads to higher second-quarter results.
*Key markets show signs of further stabilization.
*Sound execution, broad business lineup benefit performance.
Results include gain on sale of partial interest in SiteOne affiliate.
*Full-year earnings forecast increased to $2 billion, on 9% sales gain.
Net income attributable to Deere & Company was $802.4 million, or $2.49 per share, for the second quarter ended April 30, 2017, compared with $495.4 million, or $1.56 per share, for the period ended May 1, 2016.
For the first six months of the year, net income attributable to Deere & Company was $996.2 million, or $3.10 per share, compared with $749.8 million, or $2.36 per share, last year.
Worldwide net sales and revenues increased 5 percent, to $8.287 billion, for the second quarter and increased 4 percent, to $13.912 billion, for six months. Net sales of the equipment operations were $7.260 billion for the quarter and $11.958 billion for the first six months, compared with $7.107 billion and $11.876 billion for the same periods last year.
"John Deere reported strong results in the second quarter as market conditions showed signs of further stabilization," said Samuel R. Allen, chairman and chief executive officer. "We are seeing modestly higher overall demand for our products, with farm machinery sales in South America experiencing a strong recovery. Deere's performance also reflects the sound execution of our operating plans, the strength of a broad product portfolio, and the impact of our actions to develop a more agile cost structure. As a result, we have raised our forecast and are now calling for significantly higher earnings for the full year."
Summary of Operations
Net sales of the worldwide equipment operations increased 2 percent for the quarter and 1 percent for the first six months compared with the same periods a year ago. Sales included price realization of 2 percent for both periods. Foreign-currency rates did not have a material translation effect on net sales for either the quarter or first six months compared with the same periods in the prior year.
Equipment net sales in the United States and Canada decreased 5 percent for the quarter and were down 6 percent for the first six months. Outside the U.S. and Canada, net sales increased 14 percent for the quarter and 13 percent for the first six months, with no material effect of currency translation in either period.
Deere's equipment operations reported operating profit of $1.111 billion for the quarter and $1.358 billion for six months, compared with $688 million and $902 million, respectively, last year. The improvement for the quarter was primarily driven by price realization, the impact of a favorable sales mix, favorable effects of foreign-currency exchange and higher shipment volumes, partially offset by higher warranty costs.
Improved year-to-date results benefited from price realization, a favorable sales mix, and higher shipment volumes, partially offset by expenses associated with the previously announced voluntary employee-separation program and higher warranty costs. Additionally, quarterly and year-to-date results were aided significantly by a gain on the sale of a partial interest in the unconsolidated affiliate SiteOne Landscape Supply, Inc.
Net income of the company's equipment operations was $694 million for the second quarter and $774 million for the first six months, compared with $393 million and $520 million for the corresponding periods of 2016. In addition to the operating factors mentioned above, a higher effective tax rate reduced results for the first six months of 2017.
Financial services reported net income attributable to Deere & Company of $103.5 million for the quarter and $217.9 million for six months compared with $102.6 million and $232.0 million last year. Results for the quarter benefited from lower losses on lease residual values, largely offset by less-favorable financing spreads and higher selling, administrative and general expenses. Year-to-date results were affected by less-favorable financing spreads and higher selling, administrative and general expenses, including voluntary employee-separation expenses, partially offset by lower losses on lease residual values.
Company Outlook & Summary
Company equipment sales are projected to increase about 9 percent for fiscal 2017 and to rise about 18 percent for the third 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 third quarter. Net sales and revenues are projected to increase about 9 percent for fiscal 2017 with net income attributable to Deere & Company of about $2.0 billion.
"Deere is demonstrating a continuing ability to produce impressive results through all phases of the business cycle," Allen said. "This resilience illustrates our success driving improved operating efficiencies and developing a wider range of revenue sources. It also shows the impact of the company's consistent investments in advanced technology, new products and additional markets. These actions are leading to strong performance in 2017, and they reinforce our conviction that Deere is well-positioned to deliver significant value to customers and investors over the long term."
Equipment Division Performance
Agriculture & Turf. Sales increased 1 percent for the quarter and first six months primarily due to price realization. Year-to-date results were also affected by lower shipment volumes.
Operating profit was $1.003 billion for the quarter and $1.215 billion year to date, compared with respective totals of $614 million and $759 million last year. Results for the quarter benefited from a more favorable sales mix, price realization and the favorable effects of foreign exchange. For the first six months, results were helped by price realization and a more-favorable sales mix, partially offset by voluntary employee-separation expenses. The gain on the sale of a partial interest in SiteOne made a significant contribution to the division's results for both periods.