Deere Posts Record Net Income for Q2

MOLINE, Ill. – Deere & Co., today announced record worldwide net income of $477.3 million, or $1.88 per share, for the second quarter ended April 30, compared with net income of $256.9 million, or $1.07 per share, last year. For the first six months, net income was a record $648.1 million, or $2.56 per share, compared with $324.9 million, or $1.35 per share, for the period last year.

Worldwide net sales and revenues grew 34 percent to $5.877 billion for the second quarter compared with a year ago and increased 30 percent to $9.361 billion for the first six months. Net sales of the equipment operations were $5.296 billion for the quarter and $8.208 billion for six months, compared with $3.867 billion and $6.141 billion for the periods last year.

Strong markets for company products, plus benefits from ongoing business-improvement initiatives, are helping John Deere achieve new levels of performance and financial returns, noted Robert W. Lane, chairman and chief executive officer. “We are profitably expanding our market presence throughout the world and winning new customers, with exciting new products and services,” he said. “Furthermore, aggressive asset management has resulted in lean and efficient inventory levels. As a result, the company is in position to fully participate in the recovery now underway in our key markets and realize improved cash flow. We are demonstrating progress in building a business that can generate and sustain superior value for customers and higher returns for investors.”

All of the company’s equipment divisions generated higher sales for the quarter and year to date. The increases were due to higher shipments, as well as currency translation and improved price realization. Equipment sales in the U. S. and Canada rose 39 percent for the quarter and 35 percent for the first six months. Outside the U.S. and Canada, sales increased by 32 percent and 30 percent for the respective periods, primarily due to higher sales of agricultural equipment and improved price realization. Excluding the impact of currency translation, sales outside the U.S. and Canada were up 18 percent for the quarter and up 15 percent year to date.

Deere’s equipment operations reported operating profit of $726 million for the quarter and $924 million for six months compared with $339 million and $382 million last year. For both periods, the operating-profit increase was primarily due to higher shipments and improved price realization.

Summary of Equipment Operations
Agricultural Equipment. Division sales increased 29 percent for the quarter and 28 percent for the six months. The sales increases were mainly due to higher shipments, reflecting strong retail demand, the impact of currency translation and improved price realization. Division operating profit was $430 million for the quarter and $516 million for six months, compared with $194 million and $198 million last year. The operating profit improvements for both periods were primarily due to higher worldwide sales and production volumes and improved price realization, partially offset by higher peformance-bonus expense.

Commercial & Consumer Equipment. Driven by strong retail demand, division sales were up 33 percent for the quarter and 28 percent for six months. Operating profit was $152 million for the quarter and $171 million for the year to date, compared with $110 million and $132 million last year. For both periods, the improvement in operating profit was primarily due to higher sales and production volumes, partially offset by higher performance-bonus expense and increased costs for freight. Results for both periods also were negatively affected by higher expenses for component purchases, due to the impact of a weaker U.S. dollar.

Construction & Forestry. Division sales rose 67 percent for the quarter and 58 percent year to date reflecting strong activity at the retail level. Operating profit improved to $144 million for the quarter and $237 million for the year to date, compared with $35 million and $52 million last year. The improvements for both periods were mainly due to higher sales and production volumes, and improved price realization, partially offset by higher performance-bonus expense. Six-month results included a $30 million pretax gain from the sale of an equipment-rental company. The company began consolidating the results of Nortrax and Nortrax Investments in 2004. As a result of this consolidation, Deere now recognizes all sales and profits of Nortrax as equipment is retail sold. This had an unfavorable operating-profit impact of approximately $18 million for the quarter and $33 million for the year to date.

Credit. Credit operations generated net income of $72.9 million for the quarter and $149.3 million for the six months, compared with $72.9 million and $141.9 million, respectively, last year. Affecting results for the quarter were higher gains from an increased volume of retail-note sales, offset by an increase in administrative costs related in part to higher performance-bonus expense. The year-to-date improvement was mainly due to higher gains from an increased volume of retail-note sales and growth in the portfolio, partially offset by higher administrative costs.

Market Conditions & Outlook
As a result of the factors and conditions outlined below, company equipment sales for 2004 are expected to increase by 24 to 26 percent with net income forecast to be around $1.2 billion. Sales for the third quarter of 2004 are currently forecast to be up approximately 25 to 27 percent in comparison with the same period last year. Production levels are expected to increase by 24 to 26 percent for the quarter. Companywide net income for third-quarter 2004 is forecast to be around $350 million. Excluding the impact of currency, sales are expected to increase 23 to 25 percent for the quarter and 21 to 23 percent for the year.

Agricultural Equipment. U.S. farm cash receipts are expected to strengthen in 2004 as a result of favorable crop prices, low carryover stocks and an increase in exports. Stocks of key commodities such as corn and soybeans are expected to end the marketing year at their lowest point in some time with prices averaging well above levels of recent years. Despite a reduction in U.S. beef exports, livestock receipts are now expected to be higher than in 2003 due in part to strength in the dairy sector. As a result of these favorable conditions, industry retail sales in the U.S. and Canada are expected to be up 15 to 20 percent for fiscal 2004. On a worldwide basis, sales of John Deere agricultural equipment are now forecast to be up 24 to 26 percent for the year, with an increase of 19 to 21 percent excluding the effect of changes in currency.

Commercial & Consumer Equipment. John Deere commercial and consumer equipment sales are expected to continue benefiting from the success of new products such as an expanded utility-vehicle line and an additional model of the 100-series lawn tractor. Division sales now are forecast to be up by 15 to 17 percent for the year.

Construction & Forestry. Retail activity in the construction and forestry sectors continues to be robust as a result of fleet replenishment by contractors and rental operations. As a result, Deere’s overall construction and forestry sales are expected to increase 35 to 37 percent for the year, and to be up 30 to 32 percent excluding Nortrax.

Financial Services.  Although Deere’s credit operations are expected to benefit from further growth in the loan portfolio, net income for 2004 is forecast to be down slightly as a result of lower gains on receivable sales. The credit division is expected to report net income of about $300 million for the year. In health care, Deere expects its operations to have net income near breakeven for the full-year period.

Beyond the effect of stronger markets, Deere’s recent success is being driven by a committed team of employees and partners, noted company CEO Lane. “It is the dedication and hard work of our employees, dealers and suppliers that have put our business improvement efforts on such a solid footing.”

These initiatives stress disciplined asset management and cost control, with a continuing emphasis on advanced technology and new-product development, he pointed out. “Although there's still much to be done in reaching our goals,” Lane said, “Deere's plans for building a better business are well on track and producing real benefits thanks in large part to John Deere people and partners.”

Tuesday, May 18, 2004