Deere Reports Decline in Q3 Earnings

MOLINE, Ill. – Deere & Co. today announced worldwide net income of $387.1 million, or $1.58 per share, for the third quarter ended July 31, compared with $401.4 million, or $1.58 per share, for the same period last year. For the first nine months, net income was $1.214 billion, or $4.89 per share, compared with $1.049 billion, or $4.14 per share, last year.

Commenting on results that fell below the company's earlier guidance, Robert Lane, chairman and chief executive officer, said, "Deere's third-quarter performance reflects our commitment to balance production with demand and maintain a tight grip on inventories." In addition, he noted that retail sales in several key markets have been negatively affected by dry weather. "Drought has definitely put pressure on our retail-sales forecasts and caused us to accelerate production cuts in several of our key factories late in the quarter," Lane said. "These actions have the effect of lowering earnings in the near term, but they are fully consistent with our longer-range commitments and goals for delivering shareholder value."

The company’s lean inventory position is expected to contribute to the successful introduction of many new equipment models in 2006, Lane said. "As a result of our consistent approach to new-product investment, we're coming to market with exciting new lines of farm machinery and lawn equipment. We're confident these advanced products will enhance our market leadership and deliver even more value and productivity to our growing global customer base."

EARNINGS OUTLOOK. Overall, company equipment sales are expected to increase by about 2 percent for full-year 2005 and to be down about 13 percent for the fourth quarter. On a reported basis, sales are forecast to be up 8 percent for the year and down 9 percent for the quarter. Production is expected to be off slightly on a full-year basis but down 23 percent in the fourth quarter. Net income is forecast to be about $1.4 billion for the full year and from $175 million to $200 million for the fourth quarter.

"Through our actions to hold down asset levels and costs, we remain focused on achieving superior, sustainable results," Lane said. "At the same time, we are growing the business by investing in new products and services and by extending our brand to a wider global audience." In this regard, Deere recently announced plans to purchase the remaining half of its tractor joint venture in India, expanded its landscapes-supply business through an acquisition, and started up a new business unit devoted to wind-energy services. In addition, the company expanded its productive and popular line of automated guidance equipment and broke ground for a new drivetrain facility in China. "We're confident we are building a better business that will prove beneficial to investors well into the future," Lane said.

Looking at specific divisions, Deere’s agricultural equipment division sales increased 9 percent for the quarter and 16 percent for nine months. Factors supporting the quarter's increase included improved price realization, higher shipments and currency translation. Year-to-date sales were higher mainly due to increased shipments, as well as the impact of improved price realization and currency translation. Operating profit was $262 million for the quarter and $913 million for nine months, compared with $290 million and $805 million last year. Quarterly profit was down primarily due to inefficiencies related to lower worldwide production volumes. The operating-profit improvement for nine months was primarily driven by higher worldwide sales, the effect of stronger production volumes, and lower postretirement benefit costs. Improved price realization offset the increase in raw material costs for the third quarter and largely offset the increase experienced year to date.

The Commercial & Consumer Equipment division sales declined 3 percent for the quarter and 5 percent for nine months, reflecting the impact of unfavorable weather conditions on the sale of consumer riding lawn equipment during both periods. Operating profit was $60 million for the quarter and $193 million for nine months, compared with $87 million and $258 million last year. Operating profit was down for both periods primarily due to lower shipments and production in response to a weaker retail environment. In addition, production was lower in the quarter as division factories made preparation for new products. Improved price realization offset an increase in raw material costs for both the quarter and year to date.

Deere’s Construction & Forestry division sales rose 29 percent for the quarter and 30 percent for nine months reflecting strong activity at the retail level. Operating profit improved to $178 million for the quarter and $512 million for the year to date, compared with $155 million and $393 million last year. The profit increases were mainly a result of higher sales and efficiencies related to stronger production volumes. Improved price realization offset the impact of higher raw material costs in both periods. Nine-month operating profit last year included a $30 million pretax gain from the sale of an equipment rental company.