Equipment Maker Deere Earnings Down

Deere reported worldwide net income of $71.8 million, or $0.30 per share, for the third quarter ended July 31, 2001, and $256.1 million, or $1.08 per share, for the first nine months of 2001. The numbers are down sharply compared with net income of $172.4 million, or $0.72 per share, and $414.4 million, or $1.75 per share, for the comparable periods last year.

"Deere's third-quarter results continued to reflect the general economic slowdown and low farm commodity prices," said Robert Lane, chairman and CEO. Although remaining profitable in the face of a slowdown, Lane noted that the company is planning production cutbacks and an early-retirement program to remain competitive. These items are expected to have an adverse impact on fourth-quarter financial results.

Worldwide net sales and revenues were $3.584 billion for the third quarter and $10.041 billion for the first nine months of 2001, compared with $3.632 billion and $9.761 billion, respectively, last year. Net sales were $3.037 billion for the third quarter and $8.384 billion for nine months compared with $3.122 billion and $8.326 billion a year ago. Excluding acquisitions, both the quarter and year-to-date periods were negatively affected by lower sales of commercial and consumer equipment and of construction and forestry equipment.

Excluding acquisitions, net sales decreased 6 percent for the quarter and 3 percent year to date compared with last year. Overall, the company's physical volume of sales decreased 3 percent for the quarter but was 2 percent higher for the first nine months.

The company's physical volume of sales is currently forecast to be down 14 percent for fourth quarter and 2 percent for the full year.

COMMERCIAL AND CONSUMER EQUIPMENT DIVISION. Operating profit of the worldwide commercial and consumer equipment division was $12 million for the quarter and $76 million for the first nine months, compared with $46 million and $170 million in the same 2000 periods. Compared with last year, net sales were 2 percent higher for the quarter and 7 percent lower year to date.

Excluding acquisitions, net sales decreased 7 percent for the quarter and 12 percent for nine months, primarily reflecting the impact of weaker economic conditions and unfavorable weather during the important spring selling season, said the company. Operating profit decreased for both periods primarily due to the lower sales and production volumes and related manufacturing inefficiencies, and to start-up costs associated with new products and new facilities.

Deere said it will make further production cuts during the fourth quarter. Cuts include shutting down the company’s Horicon, Wisc., factory for premium lawn equipment for about one month. Overall division production for the quarter is expected to be about 40 percent below last year's levels. As a result, shipments of Deere's commercial and consumer equipment for 2001 are expected to remain well below prior-year levels.

CONSTRUCTION AND FORESTRY DIVISION. Operating profit of the worldwide construction and forestry division was $15 million for the quarter and $46 million for the first nine months of 2001, compared with $60 million and $151 million last year. Sales declined 16 percent for the quarter and 4 percent for the first nine months.

Deere said residential and non-residential construction is expected to be weaker in the remainder of the fiscal year. Adding in lower purchases by independent rental companies and low sales of forestry products, the company believes industry retail sales of forestry and construction equipment for 2001 will be 20 to 25 percent lower than last year. Therefore, Deere's construction-equipment factories are expected to be down about one-third of equivalent production days in the final quarter of the year.

AGRICULTURAL EQUIPMENT DIVISION. Deere's worldwide agricultural equipment division reported operating profit of $115 million for the quarter and $335 million for the year to date, compared with $158 million and $332 million last year. The quarter's decrease was primarily due to the lower production and sales of large tractors, as well as a planned increase in research and development expense and costs associated with development of new products.

The company continues to expect overall industry retail sales of farm equipment in North America to be flat to up slightly compared with last year's modest levels. Deere is undertaking additional farm-machinery production cutbacks in the fiscal fourth quarter. In all, company agricultural-equipment factories in North America are projected to be idled for almost one-fourth of the available days in the fourth quarter.

CREDIT OPERATIONS. Net income of the credit operations was $41 million for the quarter and $133 million for the first nine months, compared with $47 million and $124 million, respectively, last year.

OTHER BUSINESSES. The company's other businesses had operating losses of $7 million for the quarter and $28 million for the first nine months, compared with operating losses of $10 million and $29 million for last year's comparable periods.