Deere & Co.
) delivered earnings of $2.61 per share in its second quarter of
fiscal 2012, comfortably exceeding the Zacks Consensus Estimate of
$2.54. Results were 23% above the $2.12 earned in the year-ago
The outperformance was largely driven by a strong demand for
farm machinery, the launch of advanced new products and geographic
Deere's worldwide total sales increased 12% year over year to
$10 billion, beating the Zacks Consensus Estimate of $9.67
Net sales of equipment operations (which comprise Agriculture
and Turf, Construction and Forestry) were $9.4 billion, a 13%
year-over-year increase including a price increase of 5% and an
unfavorable currency translation effect of 2%. On a geographic
basis, equipment net sales were up 18% in the United States and
Canada and, 6% in rest of the world.
Cost of sales in the quarter totaled $6.8 billion, up 12% year
over year. Operating profit improved 16% year over year to $1.94
billion in the quarter.
The Agriculture & Turf segment's sales increased 11% to $7.7
billion, led by higher shipment volumes and improved price
realization. Operating profit at the segment was $1.4 billion, up
21% year over year. The increase in operating profit resulted from
higher shipment, improved price realization, partially offset by
higher raw material costs and, research and development
Construction & Forestry posted year-over-year sales growth
of 26% to reach $1.67 billion, ascribed to higher shipment volumes
and improved price realization. The segment operating profit
increased 13% year over year to $119 million, driven by higher
shipment, production volumes and improved price realization,
partially offset by higher raw material costs and unfavorable
Net revenues at Deere's Financial Services operations were $488
million in the reported quarter, down 1% from the year-ago quarter.
Net income in the segment was $109 million, up from $105 million in
the year-ago quarter. Benefits from growth in credit portfolio were
offset by higher selling, administrative and general expenses.
As of March 31, 2012, Deere had cash and cash equivalents of
$3.02 billion, down from $3.39 billion as of January 31, 2012 and
$3.95 billion as of March 31, 2011. Long-term borrowings increased
to $18.7 billion as of March 31, 2012 from $16.92 billion as of
January 31, 2012 and $16.2 billion as of April 31, 2011. Net cash
used for operating activities for the first half of fiscal 2012 was
$1.53 billion compared with $665.3 million in the corresponding
Deere expects equipment sales to grow around 15% in fiscal 2012.
The guidance includes an unfavorable currency-translation impact of
3%. Net income is projected at $3.35 billion, up from the previous
expectation of $3.275 billion.
Segment-wise, Deere expects worldwide sales of Agriculture and
Turf equipment to grow by 15% for full-year 2012, benefiting from
the favorable global farm conditions, introduction of advanced new
products throughout the globe and from major expansion projects
particularly in the emerging markets.
Region-wise, Deere expects industry farm-machinery sales in the
U.S. and Canada to grow by 10% for 2012. While sales in Western and
Central Europe are expected to be flat to up 5%, sales in the
Commonwealth of Independent States are expected to witness strong
growth. Asian growth is expected to be moderate. Industry sales of
turf and utility equipment in the U.S. and Canada are expected to
be up 5%.
Construction and Forestry equipment are expected to improve 20%
for 2012. This reflects strength in the rental, energy,
material-handling, industrial and international sectors and growth
in sales to independent rental companies, which are upgrading and
replenishing their fleets.
Sales growth is also expected to be aided by advanced new
products and geographic expansion. Net income from Financial
Services is estimated at $465 million.
Deere is riding a wave of strong demand for agricultural
commodities and increase in farm income globally. The United States
Department of Agriculture forecasts net farm income to be at $91.7
billion in 2012. It is expecting a record corn crop of 48 million
tons this year, up 4.5 million tons year on year, which will be the
largest yield in the last 75 years.
This bullish trend will be witnessed worldwide, as the global
corn production is estimated to rise 10% with several countries
posting record yields. This will encourage farmers to invest in the
latest machinery to maximize productivity, favoring Deere and other
companies in this space.
Deere's sales will also be supported by launch of a range of
advanced new products and by geographic expansion. Deere has been
growing its manufacturing footprint in overseas markets such as
China, Brazil, Russia and India.
The expansion into the emerging markets should provide long-term
growth opportunities. Population growth and rising living standards
in the emerging markets are fueling growth in global food
In addition, Deere is also increasing its focus in the U.S. and
Canada. This area generated nearly 60% of total revenues and about
75% of the company's profit in 2011.
The company currently retains a Zacks #2 Rank (short-term Buy
Illinois-based Deere & Co. is engaged in the production and
distribution of agricultural and forestry equipment, construction
equipment and engines worldwide. The company sells products in the
U.S. and Canada through branch offices as well as through
distributors and dealers for the resale of products
internationally. Deere competes with
CNH Global NV
CATERPILLAR INC (CAT): Free Stock Analysis
CNH GLOBAL NV (CNH): Free Stock Analysis Report
DEERE & CO (DE): Free Stock Analysis Report
KUBOTA CORP ADR (KUB): Free Stock Analysis
To read this article on Zacks.com click here.