Deere & Company
) reported record third quarter fiscal 2013 (ended Jul 31, 2013)
earnings of $996.5 million or $2.56 per share, up roughly 26%
from $788 million or $1.98 per share earned in the prior-year
quarter. The results were ahead of the Zacks Consensus Estimate
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Deere's worldwide total sales increased 4% year over year to $10
billion, beating the Zacks Consensus Estimate of $9.3 billion.
Net sales of equipment operations (which comprise Agriculture and
Turf, Construction and Forestry) were $9.3 billion, up 4% year
over year, including a price rise of 3%, offset by an unfavorable
currency translation effect of 1%. Region-wise, equipment net
sales were up 4% in the U.S. and Canada and 5% in rest of the
Cost of sales in the quarter climbed 1.2% year over year to $6.83
billion. Gross profit during the quarter was $3.17 billion
compared to $2.83 billion in the prior-year quarter. Selling,
administrative and general expenses increased 4.7% year over year
to $919.8 million. Operating profit improved 20% year over year
to $1.9 billion.
Operating income of equipment operations rose 28% year over year
to $1.44 billion as price realization and higher shipment volumes
helped offset an impairment charge relating to long-lived assets,
increased production costs and higher selling, administrative and
general expenses and unfavorable currency effects.
Agriculture & Turf
segment sales increased 8% year over year to $7.84 billion,
attributable to higher shipment volumes and improved price
realization, partially offset by a negative currency translation.
Operating profit of the segment improved 32% year over year to
The increase in operating profit was based on higher shipment and
improved price realization, partially offset by increases in
selling, general and administrative expenses, production costs as
well as unfavorable foreign exchange effects.
Construction & Forestry
experienced an 11% year over year decline in sales to $1.47
billion, due to lower shipment volumes. The segment operating
profit fell 5% year over year to $107 million due to lower
shipment, partly offset by price realization and lower research
and development expenses.
Net revenues at Deere's
operations were $587 million in the reported quarter, up 4% year
over year. Operating profit in this segment was $234 million
compared with $170 million in the year-ago quarter. The
improvement stemmed from growth in the credit portfolio and
higher crop insurance margins, partially offset by an increased
provision for credit losses and higher selling, administrative
and general expenses.
As of Jul 31, 2013, Deere had cash and cash equivalents of $3.09
billion, down from $3.39 billion as of Jul 31, 2012. Long-term
borrowings increased to $21.7 billion as of Jul 31, 2013, from
$21.1 billion as of Jul 31, 2012. Net cash flow provided by
operating activities was $587.8 million for the nine months of
fiscal 2013 compared with cash use of $1.13 billion in the
prior-year comparable period.
Deere expects equipment sales to decrease around 5% year over
year for the fourth quarter of fiscal 2013. For the full year,
the company continues to expect equipment sales gain of 5%.
However, net income projection has been revised from $3.3 billion
to $3.45 billion for fiscal 2013.
Segment-wise, Deere reiterated worldwide sales growth guidance of
Agriculture and Turf equipment at 7% for fiscal 2013. Higher
commodity prices and strong farm incomes are expected to boost
demand for farm machinery during the year. Furthermore, Deere's
sales are expected to benefit from global expansion and new lines
of advanced equipment.
Region-wise, Deere restated that industry farm machinery sales in
the U.S. and Canada will increase 5% year over year in 2013. In
Europe, sales are projected to be down 5% due to continued
deterioration in the overall economy and the poor harvest in the
U.K. last year.
Sales in the Commonwealth of Independent States are expected to
be moderately lower. Sales in Asia are expected to be flat year
over year. Deere expects sales growth of turf and utility
equipment in the U.S. and Canada to be about 5%, reflecting
improved market conditions.
The company now expects global sales for Construction &
Forestry equipment to fall about 8% compared with its earlier
expectations for a 5% decline, reflecting a cautious outlook for
U.S. economic growth. Global forestry sales are expected to be
higher as improved U.S. demand more than offset weakness in
European markets. Net income from Financial Services is estimated
at around $560 million.
Given the increased global demand for food, shelter and
infrastructure, we believe that the long-term outlook for Deere
remains strong. Deere will benefit from relatively high commodity
prices and strong farm incomes, recovery in construction sector
and strength in Brazil.
Demand for large equipment such as high-horsepower tractors and
combines will drive growth. However, continued weakness in the
European markets remains concern.
Moline, Ill.-based Deere 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
Deere currently holds a Zacks Rank #3 (Hold).
Other stocks in the industrial products sector with a favorable
Zacks rank are
Alamo Group, Inc.
) with a Zacks Rank #1 (Strong Buy) as well as
CNH Global NV
) with a Zacks Rank #2 (Buy).