Deere & Company
) dipped 1.78% during the
session today, May 14, on reporting a decline in both its top and
bottom lines for the second quarter of fiscal 2014 (ended Apr 30,
2014) and a trimmed guidance for worldwide equipment sales for
Earnings per share were reported at $2.65, down 4% from $2.76
earned in the prior-year quarter. Deere's second-quarter earnings,
however, beat the Zacks Consensus Estimate of $2.40, delivering an
earnings surprise of +10%.
Lower shipment volumes, unfavorable effects of foreign-currency
exchange, and a less favorable product mix partially offset
benefits from price realization and a lower effective tax rate,
thereby leading to the decline in earnings.
Deere's worldwide total sales dipped 9% year over year to $9.95
billion, surpassing the Zacks Consensus Estimate of $9.55 billion.
Net sales of equipment operations (which comprise of Agriculture
and Turf, Construction and Forestry) were $9.2 billion, down 10%
year over year, including a price realization of 2%, offset by a 1%
unfavorable currency translation. Region-wise, equipment net sales
were down 12% in the U.S. and Canada and 6% in rest of the world.
Cost of sales in the quarter decreased 8% year over year to $6.87
billion. Gross profit during the quarter was $3.08 billion, down
10% year over year. Selling, administrative and general expenses
dipped 11% to $846 million. Operating profit declined 15% year over
year to $1.6 billion.
Operating income from equipment operations plunged 18% year over
year to $1.36 billion as lower shipment volumes, the unfavorable
effects of foreign currency exchange, and a less favorable product
mix offset the benefit of price realization.
The Agriculture & Turf segment sales decreased 12% year over
year to $7.6 billion, as lower shipment volumes, sale of John Deere
Landscapes and the unfavorable effects of currency translation,
partially offset price realization. Operating profit of the segment
declined 22% year over year to $1.2 billion due to same reasons
mentioned above along with a less favorable product mix.
Construction & Forestry sales improved 2% year over year to
$1.6 billion, attributed to higher shipment volumes. Operating
profit in the segment surged 63% year over year to $132 million,
driven by higher shipment volumes, lower production costs, lower
selling, administrative and general expenses, partially offset by
higher sales incentive costs.
Net revenues at Deere's Financial Services operations were $572
million in the reported quarter, up 7% year over year. The
segment's operating profit was $229 million, compared with $198
million in the prior-year quarter. Net income in this segment was
$148 million compared with $125 million in the year-ago quarter.
The improvement stemmed from growth in credit portfolio, partially
offset by higher selling, administrative and general expenses.
As of Apr 31, 2014, Deere had cash and cash equivalents of $3.1
billion, down from $3.6 billion as of Mar 31, 2013. Long-term
borrowings were at $23 billion as of Apr 31, 2014 compared with
$21.7 billion as of Mar 31, 2013. Net cash flow used in operating
activities was $832 million in the quarter compared with a usage of
$1.16 billion in the prior-year quarter.
Deere expects equipment sales to decrease around 4% year over year
for the third quarter of fiscal 2014. For the full year, Deere
trimmed its forecast by 4% from the previous expectation of a 3%
dip. Deere, however, maintained its net income projection of $3.3
billion for fiscal 2014.
Segment-wise, Deere projects Agriculture and Turf equipment sales
to decline 7% for fiscal 2014, down from the previous expectation
of a 6% drop. This includes a negative currency translation effect
of about 1%. Farm incomes are expected to be lower than in 2013,
which will have a dampening effect on demand for large farm
Region-wise, Deere expects that industry farm machinery sales in
the U.S. and Canada will decline 5% to 10% year over year in fiscal
2014. In Europe, sales are projected to be down 5% due to lower
commodity prices and farm income. Sales in the Commonwealth of
Independent States are expected to be significantly lower. Sales in
Asia are expected to be up slightly year over year. In South
America, industry sales of tractors and combines are expected to
decline by 10% year over year.
Deere expects sales growth of turf and utility equipment in the
U.S. and Canada to be flat to up 5%, reflecting improved market
conditions. The company foresees global sales for Construction
& Forestry equipment to advance about 10%, partly because of
the recovery in the U.S. economy and a rise in housing starts.
Global forestry sales are expected to be higher, driven by economic
growth and higher sales in European markets. Net income from
Financial Services is estimated at around $600 million.
Given the increased global demand for food, shelter and
infrastructure, we believe that the long-term outlook for Deere
remains strong. Meanwhile in the near term, even though net farm
income remains at high levels, farmer sentiments regarding capital
goods purchases are becoming more conservative due to lower
Deere will nevertheless benefit from recovery in the construction
sector and stabilization in the European economy. Furthermore,
given its strong balance sheet, the company can continue to
increase dividends and repurchase shares.
Moline, IL-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 operates through dealers to resell products
Deere currently holds a Zacks Rank #4 (Sell). Some stocks that are
worth considering within this sector include
Blount International Inc.
Broadwind Energy, Inc.
). While Gorman-Rupp sports a Zacks Rank #1 (Strong Buy), Blount
International and Broadwind Energy carry a Zacks Rank #2 (Buy).
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