Deere & Company
) went up 3.9% in pre-market trading session today as the company
reported record net income for both the fourth quarter and fiscal
2013. Net income in the fourth quarter was $807 million, up 17%
from $688 million in the prior-year quarter.
Fourth quarter earnings per share were reported at $2.11, up
21% from $1.75 per share earned in the prior-year quarter and way
ahead of the Zacks Consensus Estimate of $1.89.
Deere's worldwide total sales decreased 3% year over year to
$9.45 billion, beating the Zacks Consensus Estimate of $8.8
billion. Net sales of equipment operations (which comprise
Agriculture and Turf, Construction and Forestry) were $8.6
billion, down 5% year over year, including a price rise of 4%,
offset by a 2% unfavorable currency translation Region-wise,
equipment net sales were down 6% in the U.S. and Canada and 2% in
rest of the world.
Cost of sales in the quarter declined 7% year over year to $6.33
billion. Gross profit during the quarter was $3.12 billion
compared with $2.95 billion in the prior-year quarter. Selling,
administrative and general expenses remained flat at $948
million. Operating profit improved 10% year over year to $1.76
Operating income of equipment operations rose 6% year over year
to $1.11 billion as price realization helped offset the
unfavorable effects of foreign-currency exchange, lower shipment
volumes and a less favorable product mix.
The Agriculture & Turf segment sales decreased 4% year over
year to $7.1 billion, attributable to lower shipment volumes and
negative currency translation, which offset benefits of price
realization. Operating profit of the segment improved 7% year
over year to $996 million.
The increase in operating profit was driven by improved price
realization, which offset unfavorable effects of foreign-currency
exchange, a less favorable product mix and lower shipment
Construction & Forestry sales dropped 8% year over year to
$1.52 billion, due to lower shipment volumes, partially offset by
price realization. The segment operating profit fell 2% year over
year to $118 million due to lower shipment, higher selling,
administrative and general expenses, mostly offset by price
realization and lower production costs.
Net revenues at Deere's Financial Services operations were $699
million in the reported quarter, up 10% year over year. Net
income in this segment was $157 million compared with $122
million in the year-ago quarter. The improvement stemmed from
growth in the credit portfolio and higher crop insurance margins,
partially offset by higher selling, administrative and general
Fiscal 2013 Performance
Deere reported earnings per share of $9.09 in fiscal 2013, up 19%
from $7.63 in fiscal 2012 and above the Zacks Consensus Estimate
of $8.86. Net income in fiscal 2013 was a record $3.5 billion
compared with $3.1 billion in the prior fiscal. Revenues
increased 5% to $37.8 billion, surpassing the Zacks Consensus
Estimate of $35.3 billion.
As of Oct 31, 2013, Deere had cash and cash equivalents of $3.5
billion, down from $4.6 billion as of Oct 31, 2012. Long-term
borrowings decreased to $21.6 billion as of Oct 31, 2013, from
$22.4 billion as of Oct 31, 2012. Net cash flow provided by
operating activities was $3.2 billion in fiscal 2013 compared
with $1.17 billion in the prior year.
Deere expects equipment sales to decrease around 2% year over
year for the first quarter of fiscal 2014. For the full year, the
company continues to expect equipment sales to decline 3%. Deere
projects net income of $3.3 billion for fiscal 2014.
Segment-wise, Deere projects Agriculture and Turf equipment sales
to decline 6% for fiscal 2014. Even though commodity prices and
farm incomes are expected to remain at healthy levels in 2014,
they will be lower than 2013, which will have a dampening effect
on demand for large farm equipment.
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
continued deterioration in the overall economy, lower commodity
prices and farm incomes.
Sales in the Commonwealth of Independent States are expected to
be moderately lower. Sales in Asia are expected to be up slightly
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 foresees global sales for Construction & Forestry
equipment to advance about 10%, partly because of the recovery in
the U.S. economy and an increase 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. Even though USDA projects record net farm income
for CY2013, farmer sentiment regarding capital goods purchases is
becoming more conservative due to lower commodity prices. Deere
will nevertheless benefit from recovery in construction sector.
However, continued weakness in the European markets remains a
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 dealers for the resale of products
Deere currently holds a Zacks Rank #4 (Sell).
Stocks in the industrial products sector with a favorable Zacks
) with a Zacks Rank #1, and
Alamo Group, Inc.
H&E Equipment Services Inc.
), each with a Zacks Rank #2 (Buy).
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