Deere & Co.
(
DE
) delivered earnings of $1.30 per share in its first quarter ended
of fiscal 2012, comfortably exceeding the Zacks Consensus Estimate
of $1.23. Results were 8% ahead of $1.20 earned in the year-ago
quarter. The outperformance was largely driven by strong demand for
farm machinery as well as increased sales of construction
equipment.
Operational Update
Deere's worldwide total sales increased 11% year over year to
$6.77 billion, beating the Zacks Consensus Estimate of $6.49
billion. Net sales of equipment operations (which comprise
Agriculture and Turf, Construction and Forestry) were $6.1 billion,
an 11% year-over-year increase including a price increase of 4% and
unfavorable currency translation effect of 1%. On a geographic
basis, equipment net sales were up 5% in the United States and
Canada and 21% in rest of the world.
Cost of sales in the quarter totaled $4.6 billion, up 12% year
over year. Operating profit improved 7% year over year to $1.17
billion in the quarter.
Segment Performance
The Agriculture & Turf segment's sales increased 8% to $4.7
billion, led by higher shipment volumes and improved price
realization. Operating profit at the segment was $574 million, up
3% year over year. The increase in operating profit resulted from
higher shipment, improved price realization, partially offset by
higher raw material costs and higher manufacturing overhead costs
related to new products.
Construction & Forestry posted a year over year sales growth
of 22% to reach $1.4 billion ascribed to higher shipment volumes
and improved price realization. The segment operating profit
increased 41% year over year to $124 million driven by higher
shipment, production volumes and improved price realization,
partially offset by higher raw material costs.
Net revenues at Deere's Financial Services operations were $548
million in the quarter, up 8% from the year-ago quarter. Net income
in the segment was $119 million, inching up from $118 million in
the year-ago quarter. Benefits from growth in credit portfolio,
revenue from wind energy credits and lower provision for credit
losses were offset by higher crop insurance claims and increased
selling, administrative and general expenses.
Financial Position
As of January 31, 2012, Deere had cash and cash equivalents of
$3.39 billion, down from $3.65 billion as of October 31, 2011.
Long-term borrowings decreased slightly to $16.92 billion from
$16.86 billion as of October 31, 2011. Net cash used for operating
activities for the quarter was $1.23 billion compared with an usage
of $0.9 billion in the previous year quarter.
Looking Forward
Deere expects equipment sales to grow around 15% in fiscal 2012.
The guidance includes an unfavorable currency-translation impact of
3%. Net income is estimated at $3.275 billion.
Segment wise, Deere expects worldwide sales of Agriculture and
Turf equipment to grow by 15% for full-year 2012, benefiting from
favorable global farm conditions, and benefits from introduction of
advanced new products throughout the globe and from major expansion
projects particularly in emerging markets.
Construction and Forestry equipment are expected to improve 18%
for 2012, reflecting slightly improved market conditions and
activity outside of the U.S. and strength in Canada. Construction
equipment sales to independent rental companies are expected to
improve further.
Sales growth is also expected to be aided by advanced new
products and geographic expansion. Net income from Financial
Services is estimated at $460 million.
Region-wise, Deere expects industry farm-machinery sales in the
U.S. and Canada to grow 10% for 2012. Western and Central Europe is
expected to be flat to up 5%. Sales in the Commonwealth of
Independent States are expected to see moderate gains while growth
in Asia is expected to be strong. Industry sales of turf and
utility equipment in the U.S. and Canada are expected to increase
slightly.
Our Take
Deere continues to remain focused on expanding its production
capacities. The company's investments to expand capacities as well
as to offer new products favorably position it to cater to the
increasing demand for food, shelter and infrastructure, thereby
fueling top line growth in the upcoming quarters.
Deere also pays a regular quarterly dividend and increases the
dividend from time to time, which enhances shareholders value. The
company currently retains a Zacks #2 Rank (short-term Buy
recommendation).
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
Caterpillar Inc.
(
CAT
),
CNH Global NV
(
CNH
) and
Kubota Corporation
(
KUB
).
CATERPILLAR INC (
CAT
): Free Stock Analysis Report
CNH GLOBAL NV (
CNH
): Free Stock Analysis Report
DEERE & CO (
DE
): Free Stock Analysis Report
KUBOTA CORP ADR (
KUB
): Free Stock Analysis Report
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