Deere Tops Estimates - Analyst Blog


Deere & Co. ( DE ) delivered earnings of $1.62 per share in its fourth quarter ended October 31, 2011, comfortably exceeding the Zacks Consensus Estimate of $1.44. Results were 51% ahead of $1.07 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 20% year over year to $8.6 billion, beating the Zacks Consensus Estimate of $8 billion. Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) were $7.9 billion, a 20% year-over-year increase including a favorable currency translation effect of 2% and a price increase of 3%. On a geographic basis, equipment net sales were up 14% in the United States and Canada and 31% in rest of the world.

Cost of sales in the quarter totaled $5.9 billion, up 21% year over year. Operating profit improved 35% year over year to $1.15 billion in the quarter.

Segment Performance

The Agriculture & Turf segment's sales increased 18% to $6.3 billion, led by higher shipment volumes, improved price realization and favorable currency translation. Operating profit at the segment was $868 million, up 31% year over year. The increase in operating profit resulted from higher shipment, improved price realization, partially offset by higher raw material costs, higher manufacturing overhead costs related to new products, and higher research and development expenses.

Construction & Forestry posted a year over year sales growth of 34% to reach $1.5 billion ascribed to higher shipment volumes. The segment operating profit increased 61% year over year to $87 million driven by higher shipment, production volumes and improved price realization, partially offset by higher raw material costs and research and development expenses.

Net revenues at Deere's Financial Services operations were $615 million in the quarter, up 14% from the year-ago quarter. Net income in the segment was $196 million, up 41% from the year-ago quarter. The improvement was largely driven by portfolio growth and a lower provision for credit losses, partially offset by narrower financing spreads and a higher effective tax rate.

Financial Position

As of fiscal 2011 end, Deere had cash and cash equivalents of $3.65 billion, down from $3.79 billion as of fiscal 2010 end. Long-term borrowings increased slightly to $16.96 billion from $16.81 billion as of fiscal 2010 end.

Net cash from operating activities for the year was $2.32 billion compared with $2.28 billion in the previous year.

Fiscal 2011 Performance

For fiscal 2011, Deere reported earnings of $6.63 per share, ahead of the Zacks Consensus Estimate of $6.44 and 52% above the year ago earnings per share of $4.35. Net income for the year was $2.8 billion, outperforming the company's expectation of $2.7 billion. 

Deere's worldwide total sales increased 23% year over year to $32 billion, beating the Zacks Consensus Estimate of $30 billion. Net sales of equipment operations were $29.5 billion, a 25% year-over-year increase including a favorable currency translation effect of 3% and a price increase of 3%.

Looking Forward

Deere expects equipment sales to grow in the range of 16% to 18% in the first quarter and about 15% for fiscal 2012. The guidance includes a favorable currency-translation impact of 3% for the quarter and 1% for the fiscal year. Net income is estimated at $3.2 billion in 2011.

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 16% 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 $450 million.

Region-wise, Deere expects industry farm-machinery sales in the U.S. and Canada to grow 5% to 10% for 2012. Western and Central Europe is expected to be flat considering the general economic concerns in the region. 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. However, In South America, the company expects industry sales to remain flat compared with 2011.

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 #3 Rank (short-term Hold 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
Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CAT , CNH , DE , KUB

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