Deere & Company's
(
DE
) fourth quarter fiscal 2012 earnings came in at $1.75 per share
compared with $1.62 per share earned in the prior-year quarter.
However, reported earnings missed the Zacks Consensus Estimate of
$1.88 per share.
Operational Update
Deere's worldwide total sales increased 14% year over year to
$9.79 billion, beating the Zacks Consensus Estimate of $8.84
billion. Net sales of equipment operations (which comprise
Agriculture and Turf, Construction and Forestry) were $9.05
billion, a 14% year-over-year increase including a price rise of
4% and an unfavorable currency translation effect of 3%.
Region-wise, equipment net sales were up 26% in the United
States and Canada, but decreased 2% in rest of the world.
Cost of sales in the quarter climbed 15% to $6.84 billion.
Operating profit improved 8% year over year to $1.24 billion in
the quarter.
Segment Performance
The Agriculture & Turf segment's sales increased 16% to
$7.39 billion, attributable to higher shipment volumes and
improved price realization, partially offset by a negative
currency translation. Operating profit of the segment improved 7%
to $931 million. The increase in operating profit was based on
higher shipment and improved price realization, partially offset
by unfavorable effects of foreign currency exchange.
Construction & Forestry experienced a year-over-year sales
improvement of 7% to $1.65 billion, ascribed to higher shipment
volumes and improved price realization. The segment operating
profit increased 38% year over year to $120 million, driven by
higher shipment and improved price realization, partially offset
by higher production and raw material costs along with higher
Selling, General and Administrative and Research and Development
expenses.
Net revenue at Deere's Financial Services operations was $633
million in the reported quarter, up 3% year over year. Net income
in this segment was $121.7 million, down from $122.1 million in
the year-ago quarter. Results decreased year over year on higher
SG&A expenses, narrow financial spreads, higher provision for
credit losses and higher reserves for crop insurance claims.
Fiscal 2012 Performance
Deere reported earnings per share of $7.63 in fiscal 2012, up
15% from $6.63 per share a year ago. Earnings missed the Zacks
Consensus Estimate of $7.76 per share. Total sales increased 13%
year over year to $36.15 billion, beating the Zacks Consensus
Estimate of $33.476 billion.
Financial Position
At the end of fiscal 2012, Deere had cash and cash equivalents
of $4.65 billion, up from $3.65 billion as of fiscal 2011 end.
Long-term borrowings increased to $22.4 billion at fiscal 2012
end from $16.9 billion at fiscal 2011 end. The company generated
net cash flow from operating activities of $1.17 billion during
fiscal 2012 compared with $2.236 billion in the prior
fiscal.
Looking Forward
Deere expects equipment sales to grow around 10% in the first
quarter of fiscal 2013 and 5% for the full year. Net income is
projected at $3.2 billion for fiscal 2013.
Segment wise, Deere expects worldwide sales of Agriculture and
Turf equipment to grow 4% in fiscal 2013. Higher commodity prices
and strong farm incomes are expected boost demand for farm
machinery during the year. Furthermore, Deere's sales are
expected to benefit from global expansion and lines of advanced
new equipment.
Region-wise, Deere expects industry farm-machinery sales in
the U.S. and Canada to remain flat year over year in 2013. In
Europe, sales in projected to be down 5% due to continuing
deterioration in the overall economy. Sales in the Commonwealth
of Independent States are expected to witness modest growth.
Sales in Asia are expected to be flat compared with 2012, due
to soft markets in China and India. In South America, industry
sales are expected to be up 10% due favorable commodity prices.
Industry sales of turf and utility equipment in the U.S. and
Canada are expected to be up 5%.
Construction and Forestry equipment are expected to improve 8%
for 2013, driven by modest improvement in the U.S. economic
conditions. World forestry markets are expected to remain flat
year over year due to weakness in the European markets. Net
income from Financial Services is estimated at around $500
million.
Our View
The company has invested in expanding its presence abroad, and
has been building capacity in China, India, and Brazil and
continued to roll out new products. Given the increased global
demand for food, shelter and infrastructure, we believe that the
long-term outlook for Deere remains strong.
Recent figures suggest a turnaround in the construction
sector. According to the American Institute of Architects, after
languishing in the negative territory for five consecutive
months, the architecture billing index (ABI) climbed back into
the positive territory with a score of 50.2 in August. ABI is an
economic indicator, which provides an approximate nine- to
twelve-month glimpse into the future of non-residential
construction spending activity and any score of above 50 is
significant as it indicates an increase in billings.
In September, the score further improved to 51.6, the highest
in nearly two years. Both housing starts and building permits
were record high in four years. These figures are reflective of
the fact that U.S. residential construction is finally
stabilizing and is on the road to a much-awaited recovery. This,
in turn, will improve demand for Deere's construction equipment
going forward. However, continued weakness in the European
markets remains a concern.
Deere retains a Zacks #3 Rank (short-term Hold rating).
Illinois-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
internationally. Deere competes with companies like
AGCO Corporation
(
AGCO
) and
CNH Global NV
(
CNH
),
AGCO CORP (AGCO): Free Stock Analysis Report
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DEERE & CO (DE): Free Stock Analysis
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