Deere & Company
) reported record first quarter fiscal 2013 earnings of $650
million or $1.65 per share compared with $533 million or $1.30
per share earned in the prior-year quarter. Reported earnings per
share were well ahead of the Zacks Consensus Estimate of $1.41
Deere's worldwide total sales increased 10% year over year to
$7.42 billion, beating the Zacks Consensus Estimate of $6.72
billion. Net sales of equipment operations (which comprise
Agriculture and Turf, Construction and Forestry) were $6.79
billion, an 11% year-over-year increase including a price rise of
3% and an unfavorable currency translation effect of 1%. Region
wise, equipment net sales were up 18% in the United States and
Canada and 2% in rest of the world.
Cost of sales in the quarter climbed 10% to $5 billion.
Operating profit improved 8% year over year to $1.27 billion in
The Agriculture & Turf segment's sales increased 16% to
$5.49 billion, attributable to higher shipment volumes and
improved price realization, partially offset by a negative
currency translation. Operating profit of the segment improved
33% to $766 million.
The increase in operating profit was based on higher shipment
and improved price realization, partially offset by increases in
selling, administrative and general expenses, warranty costs,
production costs and research and development expenses.
Construction & Forestry experienced a 7% year-over-year
decline in sales to $1.3 billion, due to lower shipment volumes.
The segment operating profit plunged 43% year over year to $71
million, driven by lower shipment, higher production costs along
with higher selling, general and administrative and research and
development expenses, which offset the benefit from improved
Net revenue at Deere's Financial Services operations was $527
million in the reported quarter, down 4% year over year. Net
income in this segment was $133 million compared with $119
million in the year-ago quarter. The improvement stemmed from
growth in the credit portfolio and higher crop insurance margins,
partially offset by increased selling, administrative and general
As of Jan 31, 2013, Deere had cash and cash equivalents of
$3.67 billion, up from $3.39 billion as of Jan 31, 2012.
Long-term borrowings increased to $22.2 billion as of Jan 31,
2013 from $16.9 billion as of Jan 31, 2012. The company used net
cash flow for operating activities of $1.25 billion during the
quarter compared with $1.23 billion in the prior-year
Deere expects equipment sales to grow around 4% in the second
quarter of fiscal 2013 and 6% for the full year. Net income is
projected at $3.3 billion for fiscal 2013.
Segment wise, Deere expects worldwide sales of Agriculture and
Turf equipment to grow 6% 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
Region-wise, Deere expects industry farm-machinery sales in
the U.S. and Canada to be flat to up 5% year over year in 2013.
In Europe, sales in projected to be down 5% due to continued
deterioration in the overall economy. Sales in the Commonwealth
of Independent States are expected to witness a slight
Sales in Asia are expected to be slightly higher on the back
of strengthening Chinese economy. In South America, industry
sales are expected to be up 10% to 15%. Industry sales of turf
and utility equipment in the U.S. and Canada are expected to be
flat year over year.
Construction and Forestry equipment are expected to improve 3%
for 2013, driven by modest improvement in the U.S. economic
conditions and higher international sales of construction
equipment. 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 $540
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 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 short-term Zacks Rank #2 (Buy). 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 internationally.
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