Deere & Company (DE)

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Deere & Company (DE)

F4Q12 Earnings Call

November 21, 2012 10:00 AM ET

Executives

Tony Huegel – Director, IR

Raj Kalathur – SVP and CFO

Susan Karlix – Manager, Investor Communications

Marie Ziegler – VP and Treasurer

Analysts

Andy Kaplowitz – Barclays

Andrew Buscaglia – Credit Suisse

Rob Wertheimer – Vertical Research

Jerry Revich – Goldman Sachs

Ann Duignan – JP Morgan

Ashish Gupta – CLSA

Steve Volkmann – Jefferies

David Raso – ISI

Adam Nielsen – RBC Capital

Rob McCarthy – Robert W. Baird

Vance Edelson – Morgan Stanley

Eli Lustgarten – Longbow Securities

Presentation

Operator

Good morning, and welcome to Deere’s Fourth Quarter Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session of today’s conference. I would now like to turn the call over to Mr. Tony Huegel, Director of Investor Relations. Thank you. You may begin.

Tony Huegel

Hello. Also on the call today are Raj Kalathur, our Chief Financial Officer; Marie Ziegler, Vice President and Treasurer; and Susan Karlix, Manager, Investor Communications.

Today, we’ll take a closer look at Deere’s fourth quarter earnings and full-year results then spend some time talking about our markets and the outlook for 2013. After that, we’ll respond to your questions. Please note that slides are available to complement the call this morning. They can be accessed on our website at www.johndeere.com.

First, a reminder. This call is being broadcast live on the Internet and recorded for future transmission and use by Deere and Thomson Reuters. Any other use, recording or transmission of any portion of this copyrighted broadcast without the express written consent of Deere, is strictly prohibited. Participants in the call, including the Q&A session, agree that their likeness and remarks in all media may be stored and used as part of the earnings call.

This call includes forward-looking comments concerning the company’s plans and projections for the future. They’re subject to important risks and uncertainties. Additional information concerning factors that could cause actual results to differ materially is contained in the company’s most recent Form 8-K and periodic reports filed with the Securities and Exchange Commission.

This call also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America, or GAAP. Additional information concerning these measures, including reconciliations to comparable GAAP measures is included in the release and posted on our website at www.johndeere.com/financialreports under Other Financial Information.

I will now turn the call over to Raj.

Raj Kalathur

Good morning and afternoon, everyone. First, let me say how pleased I am to be part of today’s call. To give you some background about who I am, I joined John Deere in 1997 and have spent my career in different functional areas, starting in finance, including business development, sales and marketing and operations in North American and Asian locations. Before becoming the Deputy Financial Officer in April 2012, I was based in Singapore as Vice President of Sales and Marketing for our ag and turf businesses in Asia and Africa. Before that, I was Managing Director of the company’s India operations. I’m looking forward to bringing the benefit of my business experience to my role as CFO and to working with our Investor Relations team and many of you.

Before turning things over to Susan for a fuller discussion of our results, a few words about what we experienced in the fourth quarter and our future business prospects. In our last conference call in August, we noted that our third quarter performance was impacted by manufacturing inefficiencies, which particularly affected the production of combines. At the time, our then CFO, Jim Field, said we expected these issues to be largely behind us by the end of the fiscal year. I’m pleased to say that’s exactly what happened. Our factories have done a good job of catching up with demand and are running quite well.

In addition, John Deere has completed its best ever fourth quarter and best ever full-year in terms of both sales and earnings. We are pleased with our record results in 2012. As we all know, the world faces some big economic challenges today ranging from the U.S. fiscal cliff possibilities to euro debt crisis and the slowdown in emerging market economies. Today’s economic uncertainties are real and troubling and John Deere is taking serious precautions in response.

However, we don’t see these issues having a lasting impact on the powerful tailwinds that we believe will drive demand for agriculture and construction equipment well into the future. In fact, we couldn’t agree more with our CEO, Sam Allen’s comments in today’s earnings announcement that we have great confidence in Deere’s prospects and in our ability to deliver value to investors in the future. Susan?

Susan Karlix

Thank you, Raj. Now let’s take a look at the fourth quarter in detail beginning on slide 3. Net sales and revenues were up 14% to $9.8 billion in the quarter. Net income attributable to Deere & Company was $688 million.

On slide 4, total worldwide equipment operations net sales were $9 billion, up 14% quarter-over-quarter, included is an unfavorable impact from currency translation of about three points, price realization in the quarter was positive by four points.

Turning to a review of our individual businesses, let’s start with ag and turf on slide 5. Sales were up 16% in the quarter. Operating profit was $931 million. There is one item that affected operating profit I’d like to touch on. As mentioned in the press release issued this morning and noted on this slide, the division recorded a small write-down, approximately $33 million pre-tax, relating to our water business. This write-down reflects the near-term actions we have taken to integrate water into the A&T division’s business and distribution channel. John Deere Water continues to be a long-term strategic opportunity for the company.

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