Deere & Company F1Q10 (Qtr End 01/31/10) Earnings Call Transcript

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Deere & Company (DE)

F1Q10 Earnings Call

February 17, 2010 10:00 am ET

Executives

Jim Field - Chief Financial Officer

Susan Karlix - Investor Relations

Justin Marovec - Investor Relations

Marie Ziegler - Vice President of Investor Relations

Analysts

Jamie Cook - Credit Suisse

Eli Lustgarten - Longbow Securities

Robert Wertheimer - Morgan Stanley

Ann Duignan - JP Morgan

Henry Kirn - UBS

Steve Volkmann - Jefferies & Co.

Alex Blanton - Ingalls & Snyder

David Raso - ISI

Barry Bannister - Stifel Nicolaus

Joel Tiss - Buckingham Research

Jerry Revich - Goldman Sachs

Seth Weber - RBC

Mark Koznarek - Cleveland Research

Daniel Dowd - Bernstein

Presentation

Operator

Good morning and welcome to the Deere’s first 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 Ms. Marie Ziegler, Vice President of Investor Relations.

Marie Ziegler

Good morning. Also on today’s call are Jim Field, our Chief Financial Officer; and Susan Karlix and Justin Merrimac from the Deere Investor Relations staff.

Today we’ll take a closer look at Deere’s first quarter earnings and then spend some time talking about our markets and provide you an update on how we see 2010 shaping up. After that we will open to questions. Please note that slides are available to compliment the call this morning. They can be accessed on our website at www.johndeere.com.

First as usual 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-and-A session agree that their likeness and remarks in all media maybe stored and used as part of the earnings call. Today’s call includes forward-looking comments concerning the company’s projections, plans and objectives for the future that are subject to important risks and uncertainties.

Actual results might differ materially from those projected in these forward-looking statements. 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.

The company except as required by law, undertakes no obligation to update or revise its forward-looking information. The call and accompanying materials are not an offer to sell or a solicitation of offers to buy any of the company’s securities. This call also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America, otherwise it’s know as GAAP.

Additional information concerning these measures, including reconciliations to comparable GAAP measures is posted on the website at www.johndeere.com/financialreports, under other financial information. Call participants should consider the other information and risks and uncertainties and non-GAAP measures in addition to the information presented on the call.

Now for a closer look at our first quarter, here is Susan.

Susan Karlix

Thank you, Marie. This morning John Deere reported results for the first quarter of 2010 and what a quarter it was. In spite of a decline in sales, earnings were up 19% from a year ago. The improvement was led by our Ag & Turf and credit businesses, both of which are experiencing improved conditions.

Disciplined cost and asset management were again major stories with SA&G expense little changed and trade receivables and inventory down by $1.4 billion. Finally, our full year forecast for earnings has been increased significantly to $1.3 billion. All-in-all it was an impressive performance.

Now let’s look at the quarter in more detail starting with slide three. First quarter net income attributable to Deere & Company was $243 million or $0.57 per share, our net sales and revenues of $4.8 billion. It was the second highest earnings total for any first quarter in the company’s history, trailing only the first quarter of 2008.

As shown on slide four, total worldwide equipment operations net sales were down 7% in the first quarter, versus first quarter 2009. Currency translation on net sales was positive by about five points with about two points of positive price realization.

Turning to slide five, worldwide production tonnage was down 20% in the quarter. However, demand has been better than expected for large Ag and international Forestry products accounting for the improvement in our tonnage forecast. For the full year, projected production tonnage is now forecast to be up about 5%.

Lets turn to the company outlook on slide six; second quarter sales are expected to be up 4% to 6% compared with the second quarter of 2009. Currency translation is expected to be positive by about five points, with about two points of positive price realization.

For the full year, net equipment sales are forecast to be up 6% to 8% compared with fiscal year 2009. This includes about three points of positive currency translation and one to two points of positive price realization. Net income attributable to Deere & Company is now forecast to be about $1.3 billion for the year.

Turning to a review of our individual businesses, let’s start with Agriculture & Turf on slide seven. In the quarter, net sales were down 6%, with production tonnage down 20%. Operating profit was $352 million in the quarter. Lower raw material costs, positive price realizations and the favorable effects of foreign currency translation and product mix offset lower sales volumes and higher post-retirement benefit costs.

A&T is starting to see benefits from last year’s organizational realignment resulting in the creation of the Ag & Turf division. Ongoing rationalization of processes, facilities, and resources is allowing the divisions to more efficiently meet customer needs and reduce overall costs.

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