Deere & Company (DE)

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Deere & Company (DE)

Q2 2010 Earnings Call

May 19, 2010 10:00 am ET

Executives

Marie Zieglar – Vice President Investor Relations

Susan Karlix – Manager, Investor Communications

James Field – Chief Financial Officer

Analysts

Robert Wertheimer – Morgan Stanley

[Jerry Rebisch – Goldman Sachs]

David Raso – ISI Group

Stephen Volkmann – Jefferies & Co.

Greg Williams – J.P. Morgan
Andrew Casey – Wells Fargo Securities

Henry Kirn – UBS

Alexander Blanton – Ingalls & Snyder

Meredith Taylor – Barclays Capital

Eli Lustgarten – Longbow Research

Seth Weber – RBC Capital Markets

Barry Bannister – Stifel Nicolaus

Mark Koznarek – Cleveland Research

Jamie Cook – Credit Suisse

Presentation

Operator

Welcome to the Deere second quarter earnings conference call. (Operator Instructions) I would now like to turn the call over to Miss Marie Zieglar, Vice President Investor Relations.

Marie Zieglar

Good morning. Also on today’s call are Jim Field, our Chief Financial Officer as well as Susan Karlix and Justin [Maravick] from the Deer Investor Relations staff. Today, we’ll take a closer look at Deere’s second quarter earnings and then spend some time talking about our markets and how we see the second half of the year shaping up. After that, we’ll respond to your questions.

Please note that slides are available to complement the call this morning and 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 Thompson Reuters. Any other use, recording or transmission of any portion of this copywrited broadcast without the express written consent of Deere is strictly prohibited.

Participants in today’s call including the Q&A session agree that their likeness and remarks in all medium may be stored and used as part of the earnings call.

The 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 the company materials are not an offer to sell or solicitation of offers to buy any of the company’s securities.

And finally, this call will include financial measures that are not in conformance with accounting principles generally accepted in the United States of America known as GAAP. Additional information concerning these measures including reconciliations to comparable GAAP measures is posted on our website at www.johndeere.com under financial reports, other financial information.

Call participants should consider the other information on risks and uncertainties and non-GAAP measures in addition to the information presented on the call.

And now, for a closer look at the second quarter, here’s Susan.

Susan Karlix

John Deere’s strong performance continued in the second quarter of 2010. Earnings were up 16% on a scaled increase of 6%. Results would have been higher without a charge related to the recent enactment of U.S. Health Care legislation.

The quarter’s improvement was broad based. The gain was led by Ag and Turf and all three divisions had higher profit. Among the highlights are Construction and Forestry business, saw its first year over year profit increase in nine quarters.

Solid execution of our business plans was again a big story for the quarter as was disciplined costs and asset management. Trade receivables and inventory declined by some $900 million. Finally, in line with improved business conditions, our full year earnings forecast has been increased and now totals approximately $1.6 billion. All in all, it was a productive quarter and John Deere seems well on its way to a very good year.

Now let’s look at the quarter in more detail starting with Slide 3. This is a supplemental slide illustrating the impact of the tax charge for U.S. Health Care legislation taken in the quarter. Excluding the approximately $130 million charge, net income attributable to Deere and Company would have been $677 million or $1.58 per share.

On Slide 4, we show the net income attributable to Deere and Company on a reported basis, was $547 million. As we mentioned, that was a 16% increase in profit on a 6% increase in net sales in revenues.

Turning to Slide 5, total worldwide equipment operations net sales were up 6% to $6.5 billion, Deere’s second highest sales on record in a second quarter. Currency translation on net sales was positive by four points and price realization was positive by two points. Both equipment divisions had positive price realization in the quarter.

Turning to Slide 6, worldwide production tonnage was up 7% in the quarter. Construction and Forestry tonnage was up considerably in large part due to the easy comparisons with the second quarter of 2009 when tonnage was down 62% from the previous year’s level. In addition, improving global economic conditions, better pulp prices and low field inventory are benefiting the Forestry segment in 2010.

Tonnage outside the U.S. and Canada increased due to strength in Argentina and Brazil, China, India and Mexico. For the full year, worldwide production tonnage is now forecast to be up about 11%.

Let’s turn to the company outlook on Slide 7. Third quarter sales are expected to be up 21% to 23% compared with the third quarter of 2009. In the financial forecast, currency translation on net sales is expected to be positive by about two points.

Read the rest of this transcript for free on seekingalpha.com