Deere & Company (DE)

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Deere & (DE)

Q1 2011 Earnings Call

February 16, 2011 10:00 am ET

Executives

Marie Ziegler - Vice President and Treasurer

Susan Karlix - Investor Relations

Tony Huegel -

James Field - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Jerry Revich - Goldman Sachs Group Inc.

Ann Duignan - JP Morgan Chase & Co

Stephen Volkmann - Jefferies & Company, Inc.

Seth Weber - RBC Capital Markets, LLC

Henry Kirn - UBS Investment Bank

Andrew Casey - Wells Fargo Securities, LLC

Eli Lustgarten - Longbow Research LLC

Robert Wertheimer - Morgan Stanley

David Raso - ISI Group Inc.

Jamie Cook - Crédit Suisse AG

Andrew Obin - BofA Merrill Lynch

Mark Koznarek - Cleveland Research Company

Presentation

Operator

Good morning, and welcome to Deere's first quarter earnings conference call. [Operator Instructions] I would now like to turn the call over to Mr. Tony Huegel, Director of Investor Relations. Thank you. You may begin.

Tony Huegel

Thank you. Also on the call today are Jim Field, our Chief Financial Officer; Marie Ziegler, Vice President and Treasurer; Susan Karlix; and Justin Merrimac.

Today, we'll take a closer look at Deere's first quarter earnings, then spend some time talking about our markets and how we see 2011 shaping up. 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.

Just a reminder that 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, 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 projections, plans and objectives for the future that are 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.

Now, for a closer look at the first quarter, here's Susan.

Susan Karlix

Thanks, Tony. With this morning's first quarter earnings announcement, John Deere has started 2011 on a strong note. Income more than doubled on a 27% increase in sales and revenue, reaching a record for the first quarter of the year. The improvement was big and broad. Ag & Turf had another terrific quarter. And our other divisions, Construction & Forestry and Financial Services, reported dramatically higher profit as well. Positive global farm conditions were certainly a factor, but John Deere is achieving record results in the face of conditions that remain lackluster in some sectors. Indeed, our performance reflects continued success in executing our ambitious business plans in addition to improving demand for our innovative lines of equipment. Finally, our full-year earnings forecast has been raised considerably and now stands at about $2.5 billion. All in all, it was a strong start to what is expected to be a very strong year.

Now let's look at the quarter in more detail, starting with Slide 3. As just mentioned, net sales and revenues were up 27% to $6.1 billion in the quarter. Net income attributable to Deere & Company was $514 million, the highest ever for a first quarter.

Turning to Slide 4. Total worldwide Equipment operations net sales were up 30% to $5.5 billion, another first quarter record. Price realization in the quarter was positive by two points.

On Slide 5, worldwide production tonnage was up 41% in the quarter. Higher tonnage was attributable to the following: Continued strong demand for large Ag equipment; recovery in the EU-27; strength in South America; and the continuing rebound in the Construction & Forestry market. We also experienced higher production in the first quarter compared with a normal year due to our Interim Tier 4 product transition plan and CMS implementation of SAP this spring. Projected worldwide production tonnage is up about 26% in the second quarter and up about 16% for the full year.

Let's turn to the company outlook on Slide 6. Second quarter sales are expected to be up approximately 25% compared with the second quarter of 2010. Currency translation on net sales is positive by about two points. For the full year, projected equipment net sales are up 18% to 20% compared with fiscal year 2010, an increase of eight points over our prior guidance. This includes about two points of positive currency translation and two points of positive price realization. Included in our guidance is a 3.5% increase on our 8R and 9030 Series tractors announced this morning and effective March 1. Due to our sold ahead position, this increase will have minimal impact in fiscal 2011.

Net income attributable to Deere & Company is projected to be approximately $2.5 billion in fiscal 2011. That's $400 million more than the guidance provided in November.

Turning to a review of our individual businesses, let's start with Agriculture & Turf on Slide 7. Production tonnage was up 34%. Sales increased 21%. Operating profit was $558 million. The profit improvement was primarily due to higher shipment and production volumes and improved price realization, partially offset by increased raw material costs and higher incentive compensation expenses in line with our operating performance. The division had an operating margin of about 13% in the quarter and an incremental margin of approximately 27%.

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