Deere & Company (DE)

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Deere & (DE)

Q2 2011 Earnings Call

May 18, 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

Ann Duignan - JP Morgan Chase & Co

Jerry Revich - Goldman Sachs Group Inc.

Stephen Volkmann - Jefferies & Company, Inc.

Seth Weber - RBC Capital Markets, LLC

Henry Kirn - UBS Investment Bank

Andrew Casey - Wells Fargo Securities, LLC

Robert Wertheimer - Morgan Stanley

David Raso - ISI Group Inc.

Charles Rentschler - Boenning and Scattergood, Inc.

Koki Shiraishi - Daiwa Securities Capital Markets Co. Ltd.

Joel Tiss - Buckingham Research Group, Inc.

Jamie Cook - Crédit Suisse AG

Mark Koznarek - Cleveland Research Company

Presentation

Operator

Good morning, and welcome to Deere's second 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

Good morning. Also on the call today are Jim Field, our Chief Financial Officer; Marie Ziegler, Vice President and Treasurer; and Susan Karlix, our Manager of Investor Communications. As some of you may be aware, Justin Merrimac has moved on to other responsibilities within the company. And over the next several months, Josh Garrison will be transitioning to the IR staff to replace Justin as Manager of Investor Relations.

Today, we'll take a closer look at Deere's second quarter earnings. Then spend some time talking about our markets and how we see the record half -- the second half of 2011 shaping up. After that we will 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 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 quarter, here's Susan.

Susan Karlix

Thank you, Tony. Today, John Deere announced earnings for the second quarter of 2011, and what a quarter it was. Income jumped 65% on a 25% increase in sales and revenue. Sales and earnings both reached their highest point for any single quarter in the company's history. As we've been pointing out for some time, our performance reflects the skillful execution of our business plans plus strong demand for our innovative lines of equipment. In addition, the company's ongoing action to expand its global presence are showing good results, and helping drive new customers worldwide to the John Deere brand.

We're also starting to see positive movement in some key markets that are in the early stages of recovery, namely, construction equipment in the United States and farm machinery in Europe and the CIS. We're looking forward to further improvement in these areas in the future.

Finally, our full year earnings forecast has been raised and now stands at approximately $2.65 billion. All in all, it was an impressive quarter, unprecedented in many respects and the company seems well on its way to an equally impressive year.

Now let's look at the quarter in more detail, starting with Slide 3. Net sales and revenues were up 25% to $8.9 billion in the quarter. Net income attributable to Deere & Company was $904 million. As you just heard, both were the highest for any quarter in the company's history.

Slide 4 is a reminder as you compare the 2 quarters. It details the tax charge impact in the second quarter of 2010.

On Slide 5, total worldwide equipment operations net sales were $8.3 billion, up 27% year-over-year and the first time quarterly sales have exceeded $8 billion. Price realization in the quarter was positive by 4 points, while currency translation was up 3 points.

Production tonnage is shown on Slide 6. In line with equipment net sales, worldwide production tonnage was also up 27% in the quarter. The table at the bottom of the slide illustrates 2011 tonnage by quarter. This emphasizes the considerably higher year-over-year change in the first half of the year, compared with our expectation for the second half. Second half incremental margins will be impacted by this same pattern. Much of the difference in tonnage results from our Interim Tier 4 product transition plan. Also Ag & Turf dealers placed orders earlier this year in anticipation of the implementation of SAP in late April and early May. Projected worldwide production tonnage is up about 11% in the quarter and up about 19% for the full year.

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