Deere & Company (DE)

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Deere & Company (DE)

F1Q2013 Earnings Call

February 13, 2013 10:00 am ET


Tony Huegel - Director of Investor Relations

Susan Karlix - Manager of Investor Communications

Raj Kalathur - Chief Financial Officer

Marie Ziegler - Deputy Financial Officer


Andy Kaplowitz - Barclays

Jamie Cook - Credit Suisse

Stephen Volkmann - Jefferies & Company

Ann Duignan - JPMorgan

Eric Crawford - UBS

Eli Lustgarten - Longbow Securities

Rob Wertheimer - Vertical Research Partners

Andrew Casey - Wells Fargo Securities

Joel Tiss - BMO Capital Markets

Jerry Revich - Goldman Sachs

Ashish Gupta - CLSA

Adam Fleck - Morningstar

Ross Gilardi - Bank of America Merrill Lynch



Good morning, and welcome to 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 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, Deputy Financial Officer and Susan Karlix, our Manager of Investor Communications.

Today, we will take a closer look at Deere’s first quarter earnings, then spend some time talking about our markets and the current outlook for 2013. 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

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 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 under Other Financial Information.


Susan Karlix

Thank you, Tony. With this morning's first quarter earnings announcement John Deere has started 2013 on a strong note. Income and sales both reached new records for the first quarter of the year and this was our 11th consecutive quarter of record earnings. Our results benefited from healthy farm conditions and the strong sales of agricultural equipment.

Deere's performance also reflected success executing our ambitious marketing and operating plans. Such execution is especially important right now as we are adding new products and global capacity at unprecedented rates. Finally, our full-year earnings forecast has been adjusted upward and now stands at about really $3.3 billion. Also, it was a solid start to what is expected to be another good year.

Now let's take a look at the first quarter in detail beginning on slide three. Net sales and revenues were up 10% to $7.4 billion in the quarter. Net income attributable to Deere & Company was $650 million and earnings per share increased 27% to $1.65.

On slide four, total worldwide equipment operations net sales were $6.8 billion, up 11% quarter-over-quarter including an unfavorable impact from currency translation of about one point. Price realization in the quarter was positive by three points.

Turning to a review of our individual businesses, let's start with Agriculture & Turf on slide 5. Sales were up 16% in the quarter on continuing strength in the large Ag sector, especially tractors and combines. Recall, combine production and shipments were back end loaded in 2012 to facilitate our transition to interim Tier 4. Operating profit was $766 million.

Before we review the industry sales outlook, let's look at some of the fundamentals affecting the Ag business. Slide six outlines U.S. commodity price estimates that underlie our financial forecast. 2012-2013 corn, soybean and wheat prices reflect the production shortfall caused by the weather-driven events that affected the 2011 and 2012 season and continue to support equipment sales.

At this time of the year it is hard to determine what the 2013 2014 crop year will bring. Clearly, the upcoming growing season has a lot of questions around it. Among other things, it should be noted that existing moisture condition show that U.S. drought continues to be of significance. Research, however shows that the moisture situation going into the growing season has virtually no impact on the final outcome. The primary point is that temperature and moisture level experienced during the key growing season are the most important factors in determining yield. As is our custom at this time of the year, our estimates for 2013, 2014 crop year, will see normal weather and trend yields.

Slide seven shows planted acres and yields for the 2012-2013 crop year, compared to the corresponding forecast for 2013-2014 crop year. Again, assuming trend yields in normal weather conditions, corn yields are forecast to increase about 31%, while soybean yields are forecast to be up about 12%.

Slide eight highlights cash receipts. Driven by strong crop prices, 2012 forecast cash receipts are at a record $389 million. In 2013, strong crop prices, higher yields and increase livestock receipts for 2013 cash receipts even higher. As a reminder, in our modeling, current and prior year cash receipts are the primary driver of equipment purchases in the U.S. market. With cash receipts at record levels, this serves well for future farm prospects.

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