F2Q13 Results Earnings Call
May 15, 2013 10:00 a.m. ET
Tony Huegel - Director of Investor Relations
Susan Karlix - Manager of Investor Communications
Raj Kalathur - Chief Financial Officer
Marie Ziegler - Deputy Financial Officer
Jamie Cook - Credit Suisse
Andy Kaplowitz - Barclays
Ann Duignan - JPMorgan
Ashish Gupta - CLSA
Rob Wertheimer - Vertical Research Partners
David Raso - ISI Group
Jerry Revich - Goldman Sachs
Mircea Dobre - Robert W. Baird
Andrew Casey - Wells Fargo Securities
Larry DeMaria - William Blair
Seth Weber - RBC Capital Markets
Ross Gilardi - Bank of America
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Thank you. 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 second quarter earnings, then spend some time talking about our markets and the current outlook for the second half of 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 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 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 www.johndeere.com/financialreports under Other Financial Information.
Thank you, Tony. John Deere’s second quarter was a good one. Income and sales both reached new all-time quarterly highs. It also was our 12th consecutive quarter over quarter record.
Ag and turf led the way last quarter, with higher sales and profit, and there was improvement in financial services as well. John Deere is continuing to benefit from positive conditions in the global farm economy, which, as our CEO, Sam Allen, said, is showing impressive strength.
In conjunction with new products and further investments, this has led to more demand for our products and higher results. It was, in summary, a record-breaking quarter, one that put Deere on track for another strong year.
Now let’s take a look at the second quarter in detail, beginning on slide three. Net sales and revenues were up 9% in the quarter to $10.9 billion. Net income attributable to Deere and Company was $1.1 billion, including a charge related to taxes of approximately $56 million, a $0.14 impact to EPS.
As noted, these are the best-ever quarterly results recorded by the company. On slide four, total worldwide equipment operations and net sales were $10.3 billion, up 9% quarter over quarter, including an unfavorable impact from currency translations of about 2 points. Price realization in the quarter was positive by 3 points.
Turning to a review of our individual businesses, let’s start with agriculture and turf on slide five. Sales were up 12% in the quarter on continuing strength in the global ag economy. Operating profit was $1.6 billion, up 13%.
Before we review the industry sales outlook, let’s look at some of the fundamentals affecting the ag business. Slide six outlines U.S. farm cash receipts. Driven by strong crop prices, 2012 forecast cash receipts were at a record $402 billion. Cash receipts for 2013 are expected to remain historically strong and be the second highest on record.
For the year ahead, crop yields are forecasted to be higher than in 2012 and much closer to normal, but prices will be somewhat lower. This reflects recovery from last year’s drought conditions. Livestock receipts are forecasted to be higher.
As a result of these factors, our forecast calls for 2013 cash receipts of about $388 billion. 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 remaining at near record levels in 2013, this bodes well for future farm prospects.
Our economic outlook for the EU 27 is on slide seven. We continue to see offsetting trends for the EU. On the one hand, ag fundamentals remain positive and production is expected to increase slightly. Still strong commodity prices are driving higher farm income. These prices are leveling off at historic highs and pork and milk prices are favorable.
Conversely, farm machinery demand is expected to be lower in 2013 as the financial crisis continues to weigh on farmer sentiment and cold, wet weather in the U.K. threatens the 2013 harvest, following on the heels of the poor harvest of 2012.