Deere & Company (DE)

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Deere & Company (DE)

F3Q13 Earnings Call

August 14, 2013 10:00 a.m. ET

Executives

Tony Huegel - Director of Investor Relations

Susan Karlix - Manager of Investor Communications

Raj Kalathur - Chief Financial Officer

Marie Ziegler - Deputy Financial Officer

Analysts

Ross Gilardi - Bank of America

Andrew Kaplowitz - Barclays

Jerry Revich - Goldman Sachs

David Raso - ISI Group

Andy Casey - Wells Fargo

Jamie Cook - Credit Suisse

Rob Wertheimer - Vertical Research Partners

Mircea Dobre - Robert W. Baird

Steven Fisher - UBS

Eli Lustgarten - Longbow Research

Larry DeMaria - William Blair

Adam Fleck - Morningstar

Ann Duignan - JP Morgan

Ashish Gupta - CLSA

Seth Weber - RBC Capital Markets

Presentation

Operator

Good morning, and welcome to Deere’s third 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

Hello. Also on the call today are Raj Kalathur, our chief financial officer; Marie Ziegler, deputy financial officer; and Susan Karlix, manager of investor communications.

Today we’ll take a closer look at Deere’s third quarter earnings, then spend some time talking about our markets and how we expect to end the fiscal year. 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 NASDAQ OMX. 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.

Susan?

Susan Karlix

Thank you, Tony. John Deere’s strong performance continued in the third quarter of 2013. Earnings jumped 26% on a sales increase of 4%. Both earnings and sales were the highest of any third quarter in the company’s history and it marked our 13th quarter in a row of record profits.

The game was led by ag and turf, which had another terrific quarter, with operating margins of about 17%. Financial services also made a major contribution, while construction and forestry kept profits in line with last year in spite of a slump in sales.

No doubt, John Deere is being helped by a strong market for large farm machinery in North and South America. However, our results showed disciplined execution of our business plans too, plans focused on winning new customers around the world while keeping a close watch on costs and asset levels. In all, it was a productive quarter, putting John Deere well on the way to another very good year.

Now let’s take a look at the third quarter in detail, beginning on slide three. Net sales and revenues were up 4% in the quarter, to $10 billion. Net income attributable to Deere & Company was $997 million. As noted, both sales and income were the best ever third quarter results recorded by the company.

On slide four, total worldwide equipment [operator] net sales were $9.3 billion, up 4% quarter over quarter, including an unfavorable impact from currency translation of about 1 point. 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 8% in the quarter, on continuing strength in the global ag economy, especially North and South America. Operating profit was $1.3 billion, up 32%.

The division’s results included an impairment charge for long lived assets related to John Deere Water of approximately $50 million pretax, $44 million after tax. 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. For the year ahead, crop yields are forecast 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.

Conversely, livestock receipts are forecast to be higher in 2013 than 2012. As a result of these factors, our forecast calls for 2013 cash receipts to be about $390 billion, the second highest on record, and a solid level of income.

On slide seven, with forecasts of a bumper crop, lower crop prices, and an increase in stock [unintelligible] ratios, our initial outlook for 2014 U.S. farm cash receipts is down modestly, but remains at a historically high level, approximately $380 billion. 2014 cash receipts, the number one predictor of farm equipment sales, are expected to remain at an excellent level, helping keep farmers in a financially sound position.

Our economic outlook for the E.U. 28 is on slide eight. We continue to see offsetting trends in the E.U. on the one hand, ag fundamentals remain positive and production is expected to increase about 7%. Above average commodity prices are driving supportive farm income. Beef prices are leveling off at historic highs while pork and milk prices are favorable.

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