Deere & Company (DE)

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Deere & Company (DE)

F1Q 2014 Results Earnings Conference Call

February 12, 2014 10:00 a.m. ET

Executives

Tony Huegel - Director of Investor Relations

Susan Karlix - Manager of Investor Communications

Raj Kalathur - Chief Financial Officer

Analysts

Andrew Kaplowitz - Barclays

Steve Volkmann - Jefferies

Ross Gilardi - Bank of America

Seth Weber - RBC Capital Markets

Eli Lustgarten - Longbow Research

Ann Duignan - JP Morgan

Jamie Cook - Credit Suisse

Robert Wertheimer - Vertical Research Partners

Andy Casey - Wells Fargo Securities

Adam Fleck - Morningstar

Joel Tiss - BMO Capital Markets

Adam Uhlman - Cleveland Research

Presentation

Operator

Good morning, and welcome to Deere and Company’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 Raj Kalathur, our chief financial officer; and Susan Karlix, our manager of investor communications.

Today we’ll take a closer look at Deere’s first quarter earnings, then spend some time talking about our markets and our outlook for fiscal 2014. 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. With this morning’s first quarter earnings announcement, John Deere has started 2014 on an impressive [unintelligible]. Income and sales both reached new records for the first quarter of the year. It was our 15th consecutive quarter of record earnings. The improvement was broad-based, with all three of our divisions reporting higher income.

Performance for the quarter also reflected success executing our marketing and operating plans, which are aimed at expanding our customer base worldwide. A deft execution is essential to successfully launching new products and getting new capacity up and running.

Finally, our full year earnings forecast remains unchanged, at approximately $3.3 billion. It was, in short, a sound 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 3% to $7.7 billion. Net income attributable to Deer & Company was $681 million, which, as noted, was the highest income ever recorded in any first quarter. EPS was up 10% to $1.81.

On slide four, total worldwide equipment operations net sales were up 2% to $6.9 billion. This includes an unfavorable impact from currency translations of 2 points. Price realization in the quarter was positive by 2 points.

Turning to a review of our individual businesses, let’s start with agriculture and turf, on slide five. Sales were up 2%, due to a number of factors, including John Deere Landscape, a smooth final tier four transition, and slightly higher than anticipated shipments of several other products. Operating profit was up 4% to $797 million. In spite of the transition of small combines, 7R tractors, and sprayers to final tier four, ag and turf’s incremental margin was an impressive 30%.

Before we review the industry sales outlook, let’s look at fundamentals affecting the ag business. Slide six outlines U.S. farm cash receipts, which are forecast to be down somewhat from 2013. Assuming trend yields, grain production levels are expected to be up in 2014, which would result in lower feed grain prices. Livestock receipts are forecast to remain at record levels. As a result, our forecasts call for 2014 cash receipts to be about $378 billion, down 7% from 2013, which was the highest level ever recorded.

On slide seven, global corn stocks used remain at historically low levels. Corn production was strong in 2013, due to good weather globally, resulting in higher yields. However, global corn stocks used are only expected to increase about 1 percentage point. In addition, global corn plantings will likely decrease in 2014. In fact, our Deere estimate expects approximately 4 million acres of corn to shift to soybeans in the next planting season in the U.S.

Taking a global look, our consultant, Informa, is forecasting a cut in planted corn area of about 10% in Brazil for the 2013-2014 season. Planted corn acres for Argentina’s early crop were down about 30%. Informa expects another 4% to 5% drop in the late corn crop.

Moving to the CIS, Ukraine is also expected to cut back on corn planted area by about 20%. If 2014 brings unfavorable growing conditions in any part of the world, the U.S., Brazil, and Argentina in particular, corn stocks used would fall, and commodity prices could rebound.

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