Deere & Company (DE)

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Deere & Company (DE)

Q2 2014 Results Earnings Conference Call

May 14, 2014; 10:00 a.m. ET

Executives

Raj Kalathur - Chief Financial Officer

Tony Huegel - Director of Investor Relations

Susan Karlix - Manager of Investor Communications

Analysts

Jamie Cook - Credit Suisse

Seth Weber - RBC Capital Markets

Steven Fisher - UBS

Andrew Casey - Wells Fargo

Adam Uhlman - Cleveland Research

Matthew Rybak - Goldman Sachs

Vishal Shah - Deutsche Bank

Ann Duignan - JP Morgan

Mircea Dobre - Robert Baird

Nicole DeBlase - Morgan Stanley

Alan Fleming - Barclays Capital

David Raso - ISI Group

Presentation

Operator

Good morning and welcome to Deere and Company’s second 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

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 second quarter earnings, then spend some time talking about our markets and our outlook for the second half of fiscal 2014. After that we’ll 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 and 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. Today John Deere announced earnings for the second quarter of 2014 and it was another solid performance. In reporting income of almost $1 billion, the company again demonstrated a depth execution of its operating plans, keeping costs and assets under control, while successfully managing major new product transactions.

In addition, Ag and turf profits were somewhat lower. However, construction and forestry and financial services operations had significantly improved results. In our view this reflects the power of our broad based business lineup and it is one of the reasons we are continuing to call for full year income of $3.3 billion.

Now lets take a closer look at the second quarter in detail, beginning on slide three. Net sales and revenues were down 9% to $9.9 billion. Net income attributable to Deere and Company was $981 million. EPS was $2.65 in the quarter, that’s the second highest earnings per share in the company history.

On slide four, total worldwide equipment operations net sales were down 10% to $9.2 billion. In the quarter-over-quarter comparison of net sales, Landscapes accounts for three points of the change. Also included is an unfavorable impact from currency translations of one point. Price realization in the quarter was positive by two points.

Turning to a review of our individual businesses, lets start with Agriculture & Turf on slide five. Sales were down 12%, primarily due to lower shipment volumes, as well as a three point landscapes impact noted on the previous slide. Operating profit was $1.2 billion.

Before we review the industry sales outlook, lets look at fundamentals affecting the Ag businesses. 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 forecasted to remain at record levels. As a result, our forecasts calls for 2014 cash receipts to be about $393 billion, down only 3% from 2013, which was the second highest level ever recorded.

On slide seven, global grain stocks to use ratios remain at sensitive levels, even after abundant harvest in 2013. The southern hemisphere, notability Brazil and Argentina is just now concluding the large harvest of both corn and soybeans. Planting is well underway in North American where farmers appear to be shifting some acreage from corn to soybeans in response to relative prices. But even though supplies appear to be adequate, global grain and oil seed demands remain strong. Unfavorable growing conditions in any part of the world would hurt production, reduce the stock to use ratio and result in prices quickly moving higher.

Our economic outlook for the EU 28 is on slide eight. There are signs of economic stabilizations and cyclical recovery, with a modest forecast increase in GDP growth and rising business and consumer confidence. With feed costs easing strong beef prices and near record milk prices, margins remain supportive for livestock and dairy farmers.

While remaining near long term averages, grain prices and farm income are expected to decrease in 2014. As a result, farm machinery demand is expected to be lower for the year. However, a differentiated picture continues to exist by country. While we see demand improving in the U.K. and Spain, some decline in important markets like France, German and Poland bears watching.

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