Deere & Company (DE)

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Deere & Co. (DE)

Q4 2010 Earnings Call

November 24, 2010 10:00 am ET

Executives

James Field – Chief Financial Officer

Marie Ziegler – Vice President, Treasurer

Tony Huegel – Director of Investor Relations

Susan Karlix – Investor Relations

Analysts

Jamie Cook – Credit Suisse

Jerry Revich – Goldman Sachs

Meredith Taylor – Barclays Research

Henry Kirn – UBS

David Raso – ISI Group

Robert Wertheimer – Morgan Stanley

Andrew Casey – Wells Fargo Securities

Greg Williams – JP Morgan

Eli Lustgarten – Longbow Securities

Steven Volkmann – Jefferies & Company

Presentation

Operator

Good morning and welcome to the Deere’s Fourth 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 Ms. Marie Ziegler, Vice President and Treasurer. Thank you. You may begin.

Marie Ziegler

Hello everyone. Also on the call today are Jim Field, our Chief Financial Officer; Susan Karlix and Justin Marovek. In addition, Tony Huegel joins us today as the newly-appointed Director of Investor Relations. Many of you know Tony based on his previous experience in our department. He has a strong familiarity with the practice of investor relations as well as a deep understanding of Deere. Tony will be in transition between now and the end of January.

Tony, Susan and Justin make up a strong investor relations team that, as in the past, will be available to respond to your questions and share information about the Company. And now, Tony.

Tony Huegel

Thanks, Marie. Today we’ll take a closer look at Deere’s fourth quarter earnings; then spend some time talking about our markets and the outlook for 2011. 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 that 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 projections, plans, and objectives 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.

Now for a closer look at the fourth quarter, here’s Susan.

Susan Karlix

Thanks, Tony. Today John Deere wrapped up 2010 with the announcement of our fourth quarter results. All in all, it was an excellent quarter and an extremely good year.

Fourth quarter earnings were $457 million, the highest ever for the final quarter of the year. Total revenues climbed 35%. The improvement was broad-based but led by ag and turf which had another strong quarter. Our other divisions, construction and forestry and credit, reported dramatically higher profit as well.

Our performance for both the quarter and full year reflected a disciplined approach to executing the Company’s business plan and a sharper strategic focus. It also reflected positive conditions in the U.S. farm sector which led to a highly favorable sales mix of larger equipment. Even so, these results were achieved in spite of weakness in key regions such as Europe and key businesses such as construction equipment.

For the year as a whole, John Deere registered its second-highest ever level of sales, earnings and enterprise cash flow. All that said, the ultimate measure of how well we did in 2010 may be found in the generation of economic profit, or what we call SVA – shareholder value-added. For the last decade, it has been one of our primary metrics in managing the Company. SVA for the full year was $1.714 billion, the highest ever. That may be the best yardstick of our success in delivering a high level of profit while managing costs and assets.

It was in summary a great quarter and a good year, and it puts the Company in position for what we see as an even stronger performance in 2011.

Let’s look at the quarter in more detail starting with Slide 3. As is previewed, net sales and revenues were up 35% to $7.2 billion in the quarter. Net income attributable to Deere & Company was $457 million, the highest ever income for a fourth quarter. Slide 4 outlines the expenses incurred in fiscal 2009 for goodwill impairment related to the John Deere landscapes reporting unit and voluntary employee separation associated with the formation of the agricultural and turf division. Net income in the fourth quarter of 2010 was up more than threefold, excluding these two charges.

Turning to Slide 5, total worldwide equipment operations and net sales were up 39% to $6.6 billion, the second-highest fourth quarter net sales total ever. Currency translation on net sales was positive, adding one point, and price realization in the quarter was positive by three points. On Slide 6, worldwide production tonnage was up 59% in the quarter and up 15% in the fiscal year. Both SBUs saw higher tonnage in the quarter as a result of continued strong demand for large ag equipment, strength in South America, and construction and forestry markets rebounding from the very low levels of 2009.

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