Deere & Co. (DE) reported earnings of $1.58 per share for its fiscal second quarter ended April 30. That was substantially ahead of the Zacks Consensus Estimate of $1.09 and compares favorably with earnings of $1.11 in the year-ago quarter. DE’s earnings exclude a tax charge of 30 cents per share related to U.S. health-care legislation.
The company posted a recurring (non-GAAP) net income of $677 million, up 43% from $472 million in the year-ago quarter.
This quarter marked an awesome improvement over the 18.8% earnings per share growth delivered in the first quarter of 2010 and double-digit declines in 2009. The bottom-line improvement was due to rising profit margins on growing production volumes and improving demand for construction equipment.
Deere’s worldwide total sales increased 6% year over year to $7.1 billion. Net sales of equipment operations were $6.5 billion, a 6% year-over-year increase including a favorable currency translation effect of 4% and a price increase of 2%. On a geographic basis, equipment net sales were up 4% in the United States and Canada and 9% beyond.
Equipment operations’ operating profit increased 57% year over year to $988 million. Contributing factors were improved price realization, higher production volumes, favorable effects of foreign exchange, and lower raw-material costs, partially offset by higher post-retirement benefit costs.
Segment Performance
Agriculture & Turf sales increased 1% year over year, aided by favorable effects of currency translation and improved price realization, partially offset by lower shipment volumes. Operating profit at the segment was $952 million, compared with $703 million in the year-ago quarter. The 35% increase was due to improved price realization, higher production volumes, favorable effects of foreign exchange and lower raw-material costs, partially offset by higher post-retirement benefit costs.
Construction & Forestry sales climbed 52% year-over-year driven by higher shipment volumes, favorable currency-translation effects and improved price realization. The segment posted an operating profit of $36 million in the quarter, a marked improvement over the operating loss of $75 million recorded in the year-ago quarter. The improvement was due to higher shipment and production volumes and improved price realization, partially offset by higher post-retirement benefit costs.
Net revenues at Deere’s Financial Services operations were $556 million, compared with $555 million in the year-ago quarter. Net income in the segment increased 26% year over year to $86.9 million. Improved financing spreads, a lower provision for credit losses, growth in the credit portfolio and higher commissions from crop insurance were partially offset by lower tax credits related to wind energy projects and higher selling, administrative and general expenses.
Financial Position
Deere had cash and cash equivalents of $3.6 billion as of April 30, 2010, down from $4.8 billion as of the end of year-ago period.
Long-term debt increased to $17.4 billion as of April 30, 2010, from $16.8 billion as of April 30, 2009.
Total stockholders’ equity was $5.6 billion compared with $6.9 billion as of April 30, 2009. At the end of the reported quarter, Deere’s net cash flow was a usage of $1.0 billion versus a net cash flow of $2.6 billion at the end of the year-ago quarter.
Outlook
Net income attributable to Deere & Company is projected to be approximately $1.6 billion for fiscal 2010, compared with its previous estimate of $1.3 billion.
Net income from credit operations for the full year is expected to be approximately $300 million, compared with its previous estimate of $260 million
For the third quarter of fiscal 2010, Deere expects equipment sales to be up in the range of 21%–23%, including a favorable currency translation of 2%. For the full year, sales growth is expected to be in the range of 11%–13%, including a favorable currency translation of 3%.
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