Deere & Company has announced worldwide net income of $356.7 million, or $1.41 per share, for the fourth quarter ended Oct. 31, compared with net income for the same period last year of $70.6 million, or $.27 per share. For the full year, net income was $1.406 billion, or $5.56 per share, versus $643.1 million, or $2.64 per share, last year.
Worldwide net sales and revenues grew 32 percent to $5.207 billion for the fourth quarter, and increased 29 percent to $19.986 billion for the year. Net sales of the equipment operations were $4.612 billion for the quarter and $17.673 billion for the year, compared with $3.375 billion and $13.349 billion for the periods last year.
Stronger market conditions, combined with a focus on building a better business, have been responsible for much of the company’s success this year, said Robert W. Lane, chairman and chief executive officer. “We are winning new customers with exceptional products and services, while producing the kind of financial results that will reward investors over the long run.”
Summary of Operations
The company’s equipment divisions generated higher sales for both the quarter and full year primarily due to increased shipments. Equipment sales in the United States and Canada rose 39 percent for the quarter and 33 percent for the year. Outside the United States and Canada, sales increased by 25 percent for the quarter and 20 percent for the year, excluding currency translation, and by 32 percent and 30 percent, respectively, on a reported basis.
Company equipment operations reported operating profit of $449 million for the quarter and $1.905 billion for the year, compared with $39 million and $708 million last year. For both periods, the operating-profit improvement was primarily due to increased shipments and price realization. The improvement in operating profit was partially offset by a larger provision for employee bonuses and higher raw-material costs. The larger bonus provision was driven by strong Shareholder Value Added (SVA), performance in the equipment operations.
Deere’s asset-management efforts are continuing to yield positive results, especially in light of the strong increase in sales. Trade receivables and inventories at the end of the year were $5.206 billion, or 29 percent of fiscal-year sales, compared with $3.985 billion a year ago, which was equal to 30 percent of sales.
Financial services operations reported net income of $88.2 million for the quarter and $309.2 million for the year, versus $89 million and $329.7 million for the respective periods last year. The decline in net income for the year was primarily due to higher administrative costs, lower credit margins and increased medical-claims costs.
During the year, the company contributed approximately $1.5 billion to its core U.S. pension plans. Net of the after-tax impact of these contributions, cash flow from operations for 2004 totaled approximately $1.2 billion.
As a result of the factors and conditions outlined below, company equipment sales for 2005 are expected to increase by 2 to 7 percent with net income forecast to be around $1.5 billion. First-quarter equipment sales are currently forecast to be up 20 to 25 percent in comparison with the same period last year. Production levels are expected to increase by 11 to 13 percent for the quarter. Consolidated net income for first-quarter 2005 is forecast to be in a range of $200 million to $225 million.
Beyond the ongoing impact of the company’s business-improvement efforts, a positive customer response to John Deere products is expected to continue driving performance in 2005.
“We remain focused on offering innovative products and services, while introducing our brand to a wider global audience,” said Lane. “We’re confident our efforts to build — and grow — a great business are well on track and will produce strong results in 2005 and the years beyond.”
• Agricultural Equipment — Division sales increased 35 percent for the quarter and 31 percent for the full year. The sales increase for the quarter and the year was mainly due to higher shipments, reflecting strong retail demand, improved price realization and the impact of currency translation.
Operating profit was $267 million for the quarter and $1.072 billion for the year, compared with $8 million and $329 million last year. The operating-profit improvements were primarily driven by higher worldwide sales, efficiencies related to stronger production volumes, and improved price realization, partially offset by a larger provision for performance bonuses and increased raw-material costs.
• Commercial and Consumer Equipment — Sales were up 10 percent for the quarter and 16 percent for the year. The division had an operating loss of $12 million for the quarter and operating profit of $246 million for the year versus an operating loss of $10 million and operating profit of $227 million for the respective periods last year.
The fourth-quarter operating loss increased primarily due to higher raw-material costs as well as a larger performance-bonus provision related to overall enterprise profitability. Partially offsetting these factors was the impact of higher sales volume.
Full-year operating profit improved primarily due to higher sales and production volumes, partially offset by an increase in the performance-bonus provision in addition to higher costs for freight and raw materials.
• Construction and Forestry — Division sales rose 65 percent for the quarter and 54 percent for the year reflecting strong activity at the retail level. Operating profit improved to $194 million for the quarter and $587 million for the year, compared with $41 million and $152 million last year.
The increases were mainly a result of higher sales, efficiencies related to stronger production volumes, and improved price realization, partially offset by a larger performance-bonus provision and higher raw-material costs. Full-year results included a $30 million pretax gain from the sale of an equipment-rental company.
• Credit — Deere’s credit operations generated net income of $83.1 million for the quarter and $306.2 million for the year, compared with $83.1 million and $310.5 million, respectively, last year. Having a favorable impact on results for the quarter was a lower provision for credit losses, reflecting solid portfolio quality.
Offsetting the lower provision were lower margins, lower gains on retail-note sales and an increase in administrative costs, partly related to a higher provision for performance bonuses in connection with overall enterprise profitability. Net income for the year was lower mainly due to higher administrative costs and lower margins, partially offset by a lower provision for credit losses.
Divisional Market Conditions and Outlook
• Agricultural Equipment — On a worldwide basis, sales of John Deere agricultural equipment are forecast to be up 2 to 5 percent for the year. Despite a downturn in commodity prices, U.S. farmers are benefiting from record production of corn and soybeans. In addition, the livestock and dairy sectors are strong and government payments are expected to increase substantially in 2005. As a result, U.S. farm cash receipts are forecast to be approximately the same as 2004’s record level.
Given these conditions, Deere expects industry retail sales in the United States and Canada to be up approximately 5 percent for fiscal 2005 in comparison with the strong levels of the prior year.
• Commercial and Consumer Equipment — Sales of John Deere commercial and consumer equipment are expected to increase 2 to 5 percent for the year with help from new models of compact tractors, an updated utility-vehicle line, and higher sales of commercial mowing equipment.
• Construction and Forestry — Markets are expected to be supported in the coming year by moderate economic growth, relatively low interest rates and a favorable level of housing starts. In this environment, sales of construction and forestry equipment are expected to see further growth as contractors and rental operations continue to replenish their fleets. As a result, division sales are forecast to be up 6 to 9 percent for the year.
• Financial Services — Although Deere’s credit operations are expected to benefit from further growth in the loan portfolio, net income for 2005 is forecast to be down primarily due to increased leverage in the portfolio. The credit division is expected to report net income of approximately $280 million for the year.