Wednesday, February 9, 2011

Deere & Co. (NYSE: DE): Q1 Earnings Preview

Deere & Co. (NYSE: DE) is scheduled to release its fiscal first-quarter earnings before the opening bell on Wednesday, February 16, 2011. Analysts, on average, expect the company to report earnings of 99 cents per share on revenue of $5.67 billion. In the year ago quarter, the company reported earnings of 57 cents per share on revenue of $4.24 billion.

Deere & Company provides products and services primarily for agriculture and forestry worldwide. The company operates in three segments: Agriculture and Turf, Construction and Forestry, and Credit.

In the preceding fiscal fourth quarter, the Moline, Illinois-based company's net income was $457.2 million or $1.07 per share, compared to year ago quarter's loss of $222.8 million or $0.53 per share that included one-time charges of $321.8 million or $0.76 per share. Prior year's adjusted earnings were $99.0 million or $0.23 per share. Revenue climbed 35% to $7.20 billion from prior year's $5.33 billion. Analysts, on average, expected the company to report earnings of $0.94 per share on revenue of $6.22 billion.

At its last earnings call in November, Deere said that it expects first-quarter equipment sales to increase about 34%, including an unfavorable currency-translation impact of about 2%.

For fiscal 2011, attributable net income is projected to be about $2.1 billion, with a 10% to 12% growth in equipment sales. Analysts project earnings of $5.23 per share for the year. Sales of Agriculture & Turf is expected to increase 7% to 9% for full year, benefiting from generally favorable global farm conditions. The company noted that the segmental results will be negatively impacted by higher raw-material costs and a less favorable sales mix. Meanwhile, industry farm-machinery sales in the United States and Canada are forecast to be about flat, while a growth of 5% to 10% is expected in Western Europe. Deere's sales of construction and forestry equipment are forecast to rise 25% to 30% for full-year 2011, mainly on somewhat improved market conditions. The Credit operation is expected to generate net income of approximately $360 million in fiscal 2011.The company projects higher raw-material costs in 2011. Deere plans a record number of new-model introductions in fiscal 2011, due to the implementation of more rigorous global emissions standards.

Region-wise, the company expects industry wide sales of agricultural equipment in the United States and Canada to be flat in 2011, as a result of production limits and transitional issues associated with the broad launch of Interim Tier 4-compliant equipment. In South America, industry sales are projected to be flat year-over-year in 2011. Industry sales in Western Europe are forecast to increase 5% to 10%, while sales in Central Europe and the Commonwealth of Independent States are expected to experience moderate gains from the depressed level of 2010. Industry sales in Asia also are also forecasted to grow moderately.

Deere & Co. is off to a strong start in 2011 thanks to better agriculture and manufacturing data in December and 2010 in general. Stronger global demand for wheat, corn and beans has made investing in related equipment necessary for farmers. The company has benefited from an atypically strong commodity cycle supported by current low inventory levels of multiple crop types and strong global trends.

In December, the company's Board of Directors increased the company's dividend by 5 cents or 0.17% to $0.35 a share on common stock.

Deere is also rapidly expanding its presence in emerging markets. In December, the company said that it plans to build a new factory in China, entailing an investment of about $50 million. The factory will make construction equipment for sale in China and for export to other markets. The new factory will produce four-wheel-drive loaders and excavators and will be located in the Tianjin Economic-Technological Development Area. The facility will be Deere's sixth manufacturing location in China, two of which are joint ventures. Last month, Deere & Co. said that it will increase its capacity to build agricultural tractors in India. According to the company, the action will better position it to pursue the considerable growth projected for the Indian tractor market. Deere & Co. noted that it will invest around $100 million to build a new factory and also to expand its current tractor facility in Pune. The new factory will build small agricultural tractors sold in India and for export to other countries, the company added.

During the quarter in review, Deere & Co. completed the sale of its wind energy business, John Deere Renewables, LLC, to Exelon Corp.’s (EXC) wholly owned subsidiary, Exelon Generation Company. The deal, valued at $900 million, includes a provision for $40 million upon commencement of construction of the advanced development projects. The wind business was not in line with Deere’s core set of businesses. Accordingly, in February 2010, the company had divulged that it was weighing strategic options for its wind energy business, which included a possible sale. The sale will enable Deere to focus more on its primary operation of manufacturing agricultural and construction equipment.

Full Disclosure: None.
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