The Rising Influence of Rising Affluence

[DewDiligence]

Deere Reports Record FY1Q11 Results

[In the long term, DE is one of the premiere beneficiaries of The Global Demographic Tailwind for the reasons outlined in such posts as #msg-59333127, #msg-54541553, #msg-53145566, and #msg-51844339. In the short term, DE has been on fire and logged the best fiscal first quarter in its history.

Why is DE putting up such stellar numbers? One obvious reason is that farmers are flush with cash from sky-high crop prices, which increases demand for DE’s tractors and combines. A less noticed reason is that DE has been able to pass along price increases in steel and rubber (its two most important input materials) and has thereby maintained its profit margins despite the cost inflation. In the most recent quarter, pricing (independent of mix changes) was responsible for a 2% YoY benefit on the top line.

FY1Q11 GAAP EPS was $1.20, which blew away the consensus forecast (and was more than double the FY1Q10 EPS of $0.57). Results were so good that DE raised its FY2011 EPS guidance to $5.90, a 20% boost relative to the FY2011 guidance of $4.92 issued only three months ago (and a whopping 36% increase from the FY2010 EPS of $4.35). (The $5.90 of FY2011 EPS is an implicit number based on DE’s formal guidance for $2.5B of net profit.). DE raised its FY2011 guidance for product sales (excluding revenue from the captive finance subsidiary) to 18-20% from the prior guidance of 10-12% issued three months ago. Please see actual PR for financial tables.

Although DE’s stock price has *quadrupled* from the 2009 low, the current share price represents a P/E relative to the FY ending 10/31/11 of only 16x. Moreover, DE’s EPS guidance tends to be very conservative, so it’s not unreasonable to think the FY2011 EPS could come in as high as $6.25. In any event, DE’s stock is reasonably priced, IMO, relative to the company’s short-term and long-term prospects. DE recently raised its dividend for the eighth time in the past 6 years (#msg-57269006).]

http://finance.yahoo.com/news/Deere-Reports-Record-prnews-1421941534.html?x=0&.v=1

›February 16, 2011, 7:00 am EST

• Income more than doubles on 27% increase in net sales and revenues.
• Results aided by strong demand for farm machinery and improved conditions in construction and forestry markets.
• Profit forecast for year increased to about $2.5 billion [EPS of ~$5.90].

MOLINE, Ill., Feb. 16, 2011 /PRNewswire-FirstCall/ -- Net income attributable to Deere & Company (NYSE:DE) was $513.7 million, or $1.20 per share, for the first quarter ended January 31, compared with $243.2 million, or $0.57 per share, for the same period last year.

Worldwide net sales and revenues for the first quarter increased 27 percent, to $6.119 billion, compared with $4.835 billion last year. Net sales of the equipment operations were $5.514 billion for the quarter compared with $4.237 billion a year ago.

"John Deere's first-quarter results reflect improving demand for our innovative lines of equipment coupled with the skillful execution of our business plans," said Samuel R. Allen, chairman and chief executive officer. "Our actions are helping attract customers through advanced new products and technologies." Sales of large farm machinery, particularly in the United States and Canada, are continuing to make a major impact, while construction equipment shipments are experiencing some degree of recovery, Allen noted. "Our record first-quarter performance is especially gratifying in light of market conditions that remain below normal levels in certain key sectors."

Summary of Operations

Net sales of the worldwide equipment operations rose 30 percent for the quarter. Sales included price increases of 2 percent. Equipment net sales in the United States and Canada increased 35 percent for the quarter. Outside the U.S. and Canada, net sales were up 22 percent for the quarter, with an unfavorable currency-translation effect of 1 percent.

Deere's equipment operations reported operating profit of $646 million for the quarter, compared with $315 million last year. Benefiting the quarter were higher shipment and production volumes as well as improved price realization, partially offset by increases in raw material costs and higher incentive-compensation expenses.

Financial services reported net income attributable to Deere & Company of $118.2 million for the quarter compared with $85.1 million last year. Results increased for the quarter primarily due to portfolio growth and a lower provision for credit losses.

Company Outlook & Summary

Company equipment sales now are projected to be up 18 to 20 percent for fiscal 2011 and up about 25 percent for the second quarter compared with the same periods of the previous year. Included is a favorable currency-translation impact of about 2 percent for the year and the quarter. Net income attributable to Deere & Company is anticipated to be approximately $2.5 billion for the full year. [This equates to an EPS forecast of approximately $5.90.]

With Deere's strong first-quarter performance and positive outlook for 2011, the company remains well-positioned to capitalize on positive global economic trends while providing significant value to investors, Allen said. "Our balanced approach to cash flow management means we will continue setting the stage for future sales and earnings gains through the aggressive funding of organic growth while also remaining focused on returning cash directly to shareholders," noted Allen. "We're confident this approach will produce solid value for our customers, investors and other constituents over the long term."

Equipment Division Performance

Agriculture & Turf. Sales increased 21 percent for the quarter largely due to higher shipment volumes and improved price realization. Operating profit was $558 million compared with $352 million for the quarter last year. The improvement was primarily due to higher shipment and production volumes as well as improved price realization, partially offset by increased raw-material costs and higher incentive-compensation expenses.

Construction & Forestry. Construction and forestry sales climbed 81 percent, resulting in operating profit of $88 million. Last year the division had an operating loss of $37 million for the quarter. Contributing to the increase were significantly higher shipment and production volumes as well as improved price realization, partially offset by increased raw-material costs and higher incentive-compensation expenses.

Market Conditions & Outlook

Agriculture & Turf. Worldwide sales of agriculture and turf equipment are forecast to increase by about 16 percent for full-year 2011, benefiting from favorable global farm conditions. Farmers in many of the company's markets are experiencing solid levels of income due to strong global demand for agricultural commodities, low grain stocks in relation to use, and rising prices for crops such as corn, wheat, soybeans, sugar and cotton. Farm commodity prices have escalated sharply since the beginning of the year, lending further support to the outlook.

After staging a healthy advance in 2010, industry farm-machinery sales in the U.S. and Canada are forecast to be up about 5 percent for 2011. Overall conditions remain positive and demand for high-horsepower equipment continues to be strong. However, production limits and transitional issues associated with the broad launch of Interim Tier 4 emissions-compliant equipment are expected to have a moderating effect on near-term sales potential.

Industry sales in the EU 27 nations of Western and Central Europe are forecast to increase by about 10 percent, while sales in the Commonwealth of Independent States are expected to see moderate gains in relation to the prior year's depressed level. Farm conditions are strengthening in the European and CIS markets. Industry sales in Asia also are forecast to grow moderately after last year's robust improvement.

In South America, industry sales for the year are projected to be comparable with the strong levels of 2010. Deere's own sales in the region are expected to benefit from a broader lineup of recently introduced products.

Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat after experiencing modest recovery in 2010.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to rise by about 35 percent for 2011. The increase reflects market conditions that are somewhat improved in relation to the prior year's low level. In addition, construction equipment sales to independent rental companies are expected to see further growth. World forestry markets are expected to experience further improvement for the year as a result of strong wood and pulp prices.

Financial Services. Full-year 2011 net income attributable to Deere & Company for the financial services operations is forecast to be approximately $400 million, reflecting continued growth in the portfolio.

John Deere Capital Corporation

The following is disclosed on behalf of the company's credit subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market.

Net income attributable to John Deere Capital Corporation was $83.8 million for the first quarter, compared with $63.9 million last year. Results were better for the quarter primarily due to growth in the portfolio and a lower provision for credit losses.

Net receivables and leases financed by JDCC were $20.749 billion at January 31, 2011, compared with $18.510 billion last year.‹