Replies to post #2114 on The Rising Influence of Rising Affluence

[DewDiligence]

Deere Sees Doubling of Sales in Seven Years

[That’s a bold forecast, but DE might just be able to pull it off.]

http://online.wsj.com/article/SB10001424052748703775704576162520612152768.html

›FEBRUARY 23, 2011, 4:47 P.M. ET
By BOB TITA

Deere & Co. aims to nearly double its annual sales to $50 billion by 2018 under a growth plan outlined Wednesday by Chairman and Chief Executive Samuel Allen.

Mr. Allen said he wants the farm- and construction-machinery manufacturer to deliver three times as much profit at normal operating volumes as part of his strategy. He described the plan as the first major change in the company's approach to business in a decade.

"The John Deere Strategy calls on us to aim higher, reach farther, move faster and perform better than ever before," Mr. Allen said in a speech at the company's annual shareholders' meeting in Moline, Ill. "Successfully executed, the plan will allow us to deliver much greater levels of value to our customers, investors and other constituent groups for years to come. It places even more emphasis on global expansion [duh]."

For the fiscal year ended Oct. 31, Deere earned $1.87 billion, or $4.35 a share, on total revenue of $26 billion. For fiscal 2011, Deere expects profit of about $2.5 billion on equipment-sales growth of 18% to 20%.

A key part of Mr. Allen's strategy is expanding the company's operating margin to 12% at the middle of the company's business cycle. At the peak of the company's last cycle in 2008, its margin was 11.8%. Coming out of the bottom of the cycle, the company notched a 14% margin in fiscal 2010.

Mr. Allen said the sales and profit improvement will be fueled by the expansion of the company's primary business lines in agricultural machinery and construction and forestry equipment.

Deere is the world's largest producer of tractors and harvesting combines. The company dominates global markets for high-horsepower farm machinery, and it has been boosting its presence in smaller equipment categories, particularly in India and South America.

Deere's sales of construction equipment, however, have largely been limited to North America, putting it behind competitors with more global sales bases, such as Caterpillar Inc. and Japan's Komatsu Ltd.

"We will be making major investments to give our construction operations a more global presence," said Mr. Allen, who was president of Deere's construction division before becoming chief executive in 2009. "Agricultural equipment is expected to remain our largest business sector. And it will certainly become more global in scale."

Deere is one of several foreign companies competing to fill the growing demand for farm machinery in China. Farm-machinery sales in China are forecast to grow 10% to 15% a year over the next decade as the country's agriculture sector becomes more mechanized and diversified, officials from the Chinese Agriculture Ministry said Wednesday. About 52% of Chinese farm jobs are now performed by machines, against 36% in 2006, and the government targets a 70% rate by 2020.

The new blueprint for Deere is Mr. Allen's attempt at the type of transformative strategy that propelled the company's performance in the 2000s under former Chief Executive Robert Lane. His "Shareholder Value Added" operating model focused the company on generating cash by driving out waste and inefficiency from Deere's operations and aligning equipment production to retail demand to avoid inventory overhangs.

"By all accounts, it worked exceedingly well," Mr. Allen said. "Now it's time to build on that strong foundation of achievement." '‹

[DewDiligence]

Deere Redoubles Efforts in Emerging Markets

[This WSJ piece is a bookend to the article in #msg-60344244.]

http://online.wsj.com/article/SB10001424052748704604704576220684003808072.html

›MARCH 24, 2011
By BOB TITA

Deere & Co.'s goal of nearly doubling its sales over the next eight years hinges on penetrating Russia's farm equipment market and expanding its construction equipment business beyond North America.

Samuel Allen signaled last month that the dominant theme of his tenure as chairman and chief executive of the 174-year-old company will be reaching $50 billion a year in sales by 2018 [#msg-60344244]. To get there, Mr. Allen figures Deere needs to accelerate its compounded annual sales growth rate to 9.2% from the historical rate of about 7%.

"While it's a stretch goal, it's a realistic goal," Mr. Allen said in an interview Wednesday.

For the company's fiscal year that ended Oct. 31, Deere's sales and revenue totaled $26 billion. It earned $1.87 billion, or $4.35 a share. For 2011, the company forecast equipment sales growth of 18% to 20% [#msg-60136209].

Mr. Allen, who became CEO in 2009, believes Deere's dual businesses in construction and agriculture place the company at the crossroads of two major global economic trends: the growth of cities in the developing world and the need for more food production.

But capturing the maximum benefits from these trends will require Deere to reach beyond its traditional markets in North America and Western Europe to establish a bigger presence in developing countries where business conditions are unpredictable and customer needs challenging.

The Moline, Ill., company is the world's largest maker of farm equipment by sales. Its best long-term growth potential is in Russia, which has 9% of the world's arable land and is one of the world's top producers of wheat. Russia aims to double its exports of wheat in the coming years to take advantage of the increasing demand for grain from other countries, especially China. But Russia's farmland use has been falling steadily in the past 20 years in part because of inadequate machinery.

"If you want to export wheat, farmers have to be very productive," Mr. Allen said. "That's why we're putting so much emphasis on Russia, even though it's a risky environment."

Deere and other foreign equipment makers in Russia operate under the threat that a change in government policies could effectively force them out of the country [no kidding]. In 2008, the government excluded machinery built outside of Russia from financing for farmers purchasing new machinery.

"That became a tremendous impediment" to doing business in Russia, Mr. Allen said. "Overnight, our market went down by over 80%. It's not that farmers didn't want our equipment, they had no way to buy it."

Deere has redoubled its efforts in Russia in recent years by opening a plant in Domodedovo, south of Moscow. The company said earlier this month that it will double the manufacturing space at the plant [#msg-60841789], allowing Deere to increase volumes of equipment already in production at the plant, as well as permit the introduction of more Deere equipment lines to the Russian market, particularly timber harvesting machinery. The company also launched an equipment leasing program.

Even though the Russian government has agreed to extend financing for machinery built in Russia, foreign equipment manufacturers and Russian leaders continue to haggle over the percentage of parts that can imported from elsewhere.

"The question we continue to ask ourselves is how do we do everything possible to mitigate risk," said Mr. Allen, who pressed his case for Deere's expansion in Russia during meetings last fall with Russian Prime Minister Vladimir Putin.

While Deere's green and yellow farm tractors are known throughout the world, its construction equipment business has largely been grounded in North America. Years of unsatisfactory returns from the construction business kept it from the same global expansion pursued by Deere's farm machinery operations.

Mr. Allen, a 36-year veteran of the company who headed the construction business before becoming CEO, said the operational problems that once held down construction's returns have been eliminated. The decentralized management system that Deere used for its business units also has been dropped at the corporate level, but most Deere farm equipment dealers overseas still do not sell the company's construction equipment.

Adding construction machinery to Deere's overseas dealers is a key component Mr. Allen's expansion strategy, particularly in China and India. Rapid expansion of public infrastructure and urbanization there are driving demand for bulldozers, excavators and other earthmoving equipment. For first time in history more than 50% of the world's population now lives in an urban area.

"China from a construction equipment standpoint has exploded," he said. "A lot of that is the government's focus on creating urban cities."

Since becoming chief executive, Mr. Allen has sold off or downgraded side lines that Deere had pursued as an offset to sluggish sales in its core businesses. Among the businesses jettisoned was its wind energy business.

"We have so much opportunity in (farm and construction machinery) we really need to be focused on it as opposed to taking management bandwidth to go into other areas that don't have as much growth."‹

[DewDiligence]

DE Reports Record FY2Q11 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. DE expects to double sales in seven years (#msg-60344244).

In the short term, DE has been on fire and just logged the best quarter in its history. Why is DE putting up such stellar numbers? Farmers are flush with cash from sky-high crop prices, which increases demand for DE’s tractors and combines. Moreover, DE has been able to pass along price increases in steel and rubber (its two most important input materials) and has maintained its profit margins.

FY2Q11 was a blowout quarter on several fronts including all-time records for sales and earnings. GAAP and non-GAP EPS were $2.12, +65% and +34%, respectively, vs GAAP and non-GAAP income in FY2Q10 on a 27% YoY increase in equipment sales and a 25% increase in overall revenue, including the captive finance business. (In FY2Q10, non-GAAP EPS was $0.30 lower than GAAP from a one-time charge for ObamaCare.)

DE raised implicit EPS guidance for FY2011 (ending 10/31/11) from $5.86 to $6.21 (based on 427M diluted shares), despite the fact that the tsunami in Japan will shave $0.16 from FY 2011 EPS; thus, FY2011 EPS guidance would have been $6.37 without the tsunami. The share price at yesterday’s close thus represents a FY2011 P/E of about 14x.]

http://finance.yahoo.com/news/Deere-Reports-Record-prnews-3777275534.html?x=0&.v=1

›Wednesday May 18, 2011, 7:00 am

• Income jumps 65 percent on 25 percent increase in net sales and revenues.
• Sales and profit set all-time quarterly record.
• Performance paced by strong demand for farm machinery.
• Earnings forecast for year increased to about $2.65 billion.

MOLINE, Ill., May 18, 2011 /PRNewswire/ -- Net income attributable to Deere & Company (NYSE:DE) was $904.3 million, or $2.12 per share, for the second quarter ended April 30, compared with $547.5 million, or $1.28 per share, for the same period last year.

Second-quarter 2010 earnings were $677.0 million, or $1.58 per share, excluding a tax charge of $129.5 million, or $0.30 per share, related to the enactment of U.S. health-care legislation. (Information on non-GAAP financial measures is included in the appendix.)

For the first six months of the year, net income attributable to Deere & Company was $1.418 billion, or $3.32 per share, compared with $790.7 million, or $1.85 per share, last year. Six-month 2010 results also were affected by the tax charge.

Worldwide net sales and revenues increased 25 percent, to $8.910 billion, for the second quarter and were up 26 percent to $15.029 billion for six months. Net sales of the equipment operations were $8.328 billion for the quarter and $13.841 billion for six months, compared with $6.548 billion and $10.785 billion for the corresponding periods last year.

"With our record second-quarter performance, John Deere is well on its way to a year of exceptional results," said Samuel R. Allen, chairman and chief executive officer. "Our success reflects strong demand for our innovative lines of equipment and the continued skillful execution of our business plans. Deere's actions to expand its global competitive position are attracting new customers worldwide and making a major contribution to our results."

Sales of large farm machinery, particularly in the United States, Canada and Brazil, are continuing to support the company's performance. Construction equipment shipments are moving higher in spite of lingering weakness in the residential and commercial construction sectors. "Markets for construction equipment in the U.S. and for farm machinery in Europe are in the early stages of recovery," Allen said. "We're optimistic about the longer-term opportunity for further improvement in these and other key areas."

Summary of Operations

Net sales of the worldwide equipment operations increased 27 percent for the quarter and 28 percent for six months compared with the same periods a year ago. Sales included a favorable currency-translation effect of 3 percent for the quarter and 2 percent for six months and price realization of 4 percent for the quarter and 3 percent for the year to date. Equipment net sales in the United States and Canada increased 17 percent for the quarter and were up 24 percent year to date. Outside the U.S. and Canada, net sales were up 45 percent for the quarter and 36 percent for six months, with favorable currency-translation effects of 8 percent and 4 percent for these periods.

Deere's equipment operations reported operating profit of $1.268 billion for the quarter and $1.914 billion for six months, compared with $988 million and $1.303 billion last year.

Results were better in both periods primarily due to the impact of higher shipment and production volumes and improved price realization, partially offset by increased raw-material costs and higher selling, administrative and general expenses.

Net income of the company's equipment operations was $797 million for the quarter and $1.193 billion for six months, compared with $454 million and $623 million for the respective periods last year. The same operating factors mentioned above, along with a lower effective tax rate, affected both quarterly and six-month results. The lower tax rate was mainly due to the previously mentioned tax charge in 2010.

Financial services reported net income attributable to Deere & Company of $105.1 million for the quarter and $223.3 million for six months compared with $86.9 million and $172.0 million last year. Results were higher for both periods primarily due to growth in the portfolio and a lower provision for credit losses.

Company Outlook & Summary

Company equipment sales are projected to be up 21 to 23 percent for fiscal 2011 and up about 20 percent for the third quarter compared with the same periods a year ago. Included is a favorable currency-translation impact of about 3 percent for the year and about 6 percent for the quarter. For the full year, net income attributable to Deere & Company is anticipated to be about $2.650 billion.

The annual forecast includes a negative impact of approximately $300 million in sales and $70 million in operating profit resulting from the recent Japanese earthquake and tsunami.

According to Allen, the company's record of strong financial performance is helping support aggressive levels of organic growth. "Our consistent investment in new products and expanded global capacity puts the company on a solid footing for the future," he said. "As a result, John Deere is well-positioned to address the world's growing need for agricultural commodities, shelter and infrastructure. We believe these developments will have a positive impact on demand for productive farm and construction equipment in the years ahead and hold exciting promise for the company well into the future."

Equipment Division Performance

Agriculture & Turf. Sales rose 24 percent for the quarter and 23 percent for six months largely due to higher shipment volumes, improved price realization and the favorable effects of currency translation.

Operating profit was $1.163 billion for the quarter and $1.720 billion year to date, compared with $952 million and $1.304 billion, respectively, last year. Operating profit was higher in both periods primarily due to the impact of higher shipment and production volumes and improved price realization, partially offset by increased raw-material costs and higher selling, administrative and general expenses.

Construction & Forestry. Construction and forestry sales climbed 46 percent for the quarter and 61 percent for six months mainly due to higher shipment volumes and improved price realization. The division had operating profit of $105 million for the quarter and $194 million for six months, compared with last year's operating profit of $36 million in the quarter and an operating loss of $1 million for the six-month period. The improvement in both periods was primarily due to higher shipment and production volumes and improved price realization, partially offset by higher selling, administrative and general expenses and increased raw-material costs.

Market Conditions & Outlook

Agriculture & Turf. Worldwide sales of agriculture and turf equipment are forecast to increase by about 20 percent for full-year 2011, benefiting from favorable global farm conditions and a positive currency-translation impact of about 4 percent.

Farmers in most of the world's major markets are experiencing solid levels of income due to strong global demand for agricultural commodities, low grain stocks in relation to use, and relatively high prices for key crops. Farm commodity prices have escalated sharply since the beginning of the year and are expected to average well above prior-year levels for 2011.

After staging a healthy advance in 2010, industry farm-machinery sales in the U.S. and Canada are forecast to be up 5 to 10 percent for 2011. Overall conditions remain positive and demand for high-horsepower equipment continues to be strong. Production limits and transitional issues, both associated with the broad launch of Interim Tier 4 emissions-compliant equipment, are having 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 15 percent, while sales in the Commonwealth of Independent States are expected to see notably stronger gains from the previous year's depressed level. Farm conditions are strengthening in the European and CIS markets.

Sales in Asia are forecast to grow strongly again this year.

In South America, industry sales for the year are projected to be down 5 to 10 percent versus the strong levels of 2010. Weakness in the small-tractor market in Brazil and recently enacted trade policies in Argentina are contributing to the decline. Deere's own sales in the region are benefiting 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 somewhat-improved market conditions in relation to the prior year's low level and increased activity outside of the U.S. and Canada. Construction equipment sales to independent rental companies are seeing growth, while world forestry markets are experiencing further improvement 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 $435 million. The forecast increase from 2010 is primarily due to growth in the portfolio and a lower provision for credit losses.

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 $85.9 million for the second quarter and $169.6 million year to date, compared with $69.4 million and $133.4 million for the respective periods last year. Results were higher for both periods primarily due to growth in the portfolio and a lower provision for credit losses.

Net receivables and leases financed by JDCC were $22.482 billion at April 30, 2011, compared with $19.818 billion last year.‹