Replies to post #3327 on The Rising Influence of Rising Affluence

[DewDiligence]

DE—Bill Gates’ investment firm, Cascade Investment, LLC, has a 5.8% stake in DE (24.5M shares), according to a Form-13D filing today:

http://www.sec.gov/Archives/edgar/data/315189/000110465911048326/a11-24844_1sc13d.htm

Cascade added approximately 8M shares of DE—$600M worth—during the past two months at prices between $70 and $80 per share (http://www.sec.gov/Archives/edgar/data/315189/000110465911048326/a1124844_1ex99d2.htm ).

[DewDiligence]

DE Reports FY4Q11 Results

[This PR, which was issued on Nov 23, caused a large pop in the share price despite the fact that the broad market was in the midst of a major selloff. DE traditionally lowballs sales and earnings guidance, so beating guidance per se is not a big deal; however, this quarter—and the full fiscal year ending 10/31/11—were remarkable even within the context of DE’s under-promise/over-deliver style. DE didn’t just beat its FY4Q11 EPS guidance of $1.34, but rather *blew it away* by logging $1.62, +51% YoY on a 41% increase in pre-tax income from higher sales and margins, a lower tax rate, and 3% fewer shares outstanding due to buybacks.

FY4Q11 product sales (excluding revenue from the captive finance subsidiary) rose 20% YoY, including 15% from volume, 3% from pricing, and 2% from currency. Sales increased 18% YOY in the Ag & Turf division and 34% YoY in the Construction & Forestry division, which competes with such companies as CAT. C&F has seen a very sharp recovery from the recession lows and contributed 20% of product sales during FY4Q11, the highest proportion in several years; however, these sales have a much lower margin than those in the AG & Turf division. FY4Q11 ex-US/ex-Canada product sales grew 31% YoY and comprised 41% of total sales; although these sales are currently less profitable than sales in North America, this should change when DE opens new efficient factories in emerging markets including six that are planned or under construction in China, Brazil, and India (#msg-61382266).

Farmers are flush with cash from sky-high crop prices (#msg-69445467), which makes DE’s management bullish for FY2012 and beyond. Coincident with this PR, DE issued guidance for FY2012 (ending 10/31/12): product sales +15% YoY, and net income +14% YoY to $3.2B. Assuming another 3% reduction in diluted share count relative to FY2011, this equates to FY2012 EPS of $7.82 on 409M diluted shares. (This is considerably better than my own prior FY2012 EPS projection of $7.15 mentioned in #msg-66300335 three months ago.) The stock is trading at a P/E based on FY2012 guidance of only 10x. This is a screaming buy, IMO, for a blue-chip company that is conservatively managed, is one of the premiere beneficiaries of The Global Demographic Tailwind, and has a stated (and IMO realistic) goal of generating $50B in sales by FY2018, double the amount in FY2010 (#msg-60344244). Bill Gates’ investment firm is DE’s largest shareholder with a 6% equity stake (#msg-66468023). See #msg-59333127 and #msg-51844339 for background info.]

http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/financialdata/reports/2011/2011_fourthquarter.pdf

›11/23/2011 7:00AM ET

• Deere Completes Record Year With Fourth-Quarter Earnings of $670 Million

• Fourth-quarter income rises 46 percent on 20 percent increase in sales and revenues; full-year income hits record $2.8 billion.

• Broad-based improvement reflects significantly higher results from all divisions.

• Healthy farm conditions, skillful execution of business plans drive performance.

• Further improvement in sales and profit forecast for 2012.

MOLINE, Ill. , Nov. 23, 2011 /PRNewswire/ -- Net income attributable to Deere & Company (NYSE: DE) was $669.6 million , or $1.62 per share, for the fourth quarter ended October 31 , compared with $457.2 million , or $1.07 per share, for the same period last year.

For fiscal 2011, net income attributable to Deere & Company was $2.800 billion , or $6.63 per share, compared with $1.865 billion , or $4.35 per share, last year.

Worldwide net sales and revenues increased 20 percent, to $8.612 billion , for the fourth quarter and were up 23 percent to $32.013 billion for the full year. Net sales of the equipment operations were $7.903 billion for the quarter and $29.466 billion for full-year 2011, compared with $6.564 billion and $23.573 billion for the corresponding periods last year.

"John Deere has completed another year of exceptional achievement," said Samuel R. Allen , chairman and chief executive officer. "Our success reflects a continued pattern of strong customer response to our innovative lines of equipment coupled with the skillful execution of business plans aimed at expanding our global competitive position."

During the year, Deere introduced a record number of products and announced plans for six new factories, in China , Brazil and India . "John Deere's record performance is a further tribute to our operating model, which stresses rigorous cost management and asset efficiency," Allen stated. "As a result, we are achieving unprecedented financial results and generating healthy levels of cash flow. These dollars are funding growth throughout the world and also are being shared directly with investors in the form of dividends and share repurchases."

Summary of Operations

Net sales of the worldwide equipment operations increased 20 percent for the quarter and 25 percent for the year. Sales included a favorable currency-translation effect of 2 percent for the quarter and 3 percent for the year and price increases of 3 percent for both periods. Equipment net sales in the United States and Canada rose 14 percent for the quarter and 17 percent for the year. Outside the U.S. and Canada , net sales were up 31 percent and 38 percent for the respective periods, with favorable currency-translation effects of 4 percent and 7 percent.

Deere's equipment operations reported operating profit of $955 million for the quarter and $3.839 billion for the year, compared with $716 million and $2.909 billion last year. Results were better for both periods largely due to higher shipment volumes and improved price realization. These factors were partially offset by increased raw-material costs, higher manufacturing-overhead costs related to new products, and higher research and development expenses. In addition, full-year results were impacted by higher selling, administrative and general expenses.

Net income of the company's equipment operations was $552 million for the quarter and $2.329 billion for the year, compared with $357 million and $1.492 billion last year. The same operating factors mentioned above, along with a lower effective tax rate, affected both the quarterly and annual results.

Financial services reported net income attributable to Deere & Company of $122.1 million for the quarter and $471.0 million for the year compared with $98.4 million and $372.5 million , respectively, last year. Results for both periods benefited from growth in the credit portfolio and a lower provision for credit losses, partially offset by narrower financing spreads and a higher effective tax rate. Included in 2010 fourth-quarter results was a write-down of wind-energy assets held for sale to fair value.

Company Outlook & Summary

In spite of an unsettled global economy, demand for John Deere products is expected to experience substantial growth in fiscal year 2012 and the company is forecasting further increases in sales and earnings as a result. Company equipment sales are projected to increase about 15 percent for the year and to be up 16 to 18 percent for the first quarter compared with the same periods of 2011. Included is a favorable currency-translation impact of about 3 percent for the quarter and about 1 percent for the year. For the full year, net income attributable to Deere & Company is anticipated to be approximately $3.2 billion. [Assuming 409M diluted shares, this equates FY2012 EPS of $7.82, as explained in the prologue of this message.]

Supported by record 2011 performance, John Deere remains well-positioned to carry out its extensive growth plans and capitalize on positive long-term economic trends, according to Allen. "Thanks in large part to the dedication and hard work of our employees, dealers and suppliers worldwide, John Deere's plans for helping meet growing global needs for food and infrastructure are moving ahead at an accelerated rate," he said. "We are proud of the company's performance in 2011 and look forward to building on these gains in 2012 and beyond. We have great confidence in the company's future and our role in helping feed, clothe and shelter the world's growing population. These developments in our view hold great promise, which should prove rewarding to our investors and other stakeholders in the future."

Equipment Division Performance

Agriculture & Turf. Sales were up 18 percent for the quarter and 21 percent for the year primarily due to higher shipment volumes. Improved price realization and favorable currency translation affected sales for both periods.

Operating profit was $868 million for the quarter and $3.447 billion for the year, compared with $662 million and $2.790 billion in 2010. Results were better for both periods largely due to higher shipment volumes and improved price realization. These factors were partially offset by increased raw-material costs, higher manufacturing-overhead costs related to new products, and higher research and development expenses. Additionally, full-year results were negatively affected by increased selling, administrative and general expenses.

Construction & Forestry. Construction and forestry sales rose 34 percent for the quarter and were up 45 percent for the year mainly due to higher shipment volumes. The division had operating profit of $87 million for the quarter and $392 million for the year, compared with $54 million and $119 million last year. Operating profit for both periods moved up primarily due to higher shipment and production volumes and improved price realization. These factors were partially offset by increases in raw-material costs and higher research and development expenses. In addition, higher selling, administrative and general expenses had an impact on full-year results.

Market Conditions & Outlook

Agriculture & Turf. Worldwide sales of the company's agriculture and turf division are forecast to increase by about 15 percent for fiscal year 2012, with a favorable currency-translation impact of about 1 percent. Farmers in the world's major markets are continuing to experience favorable incomes due to strong demand for agricultural commodities. As well, John Deere's sales are expected to benefit from advanced new products being launched throughout the world and from major expansion projects such as those in emerging markets.

Industry farm-machinery sales in the U.S. and Canada are forecast to increase 5 to 10 percent in 2012, following an advance in 2011. Overall conditions remain positive and demand continues to be strong, especially for high-horsepower equipment.

Industry sales in the EU 27 nations of Western and Central Europe are forecast to be flat for 2012 as a result of general economic concerns in the region. Sales in the Commonwealth of Independent States are expected to be moderately higher, after rising substantially in 2011. Sales in Asia are forecast to be up strongly again in 2012. In South America , industry sales for the year are projected to be flat in relation to the attractive levels of 2011.

Industry sales of turf and utility equipment in the U.S. and Canada are expected to increase slightly in 2012.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to grow by about 16 percent for fiscal 2012, with a favorable currency-translation impact of about 1 percent. The increase reflects slightly improved market conditions and activity outside of the U.S., including strength in Canada . Construction equipment sales to independent rental companies are expected to see further gains. Deere's sales also are expected to be supported by a range of advanced new products and by geographic expansion. After considerable growth in 2011, world forestry markets are projected to be about the same in 2012 due to weaker economic conditions in Europe.

Financial Services. Fiscal-year 2012 net income attributable to Deere & Company for the financial services operations is expected to be approximately $450 million . The forecast decline from 2011 is primarily due to an increase in the provision for credit losses, which is anticipated to return to a more typical level, as well as higher selling, administrative and general expenses in support of enterprise growth initiatives. Partially offsetting these items is expected growth in the credit portfolio.

John Deere Capital Corporation

The following is disclosed on behalf of the company's financial services 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 $93.5 million for the fourth quarter and $363.6 million year to date, compared with $96.7 million and $319.4 million for the respective periods last year. Results were lower for the quarter mainly due to narrower financing spreads and a higher effective tax rate, largely offset by growth in the credit portfolio and a lower provision for credit losses. Annual results showed improvement primarily due to growth in the credit portfolio and a lower provision for credit losses, partially offset by narrower financing spreads and a higher effective tax rate.

Net receivables and leases financed by JDCC were $23.184 billion at October 31, 2011 , compared with $20.854 billion last year.‹