Deere Q4 Profit Down 20%, But Results Beat View; Sees Weak 2015

(RTTNews) - Agricultural machinery maker Deere & Co. (DE) on Wednesday reported a 20 percent decline in profit for the fourth quarter from last year, reflecting lower sales of agricultural equipment amid a slowdown in the global farm sector.

However, both revenue and earnings per share for the quarter beat analysts' expectations. Looking ahead, the company forecast lower earnings and equipment sales for fiscal 2015.

Samuel Allen, chairman and chief executive officer, said, "John Deere has completed another year of solid performance in spite of weaker conditions in the global farm sector, which caused sales and earnings to decline from the record totals of 2013. The slowdown has been most pronounced in the sale of large farm machinery, including many of our most profitable models."

Net income attributable to Deere for the fourth quarter was $649.2 million or $1.83 per share, down from $806.8 million or $2.11 per share in the year-ago period.

On average, 21 analysts polled by Thomson Reuters expected the company to report earnings of $1.57 per share for the quarter. Analysts' estimates typically exclude special items.

The decline in net income for the quarter was due primarily to the impact of lower shipment and production volumes, higher production costs primarily related to engine-emission programs, increased warranty costs and an impairment charge for the China operations.

However, net income attributable to John Deere Capital Corp. for the quarter increased 16 percent from the prior-year period to $154.2 million, reflecting growth in the credit portfolio. This was partially offset by higher selling, general and administrative expenses.

Deere's worldwide net sales and revenues for the quarter decreased 5 percent to $8.97 billion from $9.45 billion in the prior-year period. Total net sales of the equipment operations declined 7 percent to $8.04 billion. Wall Street analysts were looking for revenue of $7.75 billion.

Net sales included price realization of 1 percent as well as an unfavorable currency-translation effect of 1 percent for the quarter. Equipment net sales in the U.S. and Canada decreased 10 percent, while sales were down 2 percent outside the U.S. and Canada.

In the quarter, agriculture and turf sales and revenues declined 13 percent from last year, due largely to lower shipment volumes, sales of the company's landscapes and water operations, and the unfavorable effects of currency translation.

However, construction and forestry's sales rose 23 percent from the year-ago period, reflecting higher shipment volumes and price realization. These were partially offset by the unfavorable effects of currency translation.

Financial services revenues for the quarter grew 9 percent from last year.

For fiscal 2014, net income attributable to Deere was $3.16 billion or $8.63 per share, down from $3.54 billion or $9.09 per share last year. Net sales for the year declined 5 percent to $36.07 billion from $37.80 billion in the prior year. Net sales of the equipment operations decreased 6 percent to $32.96 billion.

Analysts expected the company to earn $8.35 per share for the year on revenues of $32.90 billion.

Looking ahead to fiscal 2015, Deere forecasts net income attributable to the company of about $1.9 billion. The company also projects company equipment sales to drop by about 15 percent for fiscal 2015 and to be down about 21 percent for the first quarter compared with year-ago periods.

Street expects the company to report earnings of $6.34 per share for the year on 8.5 percent decline in revenues to $30.11 billion.

Deere projects worldwide sales of agriculture and turf equipment to decrease by about 20 percent for fiscal 2015 as a result of weaker conditions in the global farm economy. The company noted that lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery, especially for larger models.

Meanwhile, construction and forestry equipment sales for the year are forecast to increase by about 5 percent.

Allen said, "Even with a significant decline in sales and a continued pullback in the global agricultural sector, John Deere expects to remain solidly profitable in 2015. The company's earnings forecast reflects the impact of our efforts to establish a more resilient business model and it represents a level of performance much better than we've seen in prior downturns."

DE closed Tuesday's trading at $87.79. In Wednesday's pre-market activity, the stock is down $2.29 or 2.61 percent to $85.50.