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John Deere's Full-Year Profit Forecast Increased

17 February 2012
John Deere

US - Net income attributable to Deere & Company was $532.9 million, or $1.30 per share, for the first quarter ended 31 January, compared with $513.7 million, or $1.20 per share, for the same period last year.

Worldwide net sales and revenues for the first quarter increased 11 percent, to $6.767 billion, compared with $6.119 billion last year. Net sales of the equipment operations were $6.119 billion for the quarter compared with $5.514 billion a year ago.

"By completing another quarter of record performance, John Deere has started 2012 on a strong note," said Samuel R. Allen, chairman and chief executive officer. "These results are evidence of the skillful execution of our operating and marketing plans. They also reflect an enthusiastic response by customers worldwide to our advanced lines of equipment. Maintaining such a high level of execution is especially noteworthy as we move ahead with major new-product launches and significantly expand our global market presence." Over the last year, Allen pointed out, Deere introduced a record number of products and announced plans to build seven new factories throughout the world. The company also expanded or modernized additional locations in the US and other countries.

Summary of Operations

Net sales of the worldwide equipment operations rose 11 percent for the quarter. Sales included price increases of 4 percent and an unfavorable currency-translation effect of 1 percent. Equipment net sales in the United States and Canada increased 5 percent for the quarter. Outside the US and Canada, net sales were up 21 percent for the quarter, including an unfavorable currency-translation effect of 2 percent.

Deere's equipment operations reported operating profit of $698 million for the quarter, compared with $646 million last year. Results benefited from price realization and higher shipment volumes, partially offset by increased production costs related to new products and more stringent engine-emission requirements, as well as higher raw-material costs.

Trade receivables and inventories ended the quarter at $9.011 billion compared with $7.416 billion last year. Both figures are equal to 30 percent of trailing 12-month sales.

Financial services reported net income attributable to Deere & Company of $119.1 million for the quarter compared with $118.2 million last year. Results benefited from growth in the credit portfolio, revenue from wind energy credits and a lower provision for credit losses. These factors were largely offset by higher crop insurance claims and increased selling, administrative and general expenses.

Company Outlook & Summary

Company equipment sales are projected to be up about 15 percent for fiscal 2012 and for the second quarter compared with the same periods of the previous year. Included is an unfavorable currency-translation impact of about 3 percent for the year and the second quarter. For the full year, net income attributable to Deere & Company is anticipated to be approximately $3.275 billion.

According to Allen, Deere's strong performance and positive outlook build momentum for the company's plans to increase growth and profitability. "Our substantial investment in new products and additional capacity puts Deere on a sound footing to respond to further improvement in key markets that are in the early stages of recovery," Allen said. "Such investment will help Deere more fully capitalize on the world's growing need for food, shelter, and infrastructure in the years ahead. In our view, powerful trends of this nature have staying power and represent an exceptional opportunity for the company and its investors."

Equipment Division Performance

Agriculture & Turf. Sales increased 8 percent for the quarter largely due to higher shipment volumes and price realization. Operating profit was $574 million compared with $558 million for the quarter last year. The improvement was primarily due to price realization and higher shipment volumes, partially offset by increased production costs related to new products and engine-emission requirements, as well as higher raw-material costs.

Construction & Forestry. Construction and forestry sales climbed 22 percent. Operating profit for the quarter was $124 million compared with $88 million a year ago. Contributing to the increase were higher shipment volumes as well as price realization, partially offset by higher raw-material costs.

Market Conditions & Outlook

Agriculture & Turf. Worldwide sales of agriculture and turf equipment are forecast to increase by about 15 percent for full-year 2012, including an unfavorable currency-translation effect of about 3 percent. Farmers in the world's major markets are expected to experience favorable incomes due to strong demand for agricultural commodities. In addition, John Deere's sales are projected to benefit from advanced new products being launched throughout the world and from major expansions.

Industry farm-machinery sales in the US and Canada are forecast to increase by about 10 percent in 2012. Overall conditions remain positive and demand continues to be strong, especially for high-horsepower equipment.

Full-year industry sales in the EU 27 nations of Western and Central Europe are forecast to be flat to up 5 percent as favorable conditions in the grain, livestock and dairy sectors outweigh general economic concerns. Sales in the Commonwealth of Independent States are expected to be considerably higher in 2012, while sales in Asia are forecast to increase moderately. In South America, industry sales for the year are projected to be flat to down 5 percent, versus attractive levels of 2011, due to drought conditions in Argentina and southern Brazil.

US and Canada industry sales of turf and utility equipment are expected to increase slightly in 2012.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to rise by about 18 percent for 2012. The increase reflects somewhat improved market conditions, growth in international markets, and strength in the rental, energy and material-handling sectors. In addition, Deere's sales 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 mainly due to economic concerns in Europe.

Financial Services. Full-year 2012 net income attributable to Deere & Company for the financial services operations is expected to be approximately $460 million. The forecast decline from 2011 is primarily due to an anticipated increase in the provision for credit losses, which is expected to move toward a more normal level.

In addition, selling, administrative and general expenses in support of enterprise growth initiatives are projected to be higher for the year. Partially offsetting these items is expected growth in the credit portfolio.

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