Deere Q3 Equipment Sales Climb 36%; Financial Services Up 95% YTD



Deere & Company reported net income of $910.3 million for Q3/18 compared with net income of $641.8 million for the same quarter in 2017. For the first nine months of the year, net income attributable to Deere & Company was $1.584 billion compared with $1.649 billion for the same period last year.

Affecting results for the third quarter and first nine months of 2018 were provisional adjustments to the provision for income taxes due to the enactment of U.S. tax reform legislation on December 22, 2017 (tax reform). Third-quarter results included a favorable net adjustment to provisional income taxes of $62 million, while the first nine months reflected an unfavorable net provisional income tax expense of $741 million. Without these adjustments, net income attributable to Deere & Company for the third quarter and first nine months of the year would have been $849 million and $2.325 billion, respectively.

Worldwide net sales and revenues increased 32%, to $10.308 billion, for the third quarter and rose 29%, to $27.942 billion, for nine months. Net sales of equipment operations were $9.286 billion for the third quarter and $25.007 billion for the first nine months, compared with $6.833 billion and $18.791 billion for the same periods last year.

Financial services reported net income attributable to Deere & Company of $151.2 million for the quarter and $680.6 million for the first nine months, up 15.2% from $131.2 million and 95.0% from $349.1 million last year. Results for both periods benefited from a higher average portfolio and a lower provision for credit losses, partially offset by less-favorable financing spreads. Nine-month results also were helped by lower losses on lease residual values. Additionally, provisional income tax adjustments related to tax reform had favorable effects of $3.6 million for the quarter and $232.4 million for nine months.

“Deere’s third-quarter performance benefited from favorable market conditions and positive response to our advanced product lineup,” Samuel R. Allen, Deere’s chairman and CEO, said. “Farm machinery sales in North America and Europe made solid gains, while construction equipment sales moved sharply higher and received significant support from our Wirtgen road-building unit. At the same time, we have continued to face cost pressures for raw materials and freight, which are being addressed through a combination of cost management and pricing actions.”

Equipment Division Performance

Agriculture & Turf sales rose 18% for the quarter and 19% for the first nine months due to higher shipment volumes as well as lower warranty expenses and price realization. Currency translation had an unfavorable impact on sales for the quarter and a favorable effect for nine months.

Operating profit was $806 million for the quarter and $2.249 billion year to date, compared with respective totals of $693 million and $1.920 billion last year. The improvement was driven by higher shipment volumes, lower warranty-related expenses and price realization, partially offset by higher production costs and research and development expenses. Last year, both periods benefited from gains on the SiteOne sale.

Construction & Forestry sales increased 100% percent for the quarter and 83% for nine months, with Wirtgen adding 77% and 56% for the respective periods. Foreign-currency rates did not have a material translation effect on sales for the quarter but had a favorable impact for nine months. Both periods were favorably affected by lower warranty expenses and negatively affected by higher sales-incentive expenses.

Operating profit was $281 million for the quarter and $573 million for nine months, compared with $111 million and $259 million last year. Wirtgen contributed operating profit of $88 million for the quarter and $37 million year to date. Excluding Wirtgen, the improvements were primarily driven by higher shipment volumes and lower warranty expenses, partially offset by higher production costs and sales-incentive expenses.

Market Conditions and Outlook

Deere’s worldwide sales of agriculture and turf equipment are forecast to increase by about 15% for fiscal-year 2018, with foreign-currency rates not expected to have a material translation effect. Industry sales of agricultural equipment in the U.S. and Canada are forecast to be up about 10% for 2018, led by higher demand for large equipment. Despite drought concerns in some areas, full-year industry sales in the EU28 member nations are forecast to be up 5% to 10% as a result of favorable conditions in the dairy and livestock sectors and positive arable-farming conditions in certain key markets. South American industry sales of tractors and combines are projected to be flat to up 5% benefiting from strength in Brazil. Asian sales are forecast to be in line with last year. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5% for 2018.

Deere’s worldwide sales of construction and forestry equipment are anticipated to be up about 81% for 2018, with foreign-currency rates not expected to have a material translation effect. Wirtgen is expected to add about 55% to the division’s sales for the year. The outlook reflects continued improvement in demand driven by higher housing starts in the U.S., increased activity in the oil and gas sector, and economic growth worldwide. In forestry, global industry sales are expected to be up about 10% mainly as a result of improved demand throughout the world, led by North America.

Fiscal-year 2018 net income attributable to Deere & Company for the financial services operations is projected to be approximately $815 million, including a provisional income tax benefit of $232 million associated with tax reform. Excluding the tax benefit, adjusted net income attributable to Deere & Company is forecast to be $583 million. Results are expected to benefit from a higher average portfolio, a lower provision for credit losses and lower losses on lease residual values, partially offset by less-favorable financing spreads.

Last quarter’s financial-services net income forecast for the year was $800 million. That outlook included a provisional tax benefit estimate of $229 million for re-measurement of the division’s net deferred tax liability and a one-time deemed earnings repatriation tax.

John Deere Capital

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

Net income attributable to JDCC was $120.2 million for the third quarter and $638.8 million year to date, compared with $88.3 million and $227.0 million for the respective periods last year. Results for both periods benefited from a favorable provision for income taxes associated with tax reform and a higher average portfolio, partially offset by less-favorable financing spreads. The first nine months also benefited from lower losses on lease residual values and a lower provision for credit losses. Net receivables and leases financed by JDCC were $35.633 billion at July 29, 2018, compared with $32.929 billion at July 30, 2017.


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