FULL YEAR: JOHN DEERE'S SALES UP 12%, NET INCOME UP 42%
Dec. 4, 2017
Source: John Deere news release
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*Improving markets for farm and construction equipment contribute to higher results for both fourth quarter and full year.
*Performance shows continued benefit from advanced products, flexible cost structure.
*2018 forecast calls for net income of $2.6 billion.
Net income attributable to Deere & Company was $510.3 million, or $1.57 per share, for the fourth quarter ended October 29, 2017, compared with $285.3 million, or $0.90 per share, for the quarter ended October 30, 2016. For fiscal 2017, net income attributable to Deere & Company was $2.159 billion, or $6.68 per share, compared with $1.524 billion, or $4.81 per share, in 2016.
Worldwide net sales and revenues increased 23 percent, to $8.018 billion, for the fourth quarter and increased 12 percent, to $29.738 billion, for the full year. Net sales of the equipment operations were $7.094 billion for the quarter and $25.885 billion for the year, compared with respective totals of $5.650 billion and $23.387 billion in 2016.
"John Deere has completed another successful year as markets for farm and construction equipment showed improvement and our actions to build a more durable business model yielded strong results," said Samuel R. Allen, chairman and chief executive officer, adding that the year's sales and earnings were the fifth-highest in company history.
"We saw higher overall demand for our products with farm machinery sales in South America making especially strong gains and construction equipment sales rising sharply. At the same time, the company realized continued benefits from its broad product portfolio and agile cost structure. As a result, Deere has remained well-positioned to serve present customers while making investments aimed at driving growth and attracting additional customers in the future."
Investments made or announced during the year included the acquisition of the Wirtgen Group, the world's leading manufacturer of road construction equipment. The transaction is expected to be finalized next month. "Wirtgen will establish Deere as a substantially more prominent player in global construction-equipment markets," Allen said.
Summary of Operations
Net sales of the worldwide equipment operations increased 26 percent for the quarter and 11 percent for the full year compared with the same periods in 2016. Sales included price realization of 1 percent for the quarter and full year, with a favorable currency-translation effect of 2 percent and 1 percent for the respective periods. Equipment net sales in the United States and Canada increased 23 percent for the quarter and 5 percent for the year. Outside the U.S. and Canada, net sales increased 30 percent for the quarter and 20 percent for the year, with a favorable currency-translation effect of 3 percent and 1 percent, respectively.
Deere's equipment operations reported operating profit of $669 million for the quarter and $2.821 billion for the full year, compared with $354 million and $1.880 billion in 2016. The improvement for the quarter was primarily driven by higher shipment volumes, a favorable product mix and price realization, partially offset by higher production costs, higher selling, administrative and general expenses and an impairment charge for international construction and forestry operations.
The full-year improvement was primarily due to higher shipment volumes, price realization and a favorable sales mix, partially offset by increases in production costs, selling, administrative and general expenses and warranty-related expenses. Full-year results also benefited from a gain on the sale of the company's remaining interest in SiteOne Landscape Supply, Inc. (SiteOne).
Net income of the company's equipment operations was $417 million for the fourth quarter and $1.707 billion for the year, compared with $185 million and $1.058 billion for the corresponding periods in 2016. The operating factors mentioned above affected both quarterly and full-year results.
Financial services reported net income attributable to Deere & Company of $127.8 million for the quarter and $476.9 million for the year compared with $109.8 million and $467.6 million for the periods in 2016. The increases were largely due to lower losses on lease residual values, with full-year results partially offset by less-favorable financing spreads and higher selling, administrative and general expenses.
Company Outlook & Summary
Company equipment sales are projected to increase by about 22 percent for fiscal 2018 and by about 38 percent for the first quarter compared with the same periods of 2017. Included in the forecast is a positive foreign-currency translation effect of about 2 percent for the year and about 3 percent for the first quarter. Net sales and revenues are projected to increase about 19 percent for fiscal 2018, with net income attributable to Deere & Company of about $2.6 billion.
The acquisition of the Wirtgen Group, expected to close in December 2017, is forecast to contribute about $3.1 billion in net sales in fiscal 2018. Wirtgen is expected to add about 12 percent to Deere's sales for the full year and about 6 percent for the first quarter in comparison with 2017. After estimated expenses for purchase accounting and transaction costs, Wirtgen is expected to contribute about $75 million to operating profit and about $25 million to net income in fiscal 2018.
Allen reaffirmed his belief the future holds substantial promise for the company. "Thanks to the commitment of employees, dealers and suppliers, our plans for helping meet the world's increasing need for food, shelter and infrastructure are making further progress. These broad trends remain quite compelling and are widely considered to have ample staying power. We have great confidence in the company's present course and, backed by its impressive performance in 2017, firmly believe John Deere is positioned to deliver stronger, more consistent results in the future."
Equipment Division Performance
Agriculture & Turf. Sales increased 22 percent for the quarter and 9 percent for the year due to higher shipment volumes and the favorable effects of currency translation. Additionally, full-year results benefited from price realization.
Operating profit was $584 million for the quarter and $2.484 billion for the year, compared with $371 million and $1.700 billion for the respective periods of 2016. The quarter's improvement was driven mainly by higher shipment volumes and a favorable sales mix, partially offset by increased production costs and higher selling, administrative and general expenses. Results were higher for the year primarily due to increased shipment volumes, price realization and a favorable sales mix, partially offset by increases in production costs, selling, administrative and general expenses and warranty-related expenses.
Full-year results benefited from a gain on the sale of Deere's remaining SiteOne interest.
Construction & Forestry. Construction and forestry sales increased 37 percent for the quarter and 17 percent for the year on account of higher shipment volumes, price realization and the favorable effects of currency translation.
The division reported operating profit of $85 million for the quarter and $337 million for the year, compared with an operating loss of $17 million and operating profit of $180 million for the corresponding periods of 2016. Higher results were mainly attributable to improved shipment volumes and price realization. Results for the quarter were partially offset by an impairment charge for international operations. On a full-year basis, results were partially offset by higher warranty expenses, increased selling, administrative and general expenses and higher production costs.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to increase by about 9 percent for fiscal-year 2018, including a positive currency-translation effect of about 2 percent. Industry sales for agricultural equipment in the U.S. and Canada are forecast to be up 5 to 10 percent for 2018, supported by higher demand for large equipment. Full-year industry sales in the EU28 member nations are forecast to be up about 5 percent due to improving conditions in the dairy and livestock sectors. South American industry sales of tractors and combines are projected to be flat to up 5 percent as a result of continued positive conditions, particularly in Argentina. Asian sales are forecast to be flat with strength in India offsetting weakness in China. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about flat for 2018. Deere's turf sales are expected to outperform the industry owing to the success of new products.
Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are anticipated to be up about 69 percent for 2018, including a positive currency-translation effect of about 1 percent. The Wirtgen acquisition is expected to add about 54 percent to the division's sales for the year. The outlook reflects moderate economic growth worldwide, including higher housing starts in the U.S. and increased activity in the oil and gas sector. In forestry, global industry sales are expected to be flat to up 5 percent mainly as a result of improved lumber prices in North America.
Financial Services. Fiscal-year 2018 net income attributable to Deere & Company for the financial services operations is expected to be approximately $515 million. The outlook reflects a higher average portfolio, partially offset by increased selling, administrative and general expenses.