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Deere Reports Second-Quarter Net Income of $1.208 Billion | KTIC Radio

Deere Reports Second-Quarter Net Income of $1.208 Billion

MOLINE, Ill.,  — Deere & Company (NYSE:DE) reported net income of $1.208 billion for the second quarter ended

April 29, 2018, or $3.67 per share, compared with net income of $808.5

million, or $2.50 per share, for the quarter ended April 30, 2017. For

the first six months of the year, net income attributable to Deere &

Company was $673.2 million, or $2.05 per share, compared with $1.007

billion, or $3.14 per share, for the same period last year.

Affecting results for the second quarter and first six 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). Second-quarter results included a favorable net adjustment to

provisional income taxes of $174 million, while the first six months

reflected an unfavorable net provisional income tax expense of $803

million. Without these adjustments, net income attributable to Deere &

Company for the second quarter and first six months of the year would

have been $1.034 billion, or $3.14 per share, and $1.476 billion, or

$4.49 per share, respectively. (For further information, refer to the

appendix on the non-GAAP financial measures and Note 2 in the

“Condensed Notes to Interim Consolidated Financial Statements”

accompanying this release.)

Worldwide net sales and revenues increased 29 percent, to $10.720

billion, for the second quarter and rose 27 percent, to $17.633

billion, for six months. Net sales of the equipment operations were

$9.747 billion for the second quarter and $15.721 billion for the

first six months, compared with $7.260 billion and $11.958 billion for

the periods last year.

“John Deere reported another quarter of strong performance helped by a

broad-based improvement in market conditions throughout the world and

a favorable customer response to our lineup of innovative products,”

said Samuel R. Allen, chairman and chief executive officer. “Farm

machinery sales in both North and South America are making solid gains

and construction equipment sales are continuing to move sharply

higher. During the quarter, Deere made significant progress working

with its suppliers to ramp up production and ensure that products

reach customers in a timely manner. At the same time, we are

experiencing higher raw-material and freight costs, which are being

addressed through a continued focus on structural cost reduction and

future pricing actions.”

Summary of Operations

Net sales of the worldwide equipment operations increased 34 percent

for the quarter and 31 percent for the first six months compared with

the same periods a year ago. Deere’s acquisition of the Wirtgen Group

(Wirtgen) in December 2017 added 12 percent to net sales for the

quarter and 9 percent year to date. Sales included a favorable

currency-translation effect of 3 percent for both periods. Equipment

net sales in the United States and Canada increased 27 percent for the

quarter and 26 percent year to date, with Wirtgen adding 5 percent and

3 percent for the respective periods. Outside the U.S. and Canada, net

sales rose 45 percent for the quarter and 40 percent for the first six

months, with Wirtgen adding 23 percent and 19 percent for the periods.

Net sales included a favorable currency-translation effect of 7

percent for the quarter and 6 percent for six months.

Deere’s equipment operations reported operating profit of $1.315

billion for the quarter and $1.734 billion for the first six months,

compared with $1.120 billion and $1.375 billion, respectively, last

year. Wirtgen, whose results are included in these amounts, had

operating profit of $41 million for the quarter and an operating loss

of $51 million year to date. The Wirtgen year-to-date operating loss

was attributable to the unfavorable effects of purchase accounting and

acquisition costs. Excluding Wirtgen results, the improvement for both

periods was primarily driven by higher shipment volumes and lower

warranty costs, partially offset by higher research and development

expenses and higher production costs. The corresponding periods of

2017 included a gain on the sale of SiteOne Landscapes Supply, Inc.

(SiteOne).  Additionally, in the first six months of last year Deere

incurred expenses associated with a voluntary employee-separation

program.

Net income of the company’s equipment operations was $1.103 billion

for the second quarter and $139 million for the first six months,

compared with net income of $700 million and $785 million for the same

periods of 2017. In addition, the quarter was favorably affected by

$207 million and the six-month period unfavorably affected by $1.032

billion due to provisional income tax adjustments related to tax

reform.

Financial services reported net income attributable to Deere & Company

of $104.1 million for the quarter and $529.4 million for the first six

months compared with $103.5 million and $217.9 million last year.

Results for both periods benefited from a higher average portfolio,

lower losses on lease residual values, and a lower provision for

credit losses, partially offset by a less-favorable financing spread.

Additionally, provisional income tax adjustments related to tax reform

had an unfavorable effect of $33.2 million for the quarter and a

favorable effect of $228.8 million for six months.

Company Outlook & Summary

Company equipment sales are projected to increase by about 30 percent

for fiscal 2018 and by about 35 percent for the third quarter compared

with the same periods of 2017. Of these amounts, Wirtgen is expected

to add about 12 percent to Deere sales for the full year and about 18

percent for the third quarter. Also included in the forecast is a

positive foreign-currency translation effect of about 1 percent for

the year and third quarter. Net sales and revenues are expected to

increase by about 26 percent for fiscal 2018 with net income

attributable to Deere & Company forecast to be about $2.3 billion. The

company’s net income forecast includes $803 million of provisional

income tax expense associated with tax reform, representing discrete

items for the remeasurement of the company’s net deferred tax assets

to the new U.S. corporate tax rate and a one-time deemed earnings

repatriation tax. Adjusted net income attributable to Deere & Company

excluding the provisional income tax adjustments associated with tax

reform is forecast to be about $3.1 billion. (Information on non-GAAP

financial measures is included in the appendix.)

The current outlook for net income compares with previous guidance of

$2.1 billion, which included $977 million of provisional income tax

expense.

“We are encouraged by strengthening demand for our products and

believe Deere is well-positioned to capitalize on further growth in

the world’s agricultural and construction equipment markets,” Allen

said. “This illustrates our success developing a more durable business

model as well as the impact of investments in new products and

businesses. We reaffirm our confidence in the company’s present

direction and our belief that Deere remains on track to deliver

significant long-term value to customers and investors.”

Equipment Division Performance

Agriculture & Turf. Sales rose 22 percent for the quarter and 20

percent for the first six months due to higher shipment volumes and

the favorable effects of currency translation.

Operating profit was $1.056 billion for the quarter and $1.443 billion

year to date, compared with respective totals of $1.009 billion and

$1.227 billion for the same periods last year. Results for the quarter

were helped by higher shipment volumes, partially offset by higher

research and development expenses and production costs. For the first

six months, results benefited from higher shipment volumes and lower

warranty-related expenses, partially offset by higher research and

development expenses and production costs. Prior-year periods

benefited from gains on the SiteOne sale, while the first six months

of last year were affected by voluntary employee-separation expenses.

Construction & Forestry. Construction and forestry sales increased 84

percent for the quarter and 73 percent for six months, with Wirtgen

adding 60 percent and 44 percent for the respective periods. Also

helping sales for both periods were higher shipment volumes and the

favorable effects of currency translation.

Operating profit was $259 million for the quarter and $291 million for

six months, compared with $111 million and $148 million last year.

Wirtgen contributed operating profit of $41 million for the quarter

and a six-month operating loss of $51 million related to the effects

of purchase accounting and acquisition costs. Excluding Wirtgen, the

improvements were primarily driven by higher shipment volumes and

lower warranty expenses, partially offset by higher production costs.

Results for the first six months of last year also included voluntary

employee-separation costs.

Market Conditions & Outlook

Agriculture & Turf. Deere’s worldwide sales of agriculture and turf

equipment are forecast to increase by about 14 percent for fiscal-year

2018, including a positive currency-translation effect of about 1

percent. Industry sales for agricultural equipment in the U.S. and

Canada are forecast to be up about 10 percent for 2018, led 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 favorable

conditions in the dairy and livestock sectors. South American industry

sales of tractors and combines are projected to be flat to up 5

percent 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

percent for 2018.

Construction & Forestry. Deere’s worldwide sales of construction and

forestry equipment are anticipated to be up about 83 percent for 2018,

including a positive currency-translation effect of about 1 percent.

Wirtgen is expected to add about 56 percent 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 percent mainly as a

result of improved demand throughout the world, led by North America.

Financial Services. Fiscal-year 2018 net income attributable to Deere

& Company for the financial services operations is projected to be

approximately $800 million, including a provisional income tax benefit

of $229 million associated with tax reform. Forecasted fiscal-year

2018 adjusted net income attributable to Deere & Company excluding the

provisional income tax benefit is projected to be $571 million.

Results are expected to benefit from a higher average portfolio and

lower losses on lease residual values, partially offset by

less-favorable financing spreads and increased selling, administrative

and general expenses.

The financial services net income outlook provided last quarter was

$840 million. It included a provisional tax benefit estimate of $262

million for remeasurement of the division’s net deferred tax liability

to the new U.S. corporate tax rate and a one-time deemed earnings

repatriation tax.

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 JDCC was $119.2 million for the second

quarter and $518.6 million year to date, compared with $64.5 million

and $138.7 million for the respective periods last year. Results for

both periods benefited from a favorable provision for income taxes

associated with tax reform, a higher average portfolio, lower losses

on lease residual values and lower provision for credit losses,

partially offset by less-favorable financing spreads.

Net receivables and leases financed by JDCC were $34.535 billion at

April 29, 2018, compared with $32.015 billion at April 30, 2017.

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