10-QPeriod: Q2 FY2007

DEERE & CO Quarterly Report for Q2 Ended Apr 30, 2007

Filed June 1, 2007For Securities:DE

Summary

Deere & Company's (DE) Q2 2007 report shows a solid performance driven by strong agricultural equipment sales, which offset declines in construction and forestry. Net sales increased by 5% year-over-year, reaching $6.88 billion for the quarter and $11.31 billion for the first six months. Net income for the quarter was $623.6 million ($2.72 per share), a decrease from the prior year's $744.6 million ($3.13 per share), largely due to a significant gain from the sale of its healthcare operations in the previous year. However, income from continuing operations saw a substantial increase of 21% year-over-year for the quarter. The company is experiencing robust global demand for farm commodities, positively impacting its agricultural segment. International sales, particularly from outside the U.S. and Canada, showed strong growth (22% for the quarter). While the commercial and consumer equipment segment remained relatively flat, the company completed the acquisition of LESCO, Inc. in May 2007 to bolster this segment's future growth. The construction and forestry segment experienced a continued downturn, with sales down 12% for the quarter. Financially, Deere & Company maintains a strong liquidity position, with a new $3.75 billion credit facility and ample access to capital markets. The company also announced plans to repurchase an additional 20 million shares of common stock, signaling confidence in its financial health and commitment to shareholder returns. Management forecasts full-year 2007 net income to be around $1.55 billion.

Key Highlights

  • 1Net sales increased by 5% to $6.88 billion for the quarter and 5% to $11.31 billion for the first six months, driven by strong performance in the agricultural equipment segment.
  • 2Income from continuing operations grew significantly by 21% year-over-year to $623.6 million ($2.72 per diluted share) for the quarter, indicating operational strength despite a reported net income decrease due to a prior year gain on sale.
  • 3Agricultural equipment sales saw a robust 14% increase in the quarter, fueled by strong global commodity demand and international market growth.
  • 4The company executed a strategic acquisition of LESCO, Inc. in May 2007 to enhance its Commercial and Consumer Equipment segment, expecting significant sales contribution.
  • 5Despite a challenging market, the credit segment demonstrated resilience with a 14% increase in revenues for the quarter, supported by a growing portfolio.
  • 6Deere & Company reinforced its financial flexibility by securing a new $3.75 billion five-year credit agreement and maintained strong liquidity with ample cash and marketable securities.
  • 7The company announced a new share repurchase program of up to 20 million shares, underscoring its commitment to returning value to shareholders.

Frequently Asked Questions

The net income for the quarter ended April 30, 2007, decreased to $623.6 million from $744.6 million in the prior year. This decrease is primarily due to a significant after-tax gain of $223 million recognized in the second quarter of 2006 from the sale of the Company's health care operations (John Deere Health Care, Inc.). Excluding this one-time gain, income from continuing operations saw a substantial increase, highlighting the underlying operational strength.

The Agricultural Equipment segment is performing very strongly, with sales up 14% year-over-year, driven by high global commodity demand and international growth. The Commercial and Consumer Equipment segment was largely flat, but the acquisition of LESCO is expected to boost future performance. The Construction and Forestry segment continues to face challenges, with sales down 12% due to market pressures. The Financial Services segment showed revenue growth of 14% for the quarter, supported by a growing credit portfolio.

Deere & Company forecasts full-year fiscal 2007 net income to be around $1.55 billion. Equipment sales are projected to increase by approximately 6%, with agricultural equipment expected to lead growth. The company anticipates continued strength in global farm commodity markets and expects the LESCO acquisition to contribute positively to the commercial and consumer segment.

The company maintains a strong liquidity position. It recently entered into a new $3.75 billion five-year credit agreement, replacing its previous facility. Additionally, it has access to commercial paper markets and holds substantial cash and marketable securities. The company also announced a new share repurchase program, indicating confidence in its financial stability and commitment to shareholder returns.