10-QPeriod: Q1 FY2009

DEERE & CO Quarterly Report for Q1 Ended Jan 31, 2009

Filed February 26, 2009For Securities:DE

Summary

Deere & Company (DE) reported a challenging first quarter for fiscal year 2009, with net income falling to $203.9 million ($0.48 per diluted share) from $369.1 million ($0.83 per diluted share) in the prior year. This decline was driven by a 1% decrease in worldwide net sales and revenues to $5.15 billion, impacted by unfavorable currency translation effects and a significant downturn in the Commercial and Consumer Equipment (down 25%) and Construction and Forestry (down 28%) segments. While Agricultural Equipment sales saw an 18% increase, overall operating profit for the Equipment Operations decreased due to higher raw material costs and volatile foreign exchange rates. The Financial Services segment also experienced a sharp decline in net income to $46.8 million from $97.7 million, attributed to narrower financing spreads, lower crop insurance commissions, and a higher provision for credit losses. Management acknowledged the significant risks posed by the global economic downturn, financial market turmoil, and the availability of credit for customers. Despite these headwinds, the company ended the quarter with a strong cash position of $5.0 billion, reflecting increased borrowings to manage liquidity.

Financial Highlights

43 data points
Beta

Revenue

$5.15B

19.8% Gross Margin

Net Income

$204.00M

4.0% Net Margin

EPS (Diluted)

$0.48

Total Assets

$41.34B

Cash & Equivalents

$5.00B

Free Cash Flow

-$1.88B

Financial Statements
Beta
Revenue$5.15B
Cost of Revenue$3.54B
Gross Profit$1.02B
R&D Expenses$219.40M
SG&A Expenses$638.90M
Interest Expense$274.50M
Net Income$204.00M
EPS (Basic)$0.48
EPS (Diluted)$0.48
Shares Outstanding (Basic)422.50M
Shares Outstanding (Diluted)423.70M

Key Highlights

  • 1Net income for the quarter declined significantly to $203.9 million from $369.1 million in the prior year, impacting earnings per share to $0.48 from $0.83.
  • 2Total net sales and revenues saw a modest 1% decrease to $5.15 billion, with notable segment performance divergences.
  • 3Agricultural Equipment sales increased by 18%, driven by higher volumes and pricing, but Construction and Forestry and Commercial and Consumer Equipment segments experienced significant declines of 28% and 25% respectively.
  • 4The Financial Services segment's net income dropped by over 50% due to narrower financing spreads and increased credit loss provisions.
  • 5Operating profit for the Equipment Operations was impacted by higher raw material costs and unfavorable foreign currency movements, despite improved price realization.
  • 6The company ended the quarter with a robust cash and cash equivalents balance of $5.0 billion, an increase from $2.2 billion at the end of the prior quarter, primarily due to increased borrowings.
  • 7Management expressed concerns regarding the global economic downturn, financial market turmoil, and its impact on customer credit availability, leading to a suspension of quarterly net income forecasts.

Frequently Asked Questions

The primary driver was a combination of decreased net income from the Financial Services segment and significantly lower operating profit in the Commercial and Consumer Equipment and Construction and Forestry segments. These factors were exacerbated by increased raw material costs and unfavorable foreign currency exchange rates impacting the Equipment Operations.

The economic downturn had a varied impact. The Agricultural Equipment segment showed resilience with an 18% sales increase, benefiting from positive farm conditions in the US and Canada. However, the Commercial and Consumer Equipment and Construction and Forestry segments were hit hard, experiencing sales declines of 25% and 28% respectively, reflecting the housing market decline and broader recessionary pressures. The Financial Services segment also suffered from narrower spreads and a higher provision for credit losses.

Deere & Company maintained a strong liquidity position, ending the quarter with $5.0 billion in cash and cash equivalents, a significant increase from the previous quarter, largely due to increased borrowings. The company has access to various funding sources, including commercial paper, term debt, securitization of retail notes, and committed bank lines. Management acknowledged the challenges in credit markets but expressed confidence in meeting funding needs, highlighting participation in government programs like the FDIC's Temporary Liquidity Guarantee Program for its financing subsidiary.

Deere projected total equipment sales to decrease by about 8% for the full fiscal year 2009, with Agricultural Equipment sales forecast to be down about 2% and Commercial and Consumer Equipment and Construction and Forestry segments expected to see declines of approximately 14% and 24% respectively. The company suspended its quarterly net income forecast due to extreme uncertainty in the global economy and financial markets.