10-QPeriod: Q1 FY2019

DEERE & CO Quarterly Report for Q1 Ended Jan 27, 2019

Filed February 28, 2019For Securities:DE

Summary

Deere & Company (DE) reported a strong recovery in its first quarter of fiscal year 2019, as evidenced by a significant increase in net sales and a return to profitability after a loss in the prior year's comparable period. Net sales and revenues grew by 15% to $7.98 billion, driven by robust performance in both the Agriculture & Turf and Construction & Forestry segments. The company posted a net income of $498.5 million, or $1.54 per diluted share, a substantial improvement from a net loss of $535.1 million, or ($1.66) per diluted share, in the first quarter of fiscal year 2018. The improved financial results reflect higher shipment volumes, price realization, and the ongoing integration of Wirtgen's operations. While the company experienced higher production costs and warranty expenses, these were largely offset by pricing strategies and increased sales. Despite some market uncertainties, including trade policies and commodity price volatility, Deere projects continued growth for fiscal year 2019, anticipating a net income of approximately $3.6 billion, showcasing confidence in its strategic positioning and technological advancements.

Financial Statements
Beta
Revenue$7.98B
Gross Profit$1.51B
R&D Expenses$407.00M
SG&A Expenses$764.00M
Operating Expenses$7.31B
Operating Income$769.00M
Interest Expense$353.00M
Net Income$498.00M
EPS (Basic)$1.56
EPS (Diluted)$1.54
Shares Outstanding (Basic)318.50M
Shares Outstanding (Diluted)322.70M

Key Highlights

  • 1Net sales and revenues increased by 15% to $7.98 billion for the three months ended January 27, 2019, compared to $6.91 billion in the prior year period.
  • 2The company returned to profitability, reporting a net income attributable to Deere & Company of $498.5 million ($1.54 per diluted share), a significant turnaround from a net loss of $535.1 million ($1.66 per diluted share) in the prior year.
  • 3Equipment Operations saw a 16% increase in net sales, driven by strong performance in Agriculture & Turf (+10%) and Construction & Forestry (+31%), with the latter boosted by the inclusion of Wirtgen.
  • 4Financial Services operating profit decreased by 12% due to less favorable financing spreads, though the average portfolio balance increased by 7%.
  • 5The company continues to invest in research and development, with R&D expenses increasing by 14% year-over-year.
  • 6Deere & Company maintained a stable credit rating with a 'Stable' outlook from Fitch, Moody's, and S&P, indicating confidence in its financial health.
  • 7The company forecasts full-year fiscal 2019 net income attributable to Deere & Company to be approximately $3.6 billion, signaling a positive outlook for the remainder of the year.

Frequently Asked Questions

The primary driver of the revenue increase was higher shipment volumes and price realization across both the Agriculture & Turf and Construction & Forestry segments. The inclusion of Wirtgen's results for a more extended period also contributed significantly to the Construction & Forestry segment's revenue growth.

In the first quarter of fiscal year 2018, tax reform resulted in significant discrete charges to the provision for income taxes, totaling $977 million, which negatively impacted net income. For fiscal year 2019, the company noted that the ongoing provisions of tax reform, such as GILTI and BEAT, are not expected to have a significant impact on the provision for income taxes.

Deere & Company projects its worldwide sales of equipment to increase by approximately 7% for fiscal year 2019 compared to 2018. The company forecasts net income attributable to Deere & Company to be around $3.6 billion, reflecting confidence in its market position and growth strategies.

The Financial Services segment's operating profit decreased by 12% in the first quarter of fiscal 2019 compared to the prior year. This decline was primarily due to less favorable financing spreads. However, profitability was partially supported by an increase in the average portfolio balance, which grew by 7% year-over-year. The company expects its Financial Services segment to generate approximately $630 million in net income for the full fiscal year 2019.