Beat ? --> NO (reported $1.74/share vs. estimates of $1.75/share)
Profits --> Up 22% to $764 million (from $624 million)
Sales --> Up 18% to $8.1 Billion (from $6.8 Billion)
WW Equipment Sales: Up 19% to $7.5 Billion (currency contributed +6%)
U.S + Canada Equip Sales: Up 6%
International Equip Sales Ex Canada: Up 46% (currency contributed +14%)
WW Equipment Sales by DIVISION:
1. Agriculture Equip Sales: Up 34% to $4.7 Billion (from $3.5 Billion)
Ag Equip Operating Profit: Up 61% to $782 million (from $487 million)
2. Commercial + Consumer Sales: Up 8% to $1.4 Billion (from $1.3 Billion)
C&C Operating Profit: Up 3% to $154 million (from $150 million)
3. Construction + Forestry Sales: Down 7% to $1.3 Billion (from $1.5 Billion)
C + F Operating Profit: Down 14% to $166 million (from $192 million)
Trade Receivables + Inventories: 35% of prev 12 month sales vs. 2007's 34%
Research + Development: Up 13% vs 2Q07
Effective Tax Rate: 35% (vs. 2Q07's 31%)
Other Highlights + Guidance:
*DE expects total 2008 U.S. Farm Cash Receipts to increase by about $30 Billion (+11%) over 2007...DE's previous 4Q07 forecast was for $314 Billion, now DE is forecasting $330 Billion (an increase of 5% quarter over quarter)
*Deere CFO Michael J. Mack: "...this year, for the first time, our agricultural equipment sales outside the United States and Canada are projected to surpass those in the US and Canada, and that is true, even excluding currency changes. Truly historic...Another important point is that while the thriving farm sector is a headline item at present, the news at John Deere goes beyond farm machinery. Our construction and forestry and commercial and consumer equipment businesses remain solidly profitable. This is a notable feat, I’d say unprecedented, in a difficult US economic environment with growth anemic and housing starts at the lowest levels since World War II."
*Michael J. Mack on DE's recent initiatives in China and Russia: "in the Kaluga region of Russia, we are developing an operations center for parts and complete goods distribution along with a training facility. We believe this new 98 acre site represents one of the largest single investment projects by a non-Russian farm and forestry equipment manufacturer and the site can accommodate future expansion into local assembly and manufacturing...in Xuzhou, China, we intend to expand our construction equipment business by entering into a joint venture with Xuzhou Xuwa Excavator Machinery Company. While we have long had a presence in the Chinese agricultural equipment market, this will be our first manufacturing operation in the Chinese construction equipment market."
*DE guided 3Q08 profits LOWER than analyst estimates ($654 million) to a range of $550-$575 million. DE blamed higher material costs (steel, oil, ag equipment tires, etc...the cost of STEEL has risen 53% yoy to $850/ton) and DE now believes material and freight costs for the year will be between $400 million and $500 million vs. their original guidance of $250 million.
*Michael J. Mack on higher costs: "While we remain on track for another record performance in 2008, we do face cost pressures. These are reflected in our earnings guidance, specifically in the second half of the year. Raw material costs, especially for vital commodities like steel, are racing ahead, well beyond what we had anticipated when we set prices for model year 2008...We’ve recently announced a number of price increases and we are aggressively pursuing continuous improvement projects that will help us offset higher costs, but the effect of these efforts won’t have much impact before next year."
*DE's Stock Buyback Program --> In 2008 DE has bought back 11.9 million shares at an avg purchase price of $84.03/share ($1.0 Billion worth of stock or about 3% of the company's marketcap). In 2007 DE repurchased 25.7 million shares at avg price of $58.37/share ($1.5 Billion worth of stock). 22.9 million shares remain under DE's current 40 million share buyback authorization.
*DE's 2008 Full Year OUTLOOK:- DE reaffirmed their 2008 full year Profits forecast of $2.2 Billion (22% growth)
- DE raised their 2008 full year Sales forecast to $28.5 Billion (20% yoy growth...assuming a 5% positive currency impact)
- WW Ag Equipment Sales are forecast to increase by about 35% for full-year 2008 (assuming a positive 7% currency impact)
- DE's 2008 AG industry expectations: Industry Sales in the U.S. should be up 20% vs. 2007...Industry sales in Western Europe are forecast to be up 3-5%...South America should grow 30%...Asia will grow but no % was given
- Construction + Forestry Sales are expected to decline by about 3% in 2008 due to weakness in U.S. residential construction (the U.S. housing market)
Full Disclosure: I own shares of DE.
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