Beat ? --> NO (reported $1.32/share vs. estimates of $1.37/share...year over year EPS growth was 12% from 2Q07's $1.18/share)
Profits --> Up 7% to $575 million (from $537 million)
Sales --> Up 17% to $7.7 Billion (from $6.6 Billion)
WW Equipment Sales: Up 18% to $7.1 Billion (from $6.0 Billion in 2Q07...currency effect was +5%)
U.S + Canada Equipment: Sales up 6% to $4.6 Billion...Operating profits down 3% to $602 million (from $621 million in 2Q07)
International Equipment Ex Canada: Sales up 38% to $3.1 Billion (currency effect of +13%)...Operating profits up 45% to $332 million (from $229 million in 2Q07)
WW Equipment Sales by DIVISION:
1. Agriculture Equip Sales: Up 35% to $ 4.5 Billion (from $3.4 Billion)
Ag Equip Operating Profit: Up 47% to $634 million (from $431 million)
2. Commercial + Consumer Sales: Down 1% to $ 1.33 Billion (from $1.35 Billion)
C + C Operating Profit: Down 28% to $91 million (from $127 million)
3. Construction + Forestry Sales: Down 7% to $1.2 Billion (from $1.3 Billion)
C + F Operating Profit: Down 38% to $93 million (from $150 million)
Trade Receivables + Inventories: 30% of prev 12 month sales vs. 2Q07's 30% ($7.5 Billion)
Research + Development: Up 16% vs 2Q07
Effective Tax Rate: 36% (vs DE's previous guidance of 35%)
Other Highlights + Guidance:
* DE's 3Q08 Raw Material Costs increased by $140 million vs. 2Q07 due mostly to higher costs for freight and STEEL (this is the reason for DE's 3Q08 earnings miss...DE missed analyst profit expectations by about $25 million)* DE expects 'U.S. Farm Cash Recepits' (total U.S. farm industry revenues from sales of livestock, crops and government subsidies) to increase from $296 Billion in 2007 to $347 Billion in 2008 (growth of 17%...DE previously expected 2008 recepits of $330 Billion)...DE expects U.S. Farm Cash Receipts to increase from $347 Billion in 2008 to $355 Billion in 2009 (growth of 2%...DE previously expected 2009 receipts of $329 Billion)
* 4th Quarter Guidance: DE guided 4Q08 profits LOWER than analyst estimates ($490 million) to $425 million. DE expects 4Q08 equipment sales to increase by 29% vs. 4Q07.
* DE's Stock Buyback Program --> In 2008 DE has bought back a total of 16.4 million shares at an avg purchase price of $79.27 per share. During 2008 DE has purchased $1.3 Billion worth of stock or about 4.5% of the company's marketcap/outstanding shares. In the just completed quarter (2Q08) DE repurchased 4.5 million shares at an average price of $66.67 per share. In 2007 DE repurchased 25.7 million shares at avg price of $58.37/share ($1.5 Billion worth of stock). 18.5 million shares remain under DE's current 40 million share buyback authorization.
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Deere's 2008 + 2009 Commodity Price Estimates (per bushel/pound) :
CORN - 2008 estimate: $4.45 (prev = $4.35)...2009: $5.50 (p = $5.00)
WHEAT - 2008: $6.92 (p = $7.70)...2009: $7.74 (p = $5.80)
SOYBEAN - 2008: $10.60 (p = $10.25)...2009: $13.50 (p = $10.00)
COTTON - 2008: $0.58 (p = $0.55)...2009: $0.65 (p = $0.60)
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Deere's 2008 Full Year Company Outlook:
- DE expects full year 2008 WW Equipment Sales to increase by 21% over 2007 assuming a 5% currency impact (vs. their May 2008 projection of 20% growth)
- AG Equipment Sales are forecast to increase by about 38% for full-year 2008 (assuming a positive 8% currency impact)...DE's previous expectation was up 35%
- DE's 2008 AG industry expectations: Industry Sales in the U.S. should be up 20-25% vs. 2007 (vs. DE's earlier expectation of up 20%)...Industry sales in Western Europe are forecast to be up 5% (vs. DE's earlier expectation of up 3-5%)...South America should grow 40% (vs. DE's earlier expectation of up 30%)...DE also expects Asia sales to grow but no guidance was given
- Construction + Forestry Sales are expected to decline by about 5% in 2008 due to weakness in U.S. residential construction as U.S. housing starts are expected to reach 60 year lows...DE previously believed C+F sales would fall 3% in 2008 vs. 2007
Conference Call Quotes:
* Deere VP of I-R Marie Ziegler on Offsetting Rising Material Costs: "In terms of pricing all of the orders that we have for 2009 will have some price increases in them and it would vary depending on the time of when the order was placed. We did take an interim increase on many of those orders, you would be looking for at least a 5% or more increase and again we’re specifically talking AG here and the combines that Susan mentioned, those are 9% to 10.5%...Of course we are aggressively pursuing cost reduction activities to mitigate the affects of rising costs as well. But this is a near-term issue as we have taken several pricing actions globally. Here are a few examples from the US. On large tractors, we took a 3% increase in April of this year and earlier this week we announced another 7% increase on large wheeled tractors. On 2009 combines, we took a 95 to 10.5% increase. In commercial and consumer, prices increased from zero to 6% in late May. In construction and forestry we raised prices zero to 5% in July and yesterday announced increases from 4% to 9% affective November 1st, 2008. The bottom line is our backorder position limited the revenue impact of price increases in 2008. However, with the pricing actions we have taken and our cost reduction efforts, it is our intention to restore our cost price ratio and you should begin to see evidence of this in the first quarter of 2009."
* DE I-R Susan Karlix on Outlook for U.S. Farm Cash Receipts: "The strong markets for crops are driving good levels of farm cash receipts and income globally...note that our forecast for total US farm cash receipts for 2008 and 2009 are considerably higher than our outlook from just one quarter ago and at dramatically increased levels from those of just a few years ago. We ran yesterday’s US DA numbers through our model and the result is a less than 1% difference in 2008 and 2009 cash receipts. All of this translates into an excellent outlook at John Deere not only for tractors and combines, but also for products like sprayers and seeding equipment, and strongly supports our outlook for industry sales of agricultural equipment in the US and Canada as shown on slide 13 which is now up 20% to 25% from last year."
* Marie Ziegler on Brazil and South America Outlook: "We are less then a year into full operation of the new tractor facility in Brazil, and so we are reaping the benefits of having that additional capacity as well as having broadened our product line. We’ve added five new tractor models last year. Some higher horsepower, some in the lower horsepower ranges. So we are much better positioned to provide product to our Brazilian customers then we ever have historically. Ramp up of that facility occurred much earlier in the year and so we’re really reaping the year-over-year benefits of having that facility fully operational, having moved tractor production out of our factory in [Orezontina] which produced combines will also over time as that factory goes through its adjustments, provide for additional opportunity there as well. So we’re feeling very good about our ability on the manufacturing side and we have a very strong dealer network, very solid and traditionally our issues have been that we were capacity constrained as we could not provide them with enough product, so (now) we’ve got the product in place. We’ve got the distribution and the market conditions and fundamentals in Brazil and really throughout South America look very promising."
* Marie Ziegler on Eastern and Central Europe Outlook: "Absolutely we are investing in distribution; in fact about a quarter ago we announced that we were investing in the distribution center in Russia that would help us in the parts side and training. So we have a dealer network. We are investing in dealer development in that part of the world. In terms of specific sales numbers we will provide that for you geographically on an annual basis but you saw in 2007 that our sales were over a billion in that specific part of the world, central Europe and Commonwealth of Independent States and the growth rate was I think about 60%. So we definitely have seen the growth and we are investing in infrastructure to continue to support that part of the world."
Full Disclosure: I own shares of DE.
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