Deere beats by $0.61, misses on revs; guides Q4 revs in-line; raises FY16 net income guidance
- Reports Q3 (Jul) earnings of $1.55 per share, $0.61 better than the Capital IQ Consensus of $0.94; net slaes of equipment operations fell 14.3% year/year to $5.86 bln vs the $6.03 bln Capital IQ Consensus.
- Sales included price realization of 2% for the quarter and year to date. Additionally, sales included an unfavorable FX effect of 2% for both the quarter and nine months. Equipment net sales in the United States and Canada decreased 16% for the quarter and 13% year to date. Outside the U.S. and Canada, net sales decreased 12% for the quarter and 7% for the first nine months, with unfavorable currency-translation effects of 4% and 6% for the respective periods.
- Operating profit improvement for the quarter was primarily driven by price realization, lower (+4% to $625 mln) production costs and a decrease in selling, administrative and general expenses, partially offset by reduced shipment volumes and the unfavorable effects of foreign-currency exchange.
- Co issues in-line guidance for Q4, sees Q4 revs of -8% to $5.46 bln vs. $5.44 bln Capital IQ Consensus Estimate.
- Co raises FY16 net income to $1.35 bln from $1.2 bln; lowers sales to down 10% from down 9%.
- "John Deere's performance in the third quarter reflected the continuing impact of the global farm recession as well as difficult conditions in construction equipment markets," said Samuel R. Allen, chairman and chief executive officer. "All of Deere's businesses remained profitable with the Agriculture & Turf division reporting higher operating profit than last year
Deere guidance follow-up for agriculture/turf, construction/forestry, & financial services segments
Agriculture/Turf:
- Deere's worldwide sales of agriculture and turf equipment are forecast to decrease by about 8% for fiscal-year 2016, including a negative currency-translation effect of about 2%.
- Industry sales for agricultural equipment in the U.S. and Canada are forecast to be down 15 to 20% for 2016. The decline, reflecting the impact of low commodity prices and weak farm incomes, has been most pronounced in the sale of higher-horsepower models.
- Full-year 2016 industry sales in the EU28 are forecast to be flat to down 5%, with the decline attributable to low commodity prices and farm incomes, including continued pressure on the dairy sector.
- In South America, industry sales of tractors and combines are projected to be down 15 to 20% largely as a result of economic and political concerns in Brazil. Asian sales are projected to be flat to down slightly, due in part to weakness in China. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5% for 2016. Deere sales are benefiting from new products and general economic growth.
Construction & Forestry:
- Deere's worldwide sales of construction and forestry equipment are forecast to be down about 18 % for 2016, including a negative currency-translation effect of about 1 %. The forecast decline in sales largely reflects the impact of weak conditions in North America. In forestry, global industry sales are expected to be down 5 to 10 % from last year's strong levels.
Financial Services:
- Fiscal-year 2016 net income attributable to Deere & Company for the financial services operations is expected to be approximately $480 million. The outlook reflects less-favorable financing spreads, higher losses on lease residual values and an increased provision for credit losses. Additionally, 2015 results benefited from a gain on the sale of the crop insurance business.