Deere by division

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By Jennifer DeWitt | Thursday, February 14, 2008 12:04 AM CST | () comments

Here’s a look at how Deere & Co.’s divisions performed in the first quarter as well as the company’s outlook for the future:

Agricultural — Sales of farm machinery increased 33 percent for the quarter. Operating profit was $332 million, compared to $137 million last year.

With continuing strength in the global farm sector, worldwide sales of John Deere ag equipment are expected to increase by about 28 percent for the year.

The company said farm conditions throughout the world remain quite positive, benefiting from healthy commodity prices and demand for renewable fuels. Recently enacted U.S. energy legislation requires a significant increase in renewable-fuel production through 2022.

Relative to consumption, global grain stocks such as wheat and corn are forecast to remain at or near 30-year lows. In addition, a large number of advanced new John Deere products coming to market in 2008 are expected to increase sales.

Across the industry, farm machinery sales in the United States and Canada are forecast to be up 15 to 20 percent for the year. Sales are expected to benefit from a significant increase in farm cash receipts driven by higher crop prices.

Industry sales in Western Europe are forecast to be up 3 to 5 percent for the year. Greater increases are expected in Eastern Europe and the CIS, or Commonwealth of Independent States, countries, including Russia, where demand for productive farm machinery is experiencing rapid growth. South American markets are expected to show further improvement in 2008, with industry sales forecast to increase by 15 percent or more.

Commercial & Consumer — Division sales were up 16 percent for the quarter. LESCO, a landscape supply business acquired by Deere last year, accounted for 14 percent of the sales increase.

The division had operating profit of $8 million for the quarter, compared with $38 million a year ago. Deere attributed the profit decline to higher selling, administrative and general expenses from LESCO.

Sales of John Deere commercial and consumer equipment are projected to be up about 8 percent for the year, including about 7 percent from a full year of LESCO sales.

Sales gains from new products — including a new line of commercial mowing equipment — are expected to more than offset market weakness related to the U.S. housing slowdown and rising costs for fertilizer and other lawn-maintenance supplies.

Construction & Forestry — Sales of John Deere construction and forestry equipment declined 6 percent in the quarter. However, operating profit rose to $117 million, versus $95 million a year ago. Deere attributed the profit increase mainly to improved pricing and the positive effect of producing in closer alignment with retail demand. The increases were partially offset by higher raw-material costs and lower sales volumes.

The company said U.S. markets for construction and forestry equipment are forecast to remain under continued pressure in large part because of a continuing slump in housing starts. Nonresidential construction is expected to remain in line with last year’s relatively strong levels.

Outside North America, forestry sales on a worldwide basis are projected to rise in 2008 due to economic growth in other regions.

Despite a generally weak environment, sales are expected to benefit from new products in the division as well as bringing production levels closer in alignment to retail demand. For 2008, the company’s worldwide sales of construction and forestry equipment are forecast to be about equal to the prior year.

Credit — The company’s financial services reported net income of $97.7 million for the quarter, which compared with $88.2 million last year. The company attributed the improvement to growth in the credit portfolio, higher crop insurance income and a lower effective tax rate. Higher interest expense resulting from increased leverage, higher selling, administrative and general expenses, and an increase in the provision for credit losses partially offset the improvements.

Full-year 2008 net income for Deere’s credit operations is forecast to be about $365 million.

John Deere Capital Corporation, or JDCC — Net income for JDCC was $77.2 million for the first quarter, which compared with net income of $73.2 million a year ago. The improvement was primarily due to increased crop insurance income, growth in the credit portfolio and a lower effective tax rate. The improvements were partially offset by increased selling, administrative and general expenses, higher interest expense resulting from increased leverage, and a higher provision for credit losses.