Quad City Times, IA
05-17-06
Deere tallies $745M quarter for Deere
By Jennifer DeWitt
The strength of Deere & Co.’s construction and lawn care equipment sales and a
boost from the sale of John Deere Health combined to produce a 23 percent
increase in second quarter profits, the company announced Tuesday.
In its earnings report, the Moline equipment said it posted net income of $744.6
million, or $3.13 per share, for the second quarter, ended April 30. That
compared to $604 million, or $2.43 per share, for the same period last year.
The sale of Deere’s health care operations — announced last year — to the
Minnetonka, Minn.-based UnitedHealth Group closed in the second quarter,
creating a $227.6 million after-tax gain to Deere’s quarterly profits.
While the end results set a new earnings record, company spokesman Ken
Golden said it was the health care unit’s sale that made the quarter a record.
Excluding the company’s now-discontinued health care operations, net income
from continuing operations was $517 million, or $2.17 per share, which fell short
of last year’s second-quarter record earnings of $599.3 million, or $2.41 per
share.
“It’s always tough to compare to a very high previous quarter … we are just down
from an outstanding year last year,” Golden said.
For the first six months, Deere reported that net income was $980.5 million, or
$4.11 per share, which compares to $826.8 million, or $3.31 per share, last year.
Six-month net income from continuing operations was $740.9 million, or $3.11
per share. That compares with $814.3 million, or $3.26 per share, for the same
period last year.
All Street reacted to the earnings report sending Deere’s stock price up $1.79, or
2 percent. Deere shares closed at $89.31 in trading Tuesday on the New York
Stock Exchange.
Robert Lane, Deere’s chairman and chief executive officer, said Deere’s results
continue to be driven by the company’s strong operating performance and the
customers’ positive response to its products, including new product introductions
across all its equipment lines.
oductivity enhancements, are attracting customers and promoting an expanded
market presence for John Deere throughout the world,” he said in a news
release. “Our performance is being further aided by a focus on rigorous asset
management, which allows us to meet customer needs while keeping inventory
levels lean and efficient.”
In a conference call with analysts Tuesday, company officials said that focus on
asset management has resulted in 24 consecutive quarters in which trade
receivables and inventories have decreased in relation to sales. Production
levels are expected to be down about 5 percent for the year.
Describing it as “a great quarter,” Tony Huegel, Deere’s manager of investor
communications, said “… our commitment to shareholder value-added not only
produced solid returns but positions us well for the future.”
Deere reported that sales and revenues increased 2 percent to $6.562 billion in
the second quarter, and were up 4 percent to $10.764 billion for the first six
months.
Though worldwide equipment sales were down 1 percent for the quarter and for
the six months, the company saw a 10 percent increase in sales in the
construction and forestry division commercial, and a 7 percent increase in the
commercial and consumer equipment division. The company’s largest division —
ag equipment — saw a decline of 7 percent in the quarter.
“All our divisions are focused on the customer and what does the customer
need,” Golden said. But the construction and forestry division “is a leader in
understanding the productivity needs of the customer. They are an expert in
trying to determine what features can they add to make an average customer
become and above-average user of our equipment.”
Joe Dalton, the general manager of Martin Equipment in Rock Island, said sales
of John Deere construction equipment are on the rise, thanks to contractors and
area manufacturers, who are buying tractors and other material-handling
equipment for use in their plants.
Martin Equipment, which also has dealerships in Dubuque and Cedar Rapids,
Iowa, is seeing the most growth in the Quad-Cities and Dubuque, he said,
crediting a stabilized housing market and growth in commercial business.
Government business also accounts for about one-fourth of his sales, he said.
Promising ag market
Huegel told analysts that long-term fundamentals in the global ag markets are
encouraging, such as the increased interest in renewable fuels, low carry-over
stocks of commodities and projections for healthy cash receipts among U.S.
farmers.
“In our view, rising demand for renewables holds great promise for John Deere
and for the global agricultural sector,” Lane said of the growing interest in
developing wind energy, ethanol and other renewable fuels.
In the Quad-City region alone, plans have emerged in recent months for the
development of five alternative fuel production plants. The latest came Monday
when the River Gulf Energy announced it will build an ethanol plant in Buffalo,
Iowa.
Citing U.S. Department of Agriculture projections, Huegel said ethanol will
consume 2.15 billion bushels of the U.S. corn crop in 2006-2007 — an increase
of 550 million bushels over 2005-2006.
“That’s a significant increase in the amount of corn crop going to ethanol, and
that provides one more area our customers can benefit from,” Golden said,
adding that also will make the farmers “more willing to invest in equipment.”
Steve Fales, the new coordinator of Iowa State University’s College of
Agriculture’s Bioeconomy Initiative, said the positive impact of renewable
fuels on the U.S. farmer may only be part of Deere’s interest. With the increased
focus on using ag crops to replace oil, he said “We’ll have a need for a whole
array of equipment for collection and processing of these materials.”
He said the technology needs to be developed that makes the collection a
simpler process. “If we’re going to use corn stover and corn grain for this
process, it’s not likely farmers are going to want to do this if they have to go over
a field more than once.”
For equipment makers, like Deere and others, there are opportunities to develop
combines, for instance, that can harvest for corn and corn stover at the same
time, Fales said. Corn stover is the stalk that remains after the corn has been
harvested.
Declining to comment on any specific research Deere is conducting, Golden said
“We’re looking in many areas related to the renewable fuel area.”
Fales, the former chair of Iowa State’s Agronomy department, said his new role
is to create “new opportunities for our producers not to just sell more corn” but for
“an array of products that give them more value for the product they grow.”
Jennifer DeWitt can be contacted at (563) 383-2318 or jdewitt@qctimes.com.