Deere (DE) Q2 Profit sinks

Not that I own Deere shares, but I am documenting the company’s earnings report as it pertains to be holdings in agriculture industry and Deere is a key player in supplying the equipments.

• Deere posted a steep decline in Q2 profits across all of its business segments due to weak construction activity and consumer spending, in the middle of this economic meltdown.
• Q2 net income dipped 38% to $472.3 million from $763 million in the year-ago quarter. On a per share basis, earnings totaled $1.11, down from last year’s $1.74. 
• Total net sales and revenue for Q2 dropped 17% to $6.75 billion from $8.09 billion reported a year earlier. Analyst Estimates were at $6.60 billion.

"We are benefiting from a strong market for large farm machinery in the United States and from our continued focus on balancing production with retail activity.” – Robert Lane (CEO Deere)

Breakdown of sales

• New sales of worldwide equipment operations amounted to $6.19 billion, down 17% from $7.47 billion compared to Q1 2008. Sales for the quarter included price increases of 6% offset by an unfavorable currency-translation effect of 6%. Equipment net sales in the United States and Canada decreased 8%, and net sales outside the United States and Canada declined 30%.
• Agricultural equipment sales during the latest quarter descended 4% to $4.49 billion from $4.70 billion last year, largely due to the unfavorable effects of currency translation and lower shipment volumes, partially offset by improved price realization. Segment operating profit decreased 19% to $635 million from $782 million in the three months ended April 30, 2009.
• Commercial and consumer equipment sales fell 24% to $1.09 billion from $1.42 billion in the same quarter of last year. Operating profit for the segment was $68 million, compared to $154 million a year ago, due to lower shipment and production volumes, unfavorable effects of foreign exchange and higher raw-material costs, partially offset by improved price realization and lower selling, administrative and general expenses.
• Construction and forestry net sales plunged 55% to $600 million from $1.35 billion in the prior year quarter. The company's construction and forestry division incurred an operating loss of $75 million, compared to a profit of $166 million earned in the prior year quarter.
• The company's credit subsidiary, John Deere Capital generated second-quarter net income of $33.9 million, a decline from the previous year's $77.3 million, primarily due to a higher provision for credit losses, lower commissions from crop insurance and narrower financing spreads.

Future outlook:

• Deere currently projects fiscal 2009 net income to be about $1.1 billion, with equipment sales declining about 19%, including a negative currency-translation impact of about 5%. Previously, the company had expected 2009 net income to be about $1.5 billion, and equipment sales to decline about 8%.
• Deere now expects full year 2009 sales of the agriculture and turf division to drop by about 14%, including a negative currency-translation impact of about 6%.
• Worldwide sales of construction and forestry equipment sales are forecast to decline by about 42%, largely as a consequence of a slumping global economy and low levels of construction activity in the United States.
• Earlier, the company estimated sales of agricultural equipment to decrease by about 2%, and sales of construction and forestry equipment to be down about 24%.
• Full-year net income for the company's credit operations is still estimated to be about $250 million, down from 2008 level, primarily due to narrower financing spreads, a higher provision for credit losses and lower commissions from crop insurance, partially offset by benefits from investment tax credits related to wind energy projects.

Overall, looking at each of their business segments, it is clear that the only segment withstanding the best of is in their agriculture division.  Revenue for that segment appeared to drop by only –4% compared to the same quarter a year ago.  But what was somewhat worrisome was in the outlook of their business going forward.  They do not seem to be optimistic at all.  None the less, this is something to watch out for and will keep an eye for similar trends with my agriculture stocks in the next few earnings report.