Net income attributable to Deere & Company was $488.8 million, or $1.55 per share, for the third quarter ended July 31, compared with $511.6 million, or $1.53 per share, for the same period last year.
For the first nine months of the year, net income attributable to Deere & Company was $1.239 billion, or $3.91 per share, compared with $1.589 billion, or $4.67 per share, last year.
Worldwide net sales and revenues decreased 11%, to $6.724 billion, for the third quarter and declined 9%, to $20.124 billion, for nine months. Net sales of the equipment operations were $5.861 billion for the quarter and $17.737 billion for the first nine months, compared with $6.840 billion and $19.843 billion for the periods last year.
"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," says 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. As in past quarters, our results benefited from the sound execution of our operating plans, the impact of a broad product portfolio, and our success keeping a tight rein on costs and assets."
Summary of Operations
Net sales of the worldwide equipment operations declined 14% for the quarter and 11% for the first nine months compared with the same periods a year ago. Sales included price realization of 2% for the quarter and year to date. Additionally, sales included an unfavorable currency-translation 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.
Deere's equipment operations reported operating profit of $625 million for the quarter and $1.526 billion for nine months, compared with $601 million and $1.842 billion last year. The improvement for the quarter was primarily driven by price realization, lower 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. The year-to-date decline was mostly due to lower shipment volumes, unfavorable effects of foreign-currency exchange and a less favorable product mix. Partially offsetting these factors for the year-to-date period were price realization, lower production costs and decreased selling, administrative and general expenses. Both periods benefited from a gain on the sale of a partial interest in the unconsolidated affiliate SiteOne Landscape Supply, LLC.
Net income of the company's equipment operations was $353 million for the third quarter and $873 million for the first nine months, compared with $344 million and $1.109 billion for the corresponding periods of 2015.
Financial services reported net income attributable to Deere & Company of $125.9 million for the quarter and $357.9 million for nine months compared with $153.4 million and $480.0 million last year. Lower results for the quarter were primarily due to less-favorable financing spreads, a higher provision for credit losses and higher losses on lease residual values. The year-to-date decline was largely a result of higher losses on lease residual values, less-favorable financing spreads and a higher provision for credit losses. Additionally, prior year-to-date results benefited from a gain on the sale of the crop insurance business.
Company Outlook & Summary
Company equipment sales are projected to decrease about 10% for fiscal 2016 and be down about 8% for the fourth quarter compared with year-ago periods. Included in the forecast is a negative foreign-currency translation effect of about 2% for the full year and a positive translation effect of about 1% in the fourth quarter. For fiscal 2016, net income attributable to Deere & Company is anticipated to be about $1.350 billion.
"Deere continues to perform well in the face of challenging market conditions, particularly in relation to agricultural downturns of the past," Allen says. "This underscores the success of our efforts to develop a more durable business model and a wider range of revenue sources. At the same time, we are continuing to focus on ways to make our operations more efficient and achieve further structural cost reductions. We remain confident in the company's present direction and firmly believe Deere is on the right track to deliver significant value to its customers and investors in the years ahead."
Equipment Division Performance
Agriculture & Turf. Sales fell 11% for the quarter and 7% for nine months due largely to lower shipment volumes and the unfavorable effects of currency translation. These factors were partially offset by price realization.
Operating profit was $571 million for the quarter and $1.329 billion year to date, compared with $472 million and $1.378 billion, respectively, last year. The improvement for the quarter was primarily driven by price realization, lower production costs and lower selling, administrative and general expenses, partially offset by lower shipment volumes and unfavorable effects of foreign-currency exchange. Year-to-date results were down primarily because of reduced shipment volumes, unfavorable effects of foreign-currency exchange and a less favorable product mix, partially offset by price realization and lower production costs and selling, administrative and general expenses. Both periods benefited from a gain on the sale of a partial interest in SiteOne Landscape Supply, LLC.
Construction & Forestry. Construction and forestry sales decreased 24% for the quarter and 21% for nine months mainly as a result of lower shipment volumes.
Operating profit was $54 million for the quarter and $197 million for nine months, compared with $129 million and $464 million for the corresponding periods last year. Operating profit fell for the quarter mainly due to reduced shipment volumes and a less favorable product mix, partially offset by lower production costs, a decrease in selling, administrative and general expenses and price realization. Year-to-date results declined primarily due to lower shipment volumes, partially offset by lower production costs and selling, administrative and general expenses.
Market Conditions & Outlook
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 15-20% 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 15-20% 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 5-10% 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.
John Deere Capital Corporation
The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market.
Net income attributable to John Deere Capital Corporation was $90.4 million for the third quarter and $259.9 million year to date, compared with $126.9 million and $376.4 million for the respective periods last year. The decline for the quarter was primarily due to a less favorable financing spread, higher losses on lease residual values and a higher provision for credit losses. Year-to-date results decreased mainly due to higher losses on lease residual values, less-favorable financing spreads and a higher provision for credit losses.
Net receivables and leases financed by JDCC were $32.928 billion at July 31, 2016, compared with $33.400 billion last year.
