Deere & Company (DE) Q4 2006 earnings summary

Executive summary

• FY06 net income reached $1.694B, a record, while continuing-operations income was $1.453B; results included a health care sale gain.

• Growth and profitability reflected stronger pricing, lower retirement benefit costs, new products and improved performance in construction and forestry and commercial and consumer operations.

• $1.6B was returned to investors through share repurchases and dividends; trade receivables and inventories were further reduced.

Financial highlights

• Net sales and revenues from continuing operations rose 5% to $22.148B in FY06; Equipment Operations net sales increased 2% to $19.884B, including a 3% positive price effect.

• Net income was $1.694B, or $7.18 diluted EPS, versus $1.447B and $5.87 in FY05; continuing-operations income was $1.453B, or $6.16 diluted EPS.

• Equipment Operations operating profit increased to $1.905B from $1.842B; Equipment Operations net income was $1.089B versus $1.096B.

• Continuing Financial Services income rose to $344M from $312M; discontinued-operations income was $241M, including a $223M after-tax gain on the health care sale.

• Cost of sales/net sales improved to 77.3% from 78.2%; improved pricing and lower retirement benefit costs partly offset higher raw material costs and lower shipping volumes.

Outlook and guidance

• FY07 equipment sales are projected roughly flat overall, with first-quarter sales up ~5%; production is expected down ~4% for both periods.

• FY07 net income is forecast at ~$1.325B; first-quarter net income guidance is $150M-$175M.

• Worldwide agricultural equipment sales are forecast up ~4% for FY07 and ~10% in Q1; U.S. and Canada farm machinery production is expected down ~8% in Q1.

• Commercial and consumer sales are forecast up ~4%; construction and forestry sales down ~5%; credit operations net income is forecast at ~$345M.

• 2007 Equipment Operations capital expenditures are estimated at $570M, primarily for manufacturing modernization, restructuring and new product development.