Deere & Company (DE) Q4 2007 earnings summary

Executive summary

• FY07 net income was $1,822m and continuing-operations revenue rose 9% to $24,082m; farm-sector strength drove equipment gains as construction and forestry weakened.

• FY08 equipment sales were projected to rise 12% and net income to reach ~$2.1bn, supported by agriculture and partly offset by pressure in construction and forestry.

Financial highlights

• Continuing-operations net sales and revenues increased 9% to $24,082m from $22,148m; Equipment Operations net sales rose 8% to $21,489m.

• Net income was $1,822m, or $4.00 diluted EPS, versus $1,694m and $3.59 in FY06; continuing income was $1,822m versus $1,453m.

• Equipment Operations operating profit rose to $2,318m from $1,905m, led by improved price realization and higher sales and production volumes.

• Cost of sales to net sales improved to 75.6% from 77.3%, reflecting price realization and volume leverage, partly offset by higher raw material costs.

• FY07 operating cash flow was $2,759m; cash and cash equivalents increased $591m to $2,279m.

Outlook and guidance

• FY08 equipment sales were forecast up 12% for the year and 25% in Q1; LESCO was expected to add 2 and 3 percentage points, respectively.

• FY08 net income was forecast at ~$2.1bn for the year and ~$325m for Q1.

• Agricultural equipment sales were expected to rise 17%; commercial and consumer sales 10%; construction and forestry sales were forecast approximately flat.

• Credit operations FY08 net income was forecast at ~$375m, driven by credit portfolio growth.

• Equipment Operations capital expenditures were estimated at $600m-$700m in 2008; Financial Services capital expenditures at ~$550m, primarily for wind energy generation.