Deere & Company (DE) Q4 2015 earnings summary

Executive summary

• FY15 net sales and revenues fell 20% YoY to $28.9B; net income attributable to Deere & Company was $1.94B, down 39%, and diluted EPS was $5.77, down from $8.63.

• Despite the downturn, operating plans and cost controls supported positive SVA of $774M and operating cash flow of $3.74B.

• Financial Services delivered record net income of $633M; the outlook called for lower FY16 sales and earnings amid weak equipment markets.

Financial highlights

• Worldwide equipment net sales declined 22% to $25.775B; price realization added 1%, while currency translation reduced sales by 5%.

• Equipment operating profit fell to $2.177B from $4.297B, mainly on lower volumes, less favorable mix and currency; lower costs and price realization partly offset the decline.

• Cost of sales was 78.1% of net sales, versus 75.2% in FY14, reflecting product mix and currency impacts, partly offset by price realization and lower production costs.

• R&D expense was $1.425B; capital expenditures were $655M, bringing combined R&D and capex to $2.1B.

Outlook and guidance

• FY16 equipment sales were projected to decline 7%, including an 11% decrease in Q1; FY16 net income attributable to Deere & Company was forecast at ~$1.4B.

• FY16 Agriculture & Turf sales were forecast down ~8%, including ~2% negative currency translation; Construction & Forestry sales were forecast down ~5%.

• FY16 Financial Services net income attributable to Deere & Company was expected to be ~$550M, reflecting less favorable financing spreads, higher credit-loss provision and the absence of the FY15 crop-insurance sale gain.

• FY16 U.S. and Canada agricultural industry sales were forecast down 15–20%; EU28 sales flat to down 5%, South America down 10–15%, and Asia flat to slightly lower.