Deere & Company (DE) Q4 2016 earnings summary

Executive summary

• FY16 net sales and revenues fell 8% to $26.644B; net income attributable to Deere & Company was $1.524B, down 21%, and diluted EPS was $4.81, down from $5.77.

• Despite a three-year downturn in large agricultural equipment, FY16 remained one of the ten best years for sales and earnings; SVA stayed positive at $339M.

Financial highlights

• Worldwide equipment net sales declined 9% to $23.387B; operating profit fell 14% to $1.880B, with lower volume, unfavorable FX and mix partly offset by pricing and lower costs.

• Consolidated operating profit was $2.589B, down from $3.140B; CFO was $3.764B, essentially unchanged from 2015.

• Cost of sales was 78.0% of net sales versus 78.1% in 2015; pricing and lower production costs largely offset FX and weaker mix.

• Reported results included a $75M pretax gain on partial SiteOne divestiture; equipment operations also recorded $13M of China impairments and financial services $60M of lease-related impairments.

Outlook and guidance

• FY17 net income forecast at ~$1.4B; equipment sales forecast down 1%, including a ~1% positive currency effect; Q1 equipment sales forecast down ~4%, including ~2% positive currency.

• FY17 agriculture and turf sales forecast down ~1%; construction and forestry sales forecast up ~1%; Financial Services net income forecast at ~$480M.

• Voluntary separation programs carry estimated $111M pretax expense, with $100M primarily in Q1 FY17; expected FY17 savings are ~$70M.

• Mid-cycle financial targets remain 12% operating margin and 2.5 asset turns; sales growth target is to outpace competitors.