Currency issues impact Deere’s first quarter
By Andrew Macklin
February 23, 2016 – John Deere has reported positive sales for the first quarter of 2016 despite slumping global sales in the construction and farm equipment markets.
Net income attributable to Deere & Company was $254.4 million for the first quarter ended January 31, compared with $386.8 million for the same period of 2015. Worldwide net sales and revenues for the first quarter decreased 13 per cent to $5.525 billion, compared with $6.383 billion last year. Net sales of the equipment operations were $4.769 billion for the quarter compared with $5.605 billion a year ago.
“John Deere’s first-quarter results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment markets,” said Samuel R. Allen, chairman and chief executive officer. “At the same time, all of Deere’s businesses remained solidly profitable, benefiting from the sound execution of our business plans and the success of actions to develop a more responsive cost structure.”
Summary of Operations
Net sales of the worldwide equipment operations declined 15 per cent for the quarter. Sales included price realization of two per cent and an unfavorable currency-translation effect of four per cent. Equipment net sales in the United States and Canada decreased 18 per cent. Outside the U.S. and Canada, net sales were down nine per cent, with unfavorable currency-translation effects of 11 per cent.
Deere’s equipment operations reported operating profit of $214 million for the quarter, compared with $414 million in 2015. The decline for the quarter was due primarily to lower shipment volumes, the unfavorable effects of foreign-currency exchange and the impact of a less favorable product mix. Partially offsetting these factors were price realization, lower selling, administrative and general expenses and lower production costs. Net income of the company’s equipment operations was $127 million for the quarter, compared with $241 million for the same period last year. In addition to the operating factors mentioned above, a lower effective tax rate benefited results.
Company equipment sales are projected to decrease about 10 per cent for fiscal 2016 and to be down about eight per cent for the second quarter compared with the same period a year ago. Included in the forecast is a negative foreign-currency translation effect of about three per cent for the full year and second quarter. For fiscal 2016, net income attributable to Deere & Company is anticipated to be about $1.3 billion.
Construction & Forestry
Construction and forestry sales decreased 23 per cent for the quarter, mainly as a result of lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit was $70 million for the quarter compared with $146 million in 2015. The decline in operating profit was mainly due to lower shipment volumes, partially offset by price realization and lower selling, administrative and general expenses.
Deere’s worldwide sales of construction and forestry equipment are forecast to be down about 11 per cent for 2016, including a negative currency-translation effect of about two per cent. The forecast decline in sales reflects the impact of weak conditions in the North American energy sector as well as lower sales outside the U.S. and Canada. In forestry, global sales are expected to be down 5 to 10 percent from last year’s strong levels, primarily as a result of weaker demand in the U.S. and Canada.