Deere Rides Rough Global Farm Market in Second-Quarter 2015, Expects 25% Sales Drop for Year

Researched by Industrial Info Resources (Sugar Land, Texas)--Deere & Company (NYSE:DE) (Moline, Illinois), a major agricultural, construction and forestry equipment manufacturer, saw a silver lining in its better-than-expected profits for the second quarter of the company's 2015 fiscal year, as intense cost-management efforts and a strong operational performance mitigated the effects of a weak global agricultural market and the strengthening U.S. dollar. Candid executives expect sales for agricultural equipment in the U.S. and Canada to drop about 25% this year. Net income was reported to be $690.5 million, a 29.59% decrease from second-quarter 2014.

As part of its North American Industrial Manufacturing Project Database, Industrial Info is tracking several maintenance-related projects at Deere facilities across the U.S., including third- and fourth-quarter shutdowns at a tractor and cab assembly plant in Waterloo, Iowa; a drivetrain products plant in Waterloo; and a hydraulic pump-drive plant in Coffeyville, Kansas. The shutdowns at the tractor and cab plant are valued at $2 million each; the other four at $1 million each.

Total revenues stood at $8.17 billion, a 17.87% decrease from the same period last year. The bulk of the decline was attributed to the Agriculture & Turf segment, where lower shipment volumes and currency translation combined to reduce sales 25% from second-quarter 2014. Net sales for equipment fell 14% in the U.S. and Canada, but were particularly low abroad, where a strengthening U.S. dollar helped to reduce sales 28%. Demand for large farm-machinery models also declined as global farm incomes weakened.

Still, Deere's Construction & Forestry and Financial Services segments showed signs of improvement, with the former benefiting from higher shipment volumes and price realizations, and the latter from the announced sale of the company's crop insurance business to Farmers Mutual Hail Insurance Company (Des Moines, Iowa).

"We also saw benefits from our success holding the line on costs and assets, a fact that gives our performance a measure of resilience that we have not seen in prior downturns," said Susan Karlix, the manager of investor communications for Deere, in a conference call. "Another item weighing on our results was the strong U.S. dollar. It continued to put pressure on reported sales made outside of the U.S. and is expected to continue doing so for the rest of the year."

Overall sales in 2015 are expected to be down 25% from 2014, with lower commodity prices and falling farm income diminishing the demand for farm equipment, particularly large models. Sales in China are expected to weaken due in part to slow national economic growth, despite the Chinese government's continued ag investment. Still, the outlook is rosier for livestock conditions, which could boost sales of small and mid-sized tractors.

"U.S. farm cash receipts, in spite of softer commodity prices, remain near historically-high levels, thanks to help from record livestock receipts," Karlix said in the conference call. "As a result, our 2014 forecast calls for cash receipts of about $418 billion, up about 1% from 2013, and the highest level ever recorded. Given the record crop harvest of 2014 and, consequently, the lower commodity prices we're seeing today, our 2015 forecast calls for cash receipts to be down about 6%. Of note, crop receipts for 2015 are forecast to be about 23% lower than 2012's record."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.