"During the year, Deere continued with a record number of product introductions and completed seven new factories, in Brazil, Russia, India and China. These products and additional capacity are essential to helping the company expand its global customer base and realize its long-term business objectives.
"Deere’s performance is a testament to our ability to execute our business plans, which stress the rigorous management of costs and assets," Allen stated. "This has led to an all-time high in profitability, as measured by operating return on operating assets, and record earnings for the last three years. In addition, the company has delivered healthy levels of cash flow, which has been used to fund global growth programs and provide direct benefit to investors through dividends and share repurchases."
Summary of Operations
Net sales of the worldwide equipment operations decreased 5 percent for the quarter and increased 4 percent for the full year compared with the same periods in 2012. Sales included price realization of 4 percent for the quarter and 3 percent for the year and an unfavorable currency-translation effect of 2 percent for the quarter and 1 percent for the year. Equipment net sales in the United States and Canada decreased 6 percent for the quarter and increased 5 percent for the year. Outside the U.S. and Canada, net sales decreased 2 percent for the quarter and increased 4 percent for the year, with unfavorable currency-translation effects of 4 percent and 3 percent for these periods.
Deere’s equipment operations reported operating profit of $1.114 billion for the quarter and $5.058 billion for the full year, compared with $1.051 billion and $4.397 billion in 2012. The improvement for the quarter was due primarily to the impact of price realization, partially offset by the unfavorable effects of foreign-currency exchange, lower shipment volumes and a less favorable product mix. Full-year results improved largely due to the impact of price realization and higher shipment volumes. Annual results also were impacted by unfavorable effects of foreign-currency exchange, increased production costs, higher selling, administrative and general expenses and higher warranty costs. Increased production costs were due primarily to higher manufacturing-overhead expenses in support of growth, new products and engine-emission requirements, partially offset by lower raw-material costs.
In conjunction with the previously announced agreement to sell a majority interest in John Deere Landscapes, these operations were written down to realizable value in the quarter. In addition, both the quarterly and year-to-date periods were affected by impairment charges for long-lived assets related to John Deere Water operations.
Net income of the company’s equipment operations was $650 million for the fourth quarter and $2.974 billion for the full year, compared with $576 million and $2.616 billion in 2012. The operating factors mentioned above, along with a lower effective tax rate, had an impact on the quarter’s results. Increased interest expense and a higher effective tax rate also affected annual results.
Financial services reported net income attributable to Deere & Company of $157.1 million for the quarter and $565.0 million for the year compared with $121.7 million and $460.3 million in 2012. Results for both periods were aided by growth in the credit portfolio and higher crop insurance margins, partially offset by higher selling, administrative and general expenses. Further, the quarter’s results were impacted by less favorable financing spreads, and full-year 2012 results benefited from revenue related to wind energy credits.
Company Outlook & Summary
Company equipment sales are projected to decrease about 3 percent for fiscal 2014 and be down about 2 percent for the first quarter compared with year-ago periods. For fiscal 2014, net income attributable to Deere & Company is anticipated to be about $3.3 billion. The outlook contemplates the sale of 60 percent of John Deere Landscapes operations, as previously announced.
Supported by record 2013 performance, John Deere remains in a prime position to carry out its wide-ranging growth plans and attract new customers throughout the world, Allen said. "Thanks in large measure to the commitment of our employees, dealers and suppliers, John Deere’s plans for helping meet the world’s need for food, shelter and infrastructure are firmly on track," he said. "We remain confident in the company’s direction and its ability to serve a population growing in both size and prosperity in the years ahead. In spite of lingering global economic concerns, we believe these developments continue to hold great promise and should provide significant benefits to our investors and other stakeholders well into the future."
Equipment Division Performance
Agriculture & Turf. Sales decreased 4 percent for the quarter primarily due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Sales increased 7 percent for the full year largely due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation.
Operating profit was $996 million for the quarter and $4.680 billion for the year, compared with $931 million and $3.921 billion, respectively, in 2012. The improvement for the quarter was driven primarily by price realization, partially offset by the unfavorable effects of foreign-currency exchange, a less favorable product mix and lower shipment volumes. Full-year results improved due primarily to the impact of price realization and higher shipment volumes.
These factors were partially offset by the unfavorable effects of foreign-currency exchange, increased production costs, higher selling, administrative and general expenses, and higher warranty costs. Both periods also were affected by a charge to write down John Deere Landscapes operations to realizable value and an impairment charge for long-lived assets related to John Deere Water.
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