Deere & Company’s DE fourth-quarter fiscal 2016 (ended Oct 31, 2016) earnings declined 17% year over year to 90 cents per share. However, earnings beat the Zacks Consensus Estimate of 36 cents by a wide margin of 150%. Global farm recession and weak construction-equipment markets affected both the top and the bottom line of the company.
Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $5.65 billion, down 5% year over year. Revenues surpassed the Zacks Consensus Estimate of $5.354 billion.
Price realization had an impact of 3% in the quarter and favorable currency-translation impact was 1%. Region-wise, equipment net sales decreased 14% in the U.S. and Canada and 11% in the rest of the world. Total net sales (including financial services and others) were $6.5 billion, down 3% year over year.
Cost of sales in the quarter decreased 6% year over year to $4.38 billion. Gross profit in the quarter came in at $1.27 million, down 6% year over year. Selling, administrative and general expenses increased 4% to $747 million. Operating profit improved 2% year over year to $633 million.
Operating income from equipment operations increased 6% year over year to $354 million driven by price realization, partially offset by lower shipment volumes, an impairment charge for international construction and forestry operations as well as higher production costs.
Agriculture & Turf segment’s sales declined 5% year over year to $4.44 billion. Revenues were impacted by lower shipment volumes and price realization, partly compensated by favorable effects of currency translation. However, operating profit at the segment went up 37% year over year to $371 million aided by price realization, lower production costs and lower selling, administrative and general expenses. These were negated by lower shipment volumes, unfavorable effects of foreign-currency exchange and a less favorable product mix.
Construction & Forestry sales went down 5% year over year to $1.21 billion, impacted by lower shipment volumes. The segment reported operating loss of $17 million compared with an operating profit of $64 million in the prior-year quarter. The significant decline was mainly due to higher sales-incentive expenses, an impairment charge for international operations and higher production costs.
Net revenues at Deere’s Financial Services division totaled $740 million in the reported quarter, a rise of 13% year over year. The segment’s operating profit was $164 million, compared with $226 million in the prior-year quarter. Net income at the segment was $109.8 million compared with $153 million in the year-ago quarter. This decline was due to less-favorable financing spreads, higher losses on lease residual values and a higher provision for credit losses.
DEERE & CO Price, Consensus and EPS Surprise
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