Fierce was the word Deere personnel used to describe the current economy when reporting the company's second quarter financials.
Worldwide net sales and revenues declined 17% to $6.748 billion, for the second quarter and were down 11% to $11.894 billion for six months compared with a year ago. Net sales of the equipment operations were $6.187 billion for the quarter and $10.747 billion for six months, compared with $7.469 billion and $11.999 billion the past year.
Equipment net sales in the U.S. and Canada decreased 8% for the quarter and 5% year to date. Net sales outside the United States and Canada decreased 30% for the quarter and 18% for six months with an unfavorable currency-translation effect of 13% for both periods.
Asset management has been a focus reduce risk in this economy. Trade receivables and inventories at the end of the quarter were $7.924 billion, or 32% of previous 12-month sales, compared with $8.200 billion, or 35% of sales, a year ago.
This is the final quarter in which ag division and commercial & consumer division performance will be reported separately. The recently announced merger of the two groups in the agriculture and turf division will start its joint report next quarter.
Briefly, construction and forestry saw a decline in sales in the quarter at 55%.
In the ag division for second quarter, sales decreased 4% for the quarter largely due to the unfavorable effects of currency translation and lower shipment volumes, partially offset by improved price realization. Division sales were up 4% for six months. Operating profit was $635 million for the quarter and $983 million year to date, compared with $782 million and $1.114 billion for the respective periods last year.
Sales for the commercial and consumer equipment division declined 24% for both the quarter and the first half of the year. Operating profit was $68 million for the quarter and $10 million for six months, compared with $154 million and $162 million a year ago. The operating-profit decline in both periods primarily was due to lower shipment and production volumes, the unfavorable effects of foreign exchange and higher raw-material costs, partially offset by improved price realization and lower selling, administrative and general expenses.
Full-year sales of the agriculture and turf division are forecast to decrease by about 14%, including a negative currency-translation impact of about 6%. The division was created earlier this month by combining the operations of the worldwide agricultural equipment and commercial and consumer equipment divisions. Voluntary employee separations related to the new organizational structure are currently expected to result in pretax charges of approximately $50 million in the second half of 2009. Savings from the separation program of about the same amount are expected to be realized in 2010.
On an industry basis, farm-machinery sales in the U.S. and Canada are forecast to be flat to down slightly for the year, with support from an increase in four-wheel-drive tractors, combines, sprayers and seeding equipment. In other parts of the world, industry farm-machinery sales in Western Europe are forecast to be down 10% to 15 % for the year. Markets have continued to deteriorate in Central Europe and the CIS countries, where sales are expected to be sharply lower. In South America, industry sales are projected to decrease by 20 to 30% for the year. North American industry sales of turf equipment and compact utility tractors are expected to be down about 20%.
As for John Deere Credit, full-year 2009 net income for Deere's credit operations is forecast to be approximately $250 million. The forecast decrease from 2008 primarily is due to narrower financing spreads, a higher provision for credit losses and lower commissions from crop insurance, partially offset by benefits from investment tax credits related to wind energy projects.
Research and development expenditures was up 11% in the quarter, which was dominated by development of tier 4 interim engine technology.
The company says it continues to see very few order cancellations for the U.S., Canada, and Western Europe, and the surge in cancellations previously seen in Central Europe and CIS countries has moderated. However, cancellations for South America are higher than typical.
For more: John Deere