review the quarterly “News Release and Financials” financial statement for Deere & Company you downloaded in the Week 1 Analyzing the Statement of Cash Flows discussion from the web pageInvestor Relations(Links to an external site.).
Investigate the short-term and long-term liabilities of Deere & Company, based on the quarterly financial statement. Calculate the working capital for the quarter.
Explain whether there are any issues Deere & Company should address in the liability section of the balance sheet. Then, explain how increasing interest rates would impact this company.
Deere Announces First-Quarter Earnings Page 1 NEWS RELEASE Ken Golden Director, Global Public Relations Deere & Company 309-765-5678 Deere Reports First-Quarter Income of $498 Million • Net sales rise 16% to $6.94 billion. • Construction & Forestry results move strongly higher. • Forecast for 2019 calls for net income of approximately $3.6 billion on sales gain of about 7%. MOLINE, Illinois (February 15, 2019) — Deere & Company reported net income of $498.5 million for the first quarter ended January 27, 2019, or $1.54 per share, compared with a net loss of $535.1 million, or $1.66 per share, for the quarter ended January 28, 2018. Affecting first-quarter 2018 results were charges to the provision for income taxes due to U.S. tax reform legislation (tax reform). Without these tax reform charges, first-quarter 2018 net income results would have been $442.1 million, or $1.35 per share. (Information on non-GAAP financial measures is included in the appendix.) “Although Deere has continued to make solid progress on a number of fronts and reported higher earnings for the quarter, our results were hurt by higher costs for raw materials and logistics as well by customer concerns over tariffs and trade policies,” said Samuel R. Allen, chairman and chief executive officer. “These latter issues have weighed on market sentiment and caused farmers to become more cautious about making major purchases. At the same time, sales of John Deere construction and forestry machinery have continued at a strong pace. We believe cost pressures should abate as the year progresses and are hopeful we will soon have more clarity around trade issues. As a result, we remain cautiously optimistic about our prospects for the year ahead.” Company Outlook & Summary Company equipment sales are projected to increase by about 7 percent for fiscal 2019 compared with 2018. Included in the forecast are Wirtgen results for the full fiscal year of 2019 compared with 10 months of the prior year. This adds about 1 percent to the company’s net sales forecast for the current year. Also included in the forecast is a negative foreign-currency translation effect of about 2 percent for the year. Net sales and revenues are projected to increase by about 7 percent for fiscal 2019. Net income attributable to Deere & Company is forecast to be about $3.6 billion. “Despite unsettled conditions in some of our key markets, Deere expects to achieve strong financial results in 2019,” commented Allen. “This is a testament to the success of our actions to create a more flexible cost structure, expand our global customer base, and develop leadership in the latest precision technologies. Customers are responding with great enthusiasm to the advanced features and technology in our new products. We are confident Deere is well-positioned to achieve its financial goals and firmly believe the company remains on track for delivering solid operating performance and significant value to customers and investors in the future.” Deere Announces First-Quarter Earnings Page 2 Deere & Company $ in millions (except EPS information) 2019 2018 % Chg Net sales and revenues 7,984$ 6,913$ 15% Net income (loss) 498$ (535)$ - Fully diluted EPS 1.54$ (1.66)$ - Net income - adjusted 498$ 442$ 13% Fully diluted EPS - adjusted 1.54$ 1.35$ 14% First Quarter Affecting 2018 net income were discrete charges to the provision for income taxes of $977 million due to tax reform legislation enacted on December 22, 2017. (Information on non-GAAP financial measures is included in the appendix.) Equipment Operations $ in millions 2019 2018 % Chg Net Sales 6,941$ 5,974$ 16% Operating Profit 577$ 419$ 38% Net income (loss) 340$ (964)$ - Tax reform unfavorable adjustments (1,239) - Net income without tax reform 340$ 275$ 23% Currency translation - net sales -3% First Quarter For a discussion on net sales and operating profit results, see the Agriculture & Turf and Construction & Forestry sections below. Wirtgen results are included for the entire first-quarter period of 2019 while the prior period reflected one month. The two additional months increased the company’s net sales results in the current quarter by about 7%. Agriculture & Turf $ in millions 2019 2018 % Chg Net sales 4,681$ 4,243$ 10% Operating profit 348$ 387$ -10% Operating margin 7.4% 9.1% First Quarter Agriculture & Turf sales for the quarter increased due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation and higher warranty-related expenses. Operating profit declined mainly as a result of higher production costs, higher warranty-related expenses, a less favorable product mix and higher research and development expenses, largely offset by price realization and higher shipment volumes. Deere Announces First-Quarter Earnings Page 3 Construction & Forestry $ in millions 2019 2018 % Chg Net sales 2,260$ 1,731$ 31% Operating profit 229$ 32$ 616% Operating margin 10.1% 1.8% First Quarter Construction & Forestry sales were up for the quarter primarily due to the inclusion of Wirtgen for the full period versus one month in the first quarter of 2018. The two additional months accounted for about 24% of the increase for the current quarter. Additionally, Construction & Forestry net sales increased due to price realization and higher shipment volumes, partially offset by the unfavorable effects of currency translation. Wirtgen’s operating profit was $14 million for the quarter, compared with an operating loss of $92 million last year. Excluding Wirtgen, the improvement in Construction & Forestry results for the quarter was primarily driven by price realization, partially offset by higher production costs and a less favorable product mix. Financial Services $ in millions 2019 2018 % Chg Net income 154$ 425$ -64% Tax reform favorable adjustments 262 - Net income without tax reform 154$ 163$ -6% First Quarter Excluding last year’s tax-reform adjustment, the decrease in financial services net income for the quarter was largely attributable to an unfavorable financing spread, partially offset by income earned on a higher average portfolio. Market Conditions and Outlook (annual) $ in millions Agriculture & Turf Net Sales +4% Currency Translation -2% Construction & Forestry Net Sales +13% Currency Translation -2% John Deere Financial Net Income 630$ Agriculture & Turf. Industry sales of agricultural equipment in the U.S. and Canada are forecast to be flat to up 5 percent, helped by continued demand for both large and small equipment. Full-year industry sales in the EU28 member nations are forecast to be flat as a result of drought conditions in key markets. South American industry sales of tractors and combines are projected to be flat to up 5 percent benefiting from strength in Brazil. Asian sales are forecast to be flat to down slightly. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5 percent for 2019. Construction & Forestry. The Construction & Forestry forecast includes a full year of Wirtgen sales, versus 10 months in fiscal 2018, with the two additional months adding about 4 percent to division sales for the year. The outlook reflects generally positive fundamentals and economic growth worldwide. In forestry, global industry sales are expected to be up 5 to 10 percent mainly as a result of improved demand in EU28 countries and Russia. Financial Services. Results are expected to benefit from a higher average portfolio, partially offset by less-favorable financing spreads, a higher provision for credit losses and higher selling and administrative expenses. Financial services net income for 2018 of $942 million included a tax benefit related to tax reform of $341 million. Excluding the tax benefit, net income for 2018 would have been $601 million. Deere Announces First-Quarter Earnings Page 4 John Deere Capital Corporation The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market. $ in millions 2019 2018 % Chg Revenue 661$ 585$ 13% Net Income 122$ 399$ -70% Ending Portfolio Balance 34,975$ 32,449$ 8% First Quarter Prior-year results included a favorable provision for income taxes associated with tax reform. Results for the current quarter included a less-favorable financing spread, partially offset by income from a higher average portfolio. Deere Announces First-Quarter