MOLINE, Ill. — Deere & Co. sustained a rare operating loss in the first quarter of its fiscal year, brought about by adjustments related to federal tax legislation.
But company officials see a substantial silver lining for the balance of the year.
The ag machinery company, which has its largest North American manufacturing complex in Waterloo, recorded a net operating loss of $535.1 million for quarter ending Jan. 28, or $1.66 per share, compared with net profit of $199 million or 62 cents per share for the first quarter of 2017.
It is the first loss the company has recorded since the fourth quarter of 2009. But a company spokesman said it is not an “operating” loss.
“It really is an accounting loss. You have to look at what goes behind that,” company spokesman Ken Golden said.
As part of the U.S. tax reform legislation enacted Dec. 22, the company reported a $715.6 million write-down of net deferred assets.
“When you’re planning on a 35 percent U.S. corporate tax rate and that moves to 21 percent, an accounting adjustment takes place and you have to take a look behind that,” Golden said.
Deere also had to account for a mandatory repatriation of untaxed non-U.S. earnings of $261.6 million.
“Without these adjustments, first-quarter net income would have been $430 million, or $1.31 per share,” company officials said in a release. An analysts’ consensus estimate was $1.16 per share.
The loss followed three consecutive quarters of earning increases over the previous year as the farm economy starts to improve. That was preceded by 11 consecutive quarters of declining earnings during an ag downturn.
“We are experiencing strong increases in demand, and we’ve raised our outlook for the year,” Golden said. Equipment sales are projected to be up about 29 percent for the year, up from 22 percent projected three months ago.
Equipment sales in the U.S. and Canada are projected to be up 10 percent for the year, led by demand for large equipment including the tractors made in Waterloo.
“Our order book for large equipment is strong, running ahead of last year. And farmers are in a replacement cycle. Commodity prices aren’t necessarily driving this change. It’s farmers who have decided to reinvest in their businesses,” Golden said.
“Although net income for the quarter and full year are being affected by the upfront costs of U.S. tax reform legislation, we believe the changes will reduce the company’s overall tax rate and be beneficial in the future,” company chairman and chief executive officer Samuel R. Allen said. “At the same time, Deere is in good position to capitalize on the strengthening conditions we see in the world’s agricultural and construction equipment markets.
The company is projecting year-end fiscal 2018 net income of $2.1 billion, roughly matching fiscal 2017. Without the tax-reform adjustments, profits would be about $2.85 billion.
Company equipment sales are projected to increase 29 percent for fiscal 2018 and 30 to 40 percent for the second quarter over the same periods in 2017.
Worldwide net sales and revenues increased 23 percent to $6.9 billion, compared with $5.6 billion for the first quarter of 2017. Net sales of equipment operations were $5.9 billion, compared with nearly $4.7 billion a year ago.
Agriculture and turf equipment sales increased 18 percent for the quarter, and operating profit was $387 million compared with $218 million for the same quarter a year ago. Sales of construction and forestry equipment increase 57 percent and the division reported quarterly operating profit of $32 million, compared with $37 million for the same quarter a year ago.