Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Your lines have been placed on listen only until the question and answer session of today's conference. Please be advised, today's call is being recorded. If you do have any objections you may disconnect at this time. I would like to turn the call over to Marie Ziegler, Vice Vice President of Investor Relations.
MARIE ZIEGLER, VP, IR, DEERE & COMPANY: Good morning. Also on today's call are Nate Jones, our Chief Financial Officer, Greg Derrick, and Susan Carley. Today we'll take a look at Deere's first quarter earnings and then spend a few minutes talking about our markets and where things are headed in 2005. After that we'll respond to your questions. First though a reminder.
This call is being broadcast live on the Internet and recorded for future transmission and use by Deere, CCBN and third parties. Participants in the call including the Q&A session agree that their likeness and remarks and all media may be stored and used as part of the earnings call. The call involves forward-looking comments concerning the Company's projections and plans and objectives for the future that are subject to important risks and uncertainties. Actual results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially is contained in the Company's most recent form 8-K and periodic reports filed with the Securities and Exchange Commission.
Now for a closer look at Deere's first quarter here's our Manager of Investor Communications, Greg Derrick.
GREG DERRICK (ph), MANAGER, INVESTOR COMM., DEERE & COMPANY: Thank you, Marie. This morning we reported first quarter net income of $223 million on total sales and revenues of 4.1 billion. As you'll see in our results Deere's business improvement initiatives are hitting their stride. And helping us make the most of the current market upturn. We've been talking for some time as an example about how our agile manufacturing and order fulfillment systems are bringing more dollars to the bottom line. That's the real proof of our success. And it's what our first quarter results continue to show.
As we reported, equipment operating profit for the quarter was up 32 percent. On a 21 percent increase in sales. However, as cited in the release, the profit increase is 56 percent if you back out last year's gain on the sale of a rental company. So we're continuing to see healthy operating leverage.
Let's go now to our individual businesses starting with agricultural equipment where retail activity continued to be strong in the first quarter. Deere's settlements in the U.S. and Canada were up 25 percent for the quarter and up 13 percent for the month of January. Now, here's the detail on January retails. This is for the U.S. and Canada and expressed in units. In utility tractors, the industry was up 18 percent. Deere was up less than the industry. Row crops industry up 16 percent. Deere up less. Four-wheel drive tractors industry up 15. Deere sales were flat with year ago levels. In combines, the industry was up 38 percent for the month. Deere was up more than the industry.
Western European sales of John Deere tractors were up a single digit for the month of January while combines were up a double digit. As you might expect, this retail climate contributed to a further improvement in ag results for the quarter. Deere's worldwide agricultural equipment sales were up 26 percent, that's over $400 million, while operating profit almost doubled. Most of the increase was in the U.S. and Canada, but overseas results improved as well.
What about U.S. farm market conditions going forward? Cash receipts are expected to remain strong again this year. According to our latest forecast, barn cash receipts are projected to be $244 billion for 2005. That's essentially in line with the record total of 2004 which has been revised upward to 246 billion. Other factors are positive too, such as farm land values which are going up, and debt levels which are holding steady.
All this points to a healthy financial picture for U.S. farmers and further growth in farm machinery sales. Deere's order book which tracks retail sales to date plus those still in the pipeline, is stronger than last year in all key product categories. In other words, the stage is being set for what looks like another good year in the U.S. farm sector. Consistent with this point of view, we have raised our outlook for industry sales in the U.S. and Canada, and now expect an increase of 5 to 10 percent for the full year. Our previous guidance was up 5 percent.
Turning to the farm situation in other parts of the world, European farmers are benefiting from last fall's strong harvest, and overall farm income is expected to remain in line with last year's levels. Our outlook for industry sales in western Europe remains flat to down 5 percent.
As we cited in last quarter's call, the market in South America is weakening, most noticeably in Brazil. Negative factors include the combination of a weaker U.S. dollar and lower commodity prices as well as higher input costs. These are pushing farm incomes lower. Given these conditions, we have reduced our outlook for South American sales and are now forecasting the industry there to be down 20 to 30 percent for the year. Now, how does all this affect Deere?
Based on these market conditions, we are now projecting sales of John Deere farm machinery worldwide to be up 7 to 9 percent for the year, excluding the effect of foreign currency and we think currency will add about 3 points to the sales forecast. Previously we had forecast Deere's ag sales to be up 2 to 5 percent with little currency impact.
Let's go now to our commercial and consumer equipment business, CNCE on the retail side, Deere sales have gotten off to a strong start this year and were up by a double digit for the month of January. Lower production rates, however, had a dampening effect on the division's results for the quarter. As CNCE continued to shift production closer to the time of seasonal use. Shipments in the quarter declined 8 percent contributing to an operating loss of $2 million. Worldwide tonnage was down 14 percent for the quarter.
As for the outlook, we continue to see modest growth in the year ahead. Sales are forecast to be up 4 to 6 percent versus previous guidance of up 2 to 5 percent. Benefit is expected to come from new commercial products, notably compact tractors, utility vehicles and commercial mowing equipment, such as our very successful Z-Trak line. As was the case in 2004, the commercial and consumer equipment division is expected to remain a solid contributor to operating profit, and to SVA, or shareholder value added, in the year ahead.
Let's focus now on construction and forestry, where the market remains strong and conditions point to further growth for John Deere products in 2005. On the retail side for the month of January, both first in the dirt sales and settlements were up by double digits. Deere's shipments followed a similar pattern. First quarter sales were up 33 percent to nearly $1 billion. Operating profit rose to 101 million versus 93 million a year ago. But remember last year's profit included a $30 million pretax gain from the sale of Sun State, a construction equipment rental company.
Turning to the outlook, we anticipate further growth in construction and forestry sales for the year ahead. Positive factors include a healthy U.S. economy and a continuation of fleet replenishment by contractors, foresters and independent rental companies. Deere's construction and forestry sales are expected to be up about 10 to 12 percent for the year. That compares with our previous guidance of up to 6 to 9 percent.
Turning now to our credit operations, our full year forecast now assumes credit net income of around $290 million. That's up 10 million from our earlier forecast and this is due to a lower loan loss …