Deere Raises Profit Forecast as It Sees Signs of Recovery

Deere Raises Profit Forecast as It Sees Signs of Recovery

"We are seeing signs that after several years of steep declines key agricultural markets may be stabilizing," CEO Sam Allen said. "Deere continues to perform far better than in agricultural downturns of the past."

Deere & Co., (IW 500/41) the world’s largest manufacturer of farming machinery, raised its 2017 profit forecast and said there are signs the worst may be over in a market that’s suffered a sustained slump lasting years.

Net income will be about $1.5 billion in the year through October, Deere said on February 17, exceeding both its own previous forecast and the average estimate among analysts, both of which were $1.4 billion.

It also sees net sales increasing by about 4% for the year, from 1% previously. The shares rose as much as 2.8% to a record high in pre-market trading in New York.

"We are seeing signs that after several years of steep declines key agricultural markets may be stabilizing," CEO Sam Allen said." Deere continues to perform far better than in agricultural downturns of the past."

The Moline, Ill.-based company had previously set a goal to cut costs by $500 million by the end of 2018 and said that it remains confident of hitting that target. There have been other savings in recent years, including the elimination of thousands of jobs. While competitors such as Caterpillar Inc. have suffered losses over the period, Deere has remained in the black.

“They’ve been executing very well,” Larry De Maria, an analyst at William Blair & Co. in New York, said of Deere before the earnings were published.

There have been positive signs recently in the machinery market. North American tractor inventories through December, while at a record seasonally, have declined 13% since April, data compiled by Bloomberg show. Deere’s shares have rallied over the last several months, which may be one reason why Warren Buffett’s Berkshire Hathaway Inc., once Deere’s second-biggest shareholder, disclosed earlier this week that it sold its entire stake during the fourth quarter.

Tough Conditions

Still, market conditions remain tough. The U.S. Department of Agriculture earlier this month forecast American farmer incomes will fall for a fourth year to their lowest since the financial crisis. That would be the longest streak of declines in 40 years.

Deere expects construction and forestry equipment sales to increase by about 7% this year, due to “moderate” worldwide economic growth. Sales of its agriculture and turf equipment will gain by about 3% this year, led by South American demand. In the U.S. and Canada, the company expects agricultural sales to drop by 5% to 10%, due “weakness” in the livestock and crop sectors.

The company’s fiscal first-quarter earnings per share were better than expected, falling to 61 cents from 80 cents a year earlier, which was above the 55-cent average of 10 analysts’ estimates. Deere has now beaten expectations for 17 straight quarters.

Net sales for the quarter fell to $4.7 billion from $4.77 billion, beating the average estimate of $4.63 billion.

By Mario Parker

 

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