Deere Profit Up on Ag Equipment Demand
Deere & Co. said its first-quarter profit rose 55 percent, beating Wall Street’s expectations as lofty crop prices stoked global demand for its farm equipment.
Sales for the world’s largest maufacturer of agricultural machinery climbed 18 percent in the November-January period. Deere said its sales outside North America jumped 37 percent, quadruple the growth in the United States and Canada.
Deere is enjoying an export boom as the dollar’s decline against the euro and other major currencies makes its products cheaper in most markets overseas. At the same time, Deere has benefited from higher farm prices around the world that have been fueled by increased ethanol production.
But its shares fell as it offered earnings guidance for the second quarter that was below what Wall Street expected. Its shares dropped 94 cents, or 1.1 percent, to $85.54 Wednesday.
The Moline, Ill.-based company said its profit for the quarter ended Jan. 31 rose to $369.1 million, or 83 cents per share, compared with $238.7 million, or 52 cents per share, during the same period the previous year.
Revenue during the quarter grew to $5.2 billion from $4.43 billion last year.
Analysts surveyed by Thomson Financial had expected earnings of 78 cents per share on sales of $5.07 billion. The earnings estimates typically exclude one-time items.
The company said it expects earnings of about $700 million to $725 million in the second quarter, short of Wall Street estimates of nearly $735 million.
Deere, which also makes construction and forestry equipment such as backhoes, excavators, riding mowers and leaf blowers, forecast earnings of $2.2 billion for the full year, up from $2.1 billion. Wall Street has forecast $2.19 billion for the year.
“The company remains in a prime position to benefit from powerful trends sweeping the world, such as growing affluence, increasing demand for food and infrastructure, and the rising use of biofuels,” said Robert Lane, Deere’s chairman and chief executive.
JPMorgan analyst Stephen Volkmann, in a research note, affirmed his rating of “overweight” on Deere’s stock “based on our view that farm equipment fundamentals in the key (North American) market should remain favorable as higher commodity prices spur a new replacement cycle.”
Calling Deere’s latest quarter “solid,” Volkmann didn’t appear put off by the company’s revised outlook, noting “that the company tends to be conservative with its guidance.”
The company expects its equipment sales to rise about 23 percent for the second quarter and 17 percent for full-year 2008.
“With its recently expanded and revamped agriculture product line, Deere expects to continue to capitalize on the strong tail wind blowing across the global farm sector,” Morningstar analyst John Kearney wrote in a research note.
Deere’s equipment divisions reported operating profit of $457 million for the first quarter, up from $270 million a year ago. First-quarter profits of the company’s financial services were $97.7 million, up $9.5 million due largely to growth in the credit portfolio, higher crop insurance income and a lower effective tax rate.
Deere’s results came after fourth-quarter earnings announcements by its chief competitors, CNH Global NV and Agco Corp.
CNH last month reported fourth-quarter profit short of Wall Street expectations and issued 2008 guidance that disappointed investors. The Dutch company predicted a 10 percent to 15 percent increase in total equipment sales, but added that it expects North American sales of construction equipment to be down 5 percent to 10 percent as a result of the residential construction slump.
Agco announced last week it swung to a fourth-quarter profit, but the Georgia-based agricultural equipment distributor issued a 2008 outlook below average estimates, projecting a modest industry increase in global demand for farm equipment.