Deere Beats Profit Views, Gives Upbeat Outlook
Deere & Co. raised its sales growth forecast for this year as the world’s largest farm-equipment manufacturer reported stabilizing demand after years of tumbling sales.
The company topped sales and profit expectations in its fiscal first quarter with help from the sale of a portion of its distribution business for landscaping supplies.
The Moline, Ill.-based company offered a surprisingly upbeat outlook for equipment sales growth, even with continued weakness expected in the U.S. market that Deere dominates. The company predicted that sales of its farm and construction machinery will rise about 4% this year to about $24.3 billion, an improvement from the 1% expansion forecast in November. The company also bumped up its net income forecast to about $1.5 billion from $1.4 billion, implying earnings per share about $4.54. Analysts were expecting about $4.53.
Deere’s revised outlook was driven by what it described as signs of stability in key markets for farm equipment, especially in Latin America, where demand has been surging lately. The company said it now expects sales of its farm equipment to increase by about 3% this year after earlier predicting a 1% increase.
For the quarter ended Jan. 29, sales of Deere’s farm machinery were flat from a year earlier at $3.59 billion, while operating income rose 48% to $213 million with proceeds from the sale of a portion of the SiteOne distribution unit.
Deere predicted industrywide sales of farm machinery in the U.S. and Canada will fall by 5% to 10% this year. Lower prices for farm commodities have squeezed farmers’ incomes, making them reluctant to purchase new tractors and harvesting combines. Demand has been falling since 2014.
Sales of Deere construction and forestry equipment dropped 6% during the quarter to $1.1 billion as operating income plunged 51% to $34 million. Despite the dismal start to the year, Deere forecast construction machinery sales will increase 7% this year, compared with a 1% increase seen previously. The company expects the improvement to be driven by moderate economic growth.
Over all for the first quarter, Deere reported a profit of $193.8 million, or 61 cents a share, down from $254.4 million, or 80 cents, a year earlier. The most recent quarter included a $94 million pretax charge related to employee separation programs.
Net sales fell 1.5% to $4.69 billion. Total equipment sales for the quarter rose 2% $5.62 billion. Analysts had forecast earnings of 55 cents with $4.68 billion of equipment sales.
Source: Deere and Co.