August 19, 2010

Deere Q3 profit jumps on strong demand

The fiscal Q3 profit of Deere & Co.'s (DE) has surged 47%, on strengthening US demand of large farm machinery and rebounding sales of its construction equipment.

Deere's results easily topped Wall Street's expectations for the quarter, and it now expects equipment overall sales to be up around 32% in Q4 against on-year with earnings estimated at nearly US$375 million.

But Deere expects demand in Europe to continue to deteriorate, as weak livestock and dairy markets and bulging inventories of used equipment hold down new equipment sales.

Deere's shares fell 1.6% to US$66.14 a share in premarket trading, as the quarter's equipment sales in the quarter rose less than the company had forecast in May and its fourth-quarter profit outlook came in below analysts' estimate.  It benefited from its market-leading position in the US, where solid commodity prices, healthy cash receipts from farming and low interest rates have boosted sales large, high-horsepower machinery.

Sales of agriculture and landscaping equipment rose 12% in Q3 from a year ago. Meanwhile, construction and forestry equipment sales rose 59% from the severely depressed levels a year ago. Higher production volumes, price increases and Deere's ability to control its costs resulted in an 88% increase in operating profit from farm and construction machinery.

"While we have benefited from positive conditions in the US farm sector, particularly in terms of demand for large equipment, European markets are down sharply. Demand for construction and forestry equipment is improved from last year but still remains far below normal levels," Chairman and Chief Executive Samuel Allen said.

The company expects industry-wide sales of farm equipment in Western Europe to fall 15%-20% this year from 2009, compared with the company's May forecast of a 10%-15% decline.

But Deere raised its industry-wide sales outlook for South America, where farm equipment demand has been aided by strengthening crop prices, improved weather conditions and a continuation of government-sponsored financing for machinery purchases in Brazil. The company sees South American farm machinery sales rising as much as 30% this year from 2009, compared with about a 25% increase forecast earlier.

For the quarter ended July 31, Deere reported a profit of US$617 million, or US$1.44 a share, up from US$420 million, or US$0.99 a share, a year earlier. Overall revenue rose 16% to US$6.84 billion. Farm and construction sales combined rose 18%, compared with a 21%-23% increase forecast earlier by the company.

Analysts expected earnings of US$1.24 on US$6.52 billion in revenue. Deere said it expects fiscal Q4 earnings of about US$375 million. Analysts expected profit of US$385 million. The company sees sales for the year rising 12%, near the 11%-13% increase predicted earlier.