Deere defies 'moderating demand' to raise profits

Deere & Co looked revealed a surprise rise in profits, despite a market slowdown which will see the North and South American farm markets shrink by up to 10%, but its shares failed to hold early gains.

Deere & Co, the maker of John Deere machinery, revealed a 4.8% rise to $681.1m in earnings for the November-to-January period, on revenues up 3.1% at $7.65bn.

The rise in earnings to the equivalent of $1.81 per share surprised analysts, who had expected a decline to some $1.52 per share from the $1.65 per share achieved a year before.

Deere & Co shares stood 2.6% higher at $89.75 in before-the-bell deals in New York.

'Solid performance'

The rise in profits reflected both higher equipment sales, which rose 2.3% to $6.95bn, and efforts to stem costs, with sales and admin expenses falling 2.0% over the period.

"We are seeing further benefit from efforts to hold the line on costs," said Samuel Allen, the Deere chief executive, adding that the group had started the year "on a strong note".

"Even in the face of moderating demand for agricultural equipment, Deere is well-positioned to deliver solid performance."

The group's equipment sales rose 3% North America and 2% elsewhere, although this included a 3% headwind from foreign exchange movements.

'Dampening effect'

Nonetheless, the group stood by expectations of a difficult year for farm equipment makers, as lower crop prices prompt farmers to curtail machinery spending.

"Although farm incomes are expected to remain at healthy levels in 2014, they are forecast to be lower than in the previous year," Deere said.

"The decline will have a dampening effect on demand, especially for larger models of equipment."

The group restated forecasts that farm equipment markets in North and South America will shrink by 5-10%, with the European Union market expected to decline by 5% and former Soviet Union sales to end the year "down slightly".

Performance outlook

Deere forecast its own sales will fall by some 6% in the current, February-to-April quarter, and stuck by an estimate of a 3% decline for its financial year, which ends in October.

Full-year earnings will come in at about $3.3bn, the group said, also repeating its previous forecast.

However, Wall Street has factored in a bigger decline, to $3.13bn, from last year's result of $3.54bn.

Nonetheless, Deere shares, while making early headway, stood at $87.40 in lunchtime deals in New York, down 0.1% on the day.

Broker Cantor Fitzgerald, while acknowledging "better than expected" results, highlighted also the "more cautious" sales guidance by Deere for the current quarter.

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