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Deere lifts profits hopes, despite South America concerns

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Deere & Co said that its earnings would not fall as far as previously expected this year, despite the "weak conditions" in the farm machinery sector, marked by continuing deterioration in hopes for South America's market.

Shares in the group rose to an 11-month high of $93.35 in early deals in New York, before easing back to stand at $92.70, a gain of 3.6% on the day.

The agricultural equipment giant, and owner of the John Deere brand, lifted by $100m to $1.9bn its forecast for earning in the year to the end of October.

The upgrade, which took the guidance above Wall Street expectations for a $1.80bn result, came despite lower hopes for equipment sales - now seen falling 19% over the year rather than the 17% decline previously expected.

The sales downgrade reflected in part increased allowance for a stronger dollar, which weakens the contributions in dollar terms from Deere's foreign operations.

'Solidly profitable'

Deere did not in its statement detail its diverging expectations for sales and profits performance this year.

However, it came as the group unveiled a lower-than-expected drop in earnings for the February-to-April period, of 30% to $690.5m, on revenues down 20% at 7.40bn.

Earnings per share came in at $2.03, well ahead of market expectations of a $1.55-per-share result

"John Deere expects to be solidly profitable in 2015, with the year ranking among our stronger ones in sales and earnings despite the pullback in the farm sector," said Samuel Allen, the Deere chairman and chief executive, highlighting the breadth of the group's machinery range.

"All in all, we remain confident in the company's direction and in its ability to meet customer needs."

'Pressure on demand'

He added that the results for the latest quarter were "noteworthy in light of the weak conditions that continue to affect the global agricultural sector".

Deere's agricultural machinery sales fell by 25% to $5.77bn, only offset in part in the group's results by a 2% gain to $1.63bn in construction equipment takings.

"Lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery, especially for larger models," the group said.

Larger tractors are used in the main by arable farmers, whose incomes are being sapped by the lower crop prices.

'Higher interest rates'

The group raised to 15-20%, from 10-15%, a forecast for the drop in industry sales of combines and tractors in South America over the year, "mainly as a result of economic uncertainty in Brazil and higher interest rates on government-sponsored financing".

As Agrimoney.com reported earlier this week, Brazil's government is considering raising rates on subsidised loans to farmers.

However, Deere & Co trimmed to 25%, from 25-30%, its forecast for the drop in full-year industry farm equipment sales in Canada and the US.

"Conditions are more positive in the US livestock sector, supporting the sale of smaller sizes of equipment," the group said.

The lower grain prices which have hurt the profitability of arable farmers have improved margins for livestock producers.

By Agrimoney.com

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