CORRECT: 2nd UPDATE: Deere 2Q Profit Falls 38%, Cuts Fiscal Year View
May 20 2009 - 1:20PM
Dow Jones News
Deere & Co. (DE) cut its full-year profit forecast Wednesday
amid a continuing slide in demand for farm equipment and
construction equipment.
Deere, the world's largest maker of farm equipment by revenue,
now sees fiscal-year income of $1.1 billion, down from February's
outlook of $1.5 billion and Wall Street analysts' estimate of $1.31
billion.
Farm incomes are falling from last year's record levels amid the
reversal in commodity markets, and North America is no longer
providing a bulwark against poor demand conditions in Latin
America.
"There's a lot of uncertainty as far as how things develop for
the economy," said Marie Ziegler, vice president of investor
relations. "We just felt it was prudent" to lower the income
outlook, she said during a conference call after Deere reported a
38% fall in fiscal second-quarter earnings.
The company now expects overall sales to fall about 19% for the
year, more than double the decline forecasted earlier. For its
fiscal third quarter, the company predicted sales will plunge 26%
from the same period last year.
Deere's stock was recently up 5.84% at $46.38 a share.
The Moline, Ill., company's performance is a barometer of global
conditions in agriculture. But as in recent quarters, lower prices
for farm commodities, tighter credit and the economic recession
continue to hold down sales, particularly overseas.
Net sales of farm and construction machinery outside the U.S.
and Canada fell 30% in the fiscal second quarter ended April
30.
Construction and forestry equipment sales fell 55% in the
quarter, and the company reported $75 million operating loss in its
construction division during the quarter. Deere now expects
worldwide sales of construction and forestry equipment to drop 42%
this year from 2008, compared with its previous forecast of 24%
decline.
Deere executives rejected some analysts' perceptions that the
company reacted too slowly to the severe pull back in demand for
construction equipment. Competitors Caterpillar Inc. (CAT) and CNH
Global N.V. (CNH) have idled plants and slashed payrolls to lower
bulging equipment inventories.
"I think this division has been anything but late to track this"
decline, Chief Financial Officer Mike Mack said. "I think they're
managing it, given the circumstances, as well as they can."
Demand for farm equipment overseas showed no signs of
improvement. Deere now expects industry-wide sales of farm
machinery in South America - a key growth market for the company -
to fall 20% to 30%, compared with Deere's previous forecast of
sales dropping 15% to 25%.
The company said order cancellations in South America were
higher than typically seen as the region suffers from a
drought.
"South America is a mess," said Lawrence De Maria, an analyst
for Sterne Agee & Leach Inc. "The hope is that the market
stabilizes, but it's not like there's going to be a V-shaped
recovery there."
In the U.S. and Canada, Deere sees farm equipment sales being
flat to slightly down this year, after earlier forecasting that
sales could be up by as much as 5%. The company had been counted on
demand from U.S. farmers, who are not nearly as leveraged as
farmers overseas, to offset falling equipment sales elsewhere in
the world.
But U.S. farmers have grown increasingly cautious about buying,
particularly amid widespread reports of tougher collateral
standards for bank loans.
Deere lowered its forecast for U.S. cash receipts from farming
this year to $303.3 billion from $313.1 billion previously.
In the fiscal second quarter, the company reported income of
$472.3 million, or $1.11 a share, down 38% from $763.5 million, or
$1.74 a share, a year earlier. Net sales decreased 17% to $6.75
billion as price increases of 6% offset unfavorable effects of
foreign exchange of 6%.
Analysts expected earnings of $1.07 per share on revenue of $6.6
billion. Deere's income results were helped by a favorable tax rate
in the quarter that analysts said added about 17 cents to the
company's earnings per share.
Financial-services earnings fell 20% on a higher provision for
credit losses, lower commission from crop insurance and narrower
financing spreads.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
(Kerry E. Grace contributed to this report)