Deere Trims 2016 Profit Forecast for Second Time This Year -- Update
May 20 2016 - 10:12AM
Dow Jones News
By Bob Tita
Deere & Co. trimmed its 2016 profit forecast for the second
time this year as the farm equipment maker warned of steeper
declines in its construction machinery business and financing
operation.
Deere, the world's biggest seller of farm equipment, topped
expectations for its fiscal second quarter with better than
expected results from its farm machinery business. But the overall
demand pattern for the company's green-and-yellow tractors and
harvesting combines remains dismal throughout most of the
world.
Lower prices for farm commodities have caused farmers to scale
back their purchases of tractors and harvesting combines.
Construction equipment, which accounts for about a third of Deere's
annual equipment sales, has been tumbling as well. Falling prices
for oil, natural gas and other mined commodities have flooded the
used construction equipment market in the U.S. and Canada, holding
down demand for new machines.
Deere's sales of equipment overseas also have been under
pressure from a strong U.S. dollar and economic and political
turmoil in Brazil, which had been fast-growing market for Deere and
other farm equipment manufacturers. Deere now expects industrywide
sales of farm equipment in South America to fall by 15% to 20%,
after predicting a 10% to 15% decline earlier this year.
The Moline, Ill.-based company expects net income of about $1.2
billion for the fiscal year ending Oct. 31. The company in January
had forecast income $1.3 billion, down from $1.4 billion at the
start of the year. The revised guidance implies per-share earnings
of about $3.80, down from $4.10 previously, according to analysts,
who had expected the company earn $4.08 per share.
Deere's construction and forestry equipment unit was especially
weak during the second quarter, as sales fell 16% to $1.4 billion
and operating profit plunged 61% to $74 million amid the lower
volume of machinery. Deere now expects construction equipment sales
to fall by 13% this year from 2015 after previously predicting an
11% sales decline.
Deere's farm machinery business performed better than expected
during the quarter. Sales of farm equipment slipped 0.4% to $5.7
billion, well above analysts' expectation of $5.2 billion.
Operating profit slipped 4% to $614 million. The company now
expects farm equipment sales to decline 8% this year after earlier
forecasting a 10% decrease.
The sales weakness in the company's equipment lines is taking a
toll on the company's financing business, which makes loans for
equipment purchases to customers and Deere's dealers.
Second-quarter net income from the financing unit sank by 39% from
a year ago to $103 million. The company predicted the financing's
unit's income for the year will be about $480 million, down from
its earlier estimate about $525 million.
Over all for the quarter ended April 30, Deere reported a profit
of $495.4 million, or $1.56 a share, down from $690.5 million, or
$2.03 a share, a year earlier. Analysts expected $1.47 in per-share
profit. Total equipment sales declined 4% to $7.1 billion, but
topped analysts' estimate of $6.7 billion.
Deere stock was down 4.4% to $78.57 a share in Friday
trading.
Lisa Beilfuss contributed to this article.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
May 20, 2016 10:57 ET (14:57 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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