Deere Gives Upbeat Outlook as Earnings Fall--2nd Update
February 17 2017 - 1:36PM
Dow Jones News
By Bob Tita
Deere & Co. said Friday demand for its farm machinery is
improving, offering fresh optimism that the three-year long slide
in equipment sales is beginning to ease.
Deere, the world's largest manufacturer of tractors and
harvesting combines, raised its sales growth forecast for 2017. The
company topped sales and profit expectations in its fiscal first
quarter with help from the sale of a portion of its distribution
business for landscaping supplies.
The company predicted that sales of its farm and construction
machinery will rise about 4% this year to about $24.3 billion,
after forecasting a 1% expansion in November. The company also
bumped up its net income forecast to about $1.5 billion from $1.4
billion, implying earnings per share at about $4.54. Analysts were
expecting $4.53.
The Moline, Ill.-based company offered an upbeat outlook for its
farm-equipment business, despite a continued weakness in the U.S.
market where Deere dominates. The company said it now expects sales
of its farm equipment to increase by about 3% this year after
earlier predicting a 1% increase. Deere executives said dealer
inventories have shrunk, allowing Deere to accelerate factory
production to resupply its dealers and fulfill orders from farmers.
The company said the used equipment market is stabilizing as well,
giving farmers better trade-in prices on older equipment when they
order new models.
"We aren't seeing a significant decline in that retail
environment as we had both in 2015 and 2016," said Tony Huegel,
investor relations director for Deere, during a conference call
Friday with analysts.
Deere still expects industrywide sales of farm machinery in the
U.S. and Canada to fall by 5% to 10% this year from 2016. Lower
prices for farm commodities have squeezed farmers' incomes, driving
down demand for tractors and harvesting combines since 2014. Deere
predicted that U.S. cash receipts from farming will be flat this
year with 2016.
Deere is counting on significantly better machinery demand this
year from farmers in Latin America, especially Brazil, where the
company sees rising crop prices and available government-sponsored
financing that fueled robust equipment sales in past years.
For the quarter ended Jan. 29, sales of Deere's farm machinery
were flat from a year earlier at $3.59 billion, while operating
income rose 48% to $213 million with a one-time income infusion
from the sale of a portion of the SiteOne distribution
business.
Sales of Deere's construction and forestry equipment dropped 6%
during the quarter to $1.1 billion as operating income plunged 51%
to $34 million. Deere expects a sharp turnaround in the lackluster
business as the year unfolds, predicting sales will increase 7%
this year. Deere said first-quarter orders for construction
equipment in the U.S. and Canada were up by one-third from same
period the year before. The company said equipment rental companies
have accelerated their orders recently and the company expects
housing construction and slightly better U.S. gross domestic
product growth to drive higher sales during the second half of the
year. Deere's construction business is largely concentrated in
North America.
"What we saw in the [first] quarter was a very, very strong
order book," said Mr. Huegel. "That's what's driving that
confidence in terms of where that outlook improved."
Rival construction-equipment maker Caterpillar Inc. reported
Friday that retail sales of its construction equipment during the
three month months ended in January slipped 13% in North America
from a year earlier.
Overall for the first quarter, Deere reported a profit of $193.8
million, or 61 cents a share, down from $254.4 million, or 80 cents
a share, a year earlier.
Machinery sales fell 1.5% to $4.69 billion. Total sales, which
include revenue from Deere's finance unit, rose 2% $5.62 billion.
Analysts had forecast earnings of 55 cents a share with $4.68
billion of equipment sales.
Imani Moise contributed to this article
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
February 17, 2017 14:21 ET (19:21 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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