Bloomberg News

Deere Profit Tops Analysts’ Estimates as Farm Income Climbs

November 25, 2011

(Updates with closing share price in third paragraph.)

Nov. 23 (Bloomberg) -- Deere & Co., the world’s largest farm-equipment maker, reported fiscal fourth-quarter profit and forecast 2012 earnings that topped analysts’ estimates as U.S. farmers flush with cash buy more tractors and combines.

Net income rose 46 percent to $669.6 million, or $1.62 a share, in the quarter ended Oct. 31, from $457.2 million, or $1.07, a year earlier, Moline, Illinois-based Deere said today in a statement. Analysts projected per-share profit of $1.44, the average of 15 estimates compiled by Bloomberg. Sales climbed 20 percent to $8.61 billion from $7.2 billion.

Fiscal 2012 profit will rise to $3.2 billion, the company said in its initial forecast for the period. That’s more than the $2.95 billion average estimate of 15 analysts. Deere gained 3.9 percent to $74.72 at the close in New York.

“It’s a big quarter,” Eli Lustgarten, an Independence, Ohio-based analyst for Longbow Research who has a “buy” rating on Deere, said in an interview. “Big guidance in sales and profitability. Better than expected.”

Deere, led by Chief Executive Officer Sam Allen, has benefited as U.S. farmers used cash from rising corn and soybean prices to buy high-horsepower equipment. U.S. farm income will jump 31 percent this year to a record $103.6 billion, the U.S. Department of Agriculture said in August. In fiscal 2010, 65 percent of Deere’s sales came from the U.S. and Canada.

Bumper Harvests

Cropland values in the U.S. Great Plains surged 25 percent to a record because of bumper corn and wheat harvests, according to a survey in the third quarter by the Federal Reserve Bank of Kansas City that covered all or parts of states including Colorado, Kansas, Nebraska, Oklahoma and Wyoming.

Equipment sales are projected to increase about 15 percent for fiscal 2012 and rise 16 to 18 percent in the first quarter from a year earlier, Deere said today. Currency exchange will benefit sales by about 3 percent for the quarter and about 1 percent for the year, it said.

Sales across the farm-machinery industry in the U.S. and Canada will rise 5 to 10 percent in 2012 as demand remains strong for high-horsepower equipment, Deere said. Industry sales will be little changed in Western and Central Europe and South America, up “strongly” in Asia and “moderately” higher in the former Soviet Union, Deere said.

Deere’s first-quarter net income will be lower than a year earlier as raw-material costs increase by $150 million, Susan Karlix, Deere’s manager of investor communications, said on a conference call. Net income was expected to rise 3.8 percent, based on the average of two analysts’ estimates.

New Combines

First-half research and development costs will exceed those in the last six months of fiscal 2011, Karlix said.

Deere’s U.S. and Canada production tonnage in the three months through Jan. 31 will fall “slightly” after adjusting for weight and mix of combines, she said. Deere is temporarily lowering combine production in the current quarter as it transitions to new, heavier models, Karlix said.

Karlix said Deere is “carefully managing” combine production to help control inventories of used machines. After unusually heavy shipments of new combines in the first quarter of fiscal 2011 led farmers to trade in more equipment, used inventories have fallen back in the fourth quarter to historical averages, she said.

Agricultural equipment made up 78 percent of Deere’s fiscal 2010 sales. Construction and forestry accounted for 15 percent.

Brazil Plants

Deere introduced a record number of products during fiscal 2011 and announced plans for six new factories in China, Brazil and India, the company said. Net sales of equipment in the U.S. and Canada rose 14 percent in the fiscal fourth quarter and 31 percent in the rest of the world.

“Results today confirm that the global aspiration to eat higher-quality foods is a secular trend that is unlikely to go away anytime soon, and few are better positioned to profit from it than Deere,” Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York, said in an e-mail today.

--Editors: Simon Casey, Steven Frank

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.


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