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Deere Profit Disappoints After Sales Slow Outside U.S., Canada

November 21, 2012

Deere & Co. (DE:US), the world’s largest agricultural equipment maker, posted earnings that missed analysts’ estimates for a second consecutive quarter after sales declined 2 percent outside the U.S. and Canada.

Profit rose to $1.75 a share in the fiscal fourth quarter ended Oct. 31 from $1.62 a year earlier, the Moline, Illinois- based manufacturer said in a statement today. The average of 18 estimates compiled by Bloomberg was for $1.88. Net income will be about $3.2 billion in the year through October 2013, Deere said. The average of 15 estimates was for $3.26 billion. The shares fell the most in three months.

Deere said the farm-equipment industry will see sales in Europe unchanged or 5 percent lower in fiscal 2013 while Asia will be little changed due to “softer” economic conditions in India and China. That may undermine the company’s effort to expand the share of revenue it gets from outside the U.S. and Canada to 50 percent by 2018. Today’s numbers will disappoint investors after the U.S. farming economy improved in the past three months, said Larry De Maria, a William Blair & Co. analyst in New York.

“Expectations were relatively elevated,” De Maria, who has a hold rating on the stock, said in an interview.

Deere fell 3.7 percent to $82.83 in New York. The shares have gained 7.1 percent this year.

Income Guidance

“Deere stock is down due to lower-than-expected net income guidance,” Bryan Z. Agbabian, sector head for agricultural equities and a portfolio manager for Allianz Global Investors in San Francisco, said in an e-mail today. “Commentary on combine early order program was positive as company is booked out through early 2013. Lead times for tractors also appear to stretched to April or May 2013.”

The company probably “is conservative on its full-year guidance, and second half of its fiscal year leaves room for upside,” Agbabian said.

Net income climbed 2.7 percent to $687.6 million from $669.6 million a year earlier. Sales of equipment increased 14 percent to $9.05 billion from $7.9 billion, topping the $8.85 billion average estimate of a dozen analysts.

In August, Deere cut its fiscal 2012 profit forecast after Asian and Latin American sales slowed and posted lower-than- expected profit for the first time in 11 quarters.

“Deere remains well-positioned to carry out its growth plans and capitalize on positive long-term trends, even though present global economic and fiscal concerns warrant continued caution,” Chairman and Chief Executive Officer Sam Allen said today in the statement.

Drought Impact

The company said its worldwide sales of agriculture and turf equipment will increase by about 4 percent in fiscal 2013 because of relatively high commodity prices and stronger farm incomes.

Industrywide farm-machinery demand may rise as much as 10 percent in South America, spurred by commodity prices and more planting. It will remain little changed in the U.S. and Canada as the livestock and dairy industries, hurt by the worst drought in five decades, offset continued strength in demand for large equipment such as high-horsepower tractors.

To contact the reporter on this story: Shruti Date Singh in Chicago at

To contact the editor responsible for this story: Simon Casey at

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