Deere Raises Profit Forecast After U.S. Farm Incomes Gain

Deere & Co. (DE), the largest maker of agricultural equipment, raised its full-year earnings forecast and posted a fiscal second-quarter profit that topped analysts’ estimates after higher crop prices supported U.S. farm incomes.

Net income climbed to $2.61 a share in the quarter through April from $2.12 a year earlier, Moline, Illinois-based Deere said today in a statement. That was 3.2 percent higher than the $2.53 average of 18 estimates compiled by Bloomberg. Profit in the 2012 fiscal year will be $3.35 billion, compared with $3.28 billion Deere projected in February and the $3.24 billion average of 15 estimates.

“This is a clean, sales-driven, beat-and-raise quarter,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York, who personally holds some Deere shares. “We continue to view the company as extremely well positioned to benefit from the secular and cyclical demand for higher-quality food goods.”

Deere is selling more machines such as tractors after a three-year rally in corn and soybean prices pushed 2011 farm receipts to a record in the U.S., its largest market. Higher equipment volumes in established markets will help Chief Executive Officer Samuel R. Allen as he chases additional revenue in developing markets such as Brazil and China to reach a goal of $50 billion in sales by 2018.

Photographer: Daniel Acker/Bloomberg

Harvested corn is unloaded from a Deere & Co. John Deere combine harvester into a grain cart on a farm near Peru, Illinois. Close

Harvested corn is unloaded from a Deere & Co. John Deere combine harvester into a grain... Read More

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Photographer: Daniel Acker/Bloomberg

Harvested corn is unloaded from a Deere & Co. John Deere combine harvester into a grain cart on a farm near Peru, Illinois.

Equipment Sales

Deere fell 3.2 percent to $74.18 at the close in New York.

Equipment sales in the quarter advanced 13 percent to $9.4 billion, compared with the 15 percent gain that Deere forecast in February. Net income rose 17 percent to $1.06 billion from $904.3 million.

“This is a good quarter, slightly better than consensus estimates, but not as strong a quarter as competitors have delivered,” Larry De Maria, a New York-based analyst for William Blair & Co. who has a hold rating on the shares, said in a note.

Agco Corp. (AGCO), the U.S. company that’s the third-largest farm-equipment maker, on May 1 reported first-quarter profit per share that was 41 percent higher than the average of analysts’ estimates. Peoria, Illinois-based Caterpillar Inc. (CAT), the world’s biggest construction machinery manufacturer, last month posted first-quarter earnings that beat the average estimate by 11 percent.

‘Strong Demand’

Deere today repeated its forecast that equipment sales will gain about 15 percent for the full fiscal year. Industrywide farm equipment sales in the U.S. and Canada will increase more than 10 percent, it said.

“Conditions remain positive and demand continues to be strong, especially for high-horsepower equipment” in the region, Deere said.

U.S. farm cash receipts, the primary driver of agricultural-machinery purchases, will rise to $375.3 billion this year from $374.2 billion in 2011, Deere said in a presentation on its website today.

While corn prices have dropped in the past two months after forecasts for a higher acreage this season, inventories are still tighter than historical averages and will support U.S. farm sales, Andy Kaplowitz, a New York-based analyst for Barclays Plc, said in a May 14 note.

European industry sales will climb as much as 5 percent as improvements in the grain, livestock and dairy sectors outweigh economic concerns, Deere said. Farm income in the European Union rose 6.7 percent in 2011 from a year earlier, according to Eurostat. British growers’ profit last year reached the highest since 1996, according to the U.K. government.

Industrywide, sales in the Commonwealth of Independent States will be “considerably higher,” up “moderately” in Asia and down as much as 10 percent in South America because of drought hurting crops in the region and “uncertainty” in Argentina, Deere said.

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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