Deere Earnings Forecast Tops Estimates as Construction Gains

Deere & Co. (DE), the second-largest maker of construction equipment in the U.S., forecast better-than-expected earnings for its 2014 fiscal year as a house-building recovery boosts demand for its loaders and excavators.

Net income will drop to about $3.3 billion in the year through Oct. 31, Moline, Illinois-based Deere said in a statement today. That’s more than the $3.06 billion average of 17 analysts’ estimates compiled by Bloomberg. It said total equipment sales will fall about 3 percent, compared with an average estimate of a 9.5 percent decline. The shares rose 2.1 percent in New York.

Deere sees sales of construction and forestry equipment advancing by about 10 percent in the current financial year, partly because of the recovery in the U.S. economy and an increase in housing starts. That will limit the impact of a 6 percent decline in revenue from agricultural and turf machinery.

“There will be a relatively positive reaction in the morning based on the guidance,” Larry De Maria, a New York-based analyst for William Blair & Co. who recommends selling the shares, said in a phone interview today. “However, the deteriorating fundamentals for agriculture will eventually weigh on the shares.”

Photographer: Luke Sharrett/Bloomberg

John Deere tractors are displayed for sale at a dealership in Shelbyville, Kentucky. Close

John Deere tractors are displayed for sale at a dealership in Shelbyville, Kentucky.

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Photographer: Luke Sharrett/Bloomberg

John Deere tractors are displayed for sale at a dealership in Shelbyville, Kentucky.

The shares closed at $84.52, their biggest gain in three months.

Crop Receipts

Deere also reported better-than-expected fiscal fourth-quarter earnings today. Profit was $2.11 a share in the three months through Oct. 31, up from $1.75 a share a year earlier. That’s more than the $1.90 a share average of 20 estimates. Equipment sales fell to $8.62 billion from $9.05 billion, matching the average estimate.

The company is the world’s largest maker of agricultural equipment, which accounted for 76 percent if its sales in fiscal 2012, according to data compiled by Bloomberg, while 18 percent came from construction and forestry.

Deere is facing its first drop in annual earnings in five years as U.S. farmers reap a record harvest of corn and other crops. Corn futures in Chicago are down 50 percent since trading at a record in August 2012. U.S. farm cash receipts, a key indicator for equipment sales, will decline to $377.7 billion in 2014 from $391.8 billion this year, Deere said in a slide presentation on its website today.

In contrast, the U.S. housing industry is beginning to recover, with purchases of new homes rising in August. Sales increased 7.9 percent to a 421,000 annualized pace following a rate of 390,000 in the prior month, according to government figures. U.S. construction spending in August was the highest since April 2009, other government data show.

Caterpillar Inc. (CAT) is the world’s largest maker of construction equipment. Its global retail machine sales dropped 12 percent in the three months through October compared with a year earlier, the Peoria, Illinois-based company said today in a filing.

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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