Deere Cuts Profit Forecast as Commodities Decline

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Deere Tops 3Q Estimates, Cuts Full-Year Profit Forecast

Deere & Co., the world’s largest farm equipment maker, reduced its fiscal 2015 profit forecast as lower crop prices weakened the farm economy and the energy industry bought less of the company’s construction machinery.

Net income for the year through October will be about $1.8 billion, the Moline, Illinois-based company said Friday in a statement. That’s less than the $1.9 billion that Deere forecast in May and the $1.92 billion average of 11 analysts’ estimates compiled by Bloomberg. The shares fell the most in six years.

Deere now sees total equipment sales falling 21 percent for the year, worse than an earlier projection for a 19 percent decline, as lower corn and soybean prices reduce growers’ incomes. It expects revenue from construction and forestry equipment to drop, instead of the increase previously predicted, as energy producers cut spending amid low prices.

“The reduction in guidance is somewhat of a surprise given that we are this late in the year,” Larry De Maria, a New York-based analyst for William Blair & Co., said by phone.

Deere fell 7.9 percent to $83.51 at 9:53 a.m. in New York. Earlier it dropped 9.7 percent, the most intraday since March, 2009.

Per-share earnings in the fiscal third quarter were $1.53, beating the $1.44 average estimate. Sales dropped 22 percent to $6.84 billion, trailing the $7.17 billion average estimate.

Most-active corn futures have slid about 55 percent from a record $8.49 a bushel in 2012. After climbing for three weeks through mid-July on speculation that wet weather in the U.S. Midwest would reduce yields, corn tumbled again after the Department of Agriculture unexpectedly raised its crop forecast last week.

Grain Prices

Pressures in agricultural machinery “could continue into 2016 with a further downdraft in grain prices,” said Karen Ubelhart, a New York-based analyst at Bloomberg Intelligence. “Construction machinery was worse than expected and, with ag machinery down so much, construction results matter.”

Deere expects full-year sales at its agriculture and turf unit to decline by about 25 percent, 1 percentage point worse than what the company forecast in May, as falling farm incomes make it harder to sell higher-horsepower models.

Construction unit revenue will decline about 5 percent this year, compared with the prior forecast for a gain of about 2 percent, largely due to a weaker North American energy industry, the company said. U.S. oil drillers are cutting back operations amid a supply glut that drove prices to a six-year low.

Deere’s sales and profit fell in fiscal 2014, the first drop since fiscal 2009, leading the company to lay off hundreds of workers.

AGCO Corp., the world’s third-largest farm equipment maker, on July 28 forecast lower-than-expected third-quarter earnings as farmers in the Americas rein in spending.

Still, AGCO Chairman and Chief Executive Officer Martin Richenhagen said in an interview Thursday that the agricultural machinery market has “reached the bottom” and may improve next year on gains in India, Brazil and parts of Europe.

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