Deere Raises Full-Year Profit Forecast After Cutting Costs

Deere Cost Cuts Lead to Full-Year Profit Forecast Boost
  • Tractor maker unexpectedly reports gain in quarterly earnings
  • Declining demand has spurred production cuts and job losses

Deere & Co., the world’s largest agricultural equipment maker, raised its full-year profit forecast after cutting production and costs to adapt to weaker demand for tractors and combines.

Full-year net income will be $1.35 billion in the year through October, Moline, Illinois-based Deere said Friday in a statement, compared with the $1.2 billion it projected in May. The company also reported better-than-expected fiscal third-quarter net income and a 16 percent reduction in its cost of sales. The shares jumped as much as 5.2 percent.

“People ask that question, how much more can” it cut? Stephen Volkmann, a New York-based analyst at Jefferies LLC, said by phone. “When you look at what’s happening in the agricultural community, it’s tough to argue that things are going to get better.”

Deere has shed thousands of jobs and cut capacity since 2013, most recently last month at an Illinois operation. Tractor inventories in the U.S. are at a seasonal record high and credit availability is tight with farm incomes projected to fall for a third straight year amid bumper crops and lower commodity prices, signaling that Deere may have to make further cost cuts.

Deere climbed 4.6 percent to $80.50 at 9:42 a.m. in New York. It earlier posted the biggest intraday gain since April 19.

Net income rose to $1.55 cents a share in the three months through June from $1.53 a year earlier, exceeding the 94-cent average of 19 analysts’ estimates compiled by Bloomberg. Machinery revenue fell to $5.86 billion from $6.84 billion, trailing the $6.06 billion average estimate.

The company said it sees full-year equipment sales falling 10 percent, versus a previous forecast for a 9 percent decline.

"Deere continues to perform well in the face of challenging market conditions," Chief Executive Officer Sam Allen said in the statement. "We are continuing to focus on ways to make our operations more efficient and achieve further cost reductions."

(An earlier version of this story was corrected to remove part of an analyst quote that erroneously referred to closed plants.)

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