Deere Raises Profit Forecast as Construction Boosts Order Book

  • Company also sees gains in forestry and agriculture sales
  • Signs that worst may be over after years-long farm slump

Deere & Co., the world’s biggest maker of farm machinery, raised its 2017 profit outlook, drawing confidence from signs of increased demand in the construction and forestry industries as well as agriculture.

Sales of the company’s signature green-and-yellow agriculture and turf equipment will rise about 3 percent in the fiscal year through October, Deere forecast Friday as it published better-than-expected fiscal first-quarter earnings. The Moline, Illinois-based company said there are signs the worst may be over following a years-long industry slump.

For Deere’s smaller construction and forestry segment, the picture is brighter still, with sales seen climbing about 7 percent. Chief Financial Officer Rajesh Kalathur told analysts on a conference call that construction and forestry orders were up by more than a third in the first 13 weeks of the current quarter from a year ago in the U.S. and Canada. Deere also cited increased activity in oil and gas.

“Really what we saw in the quarter was a very, very strong order book,” Tony Huegel, a Deere spokesman, said Friday on a conference call with analysts. “That’s what’s driving that confidence.”

Net income will be about $1.5 billion in the year through October, Deere said, exceeding both its own previous forecast and the average estimate among analysts of $1.4 billion. It also sees net sales increasing by about 4 percent for the year, from 1 percent previously. The shares erased some of their earlier gains, when they traded at a record high, and were up 0.2 percent to $109.42 in New York at 1:39 p.m.

North American tractor inventories through December, while at a record seasonally, have declined 13 percent since April, data compiled by Bloomberg show. Amid those kinds of positive signals, Deere’s shares have rallied over the last several months. That may be one reason why Warren Buffett’s Berkshire Hathaway Inc., once Deere’s second-biggest shareholder, disclosed earlier this week that it sold its entire stake during the fourth quarter.

“It’s early, but we are starting to piece together evidence” of a recovery, said Mircea Dobre, an analyst at Robert W. Baird & Co. in Milwaukee. “Investors are starting to realize that” equipment demand may be showing signs of improving, he said.

Deere previously planned to cut costs by $500 million by the end of 2018 and said Friday that it remains confident of hitting that target. There have been other savings in recent years, including the elimination of thousands of jobs. Deere has remained in the black while competitors such as Caterpillar Inc. have suffered losses over the period.

Still, market conditions remain tough. Deere expects full-year agricultural sales in the U.S. and Canada to drop by 5 percent to 10 percent due to “weakness” in the livestock and crop sectors. The U.S. Department of Agriculture earlier this month forecast American farmer incomes will fall for a fourth year to their lowest since the financial crisis.

The company’s first-quarter earnings per share fell to 61 cents from 80 cents a year earlier, which beat the 55-cent average of 10 analysts’ estimates. Deere has now beaten expectations for 17 straight quarters.

Net sales for the quarter fell to $4.7 billion from $4.77 billion, beating the average estimate of $4.63 billion.

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