DE Deere and Co

By Bob Tita 

Deere & Co. said Friday demand for its farm machinery is improving, offering fresh optimism that the three-year long slide in equipment sales is beginning to ease.

Deere, the world's largest manufacturer of tractors and harvesting combines, raised its sales growth forecast for its current fiscal year. The company also reported results for its latest quarter that topped expectations, helped by the sale of a portion of its distribution business for landscaping supplies.

The Moline, Ill.-based company still expects industrywide sales of farm machinery in the U.S. and Canada to fall by 5% to 10% this year. Lower prices for farm commodities have squeezed farmers' incomes, driving down demand for tractors and harvesting combines since 2014.

The company predicted sales of its farm and construction machinery will rise about 4% this year to about $24.3 billion, after forecasting a 1% expansion in November. It also bumped up its profit forecast to about $1.5 billion from $1.4 billion, implying earnings per share at about $4.70 to $4.75. Analysts were expecting $4.53.

Deere offered an upbeat outlook for its farm-equipment business, despite continued weakness in the U.S. market where it dominates. It predicted that U.S. cash receipts from farming -- an indicator farmers' ability to afford new equipment -- will be flat this year.

Deere executives said dealer inventories have shrunk, allowing the company to accelerate factory production to resupply its dealers and fulfill orders from farmers. The company said the used-equipment market is stabilizing as well, giving farmers better trade-in prices on older equipment when they order new models.

"We aren't seeing a significant decline in that retail environment as we had both in 2015 and 2016," said Tony Huegel, investor relations director for Deere, during a conference call Friday with analysts.

Deere is counting on significantly better machinery demand this year from farmers in Latin America, especially Brazil, where the company sees rising crop prices and government-sponsored financing fueling robust equipment sales, as happened in the past.

For its fiscal first quarter ended Jan. 29, sales of Deere's farm machinery were flat from a year earlier at $3.59 billion, while operating income rose 48% to $213 million helped by proceeds from the sale of part of the SiteOne distribution business. The company said its farm-equipment sales are on track to rise about 3% this year. The company previously projected a 1% increase for the 12 months ending Oct. 31.

Sales of Deere's construction and forestry equipment dropped 6% to $1.1 billion, and operating income plunged 51% to $34 million. Deere expects a sharp turnaround in the business as the year unfolds, predicting sales will increase 7% this year.

Deere said first-quarter orders for construction equipment in the U.S. and Canada were up by one-third from a year earlier. The company said equipment-rental companies have accelerated their orders recently and the company expects housing construction and slightly better U.S. gross domestic product growth to drive higher sales during the second half of the year. Deere's construction business is largely concentrated in North America.

"What we saw in the [first] quarter was a very, very strong order book," said Mr. Huegel. "That's what's driving that confidence in terms of where that outlook improved."

Rival construction-equipment maker Caterpillar Inc. reported Friday that retail sales of its construction equipment during the three months ended in January slipped 13% in North America.

Overall for its first quarter, Deere reported a profit of $193.8 million, or 61 cents a share, down from $254.4 million, or 80 cents a share, a year earlier.

Machinery sales fell 1.5% to $4.69 billion. Total sales, which include revenue from Deere's finance unit, rose 2% $5.62 billion. Analysts had forecast earnings of 55 cents a share with $4.68 billion of equipment sales.

Imani Moise contributed to this article

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

February 18, 2017 02:47 ET (07:47 GMT)

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