Deere Shares Jump as South American Demand Improves -- Update
20 May 2017 - 04:13AM
Dow Jones News
By Austen Hufford
Deere & Co. wrung better-than-expected profit out of
sluggish sales, giving the farm equipment maker confidence to raise
its profit forecast while expecting little improvement in U.S.
farmers' incomes.
Cost-cutting and booming demand from South American farmers are
helping Deere offset lackluster sales of its green-and-yellow
tractors and combines in the U.S. amid a multiyear farm slump.
"We are making good progress with respect to the cost
reduction," said Chief Financial Officer Rajesh Kalathur.
Deere raised its income forecast by 33% to about $2 billion for
its fiscal year ending Oct. 31. The company expects revenue from
farm and construction machinery to improve about 9% this year to
$25.5 billion, up from $24.3 billion anticipated in February.
Deere's shares rose 8% on Friday afternoon to $121.67. The
shares of rival machinery makers and other agriculture-focused
firms also rose on Deere's higher sales and profit forecasts for
the year. Shares of machinery maker Agco and CNH Industrial and
fertilizer maker CF Industries Holdings Inc. rose approximately
4%.
Deere's biggest gains came from South America. The company
expects marketwide demand for farm equipment from cash-flush
farmers to increase 20% this year following record soybean
harvests. But the Moline, Ill., company said it expects equipment
demand in the U.S. this year to fall about 5% as a multiyear slump
in prices for corn, wheat and soybeans discourages equipment
purchases.
Farm and construction equipment sales in the U.S. and Canada
fell 5% in Deere's second quarter, while international sales rose
14%. The U.S. dip came during what is traditionally the best
quarter in that market, as farmers buy equipment to plant their
spring crops.
"We're not seeing significant changes in the outlook for our
farmer customers," said Tony Huegel, Deere's director of investor
relations. "It's hard to argue today for significant recovery in
commodity prices."
Deere said used farm-equipment inventories in the U.S. are
easing. That could allow its dealers to rebuild inventories of new
machinery for sale and make them more willing to accept trade-in to
sell a new model.
Deere reported a profit of $802.4 million in its second quarter,
up 62% from a year earlier. Deere's cost reductions helped draw
that profit from a relatively modest 2.2% rise in farm and
construction equipment sales overall. Total revenue including
Deere's financial services business, rose 5% to $8.2 billion.
Proceeds from the sale of a landscaping distribution business also
boosted profit.
Austen Hufford contributed to this article.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
May 19, 2017 13:58 ET (17:58 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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