Deere Hails Brazil Farmers -- WSJ
20 May 2017 - 5:03PM
Dow Jones News
By Bob Tita
Farm-machinery maker Deere & Co. raised its profit forecast
for the year by 33% on booming demand in South America, an
unexpectedly rosy outlook that sent shares in agricultural
equipment and supply companies up sharply.
Cash-flush farmers in Brazil and elsewhere in South America are
expected to buy 20% more tractors and harvesting combines after
record harvests this year, Deere said, even as industrywide sales
are expected to fall 5% in the U.S. and Canada amid a multiyear
slump in prices for corn, wheat and soybeans.
"South America is a growth market," said Joel Tiss, an analyst
for BMO Capital Markets. "The profitability of farms is better
because the costs there are lower. They get three crops a year, so
the equipment is used much more intensely."
Deere raised its earnings forecast to about $2 billion for its
fiscal year ending Oct. 31. The company expects revenue from farm
and construction machinery to grow about 9% to $25.5 billion; in
February, it had projected $24.3 billion .
Deere's bullish outlook marks a rare bright spot for an industry
struggling amid a long downturn in the U.S. farm economy. The
Moline, Ill.-based company said it still expects lackluster sales
of its green-and-yellow tractors and combines this year in the U.S.
and Canada, which accounted for about 70% of its farm-equipment
sales last year.
The slump, driven by years of strong harvests that have produced
record global grain stockpiles, is pushing some U.S. farmers to the
brink of bankruptcy. That has left them with less cash to buy
everything from seeds to combines, weighing on major
agriculture-focused firms. Deere's farm equipment sales fell 36% to
$18.5 billion in 2016 from a peak of $29.1 billion in 2013.
"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 on Friday reported a profit of $802.4 million in its
second quarter ended April 30, up 62% from a year earlier. 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.
Deere said sales of farm and construction equipment in the U.S.
and Canada fell 5% in its second quarter, while sales elsewhere in
the world increased 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.
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 by encouraging them to accept a trade-in to sell
a new model.
Analysts had expected Deere's second-quarter results to reflect
the continuing challenges in North America, so investors took their
lead from the rosy profit outlook to drive Deere's shares up 7.3%
to $120.90 on Friday.
Rival machinery makers and other agriculture-focused firms also
got a boost. Shares of equipment makers Agco Corp. and CNH
Industrial NV and fertilizer maker CF Industries Holdings Inc. all
rose about 4%.
Austen Hufford contributed to this article.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
May 20, 2017 02:48 ET (06:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Deere (NYSE:DE)
Historical Stock Chart
From Apr 2024 to May 2024
Deere (NYSE:DE)
Historical Stock Chart
From May 2023 to May 2024