Deere Posts Record Profits but Outlook Disappoints

Deere & Co. (DE) Tuesday said quarterly earnings rose 30 percent on strong demand, higher selling prices and increased efficiency, but the farm equipment maker fell short of analysts' estimates and gave a weak forecast, sending its shares down 3 percent.

Net income increased to $222.8 million, or 89 cents a share, in the fiscal first quarter ended Jan. 31, from $170.8 million, or 68 cents a year earlier.

That missed the average analyst estimate of 91 cents a share, according to Reuters Estimates.

Net sales and revenue rose 18 percent to $4.13 billion, with equipment sales up 21 percent to $3.53 billion.

Agricultural equipment, its largest segment, boosted sales by 26 percent and operating profit nearly doubled. Deere said higher selling prices offset a significant part of the increased raw material costs. It also cited higher sales and more efficient operations.

Within construction and forestry equipment, sales rose 33 percent. Excluding a year-ago gain from the sale of an equipment rental company, operating profit jumped 60 percent.

Commercial and consumer equipment turned in the weakest performance. Sales declined 8 percent due to seasonal factors, leading to an operating loss of $2 million. It had recorded operating profit of $20 million a year ago.

In its outlook, Deere said it expects fiscal second-quarter income of $500 million to $525 million, with full-year profit at about $1.5 billion.

Based on 251 million shares outstanding at the end of the quarter, that would indicate second-quarter results between $1.99 to $2.09 per share, below the average analyst estimate of $2.17 a share at Reuters Estimates.

For the year, the forecast of $1.5 billion would indicate about $5.98 a share versus analysts' average estimate of $6.04.

The company said its forecast assumes worldwide sales of agricultural equipment will rise 7 percent to 9 percent before the impact of the weaker U.S. dollar.

It predicted most of the strength will be in the United States and Canada, with sales up 5 percent to 10 percent as government payments offset the impact of lower commodity prices.

The company expects sales in western Europe to be flat to down 5 percent, with South American sales down 20 percent to 30 percent due to the weaker U.S. dollar, lower commodity prices and higher costs.

Construction and forestry equipment sales are expected to rise 10 percent to 12 percent as contractors and rental companies replace their aging fleets. Commercial and consumer equipment sales are seen up 4 percent to 6 percent.

Deere shares fell $2.01 to $67.34 on the New York Stock Exchange (search).