Wednesday 26 April 2017

Strong demand sees Deere raise profit forecast for year

Deere has a strong order book
Deere has a strong order book

Mario Parker

Deere & Co, the world's biggest maker of farm machinery, has 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 3pc in the fiscal year through October, Deere forecast on Friday as it published better-than-expected fiscal first-quarter earnings. The 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 7pc. 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 US 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 on a conference call with analysts. "That's what's driving that confidence."

Net income will be about $1.5bn in the year through October, Deere said, exceeding both its own previous forecast and the average estimate among analysts of $1.4bn. It also sees net sales increasing by about 4pc for the year, from 1pc previously.

North American tractor inventories through December, while at a record seasonally, have declined 13pc 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, once Deere's second-biggest shareholder, disclosed earlier this week that it sold its entire stake during the fourth quarter.

Deere previously planned to cut costs by $500m by the end of 2018 and said on 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 have suffered losses over the period.

(Bloomberg)

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