Deere beats estimates, expects strong earnings in 2018

Rajesh Kumar Singh

U.S. tractor maker Deere & Co forecast strong earnings on Wednesday for the coming fiscal year as it reported fourth-quarter results that exceeded analyst expectations amid improving demand for farm machinery.

Shares of the Moline, Illinois company known for its trademark green tractors rose 5pc in premarket trading and were on track to open at a record high.

Deere forecast net sales for fiscal 2018 to jump 19pc - translating to sales of $35.39 billion - and earnings to rise to about $2.6 billion.

Analysts on average expect 2018 net sales of $28.06 billion and earnings of $2.3 billion, according to Thomson Reuters I/B/E/S.

Deere said equipment net sales in the United States and Canada surged 23pc in the fourth quarter ended Oct. 29, while sales in other markets jumped 30pc.

“We saw higher overall demand for our products with farm machinery sales in South America making especially strong gains and construction equipment sales rising sharply,” Deere Chief Executive Samuel Allen said in a statement.

Net income attributable to the company rose 79pc to $510.3 million or $1.57 per share in the fourth quarter, while total net sales rose 25.5pc to $7.09 billion.

Analysts had expected fourth-quarter earnings of $1.47 per share and sales of $6.99 billion.

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This is the fifth straight quarter in which the company beat the Thomson Reuters I/B/E/S consensus analyst estimate.

Deere expects higher demand for large equipment to push up sales at its agriculture and turf division in the U.S. and Canada by 5-10pc  in 2018.

The company generates 70pc of sales from agricultural equipment and around 60pc of sales from the North American farm equipment market.

But sales in North America have been held down, with U.S. farmers tightening belts in the face of four years of global oversupply that has pushed down grain prices and farm incomes.

With farmers buying equipment again to replenish aging fleet and large agriculture new equipment inventories at near multi-decade lows, some analysts expect any improvement in grain prices to further lift Deere’s sales.

Sales in tractors and combines in South America are forecast to be flat to up 5pc next year.

The company’s construction and forestry division reported a 37pc jump in sales in the latest quarter.

Deere expects worldwide sales of construction and forestry equipment to surge 69pc in 2018, aided by an improving global economy, higher housing starts in the U.S. and increased activity in the oil and gas sector.

The acquisition of Germany’s Wirtgen Group is estimated to add about 54pc to the construction and forestry division’s sales next year.

Wirtgen, which manufactures road construction and mineral technology equipment, was bought by Deere this year for $5.2 billion. The deal is expected to close in December.


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