Sales of construction machinery down 6%
Company leaves profit outlook unchanged, lowers sales forecast
Deere & Co.'s fiscal second-quarter earnings rose 2.7%, but the company whittled its sales outlook for the year amid concerns that cool, wet weather in the U.S. will hamper this year's farm crop and hold down demand for farm machinery.
Deere, the world's largest seller of tractors and harvesting combines, beat analysts' expectations for the quarter. But analysts widely expected the company to raise its sales and profit forecasts for the year. Instead, Deere clipped its sales growth projection to 5% from 6% in February and left its net income forecast unchanged from the first quarter at $3.3 billion, or about $8.50 a share. Analysts have been expecting earnings per share of $8.61.
The Moline, Ill., company said weather and global financial conditions had made it increasingly cautious about the company's performance.
"Deere's near-term forecast is being tempered by lingering economic concerns in many parts of the world," Chairman and Chief Executive Samuel Allen said in a written statement. "Cool, wet weather in North America has delayed crop planting, slowed construction activity and hurt sales of turf-care equipment."
So far, farmers have shown no indication they're dialing down their equipment purchases. Retail sales volume of tractors and combines in the U.S. and Canada rose 11% during the first four months of 2013, according to the Association of Equipment Manufacturers. Equipment sales volumes were up 7.8% in April.
Deere said it expects industrywide sales of farm equipment in the U.S. and Canada to be up about 5% this year from 2012, a slight improvement from its earlier forecast that sales would be flat to up 5%. In South America, Deere expects industry sales of farm machinery to grow by 15% to 20%, up from its previous forecast of a 10% to 15% increase. High prices for crops and government financing aid in Brazil have stoked demand for farm equipment in South America.
During Deere's second quarter, its global sales of farm machinery and turf equipment climbed 12% from the previous year to $8.69 billion. Operating profit from farm machinery grew 13% to $1.58 billion, driven by higher sales volumes and price increases.
Meanwhile, sales of Deere's construction equipment sank 6% during the quarter to $1.57 billion. Operating profit from construction machinery plunged 32% to $81 million, as lower volumes and rising expenses for production and overhead pressured profit.
Overall, for second quarter, Deere's equipment sales improved 9% to $10.27 billion, topping the company's projected sales growth of about 4%.
For the quarter ended April 30, the company reported a profit of $1.08 billion, or $2.76 a share, up from $1.06 billion, or $2.61 a share, a year earlier. Total revenue, which includes Deere's financing unit, increased 9% to $10.91 billion.
Analysts polled by Thomson Reuters most recently projected earnings of $2.72 on total revenue of $9.85 billion.
Deere's stock was down 3.8% at $90.21 a share in pre-market trading.