Deere Shares Jump as South American Demand Improves -- Update

By Austen Hufford Features Dow Jones Newswires

Deere & Co. sharply raised its sales growth and profit forecasts for this year as the world's largest farm-equipment manufacturer said it saw modestly higher demand.

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Shares rose 7% in premarket trading as the company topped profit expectations in its second quarter.

For the year, the company now expects revenue to grow about 9%, up from 4% expected previously, and net income of about $2 billion, up from the $1.5 billion expected before. The spring quarter is typically Deere's best of the year as farmers purchase equipment or replacement parts in advance of the spring planting season.

The Moline, Ill.-based company also said it saw a strong recovery from farm machinery sales in South America and that overall market conditions showed further signs of stabilization.

Still, equipment net sales in the U.S. and Canada fell 5% for the quarter as international sales increased 14%.

For the quarter ended April 30, sales of Deere's farm machinery rose 2.2% from a year earlier to $7.26 billion, as sales of construction and forestry equipment grew 0.9% during the quarter to $1.47 billion.

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In all for the second quarter, Deere reported a profit of $802.4 million, or $2.49 a share, up from $495.4 million, or $1.56 a share, a year earlier.

Total revenue rose 2.8% to $8 billion. Total equipment sales for the quarter rose 2.2% to $7.26 billion. Analysts had forecast earnings of $1.68 with $7.32 billion of equipment sales.

Write to Austen Hufford at austen.hufford@wsj.com

Deere & Co. wrung better-than-expected profit out of sluggish sales, giving the farm equipment maker confidence to raise its profit forecast while expecting little improvement in U.S. farmers' incomes.

Cost-cutting and booming demand from South American farmers are helping Deere offset lackluster sales of its green-and-yellow tractors and combines in the U.S. amid a multiyear farm slump.

"We are making good progress with respect to the cost reduction," said Chief Financial Officer Rajesh Kalathur.

Deere raised its income forecast by 33% to about $2 billion for its fiscal year ending Oct. 31. The company expects revenue from farm and construction machinery to improve about 9% this year to $25.5 billion, up from $24.3 billion anticipated in February.

Deere's shares rose 8% on Friday afternoon to $121.67. The shares of rival machinery makers and other agriculture-focused firms also rose on Deere's higher sales and profit forecasts for the year. Shares of machinery maker Agco and CNH Industrial and fertilizer maker CF Industries Holdings Inc. rose approximately 4%.

Deere's biggest gains came from South America. The company expects marketwide demand for farm equipment from cash-flush farmers to increase 20% this year following record soybean harvests. But the Moline, Ill., company said it expects equipment demand in the U.S. this year to fall about 5% as a multiyear slump in prices for corn, wheat and soybeans discourages equipment purchases.

Farm and construction equipment sales in the U.S. and Canada fell 5% in Deere's second quarter, while international sales rose 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.

"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 said used farm-equipment inventories in the U.S. are easing. That could allow its dealers to rebuild inventories of new machinery for sale and make them more willing to accept trade-in to sell a new model.

Deere reported a profit of $802.4 million in its second quarter, up 62% from a year earlier. Deere's 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.

Austen Hufford contributed to this article.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

May 19, 2017 13:58 ET (17:58 GMT)