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.
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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.
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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 email@example.com
(END) Dow Jones Newswires
May 19, 2017 13:58 ET (17:58 GMT)