Deere & Co. easily beat quarterly sales and profit expectations and predicted continued improvement in sales of its agricultural machinery next year.
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Deere on Wednesday said it expects better demand in 2018 from farmers in North America, where it dominates the market for large tractors and harvesting combines. That would end a stretch of weak sales since 2014, as low commodity prices and a glut of used equipment have weighed on demand for new machinery.
Despite another bumper harvest this year that will keep crop prices and farmers' incomes under pressure, rising industrywide sales of high-horsepower equipment lately show that some farmers are buying again.
"Replacement demand is appearing to come back," said Tony Huegel, Deere's director of investor relations. Deere shares recently traded up 4.2% to $145.14, after touching a one-year high of $146 earlier in the day.
Moline, Ill.-based Deere expects its world-wide farm-equipment sales to increase about 9% and its overall sales of farm and construction equipment to rise 22% in the fiscal year running through October 2018 with the addition of Wirtgen Group, a German road-paving equipment maker that Deere is buying.
Deere's sales of farm and landscaping machinery soared 22% during the fourth quarter to $5.44 billion, while profit for the segment rose 57% to $584 million. Deere said the improvement stemmed from rising production of equipment and higher prices. For fiscal 2017, farm-equipment sales rose 9% to $20.17 billion.
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Deere's construction-machinery business continued to benefit from a rebound in the North American machinery market. Construction swung from a fourth-quarter loss last year to an $85 million operating profit this year, as sales rose 37% to $1.65 billion. Deere expects sales of its construction and forestry equipment to jump by about 69% in 2018 with added sales from Wirtgen.
The $5 billion acquisition, Deere's largest ever, will expand the reach of its construction-machinery business beyond North America and help offset the cyclical farming business. Deere expects Wirtgen to contribute $3.1 billion to sales in fiscal 2018 -- about 12% of the total -- and about $25 million in net income.
"Wirtgen will establish Deere as a substantially more prominent player in global construction-equipment markets," Chief Executive Sam Allen said.
In all for the fourth quarter, Deere reported net income of with $510.3 million, or $1.57 a share, compared with $285.3 million, or 90 cents a share, a year earlier. Analysts expected the company to earn $1.47 a share.
Quarterly equipment sales rose 26% to $7.09 billion, while analysts anticipated $6.99 billion.
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(END) Dow Jones Newswires
November 22, 2017 12:47 ET (17:47 GMT)