(FROM THE WALL STREET JOURNAL 11/27/15) 
   By Bob Tita 

Deere & Co.'s quarterly results handily topped expectations Wednesday as the farm machinery maker continued to navigate through a dismal equipment market pinned down by low crop prices.

The world's largest seller of tractors and harvesting combines reported a 46% drop in fiscal fourth-quarter profit and a 20% decline in revenue in the midst of what has become the longest slump in the U.S. farm-machinery market in 15 years.

While Deere expects the downturn to persist in 2016, the company offered a better-than-expected profit outlook for the year as it trims costs and it benefits from lower pension expenses.

"Our businesses have remained solidly profitable," said Chief Financial Officer Rajesh Kalathur during a conference call with analysts. "We believe John Deere can continue to earn solid returns even in a weak farm economy."

Deere expects U.S. cash receipts from farming, which is an important indicator for equipment demand, to be flat next year compared with 2015, as downward pressure continues on prices for corn, soybeans and wheat.

Deere predicted industrywide sales of farm equipment in the U.S. and Canada in 2016 will fall 15% to 20% from 2015. It sees the sales volume for high-horsepower machinery, which is a market Deere dominates, plunging 25% to 30% from 2015.

The company is counting on being able to outperform the weak market in 2016 with a combination of lower equipment inventories, higher prices on equipment and rising sales of replacement parts and services. Deere forecast sales of its farm equipment will be down about 8% from 2015. For Deere's fiscal year ended Oct. 31, its farm equipment sales declined 25%, while operating income from the farm business plunged 55%.

Some analysts wonder whether Deere's forecasts for its own business are too optimistic, especially if the market slump doesn't reach a bottom in 2016.

Deere tried to head off analysts' concerns about an escalation of equipment leasing aggravating the oversupply of used equipment on the market when leases expire. The company said leasing activity is growing modestly, accounting for 13% of its financing unit's total portfolio of loans and leases during the fourth quarter, up from 11% a year earlier.

Deere has pulled back on production and has furloughed assembly workers to lower its costs. The company reduced overhead expenses by 13% in fiscal 2015, including a 17% decrease in the fourth quarter alone. Meanwhile, Deere predicted its pension expense in 2016 will decline by $200 million, which analysts estimate will add about 40 cents to per-share earnings.

Deere predicted that overall equipment sales, which include its forestry and construction machinery, will be down about 7% in 2016 to $24 billion. Net income of $1.4 billion is anticipated, implying per-share earnings of about $4.40. Analysts have forecast $1.3 billion in net income, or $4.14 a share, from $24.5 billion of equipment sales.

Overall for the fourth quarter, Deere reported a profit of $351.2 million, or $1.08 a share, down from $649.2 million, or $1.83 a share, a year earlier. Revenue from machinery declined 25% to $6.72 billion. Analysts expected 75 cents in per-share profit on $6.13 billion in revenue.

 

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(END) Dow Jones Newswires

November 27, 2015 02:47 ET (07:47 GMT)

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