DE Deere and Co

By Bob Tita 

Deere & Co. trimmed its 2016 profit forecast for the second time this year as the farm equipment maker warned of steeper declines in its construction machinery business and financing operation.

Deere, the world's biggest seller of farm equipment, topped expectations for its fiscal second quarter with better than expected results from its farm machinery business. But the overall demand pattern for the company's green-and-yellow tractors and harvesting combines remains dismal throughout most of the world.

Lower prices for farm commodities have caused farmers to scale back their purchases of tractors and harvesting combines. Construction equipment, which accounts for about a third of Deere's annual equipment sales, has been tumbling as well. Falling prices for oil, natural gas and other mined commodities have flooded the used construction equipment market in the U.S. and Canada, holding down demand for new machines.

Deere's sales of equipment overseas also have been under pressure from a strong U.S. dollar and economic and political turmoil in Brazil, which had been fast-growing market for Deere and other farm equipment manufacturers. Deere now expects industrywide sales of farm equipment in South America to fall by 15% to 20%, after predicting a 10% to 15% decline earlier this year.

The Moline, Ill.-based company expects net income of about $1.2 billion for the fiscal year ending Oct. 31. The company in January had forecast income $1.3 billion, down from $1.4 billion at the start of the year. The revised guidance implies per-share earnings of about $3.80, down from $4.10 previously, according to analysts, who had expected the company earn $4.08 per share.

Deere's construction and forestry equipment unit was especially weak during the second quarter, as sales fell 16% to $1.4 billion and operating profit plunged 61% to $74 million amid the lower volume of machinery. Deere now expects construction equipment sales to fall by 13% this year from 2015 after previously predicting an 11% sales decline.

Deere's farm machinery business performed better than expected during the quarter. Sales of farm equipment slipped 0.4% to $5.7 billion, well above analysts' expectation of $5.2 billion. Operating profit slipped 4% to $614 million. The company now expects farm equipment sales to decline 8% this year after earlier forecasting a 10% decrease.

The sales weakness in the company's equipment lines is taking a toll on the company's financing business, which makes loans for equipment purchases to customers and Deere's dealers. Second-quarter net income from the financing unit sank by 39% from a year ago to $103 million. The company predicted the financing's unit's income for the year will be about $480 million, down from its earlier estimate about $525 million.

Over all for the quarter ended April 30, Deere reported a profit of $495.4 million, or $1.56 a share, down from $690.5 million, or $2.03 a share, a year earlier. Analysts expected $1.47 in per-share profit. Total equipment sales declined 4% to $7.1 billion, but topped analysts' estimate of $6.7 billion.

Deere stock was down 4.4% to $78.57 a share in Friday trading.

Lisa Beilfuss contributed to this article.

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

May 20, 2016 10:57 ET (14:57 GMT)

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