Deere Sees Machinery Demand Improving -- WSJ
February 18 2017 - 3:02AM
Dow Jones News
By Bob Tita
Deere & Co. said Friday demand for its farm machinery is
improving, offering fresh optimism that the three-year long slide
in equipment sales is beginning to ease.
Deere, the world's largest manufacturer of tractors and
harvesting combines, raised its sales growth forecast for its
current fiscal year. The company also reported results for its
latest quarter that topped expectations, helped by the sale of a
portion of its distribution business for landscaping supplies.
The Moline, Ill.-based company still expects industrywide sales
of farm machinery in the U.S. and Canada to fall by 5% to 10% this
year. Lower prices for farm commodities have squeezed farmers'
incomes, driving down demand for tractors and harvesting combines
since 2014.
The company predicted sales of its farm and construction
machinery will rise about 4% this year to about $24.3 billion,
after forecasting a 1% expansion in November. It also bumped up its
profit forecast to about $1.5 billion from $1.4 billion, implying
earnings per share at about $4.70 to $4.75. Analysts were expecting
$4.53.
Deere offered an upbeat outlook for its farm-equipment business,
despite continued weakness in the U.S. market where it dominates.
It predicted that U.S. cash receipts from farming -- an indicator
farmers' ability to afford new equipment -- will be flat this
year.
Deere executives said dealer inventories have shrunk, allowing
the company to accelerate factory production to resupply its
dealers and fulfill orders from farmers. The company said the
used-equipment market is stabilizing as well, giving farmers better
trade-in prices on older equipment when they order new models.
"We aren't seeing a significant decline in that retail
environment as we had both in 2015 and 2016," said Tony Huegel,
investor relations director for Deere, during a conference call
Friday with analysts.
Deere is counting on significantly better machinery demand this
year from farmers in Latin America, especially Brazil, where the
company sees rising crop prices and government-sponsored financing
fueling robust equipment sales, as happened in the past.
For its fiscal first quarter ended Jan. 29, sales of Deere's
farm machinery were flat from a year earlier at $3.59 billion,
while operating income rose 48% to $213 million helped by proceeds
from the sale of part of the SiteOne distribution business. The
company said its farm-equipment sales are on track to rise about 3%
this year. The company previously projected a 1% increase for the
12 months ending Oct. 31.
Sales of Deere's construction and forestry equipment dropped 6%
to $1.1 billion, and operating income plunged 51% to $34 million.
Deere expects a sharp turnaround in the business as the year
unfolds, predicting sales will increase 7% this year.
Deere said first-quarter orders for construction equipment in
the U.S. and Canada were up by one-third from a year earlier. The
company said equipment-rental companies have accelerated their
orders recently and the company expects housing construction and
slightly better U.S. gross domestic product growth to drive higher
sales during the second half of the year. Deere's construction
business is largely concentrated in North America.
"What we saw in the [first] quarter was a very, very strong
order book," said Mr. Huegel. "That's what's driving that
confidence in terms of where that outlook improved."
Rival construction-equipment maker Caterpillar Inc. reported
Friday that retail sales of its construction equipment during the
three months ended in January slipped 13% in North America.
Overall for its first quarter, Deere reported a profit of $193.8
million, or 61 cents a share, down from $254.4 million, or 80 cents
a share, a year earlier.
Machinery sales fell 1.5% to $4.69 billion. Total sales, which
include revenue from Deere's finance unit, rose 2% $5.62 billion.
Analysts had forecast earnings of 55 cents a share with $4.68
billion of equipment sales.
Imani Moise contributed to this article
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
February 18, 2017 02:47 ET (07:47 GMT)
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