DE Deere and Co

By Bob Tita and Austen Hufford 

Deere & Co. said that farmers are continuing to buy equipment even as they worry about potential tariffs on their products.

In recent months, other countries have imposed or threatened to impose retaliatory tariffs on U.S. farm goods following U.S. initiatives.

U.S. farmers have been awaiting details of a pledged $12 billion aid package that the Trump administration has said would support prices of negatively impacted commodities.

"Trade issues have weighed on farmer sentiment more recently," John May, Deere's head of agricultural solutions, said on a call with analysts Friday to discuss Deere's third-quarter results. "With sentiment likely to remain fluid over the coming months, farmers continue to show a strong willingness to invest in technology that improves both productivity and economic outcomes."

Deere reported that its cost of goods sold in its fiscal third quarter ticked up to 77% of net sales from 75% in the prior quarter.

Deere also said it is raising prices to offset higher raw-material costs. Steel and aluminum prices have been pushed up by U.S. tariffs on imported metal.

Deere is just the latest manufacturer to disclose higher expenses, raising concerns over whether rising costs will take away some of the gains from a strong global economy.

Shares rose 2% on Friday afternoon as the company said it benefited from farmers replacing their equipment as well as increased investment in oil and gas and more home building.

The Moline, Ill., company reaffirmed its overall revenue and profit forecast for the year.

The company predicts overall sales of farm and construction equipment will increase by about 30% for the year ending Oct. 31, up from $33.7 billion the previous year. The company continues to forecast adjusted net income of $3.1 billion.

Total revenue, including in the company's financing unit, rose 32% to $10.31 billion. Third-quarter results were boosted by the company's December purchase of German road-paving equipment company Wirtgen Group for EUR4.48 billion ($5.33 billion).

The company now expects sales of farm equipment to grow 15% this year, up from its prior forecast due to more favorable dairy and livestock sectors.

The company expects sales in its construction-equipment unit to jump 81% this year, with 55% due to the Wirtgen deal. The company said demand was driven by increased home building in the U.S., more activity in the oil and gas sector and more spending on transportation infrastructure.

In all for the quarter ended July 31, Deere reported net income of $910.3 million, or $2.78 per share, up from $641.8 million, or $1.97 per share, a year earlier. On an adjusted basis, excluding certain items, the company earned $2.59 a share, as equipment sales rose 36% to $9.29 billion. Analysts polled by Thomson Reuters were expecting $2.75 a share on sales of $9.21 billion.

Write to Bob Tita at robert.tita@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

August 17, 2018 14:09 ET (18:09 GMT)

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