Deere Battles Farm Slump -- WSJ
August 19 2017 - 3:03AM
Dow Jones News
Equipment maker says market is stabilizing, but its sales come
in below expectations
By Bob Tita
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 19, 2017).
Equipment maker Deere & Co. continues to face a slog in a
troubled U.S. farm economy.
Deere said Friday its farm and construction equipment sales rose
17% in its fiscal third quarter ended July 31, but they fell short
of expectations and the company's shares fell 5.4% to $117.31.
Sharply higher sales and profit from Deere's construction and
forestry equipment unit helped offset lackluster farm-related sales
in North America, Deere's biggest market. Equipment demand abroad
was also strong.
U.S. farmers have been reluctant to purchase new equipment as a
multiyear slump in grain and livestock prices weighs on their
incomes and buying power. Improving crop yields and forecasts for
another bumper harvest this year foreshadow a fourth consecutive
year of declining U.S. farm incomes.
Across the industry, Deere expects farm-equipment sales in the
U.S. and Canada to fall 5% this year. Still, Deere slightly raised
its profit forecast for its fiscal year ending Oct. 31 to $2.1
billion and said it expects its own farm and construction equipment
sales to rise 10% overall. Deere said market conditions continue to
improve, but didn't offer an outlook for its 2018 fiscal year.
Third-quarter sales of farm machinery rose 13% to $5.3 billion.
"It does appear the large ag-equipment market is stabilizing,"
said Joshua Jepsen, Deere's manager of investor communications.
"The used-equipment environment is supportive of sales."
Deere said dealer inventories of used equipment have fallen by
more than a third since their peak levels in 2014. When such
inventories shrink, that can be a harbinger of rising demand for
new equipment.
"Farmers' capital purchase patterns are returning now that
used-equipment inventories are approaching more traditional
levels," said Deere's chief economist, J.B. Penn.
Deere's farm and construction machinery sales in the U.S. and
Canada grew by 11% in the quarter but remain down 1% through three
quarters.
Elsewhere in the world, sales increased 25% in the quarter, and
are up 17% for the year so far.
Record harvests and favorable exchange rates have fueled demand
for farm equipment in South America, driving much of the sales
gain. Deere expects industrywide equipment sales in South America
to rise 20% this year, thanks in large part to booming crop
production in Brazil.
"Demand continues to be very strong there," said Tony Huegel,
Deere's director of investor relations.
Deere's construction-equipment sales rose 29% from the
year-earlier quarter to $1.5 billion, and operating profit more
than doubled to $110 million.
The Moline, Ill., company said in June that it plans to purchase
German road-paving equipment maker Wirtgen Group for about $5
billion. The acquisition, the largest in Deere's history, would
expand the reach of its construction business outside North
America.
Overall for the quarter, Deere reported a profit of $641.8
million, or $1.97 a share, compared with $488.8 million, or $1.55 a
share, a year earlier. Equipment sales rose to $6.83 billion.
Analysts had expected Deere to earn $1.95 a share on net equipment
sales of $6.92 billion.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
August 19, 2017 02:48 ET (06:48 GMT)
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