High crop prices help deliver bumper profits for Deere

Deere & Co, the world’s largest maker of agricultural equipment, has raised its full-year earnings forecast and posted a fiscal second-quarter profit that topped analysts’ estimates after higher crop prices supported US farm incomes.

Net income climbed to $2.61 a share in the quarter to April from $2.12 a year earlier, Illinois-based Deere said. That was 3.2% higher than the $2.53 average of 18 estimates compiled by Bloomberg.

Profit in the 2012 fiscal year will be $3.35 billion (€2.59bn), compared with $3.28bn Deere had projected in February and the $3.24bn average of 15 estimates.

“This is a clean, sales-driven, beat-and-raise quarter,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management in New York, who holds some Deere shares. “We continue to view the company as extremely well positioned to benefit from the secular and cyclical demand for higher-quality food goods.”

Deere is selling more machines such as tractors after a three-year rally in corn and soybean prices pushed 2011 farm receipts to a record in the US, its largest market.

Higher equipment volumes in established markets will help chief executive Samuel R Allen as he chases additional revenue in developing markets such as Brazil and China to reach a goal of $50bn in sales by 2018.

Equipment sales in the quarter advanced 13% to $9.4bn, compared with the 15% gain that Deere forecast in February. Net income rose 17% to $1.06bn from $904.3m.

“This is a good quarter, slightly better than consensus estimates, but not as strong a quarter as competitors have delivered,” Larry De Maria, a New York-based analyst for William Blair & Co who has a hold rating on the shares, said in a note.

Agco Corp, the US company that’s the third-largest farm-equipment maker, on May 1 reported first-quarter profit per share that was 41% higher than the average of analysts’ estimates. Illinois-based Caterpillar, the world’s biggest construction machinery manufacturer, last month posted first-quarter earnings that beat the average estimate by 11%.

Deere yesterday repeated its forecast that equipment sales will gain about 15% for the full fiscal year. Industry-wide farm equipment sales in the US and Canada will increase more than 10%, it said.

US farm cash receipts, the primary driver of agricultural-machinery buys, will rise to $375.3bn this year from $374.2bn in 2011, Deere said.

European industry sales will climb as much as 5% as improvements in the grain, livestock and dairy sectors outweigh economic concerns, Deere said. Farm income in the European Union rose 6.7% in 2011 from a year earlier, according to Eurostat.


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