Brazil, FSU worries prompt Deere to cut profit hopes

23.02.2015

Deere & Co, citing a "continued pullback" in the agricultural machinery market reduced its forecasts for full-year sales and earnings despite a less severe drop in first-quarter profits than Wall Street had expected.

The maker of John Deere farm equipment cut by $100m to "about" $1.8bn its forecast for earnings in the year to the end of October.

Revenues from equipment sales will drop by 17% for the year, 2 percentage points more than forecast in November.

Samuel Allen, the Deere & Co chairman and chief executive, noted a "continued pullback in the agricultural sector".

The November-to-January period had been marked by "sluggish conditions in the global farm sector, which reduced demand for agricultural machinery, particularly larger models".

Ahead of forecasts

Nonetheless, the Illinois-based group, in reporting a 43% plunge to $386.8m in earnings for the latest quarter, performed less badly than analysts had expected.

Earnings per share came in a $1.12, ahead of a Wall Street estimate of a $0.83-per-share result.

First quarter revenues, down 16.6% at $6.38bn, also exceeded investors' expectations of a figure of $5.53bn.

Indeed, while equipment sales fell by 19.3% to $5.61bn, that was an improvement on the 21% drop that Deere itself had forecast.

Worsened prospects

Nonetheless, Deere raised by 3 points to 23% its estimate for the drop in agricultural equipment sales for the full year, noting in particular worsened prospects in South America and former Soviet Union markets.

Industry sales in South America will fall by 10-15% this year, compared with the drop of 10% previously expected, Deere said, citing "economic uncertainty in Brazil".

The value of Brazilian crop production will fall by some 12% to roughly $85bn this year – the only decline of note on records going back to 2003.

Industry sales of farm equipment in the former Soviet Union will be "down significantly", Deere said, hardening its forecast from an expectation of "further deterioration".

"Strong headwinds persist" in the region, the group said, flagging "increasing economic pressure and tightening credit conditions", besides "geopolitical uncertainty".

New guidance vs market expectations

The forecasts would indeed appear to imply that Deere is expecting a deterioration in ag market fortunes as its financial year continues.

Even after its first-quarter profits beat, its forecast for full year earnings of $1.8bn is below the $1.88bn that investors are expecting.

Wall Street is also expecting a drop of 13.5% in group revenues.

Deere shares eased 1.3% to $90.55 in early deals in New York.
    

 


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