Deere profit tops views but outlook disappoints

By James B. Kelleher and Nick Zieminski

NEW YORK (BestGrowthStock) – Deere & Co (DE.N: ) reported stronger-than-expected quarterly results but warned of growing weakness in Western Europe and offered a disappointing forecast that sent its shares lower on Wall Street.

The company, the world’s largest maker of agricultural equipment, cut its outlook for Europe, saying an abundance of used equipment in the region and lingering concerns about its economic prospects were hurting sales.

It forecast a profit of $375 million for the current quarter — the last in its fiscal year. For a graphic click on http://link.reuters.com/san75n.

That was shy of the $385 million analysts had estimated, according to Thomson Reuters I/B/E/S, pulled down in part by what the company said would be higher incentive compensation payments to executives and other employees as a result of rebounding profits.

Shares of Deere were down about 2 percent in early afternoon trading on the New York Stock Exchange. The shares, as well as those of rivals CNH Global NV (CNH.N: ) and Agco Corp (AGCO.N: ), have surged in recent weeks as the drought that has decimated Russia’s wheat crop and sent U.S. grain prices surging triggered a collateral rally in farm equipment makers.

“People imagined the fourth quarter would be better than the guidance,” said Sterne Agee analyst Lawrence DeMaria. “Deere did two mega-beats and raises last two quarters.”

Earlier this month, wheat prices on the Chicago Board of Trade surged to a two-year high, pulling corn and soybeans higher too, as the drought ravaged crops across the Black Sea region and prompted Russia, a huge exporter, to ban shipments.

Deere said the jump in grain prices was supporting strong demand in the United States and Canada and helping offset deteriorating conditions in Europe, where it said markets were down sharply.

The company, which also makes construction and forestry equipment, said demand for those products from builders was rebounding from the lows hit after the popping of the worldwide property bubble. But it said sales were still far below expected levels. Construction equipment sales, it said, were running at just 60 percent of typical mid-cycle volumes, a level it called very depressed.

During a conference call to discuss the results, Deere executives said U.S. builders did not have “the financial confidence to go out and buy equipment.” They also cut their forecast for 2011 U.S. housing starts, citing their own uncertainty over the sustainability of the current economic recovery.

The company reported a profit of $617 million, or $1.44 a share, for its fiscal third quarter, ended July 31, up 47 percent from $420 million, or 99 cents a share, a year earlier.

Revenue rose 16 percent to $6.84 billion, lifted by a 19 percent increase in sales to customers in the United States and Canada.

Analysts on average had expected the Moline, Illinois-based company to report a profit of $1.24 a share on revenue of $6.52 billion, according to Thomson Reuters I/B/E/S.

Deere said it expects industry wide sales of agricultural equipment in the United States and Canada to rise 5 percent to 10 percent this year, lifted by strong commodity prices and low interest rates, which are boosting farm incomes.

But it said it now expects industry wide sales in Western Europe to fall 15 percent to 20 percent because of weakness in the livestock and dairy sectors, which were already suffering before the big jump in crop prices, which will only increase their feed costs.

Big inventories of used equipment, especially combines used to harvest crops, are also hurting sales in the region.

Shares of Deere were down 2 percent at $65.8 in early afternoon New York Stock Exchange trading.

(Reporting by James Kelleher and Nick Zieminski; Editing by Derek Caney, John Wallace and Steve Orlofsky)

Deere profit tops views but outlook disappoints