Deere raises profit forecast as it sees recovery signs

Bloomberg

Deere & Co., the world’s biggest maker of farm machinery, raised its 2017 profit outlook and pointed to signs that the worst may be over in a years-long industry slump.
Sales of the company’s signature green-and-yellow agriculture and turf equipment will rise about 3 percent in the fiscal year through October, while construction and forestry sales will climb about 7 percent, it said. That follows positive signs recently in the machinery market, with North American tractor inventories starting to moderate. Deere shares rose as much as 2.7 percent to a record in New York.
“We are seeing signs that after several years of steep declines key agricultural markets may be stabilizing,” Chief Executive Officer Sam Allen said in the company’s first-quarter earnings statement. “Deere continues to perform far better than in agricultural downturns of the past.”
The Moline, Illinois-based company had previously set a goal to cut costs by $500 million by the end of 2018 and said that it remains confident of hitting that target. There have been other savings in recent years, including the elimination of thousands of jobs. While competitors such as Caterpillar Inc. have suffered losses over the period, Deere has remained in the black.
“It’s early, but we are starting to piece together evidence” of a recovery, said Mircea Dobre, an analyst at Robert W. Baird & Co. in Milwaukee. “Investors are starting to realize that” equipment demand may be showing signs of improving, he said.
North American tractor inventories through December, while at a record seasonally, have declined 13 percent since April, data compiled by Bloomberg show. Deere’s shares have rallied over the last several months, which may be one reason why Warren Buffett’s Berkshire Hathaway Inc., once Deere’s second-biggest shareholder, disclosed earlier this week that it sold its entire stake during the fourth quarter.
The company “continues to operate well through the downturn and even exceed expectations,” Larry De Maria, an analyst at William Blair & Co. in New York, said by phone.
Net income will be about $1.5 billion in the year through October, exceeding both its own previous forecast and the average estimate among analysts, both of which were $1.4 billion. It also sees net sales increasing by about 4 percent for the year, from 1 percent previously.