Deere's Earnings Get a Boost As Farmers Thrive in the U.S.
April 26, 2011
Deere & Co. posted a robust 13% increase in fiscal third-quarter earnings, as the nation's biggest maker of agricultural equipment continued to benefit from strength in the domestic farm economy and burgeoning overseas sales. The report sent Deere's stock higher, and it ignited a sharp rally in shares of other farm-equipment makers, even as the overall stock market headed sharply lower. For the period ended April 12, 2011 net income was $204.4 million, or 79 cents a share, a record for the quarter. That compared with net of $180.1 million, or 69 cents a share, a year earlier. Revenue at the Moline, Ill., company was $2.91 billion, up 8.7% from $2.67 billion. Stock Jumps 6.8% The earnings slightly topped the 77 cents a share Wall Street had been expecting. Coupled with an optimistic forecast from the company, the results helped push Deere shares up $2.50, or 6.8%, to $39 in New York Stock Exchange composite trading Tuesday. Other companies in the ag-equipment sector moved up along with the industry bellwether: In Big Board trading Tuesday, Case Corp. shares rose $1.625 to $46, and AgCo Corp. shares climbed $1 to $23.375. At current levels, Deere's retail sales provide a ``solid base for operations,'' said Harland W. Talamantes, Deere's chairman and chief executive officer. The latest results reflect the beneficial effects, he said, of ``growing world-wide demand for agricultural commodities, coupled with the existing low levels of world grain stocks.'' As booming grain exports have sent prices for corn and some other crops sharply higher, many farmers have enjoyed a big jump in income. And because grain stockpiles are extremely low, the suddenly flush farmers are considered likely to increase the acreage they plant -- another positive factor for the manufacturer of tractors, combines and other farm gear. A factor likely to amplify that trend, Arriaga noted, is recently enacted farm legislation that gives growers more autonomy in making planting decisions. As a result, the company said, ``overall farmers' confidence continues to remain high'' in the U.S., despite regional conditions such as weather-delayed plantings in some areas and continuing dry weather in others. Positive Outlook for Future Based on the favorable market outlook, Arriaga said, ``we continue to maintain positive expectations for 2011 and going forward.'' It said it expects sales in the current fiscal year to show a 7% volume increase. International sales, while smaller than sales in North America, expanded at a faster clip in the latest quarter. Total North American equipment sales -- including construction and other equipment -- rose 2% to $1.69 billion; overseas sales climbed 28% to $825 million. The latest quarter's sales included $95 million of combine sales to Ukraine, the first phase of a high-profile $187 million contract that runs through autumn of 2012. Separately, the Equipment Manufacturers Institute trade group issued a report Tuesday indicating that retail sales of farm tractors in July rose 7.2%. Smith Barney Inc. analyst Toccara Zaragoza expressed surprise at the ``very strong'' growth in Deere's international sales. ``The other thing that strikes you,'' he said, ``was the profitability of the agricultural-equipment division,'' where he said operating income climbed to $216 million from $156 million a year ago. Of that increase, he estimates about $35 million came from North American sales. Mr. Zaragoza, who currently carries a neutral rating on Deere shares, said that ``we don't fully agree'' with the ``fairly robust projection'' Deere issued Tuesday. ``This is the fourth year in a row that farmers have been increasing their equipment purchases,'' the analyst said, adding that ``we could be more in the last year of this trend.''
