John Deere’s profits beat expectations

John Deere’s profits beat expectations

John Deere, the world’s biggest tractor maker by revenues, lifted its full-year profits outlook but cautioned that a slowing global economy had made it more uncertain about short-term growth.

The manufacturer also said its profit margins were being squeezed by rising raw material costs, which were likely to be $700m higher this fiscal year than last year – $100m above its previous forecast.


The announcement by Deere, which makes construction equipment as well as farm vehicles, indicates the divergence between the faltering global economy and the booming agricultural sector, in which farmers are benefiting from high crop prices and rising farmland values.

The company said it expected the US economy to grow by 1.6 per cent this year and 1.9 per cent in 2012, but said the financial turmoil could force it to lower those forecasts. Marie Ziegler, Deere vice-president and treasurer, said if things became much worse, the company could copy its strategy in 2009, when it cut spending and reduced inventory.

However, Ms Ziegler said the company had not yet seen any impact on its business. “The global ag fundamentals are still extremely strong,” she said.

She made the comments on Wednesday as Deere unveiled third-quarter earnings ahead of Wall Street’s expectations, boosted by strong international sales and the flattering effects of translating foreign revenues back into the weaker US dollar.

The company’s net income in the three months to the end of July was $712m or $1.69 per share, up from $617m or $1.44 per share, for the same period last year. Analysts had on average been expecting about $1.68 per share.

Deere’s revenues totalled $8.4bn, above analysts’ forecasts of about $7.5bn. Net sales of equipment operations were $7.7bn in the quarter, up from $6.2bn last year.

For the full year, Deere said it expected net income to be about $2.7bn, up from the forecast of $2.65bn it issued in May. However, it added that “concerns over the health of the global economy and recent turmoil in world financial markets have introduced an additional element of uncertainty into the near-term outlook”.

The company is benefiting from the increase in farm income in North America and from the need to improve agricultural productivity in emerging markets to feed changing diets as populations develop more of a taste for grain-fed meat.

That has attracted investors to agriculture-related companies. Cascade Investment, Bill Gates’ investment vehicle, has taken a 5 per cent stake in Deere, making it the company’s biggest shareholder, according to a filing this month with the Securities and Exchange Commission.

Sam Allen, Deere chief executive, said healthy sales of large farm machinery were lifting the manufacturer’s results, while construction equipment sales were improving in spite of weakness in the North American residential and commercial construction sectors.