Deere Jumps as Profit Forecast Beats Estimates Amid Cost Cuts

November 23, 2016 07:54 AM
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Deere & Co. posted quarterly earnings and a 2017 profit forecast that exceeded analysts’ estimates as the world’s largest agricultural equipment maker’s cost-cutting efforts offset some of the effects of lower demand. The shares rose as much as 13 percent in pre-market trading.

Net income fell to 90 cents a share in the Deere’s fiscal fourth quarter, which ended Oct. 31, from $1.08 a year earlier, the Moline, Illinois-based company said Wednesday in a statement. That beat the 39-cent average of 18 estimates compiled by Bloomberg. It forecast net income will be $1.4 billion in fiscal 2017, more than the $1.21 billion average estimate.

Deere has now reported better-than-expected profit for 16 straight quarters, despite three successive years of declining revenue as farmers cut spending amid lower commodity prices. The company said job cuts initiated in the fourth quarter are expected to generate savings of about $75 million. It reiterated a plan to reduce overall costs by $500 million by the end of 2018.

“The industry stuff doesn’t sound any better,” Stephen Volkmann, an analyst at Jefferies LLC in New York, said by phone. “They’re kind of focused on what they can control, which is costs. Historically, this is a big, slow-moving company. They’re more nimble this cycle.”

Deere was 11 percent higher at $101.78 at 7:40 a.m. before the start of regular trading in New York.

  • The company expects sales in its agriculture and turf unit to decrease by 1 percent in fiscal 2017. It estimates industrywide sales to be 5 percent to 10 percent lower next year, due to low commodity prices and weak farm income.
  • Deere expects its global sales of construction and forestry equipment to climb 1 percent next year. Net income from financial services, the unit that offers finance for equipment purchases, is forecast to be about $480 million.
  • Fourth-quarter equipment revenue fell to $5.65 billion from $5.93 billion a year earlier, beating the $5.44 billion average estimate.

U.S. farmer incomes are projected to fall to the lowest level in seven years as consecutive bumper crops have tempered prices. Tractor inventories are at record highs and credit availability has tightened. North American inventories through October were 5.5 percent higher than a year ago, data compiled by Bloomberg show.

Tighter Pockets

“The fundamentals have deteriorated because the crop is bigger and prices are softer,” Eli Lustgarten, an analyst at Longbow Securities in Independence, Ohio, said before the release.

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