By Rajesh Kumar Singh
CHICAGO (Reuters) – Deere & Co on Friday reported an unexpected increase in first-quarter profit and retained its full-year earnings forecast as signs of stabilization in the U.S. farm sector offset weak demand for construction machines, sending its shares soaring.
Its shares were last up 7.5% at $178.30 at 9:20am ET in pre-market trade.
The world’s largest farm equipment maker’s earnings in the past quarters were buffeted by a nearly two-year-long U.S.-China trade war that hit U.S. agricultural exports, leaving farmers struggling to turn a profit.
But President Donald Trump’s interim trade deal with China has raised hopes of a recovery in farm machinery demand.
“Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports,” Chief Executive John May said in a statement.
Sales at its farm and turf business, which accounts for nearly 60% of Deere’s revenue, declined 4% during the quarter from a year ago. Improved pricing power along with lower production costs and warranty expenses, however, led to a 7% annual increase in the segment’s operating profit.
While farm machine sales in the United States and Canada, Deere’s biggest market, are still forecast to be down this year, the company expects an improvement in economic fundamentals that drive new equipment purchases.
U.S. farm cash receipts are projected to be up this year. Prices, as well as the inventory of used equipment, are expected to be stable.
Meanwhile, Deere’s inventory of large farm machines – which account for nearly half of its agricultural equipment revenues – is running below the industry average, strengthening the company’s pricing power.
It reported a profit of $1.63 per share for the quarter ended Feb. 2, up from $1.54 per share in the same period last year. That compared with the average analyst estimate of $1.26 per share, according to Refinitiv Eikon data.
The quarterly profits were primarily boosted by a lower tax rate.
Equipment sales in the latest quarter declined 6% year on year to $6.5 billion but were higher than Refinitiv’s average analyst estimate of $6.4 billion.
Construction equipment sales plunged 10% year-on-year.
Deere said it still expects net income in 2020 to be in the range of $2.7 billion to $3.1 billion.
Reporting by Rajesh Kumar Singh; Editing by Jane Merriman and Steve Orlofsky.
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Source: Reuters
