Deere Tops Expectations in Q1, Sees Lower Sales for Rest of 2014

Andrew Klips  |

Deere & Co. (DE) posted record profits in the first quarter of fiscal 2014 on Wednesday, but said that anticipated increased demand in construction and forestry equipment will be offset by slack in demand for farm equipment this year.

For the quarter ended January 31, the Moline, Illinois-based company reported net sales and revenue of $7.65 billion, up 3 percent from $7.42 billion in the year prior quarter.  Net income for the quarter was $681.1 million, or $1.81 per share, versus $649.7 million, or $1.65 per share, in the same quarter a year earlier.

Wall Street was expecting earnings per share of $1.52.

Net sales from equipment rose 2 percent to $6.95 billion, ahead of the $6.63 billion analysts expected.  Thanks higher crop prices in recent years, farmers have had more money to purchase machinery, lifting sales in Deere’s agriculture in turf business by 2 percent to $5.6 billion.  Construction and forestry sales rose 4 percent to $1.35 billion.  Deere’s financial services sales were up 11 percent from the first quarter last year to $587 million.

Sales in North America climbed 3 percent.  International sales rose 2 percent, despite a 3-percent negative impact of currency exchange.

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"With another record quarter, John Deere has started 2014 on a strong note," said Samuel R. Allen, chairman and chief executive officer at Deere, in a statement this morning.

Looking ahead, Allen said the company sees “moderating” demand for agriculture and turf products, calling for a 6-percent decrease in fiscal 2014.  Although farm incomes are anticipated to hold at healthy levels this year, analysts are still predicting a slide in crop sales of up to 10 percent in 2014.  Smaller sales for farmers generally equates to less purchases of gear made by Deere, the largest farm equipment maker in the world.

On the other hand, Deere sees sales of construction and forestry equipment increasing by about 10 percent in 2014, driven in part by the ongoing recovery of the housing market in the United States.  In December, construction spending in the U.S. hit its highest level since March 2009.  Economic growth in Europe is also a contributing factor to analysts expecting global forestry sales to expand this year.

For the full year, Deere forecast a 3 percent drop in total equipment sales, including a 6 percent decline in the current quarter.  Profit guidance was unchanged form November guidance of about $3.3 billion for fiscal 2014, versus $3.54 billion in fiscal 2013.  While down from the year prior, the net income outlook is still better than the $3.13 billion Wall Street was predicting.

Shares of DE initially moved lower following the earnings report, but have clawed back to essentially be flat on the day, printing $87.40 in early afternoon action.

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