Deere and Co., the world’s largest farm equipment maker, forecast a modest increase in sales this year despite the prospect of the biggest corn crop in U.S. history, falling short of analysts’ expectations and sending its shares down three per cent.
Shares of the company, which also makes excavators, dump trucks and log harvesters, fell to $91.25 on the New York Stock Exchange as the lower-than-expected increase in its outlook for 2013 overshadowed strong first-quarter results (all figures US$).
Moline, Illinois-based Deere raised its forecast for net income in the year ending October 2013 to $3.3 billion from $3.2 billion, catching up with Wall Street’s expectations.
The company said industry sales of agricultural equipment in the U.S. and Canada would grow by no more than five per cent this year.
"Deere’s strong quarter and guidance raise were expected, but the focus now shifts toward yields and corn prices," William Blair and Co. analyst Lawrence De Maria said.
After the worst drought in the U.S. Midwest in 56 years last year, farmers in the U.S. are gearing up to plant the biggest corn crop in the country’s history.
"Having a big crop is nice, but it means that the price will be a little lower," Jefferies and Co. analyst Stephen Volkmann said.
Deere on Wednesday cut its forecast for corn prices in 2013 to $5.25 per bushel from its earlier projection of $6.
Lower prices would mean a drop in total farm cash receipts – a product of farm commodity prices, acreage planted, crop yields and the amount and timing of government payments. Cash receipts are the primary driver of U.S. farm equipment purchases.
Weaker Europe, forestry
First-quarter net income attributable to Deere rose to $649.7 million, or $1.65 per share, from $532.9 million, or $1.30 per share, a year earlier.
Analysts had expected first-quarter earnings of $1.40 per share, according to Thomson Reuters I/B/E/S.
Total revenue rose 10 per cent to $7.42 billion, ahead of the $6.72 billion analysts had expected.
Wells Fargo Securities LLC analyst Andrew Casey said Deere’s latest forecast implied full-year 2013 earnings of $8.40 per share, above Wall Street’s expectations of $8.37.
The forecast, however, translated to a profit of $6.75 per share for the last three quarters, below expectations of $6.97, Casey said.
The U.S. and Canada together accounted for 63 percent of Deere’s total revenue in the year to October 2012.
Deere’s European sales are likely to decline this year due to weak economic conditions and bad weather in Britain, spokeswoman Susan Karlix said on a call with analysts.
The company, which competes with Agco and CNH, said it expected full-year sales of agricultural machinery to fall about five per cent in Europe.
Higher costs and a seven per cent decline in the first quarter in Deere’s construction and forestry sales, which make up about a fifth of the company’s total revenue, also worried analysts.
"Forestry is weak and Deere is aggressively trying to get market share in Europe," BMO Capital Markets analyst Joel Tiss said. "They’re probably losing some money or selling stuff cheaper than they should."
— Sagarika Jaisinghani is a Reuters correspondent based in Bangalore, India.
CORRECTION, Feb. 14, 2013: An earlier version of this article incorrectly stated (paragraph No. 4) that Deere expected company sales of ag equipment, rather than industry-wide sales, would grow by no more than five per cent this year in the U.S. and Canada combined.