Deere raises annual profit outlook
ILLINOIS: Deere & Co topped Wall Street profit expectations on strong sales of its tractors and precision agriculture equipment, and raised its net income forecast for the rest of the year as order books remain robust.
But shares in the world’s largest farm equipment maker fell 1.7 per cent even ater the manufacturer reported a 36% rise in second-quarter profit.
Analysts pointed to increasing production levels potentially translating to an oversupply of equipment.
“It’s a subtle way of saying to investors ‘don’t extrapolate a beter expected second-quarter into the next couple,” said Mat Arnold, equity analyst at Edward Jones.
Executives noted that dealers’ inventories remain below historic levels. Deere expects 2023 net income in the range of $9.25 billion to $9.50 billion, higher than the $8.75 billion to $9.25 billion forecast earlier.
The industrial bellwether, a barometer for the global economy, has maintained resilient operating profit margins, despite global market volatility.
Economists have cited high inflation as problematic for cyclical industrials as it can push up manufacturing costs, but Deere executives told analysts on a conference call that production costs have retreated to their lowest levels since the first quarter of 2021.
Farmers’ demand for new equipment and parts to repair aging machinery has bolstered Deere’s sales. Even though crop commodity prices continue to come down from last year’s peak, which spurred spending from growers to upgrade their fleets, executives have reiterated that order books are still robust.
The company’s production and precision agriculture division retail sales outpaced other segments with a 53 per cent jump in revenue. Operating profit increased 105 per cent yearover-year, aided by a 20 per cent price hike for the equipment line, said Kristen Owen, executive director at Oppenheimer & Co.