Deere shares leap after earnings beat on pricing

NEW YORK — Shares of Deere & Co. jumped 11% to an all-time high on Wednesday after stronger pricing and cost cuts allowed the agricultural and construction machine manufacturer to beat quarterly earnings expectations.

Factors ranging from machinery pricing to lower overheads spending helped Deere report a much smaller-than-expected decline in quarterly earnings during the recession in the global farm sector, CFO Raj Kalathur said on a conference call.

Higher sales volumes, an improved product mix and lower materials costs and research and development spending, also contributed, Kalathur added.

Less discounting during the quarter, especially on agricultural machinery, contributed to higher pricing, Tony Huegel, director of investor relations said during the conference call.

“It was all kind of internal — either pricing or cost cutting,” said Jefferies analyst Stephen Volkmann. “It’s not that the cycle is turning, it is that they are managing it better than before.”

Deere forecast revenue for the new fiscal year would fall about 1% from $26.6 billion in 2016, while analysts on average forecast a 3% decline for 2017.

Deere said it expected its equipment sales to decrease about 1% for fiscal 2017 and to fall about 4% in the first quarter from a year earlier. While still a decline, it is less steep than the net sales decline of 9% in fiscal 2016, compared with 2015.

The company also saw fiscal 2017 net income declining to about $1.4 billion, from $1.52 billion in fiscal 2016.

“The farm economy will not get better until you see farmer income levels rising, which have not for some years,” Argus Research analyst Bill Selesky said.

Deere shares were up $10.34 to trade at $102.35 their highest level in Reuters data going back to 1980.

Deere forecast 2017 US farm cash receipts would remain steady with 2016, a sign the agricultural recession may be easing, at least in the United States. —