Deere jumps as 2017 profit forecast exceeds expectations
Agricultural equipment giant trying to ride out slowdown in U.S. commodity prices
Deere & Company is poised to close at a record high after forecasting 2017 profit that exceeded analysts’ estimates, buoyed by cost cuts amid the longest slump for farmer incomes in decades.
Net income fell to 90 cents (U.S.) a share in Deere’s fiscal fourth quarter, which ended on Oct. 31, from $1.08 a year earlier, the company said Wednesday in a statement. That beat the 39-cent average of 18 estimates compiled by Bloomberg. It forecast net income at $1.4 billion in fiscal 2017, more than the $1.21billion average estimate.
Deere has now reported betterthan-expected profit for 16 straight quarters, despite three successive years of declining revenue as farmers cut spending amid lower commodity prices.
The company, which is based in Moline, Ill., said job cuts initiated in the fourth quarter are projected to create savings of about $75 million.
It reaffirmed that it has a plan to reduce overall costs by $500 million by the end of 2018.
“The industry stuff doesn’t sound any better,” Stephen Volkmann, an analyst at Jefferies in New York, said. “They’re kind of focused on what they can control, which is costs. Historically, this is a big, slow-moving company. They’re more nimble this cycle.”
Deere was 9.7 per cent higher at $100.97 at 11:11 a.m. in New York. A close at that price would be a record for the stock. Highlights: The company expects sales in its agriculture and turf unit to decrease by 1 per cent in fiscal 2017. It estimates industry-wide sales to be 5 per cent to 10 per cent lower next year, due to low commodity prices and weak farm income.
Deere expects its global sales of construction and forestry equip- ment to climb 1 per cent next year. Net income from financial services, the unit that offers finance for equipment purchases, is forecast to be about $480 million.
Fourth-quarter equipment revenue fell to $5.65 billion from $5.93 billion a year earlier, beating the $5.44 billion average estimate.
U.S. farmer incomes are projected to fall to the lowest level in seven years as consecutive bumper crops have tempered prices.
Tractor inventories are at record highs and credit availability has tightened. North American inventories through October were 5.5 per cent higher than a year ago, data compiled by Bloomberg shows.
“The fundamentals have deteriorated because the crop is bigger and prices are softer,” Eli Lustgarten, an analyst at Longbow Securities in Independence, Ohio, said before the release.