Deere & Co. posted higher quarterly earnings and sales that topped estimates and raised its full-year profit outlook on Wednesday on rising global demand for farm equipment.
The U.S. farm sector is booming on higher worldwide food demand and as biofuels help drive up crop production. Companies like Deere are benefiting from record-high farm income that is spurring farmers to update their equipment.
“Deere is hitting on all cylinders,” said Gary Bradshaw, portfolio manager at Hodges Capital in Dallas.
Sales increased by double digits in the agriculture, and construction and forestry equipment divisions during the quarter.
“Trying to feed everyone, and with more folks going into the middle class that want to eat more meat and protein, you need to feed more cattle and hogs and plant more corn, milo and wheat,” Mr. Bradshaw said. With commodities prices up, farmers’ “pockets are full and they tend to run and buy more equipment.”
The world’s largest farm equipment maker said fiscal second-quarter net income rose to $1.056-billion, or $2.61 per share, from $904.3-million, or $2.12 a share, a year ago. The results topped the average estimate of $2.53, according to Thomson Reuters I/B/E/S.
Net sales of equipment operations rose to $9.4-billion from $8.33-billion a year earlier. Worldwide net sales and revenues increased 12 per cent to $10.01-billion in the quarter, above the average estimate of $9.7-billion.
The company also raised its forecast for 2012 net income to about $3.35-billion from $3.275-billion.
Deere’s shares erased premarket gains to trade 0.7 per cent lower at $76.04 early on the New York Stock Exchange.
“Overall, this is a good quarter, slightly better than consensus estimates, but not as strong a quarter as competitors have delivered,” William Blair analysts wrote in a note, explaining the fading share price.
“We still see moderate upside levers from European farm equipment, share repurchases, and construction volumes in 2012, partly offset by adverse currency.”
U.S. farmers planted the largest corn crop in 75 years this year, underscoring greater need for tractors and combine harvesters.
Loans to buy farm machinery and equipment stayed strong even as farmers also bought more equipment with cash, U.S. Federal Reserve data showed.
Deere said in March it plans to invest $70-million to expand large tractor production at its Waterloo, Iowa, facility, increasing its bet on growing global demand for agricultural machinery.
Moline, Illinois-based Deere is working on more than a dozen major plant expansions globally and plans to spend $1.3-billion on capital investments this year.
“Our extensive investments in new products and additional global capacity are moving ahead at an accelerated rate,” Samuel R. Allen, chairman and chief executive, said in a statement. “They put Deere in a sound position to respond to a rising global need for food, shelter, and infrastructure in the years ahead.”
Competitor AGCO Corp. scorched Wall Street estimates on May 1, with a 50 per cent earnings surge in the first quarter on strong sales in North America and a pickup in European demand for agricultural equipment.
CNH Global posted quarterly results on April 25 that blew past analysts’ expectations as strong wheat, corn and other commodities prices led farmers to buy equipment.
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