Deere & Co on Wednesday reported a stronger-than-expected quarterly profit but trimmed its outlook for full-year sales of its green-and-yellow farm equipment, citing deteriorating conditions in the former Soviet Union.
Sales of Deere’s tractors and harvesters fell a worse-than-expected 12 per cent during the quarter, the company said, but aggressive cost cuts and a lower-than-expected tax rate helped offset that weakness.
“The execution was terrific during the quarter, but the signs of a cyclical peak are growing,” said Longbow Research analyst Eli Lustgarten.
Earlier this week, Lustgarten cut his rating on Deere, citing weakness in its core farm market.
Deere posted a second-quarter profit of $980.7-million, or $2.65 a share, down from $1.08-billion, or $2.76 a share, a year earlier. Analysts on average had expected $2.48 a share, according to Thomson Reuters I/B/E/S.
Revenue fell 9 per cent to $9.95-billion.
The company, the world’s largest maker of farm equipment, has warned that demand for its products will fall in most markets following a bumper crop that sent commodity prices lower.
But on Wednesday, it acknowledged the weakness would be greater than it expected, with sales of agricultural equipment to be down about 7 per cent in fiscal 2014. Three months ago, it said it expected a decline of about 6 per cent.
Among the issues: the crisis in the Ukraine. Deere said sales to that country, Russia and other former Soviet Republics would fall “significantly” this year due credit restrictions. The company had previously said sales in the region would be “down slightly.”
Some investors hoped a rebound in construction demand, particularly in the United States, would help offset that softness for Deere, which also makes equipment for builders.
But Deere also scaled back its outlook for that industry on Wednesday. The company said it expected total U.S. construction investment to grow at a 4.3 per cent annual rate in 2014, down from a previous forecast of 6.3 per cent.
Deere also said it expected 1.05 million housing starts, below a prior forecast of 1.16 million.
Edward Jones analyst Matt Arnold said Deere kept the outlook for its own construction sales intact. He suggested the company believes cost cuts, like second-quarter reductions of 14 per cent in selling, general and administrative expenses and 6 per cent in research and development, would offset any weakness in that market.
Shares of Deere, which have outperformed the Standard & Poor’s 500 stock index so far this year, were down 1.1 per cent at $92.60 in early trading. (Reporting by James B. Kelleher in Chicago; Editing by Lisa Von Ahn)
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