Deere & Co warned that, thanks to the dent to farm income from lower crop prices, it was heading for lower profits next year, but not as low as investors had expected, prompting a rise in its shares.
The maker of John Deere agricultural machinery said that its earnings would, in the year to the end of October next year, come in at about $3.3bn, a decline of some 6%, and the first drop in five years.
Sales would fall by 3%, equivalent to a drop of about $1bn, despite expected price rises.
The data factor in the sale of a majority stake in the John Deere Landscapes business, but also the impact of lower crop prices in depressing farmers’ spending on machinery.
“Although commodity prices and farm incomes are expected to remain at healthy levels in 2014 by historical standards, they are forecast to be lower than in 2013,” Deere said.
“The company believes the decline will have a dampening effect on demand, primarily for large farm equipment.”
The impact will be felt in particularly on the North and South American markets, which will see a drop of 5-10% in industry-wide sales in the next year, with the European Union market shrinking by 5%.
Deere trimmed by $2bn to $3.77bn its 2014 forecast for US farmers’ cash receipts, an important indicator of appetite for agricultural machinery, a figure down $12.1bn year on year.
The former Soviet Union market will decline “slightly”, after a poor recent performance, with the Asian markets the only one in the Deere universe expected to record growth, albeit only at a marginal level.
Ahead of forecasts
Nonetheless, Deere shares rose 2.9% to $85.22 in morning deals in New York, with the group’s outlook less downbeat than forecast by analysts, who have pencilled in earnings of $3bn for the next year.
Furthermore, the group unveiled earnings for the August-to-October period, the fourth quarter of its financial year, which, at $2.11 per share, exceeded forecasts of a $1.89-a-share result.
While revenues for the quarter fell 3.2% to $9.45bn, as the decline in agricultural markets set in, earnings were supported by a slide in sales costs.
“Deere’s performance is a testament to our ability to execute our business plans, which stress the rigorous management of costs and assets,” the group’s chief executive, Samuel Allen, said.
(Source – http://www.blackseagrain.net/novosti/deere-profits-to-fall-as-lower-crop-prices-bite)