Deere profit beats, company offers guarded outlook

CHICAGO Wed Nov 24, 2010 12:26pm EST

John Deere commercial vehicles are seen at a dealer in Longmont, Colorado August 18, 2010. REUTERS/Rick Wilking

John Deere commercial vehicles are seen at a dealer in Longmont, Colorado August 18, 2010.

Credit: Reuters/Rick Wilking

CHICAGO (Reuters) - Deere & Co (DE.N) reported a stronger-than-expected quarterly profit on Wednesday, driven by strong sales of its biggest and most profitable tractors and harvesters in North America and market share gains in Brazil.

It also said it was beginning to see a turnaround in demand in Europe for the first time in two years.

But the world's largest maker of farm equipment offered a cautious preliminary forecast for 2011 that fell short of expectations.

In light trading on Wall Street ahead of the U.S. Thanksgiving holiday, the company's shares were little changed.

Oliver Pursche, president of Gary Goldberg Financial Services and co-portfolio manager of the GMG Defensive Beta Fund .MPDAX, called Deere's fiscal fourth-quarter results "impressive."

He said he remained optimistic about the company's prospects, despite its guarded outlook, based on its growing business in India and signs of a rebound in its construction and forestry equipment business.

Moline, Illinois-based Deere reported a fourth-quarter profit of $457.2 million, or $1.07 a share, compared with a net loss of $222.8 million, or 53 cents a share, a year earlier.

Sales rose 35 percent to $7.2 billion.

Analysts on average expected a profit of 95 cents a share on sales of $6.25 billion, according to Thomson Reuters I/B/E/S.

The company said sales of equipment used by builders and foresters, which tumbled after the financial crisis, rebounded 75 percent during the quarter from record lows.

"To put these numbers in perspective and to truly appreciate the severity of the decline in the (construction and forestry) markets, this year's increase will put the division's sales at about what has historically been considered a trough level," Susan Karlix, a company executive, said during a conference call to discuss the results.

Deere's agricultural equipment line contributed most to the quarterly results. The company said sales to the U.S. farm sector included "a highly favorable sales mix of larger equipment."

Looking forward to 2011, Deere said environmental regulations and higher costs could make the year a tricky one. It also said it expects higher raw-material costs and a less favorable sales mix in its flagship farm division.

As a result, it said it expects a full-year 2011 profit of $2.1 billion. Analysts on average expected $2.42 billion, according to Thomson Reuters I/B/E/S.

The company said its forecast "reflects the complexity of transitioning to these new equipment models as well as increased product costs to comply with the regulations."

Deere said it was seeing a turnaround in demand for farm equipment in Europe "for the first time in two years" and said it expects industrywide farm equipment sales in Western Europe to rise 5 to 10 percent next year.

Eastern Europe is beginning to stir as well, though the company said "there is no question that financing availability is still an enormous issue" there.

(Reporting by James Kelleher. Editing by Robert MacMillan and John Wallace)

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