UPDATE 3-Higher costs push Deere profit below Wall Street view

Wed Nov 21, 2012 11:39am EST

* Quarterly profit of $1.75/share vs view of $1.88

* Sales rise to $9.79 billion

* Deere sees fiscal 2013 net earnings of $3.2 billion

By Nick Zieminski

Nov 21 (Reuters) - Deere & Co, the world's largest farm equipment maker, reported a weaker-than-expected quarterly profit as higher manufacturing costs and other expenses cut into earnings and a strong dollar reduced the value of international sales.

Deere forecast higher sales and earnings for its new fiscal year on Wednesday. Still its shares fell 3.7 percent to $82.79 in midday trading as the latest profit missed Wall Street estimates.

"Expectations were high coming into this report," said JPMorgan analyst Ann Duignan.

Overhead costs and spending on research and development rose by about $100 million from the previous quarter, Duignan said in a note to clients.

R&D expenses were up about 14 percent year over year, while selling, administrative and other costs rose 9 percent, partly because of increased incentive compensation, according to a company presentation.

Although expenses are rising faster than inflation, sales have grown even faster, and the company needs to add staff to support higher sales volumes, investor communications executive Susan Karlix said on the company's earnings conference call.

"We are very mindful of our expenses," she said.

Net income rose to $687.6 million, or $1.75 per share, in the fourth quarter ended on Oct. 31 from $669.6 million, or $1.62 per share, a year earlier.

The result missed the analysts' average estimate by 13 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 14 percent to $9.79 billion, with equipment operations contributing $9.05 billion. Analysts expected sales of $8.85 billion.

Stronger machinery sales in North America and higher prices offset weaker international demand and the negative impact from currency fluctuations.

Moline, Illinois-based Deere said it expected flat North American demand for farm equipment in fiscal 2013 after a strong 2012. Industry sales in euro zone countries will be flat to down slightly, while soft Indian and Chinese economies will keep demand flat there as well.

The company expects the strongest demand to come from South America in 2013, reflecting a commodities boom.

Overall, Deere equipment sales will rise about 5 percent in fiscal 2013, with earnings increasing to about $3.2 billion from $3.07 billion in 2012, the company said.

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