RPT-UPDATE 4-Deere equipment sales outlook disappoints investors

Wed Feb 13, 2013 5:48pm EST

* Stock drops 3.5 percent

* Lowers corn outlook in face of record crop

* Lower corn prices generally hurt equipment sales

* Analysts worry about Europe under-pricing

By Sagarika Jaisinghani

Feb 13 (Reuters) - Deere & Co, the world's largest farm equipment maker, forecast a modest increase in sales for the year, disappointing investors who thought the prospect of a record U.S. corn crop would have meant better results.

Shares fell 3.5 percent, as its forecast suggested ongoing concerns about the global economy and equipment purchases for the rest of the year.

"(The) near-term outlook is being tempered by uncertainties over fiscal, economic and trade issues that are undermining business confidence and restraining growth," Chief Executive Samuel Allen said in a statement.

A record corn crop might seem like it would boost sales for a company like Deere. Last week U.S. officials predicted the biggest such crop in history.

But all that corn could pressure prices for the staple commodity. Deere cut its forecast for corn prices in 2013 to $5.25 per bushel from its earlier projection of $6.00.

Lower prices would mean a drop in total farm cash receipts. Farmers with less cash cannot spend as much on equipment, even if they have to harvest a lot of corn.

"Having a big crop is nice, but it means that the price will be a little lower," Jefferies & Co analyst Stephen Volkmann said.

Deere said company equipment sales should rise about 6 percent for the fiscal year. It also forecast net income for the year of about $3.3 billion, about $100 million higher than its prior outlook.

"Deere's strong quarter and guidance raise were expected, but the focus now shifts toward yields and corn prices," William Blair & Co LLC analyst Lawrence De Maria said.

WEAKER EUROPE, FORESTRY

First-quarter net income attributable to Moline, Illinois-based Deere rose to $649.7 million, or $1.65 per share, from $532.9 million, or $1.30 per share, a year earlier.

Analysts had expected first-quarter earnings of $1.40 per share, according to Thomson Reuters I/B/E/S.

Total revenue rose 10 percent to $7.42 billion, ahead of the $6.72 billion analysts had expected.

Wells Fargo Securities LLC analyst Andrew Casey said Deere's latest net income forecast implied full-year 2013 earnings of $8.40 per share, above Wall Street's expectations of $8.37.

The forecast, however, translated to a profit of $6.75 per share for the last three quarters, below expectations of $6.97, Casey said.

In addition to the weak overall sales view, Deere's European sales are likely to decline this year due to weak economic conditions and bad weather in Britain, spokeswoman Susan Karlix said on a call with analysts.

The company, which competes with AGCO Corp and CNH Global NV, said it expected full-year sales of agricultural machinery to fall about 5 percent in Europe.

Analysts also took note of higher costs and a 7 percent decline in the first quarter in Deere's construction and forestry sales, which make up about a fifth of the company's total revenue.

"Forestry is weak and Deere is aggressively trying to get market share in Europe," BMO Capital Markets analyst Joel Tiss said. "They're probably losing some money or selling stuff cheaper than they should."

Deere shares fell $3.29 to close at $90.68. The stock is up about 5 percent so far in 2013, sharply underperforming AGCO and CNH.