UPDATE 4-Deere lowers sales outlook; shares fall

Wed May 15, 2013 2:12pm EDT

* Farm equipment sales strong

* Company sees construction weakness

* Shares down 4.7 percent

By James B. Kelleher

May 15 (Reuters) - Deere & Co on Wednesday issued a cautious fiscal-year outlook that sent its shares down nearly 5 percent and overshadowed news of stronger-than-expected quarterly results from the world's largest farm equipment manufacturer.

The company, which also makes construction equipment, slashed its full-year forecast for sales to builders. It cited uncertainty about government economic policies in the United States and Europe, as well as cooler, wetter spring weather in several key markets.

While sales in the company's core farm equipment business rose 12 percent during the quarter, Deere said the financial crisis in the European Union was weighing on farmer sentiment.

That, coupled with weather-related planting and harvesting issues in North America and the United Kingdom, is clouding the company's ability to forecast sales to farmers for the rest of the year, Deere said.

The company maintained its net income outlook for the year and reduced its expectation for revenue growth to 5 percent from 6 percent.

JPMorgan analyst Ann Duignan said investors had expected Deere to raise its overall outlook.

The Moline, Illinois-based company said it expected worldwide sales of construction equipment to fall 5 percent this fiscal year. In February, it had forecast a rise of 3 percent.

William Blair & Co analyst Lawrence DeMaria called that revised outlook "somewhat of a disappointment but not a total surprise, given weak results from competitors."

Last month, Caterpillar Inc, the world's largest maker of construction equipment, said that while the building market was recovering, demand was not materializing as fast as hoped.

Deere said sales of construction equipment had fallen 6 percent in the second quarter ended on April 30, and operating profit from those products had tumbled 32 percent.

The company said declines in government spending in the United States and continued economic uncertainty in the European Union were "undermining business confidence and restraining growth."

In addition, Deere, said, cool, wet weather in the United States and Canada delayed spring construction projects and discouraged builders from buying new equipment.

Sales to independent rental companies, which lease the equipment to builders and form an important customer base, were also lower, Deere said.

"Farm is carrying the load, and construction is soft," said analyst Eli Lustgarten of Longbow Research in St. Louis.

DELAYED PLANTING

Deere said the chilly, rainy spring had also delayed plantings in the United States and Canada and threatened the harvest of some crops in the United Kingdom.

"Most of the planting in the Corn Belt ... already would have taken place in a more normal year by May 5 or so," Tony Huegel, Deere's director of investor relations, said during a conference call with analysts.

So far this season, U.S. farmers have seeded just 28 percent of their intended corn acreage - a record slow pace, according to the U.S. Department of Agriculture.

The United States is the world's largest exporter of corn, and the farmers who grow it are some of Deere's best customers, purchasing the company's most expensive and highest-margin equipment.

Shares of Deere were down 4.7 percent at $89.39 in afternoon trading on the New York Stock Exchange.

Deere said it earned $1.08 billion, or $2.76 a share, in its second quarter, up from $1.06 billion, or $2.61 a share, a year earlier.

Excluding a $56 million tax charge involving a German subsidiary, the profit would have been $2.90 a share, Lustgarten said.

Analysts on average expected earnings of $2.72 a share, according to Thomson Reuters I/B/E/S.

Sales rose 9 percent to $10.91 billion, exceeding Wall Street estimates of $9.85 billion.

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