(Adds details on South America and the Commonwealth of
Independent States; updates share movement)
By James B. Kelleher
May 14 Deere & Co on Wednesday reported a
stronger-than-expected quarterly profit but trimmed its outlook
for full-year sales of farm equipment, citing deteriorating
conditions in South America and the former Soviet Union.
Sales of the company's green-and-yellow tractors and
harvesters fell a worse-than-expected 12 percent during the
second quarter ended on April 30, Deere said, but cost cuts, a
lower-than-expected tax rate and improved margins in its
construction equipment unit helped offset that weakness.
Deere also stuck by its full-year profit forecast despite
growing weakness in Argentina, where it said import tariffs were
hurting tractor sales, and Brazil, where contracting margins in
the sugar cane industry were discouraging capital investment.
In the Commonwealth of Independent States, Deere said
geopolitical tensions between Russia and Ukraine were disrupting
farm credit in the region, putting the 2014 crop at risk.
The company said sales in Kazakhstan, Belarus and Russia
were also hurt by import policies. It did not elaborate.
Sales in the region will fall "significantly" this year,
Deere said. It had previously said they would be "down
The company, the world's largest maker of farm equipment,
had already signaled that demand for its products would fall in
most markets this year following a bumper crop that sent
commodity prices down.
Lower commodity prices hurt Deere and its rivals because
they shrink farm incomes and discourage investment in new
On Wednesday, Deere said the weakness would be greater than
it expected, with sales of agricultural equipment down about 7
percent in fiscal 2014. Three months ago, it said it expected a
decline of about 6 percent.
"The execution was terrific during the quarter, but the
signs of a cyclical peak are growing," said Longbow Research
analyst Eli Lustgarten.
Some investors hoped a rebound in construction demand,
particularly in the United States, would help offset that
softness for Deere, which also makes equipment for builders.
But Deere also scaled back its outlook for that industry on
Wednesday. Although it held to the forecast for its own
construction sales, it cut its expectation for total U.S.
construction investment growth to a 4.3 percent annual rate for
2014 from 6.3 percent.
The company also reduced its forecast for 2014 U.S. housing
starts by nearly 10 percent to 1.05 million.
Deere posted a second-quarter profit of $980.7 million, or
$2.65 a share, down from $1.08 billion, or $2.76 a share, a year
earlier. Analysts on average had expected $2.48 a share,
according to Thomson Reuters I/B/E/S.
Revenue fell 9 percent to $9.95 billion.
Shares of Deere, which have outperformed the Standard &
Poor's 500 stock index so far this year, were down 2.3
percent at $91.50 in afternoon trading.
(Reporting by James B. Kelleher in Chicago; Editing by Lisa Von