* 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 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
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
"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,
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
"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