* Farm equipment sales strong
* Company sees construction weakness
* Shares down 4.7 percent
By James B. Kelleher
May 15 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
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
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
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
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.
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
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
Excluding a $56 million tax charge involving a German
subsidiary, the profit would have been $2.90 a share, Lustgarten
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.