* Earnings per share of $2.56 top expectations of $2.17
* Analysts worry quarter marked peak of current farm cycle
* Shares down 2 percent
By James B. Kelleher
CHICAGO, Aug 14 Deere & Co reported
higher-than-expected quarterly profit on Wednesday on strong
sales of its tractors and harvesters in the Americas. But
concerns that farm-belt spending and commodity prices were
poised to weaken sent shares lower.
Earlier this year, Deere, the world's largest maker of
agricultural equipment, lowered its outlook for fiscal 2013
revenue, saying a cooler-than-normal spring in North America had
depressed sales. Some investors worried the softness was a sign
of a new normal as corn prices have retreated from the all-time
highs of last summer.
A number of analysts, including UBS, Barclays and William
Blair, have cut their outlooks and share-price targets for Deere
in recent days, citing concerns that farmers will slash capital
spending as grain prices retreat.
Despite the earnings beat that was driven by its ability to
pass price increases along to buyers of both its farm and
construction equipment, the company did not change its full-year
William Blair analyst William De Maria said that results for
the third quarter ended July 31, while impressive, suggested
"the peak may have just occurred."
Indeed, De Maria said while Deere raised its forecast for
full-year earnings to reflect the earnings beat, the company's
outlook implied a lower fourth-quarter profit than many analysts
were modeling going into Wednesday.
Moline, Illinois-based Deere also predicted farmers' cash
receipts from crop sales, which closely correlate with tractor
and combine purchases, would fall 4 percent next year. The
receipts are already expected to be down 8 percent this year.
Like many analysts who cover the company, Adam Fleck at
Morningstar said Deere's "sales and earnings will decline next
year" along with cash receipts.
SALES TOP ESTIMATE
Earnings in the most recent quarter rose to $996.5 million,
or $2.56 a share, from $788 million, or $1.98 a share, a year
Analysts, on average, expected the company to report a
profit of $2.17 a share, according to Thomson Reuters I/B/E/S.
Total sales, including revenue from the company's financial
services unit, rose 4 percent to $10 billion. The analysts'
average estimate was $9.1 billion.
In a statement, Chief Executive Samuel Allen said the nearly
30 percent jump in earnings per share reflected "considerable
strength in the farm sector, especially in North and South
America." That offset continued weakness in sales of its
earth-moving equipment to builders.
But Allen also sounded a note of caution, saying Deere was
"keeping a close watch on costs and assets."
In afternoon trading on the New York Stock Exchange, Deere
shares were down 2 percent at $82.22. At Tuesday's close, the
stock was down about 3 percent this year, while the Standard &
Poor's 500 index was up about 18.8 percent.
For decades, corn prices hovered between $2 and $3 a bushel,
but surged as high as $8.49 during last summer's drought, driven
by demand from China and other emerging markets as well as by
corn-based ethanol use in the United States.
But the surge in grain prices also triggered a sharp
increase in production in the rest of the world as farmers
scrambled to take advantage.
Now with the prospect of a record global harvest, commodity
prices have skidded lower. Corn trading at $4.55 a bushel
on Wednesday, near a 3-year low.
Since tractor and combine sales go up and down along with
farm income, analysts expected growers will try to do more with
less in the coming years and cut spending.
During a conference call, Tony Huegel, director of Deere's
investor relations unit, reminded analysts that current corn
prices, while well off last year's highs, were still strong from
a historical standpoint and at "profitable levels for most