* Lower commodity prices to weigh on tractor sales
* Construction equipment sales expected to rise 10 pct
* Analyst calls Q4 "big quarter"
(Adds comment from conference call comments, updates shares)
By James B. Kelleher and Sagarika Jaisinghani
Nov 20 Deere & Co offered an surprisingly
upbeat earnings forecast for 2014 on Wednesday, saying sales of
construction and forestry equipment in the coming year should
offset an anticipated slowdown in demand for agricultural
Shares in the world's largest maker of tractors and
harvesters rose 2.6 percent in afternoon trading on the New York
Stock Exchange after the company issued the outlook and reported
higher-than-expected fourth-quarter results.
The past five years have been great for farmers and for
companies like Deere that supply their equipment. Agricultural
commodity prices have been pulled sharply higher by rising
demand for food in fast-growing emerging markets, an increased
appetite for ethanol and biofuels in many other places, and
weather-related harvest issues.
But with corn futures prices near a three-year low, pulled
down by forecasts of a huge U.S. harvest and a proposal to slash
U.S. biofuel rules, farm profits are expected to fall next year.
On Wednesday, Deere provided a first glimpse of just how
much it expects its business to suffer as a result of softer
commodity prices, and it was not nearly as bad as many analysts
Deere acknowledged worldwide sales of agriculture and turf
equipment would fall about 6 percent in 2014 as farmers in
almost all of its key markets, including the United States,
Canada, Europe, and South America, adjust to the new
But the heavy machinery maker's other businesses are
expected do well as the housing recovery gains traction, it
said. While Deere is best known for its tractors and harvesters,
it also makes bulldozers, dump trucks and other vehicles used by
"We are beginning to see some positive indicators," Marie
Ziegler, Deere's deputy financial officer, said during a
"Home sales and prices are improving and residential
construction is growing. Some markets are seeing building lot
shortages, and architects and builders are reporting more
That strength comes at a good time for Deere. The Moline,
Ill-based expects that corn planted next spring in the United
States will fetch just $4.50 a bushel by the time it is
harvested in the autumn, a 35 percent decline from the price
last fall but about 10 cents a bushel higher than the current
Soybeans, meanwhile, will fetch $11 a bushel next fall,
Deere said, down from $12.50 this year and $14.40 last year.
Wheat will go for $6.75 a bushel next fall, the company
forecast, down from $7 this year and $7.77 last year.
As a result, Deere now expects total U.S. farm cash receipts
to come in at $377.7 billion in 2014, off about 4 percent from
2013 and down 7 percent from last year.
Yet despite the headwinds, Deere now expects to post a
fiscal 2014 profit of about $3.3 billion. Wall Street estimated
$3.04 billion, according to Thomson Reuters I/B/E/S.
The company's better-than-expected outlook for 2014 is
driven by what it says will be a welcome rebound in demand for
its construction and forestry equipment as the housing market
continues to recover. Housing had languished while agriculture
had boomed in recent years.
Deere expects worldwide sales of construction and forestry
equipment to increase by about 10 percent in 2014.
"The most notable news is the outlook that is above Street
expectations, with ag equipment sales expected to hold up
reasonably well relative to a stellar year in 2013, and
construction equipment sales expected to see a timely ramp-up to
serve as an offset," Edward Jones analyst Matt Arnold said.
In the latest quarter, Deere reported net profit of $806.8
million, or $2.11 per share, up from $687.6 million,
or $1.75 per share, last year.
Revenue fell 3 percent to $9.451 billion.
Analysts, on average, expected the Moline, Illinois-based
company to report a profit of $1.89 a share on revenue of $8.68
billion, according to Thomson Reuters I/B/E/S.
"It's a big quarter," said Eli Lustgarten, an analyst with
"Volumes were better than expected and profitability was a
lot better. And it's actually even stronger than it looks
because the company took a writedown on its landscape business
that - back of the envelope - probably shaved 17 cents a share
off (earnings per share)."
Deere's stock was up $2.16 at $84.97 on the NYSE.
(Reporting by James Kelleher in Chicago and Sagarika
Jaisinghani in Bangalore; Editing by Jeffrey Benkoe)