Deere profit higher, but outlook disappoints

By James B. Kelleher

CHICAGO (Reuters) - Deere & Co (DE.N: Quote, Profile, Research, Stock Buzz) reported higher quarterly earnings on Wednesday as soaring crop prices boosted global demand for its agricultural equipment, but the company's forecast for the rest of the year disappointed Wall Street and its shares fell 9 percent.

Deere, the world's largest maker of tractors and combines, said raw material prices, particularly for steel, were "racing ahead ... well beyond what we anticipated" when the company set its own prices for the year. It said this would be a drag on results in the current quarter.

The company said its material and freight costs would be $400 million to $500 million higher this year than in 2007, double the price inflation it originally expected.

Deere said profit rose 22 percent to $763.5 million, or $1.74 a share, in its fiscal second quarter ended April 30, from $623.6 million, or $1.36 a share, a year earlier.

Revenue increased 18 percent to $8.1 billion, lifted by a 46 percent jump in equipment sales outside the United States and Canada.

Analysts on average had expected the Moline, Illinois-based company to report earnings of $1.74 a share on revenue of $7.62 billion, according to Reuters Estimates.

"It was a good quarter," said Matt Collins, an analyst at Edward Jones. "But investors were clearly looking for more. Deere had been leaping over earnings estimates for the last two years. That couldn't last forever."

Deere warned that "escalating raw material costs and the tight supplies of various parts and components, including tires, are expected to have an impact on operations for the balance of the year."