May 18, 2018 / 11:11 AM / 5 months ago

Deere's full-year earnings revision, price hike boost shares

CHICAGO (Reuters) - Shares of Deere & Co (DE.N) soared on Friday after the U.S. tractor maker revised up its full-year earnings estimate on stronger equipment demand and shared its plans to increase prices to offset increased costs.

The company’s stock was up 6.4 percent at $156.24 in early afternoon trading on the New York Stock Exchange.

Deere missed its second-quarter profit estimates amid higher freight and raw-material costs. The company’s sales costs shot up by 35 percent in the quarter from a year ago and it also expects input costs during fiscal 2018 to be higher than its previous estimate.

“Material and freight costs have exceeded our forecast for the year, due largely to inflation in U.S. steel prices and a tight market for logistics,” said Chief Financial Officer Raj Kalathur.

FILE PHOTO: People look at Deere equipment as they attend National Farm Machinery show in Louisville, Kentucky, February 11, 2016. REUTERS/Meredith Davis

In response to those increases, the Moline, Illinois-based company said it was carrying out structural cost cuts and price increases.

U.S. President Donald Trump’s tariffs on steel and aluminum imports have inflated raw material costs for U.S. manufacturers. Caterpillar (CAT.N) last month warned that rising materials costs could squeeze profit margins in the coming quarter.

Deere expects full-year adjusted earnings to be $3.1 billion, higher than $2.85 billion forecast earlier. Net sales and revenues are expected to jump about 26 percent from the previous year.

It sees a 30 percent annual increase in full-year equipment sales.

Adjusted profit in the quarter ended April 29 came in at $3.14 per share, lower than analysts’ average estimate of $3.31 per share.

Freight costs were up as the company resorted to premium freight to address supply issues.

Deere’s sales in the first quarter were hemmed in by delays in shipping products to dealers and supply constraints, but the company on Friday said the supply situation has improved.

Deere has been battling tepid demand in North America, its biggest market, for the past four years as U.S. farm income has more than halved since 2013.

Replacement demand for an aging fleet continues to drive farm equipment sales in the region, the company said. But it trimmed its farm equipment sales growth forecast to 14 percent for 2018 as it expects U.S. net farm cash income to dip further this year.

That projection could change if a U.S. trade spat with China escalates, increasing trading costs for farmers who are already feeling squeezed by rising interest rates and high land prices.

In retaliation for U.S. President Donald Trump’s proposed crackdown on Chinese imports, Beijing has proposed duties on U.S. farm imports such as soybeans, wheat and corn.

Reporting by Rajesh Kumar Singh; editing by Bernadette Baum, Bill Trott and G Crosse

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