suntimes
COARSE 
Weather Updates

Deere 4Q net income misses analyst expectations

Santis driving his John Deere tractor Ben’s Christmas Tree Farm near Harvard.

Santa is driving his John Deere tractor at Ben’s Christmas Tree Farm near Harvard.

storyidforme: 40471489
tmspicid: 14964689
fileheaderid: 6818223

Updated: December 24, 2012 7:00AM



Deere & Co. reported a 2.7 percent increase in its fiscal fourth quarter net income, but analysts expected more, and the Moline-based agricultural equipment maker said sales of its agricultural machinery in Europe may fall as much as 5 percent next year.

The company on Wednesday forecast 2013 equipment sales will rise 5 percent in 2013 and be up about 10 percent in the first quarter, compared with the same period a year ago.

But in Europe, Deere said sales of agricultural machinery will be flat to down 5 percent next year, and the company blamed “continuing deterioration in the overall economy and a poor harvest in the U.K.”

It expects sales in the U.S. and Canada to be flat.

“Caution around the U.S. livestock and dairy sectors is expected to offset continued strength in demand for large equipment such as high horsepower tractors,” the company said.

Deere forecast sales will rise 10 percent in South America.

Deere said it earned $687.6 million, or $1.75 per share, in the fourth quarter compared with $669.6 million, or $1.62 per share, in the same period a year earlier. Analysts surveyed by FactSet had expected earnings of $1.88 per share.

Sales rose 14 percent to $9.8 billion.

The company said sales jumped 16 percent in its agriculture and turf business. Operating profit rose to $931 million, up from $868 million, but Deere said results were hurt by higher production costs and increased selling, research and development, administrative and general expenses.

Deere’s construction and forestry business saw 7 a percent increase in sales.

A negative in the report for Morningstar Inc. industrials analyst Adam Fleck was the company’s profit margins.

“Deere’s core farm equipment business saw profitability contract,” he wrote in a research note.

The company’s consolidated operating profit margins were relatively flat year-over-year, he noted, adding, “The gross profitability posted in the past two quarters is the worst six-month stretch for Deere since the second half of 2009.”

But offsetting that issue, he noted Deere’s selling, general and administrative costs fell to their lowest level as a percentage of sales since 2005.

Deere forecast 2013 equipment sales will rise 5 percent in 2013 and be up about 10 percent in the first quarter, compared with the same period a year ago.

But in Europe, Deere said sales of agricultural machinery will be flat to down 5 percent next year, and blamed “continuing deterioration in the overall economy and a poor harvest in the U.K.”

It expects sales in the U.S. and Canada to be flat.

“Caution around the U.S. livestock and dairy sectors is expected to offset continued strength in demand for large equipment such as high horsepower tractors,” the company said.

Deere forecast sales will rise 10 percent in South America.



© 2014 Sun-Times Media, LLC. All rights reserved. This material may not be copied or distributed without permission. For more information about reprints and permissions, visit www.suntimesreprints.com. To order a reprint of this article, click here.