Deere earnings hit by slowing economic growth

The John Deere logo

By SAMANTHA BOMKAMP

Associated Press

NEW YORK (AP) -- The effects of a slowing global economy caught up to Deere & Co. in its fiscal third quarter, as its net income rose 11 percent but fell well short of Wall Street's expectations.

Deere cut its revenue prediction for the year, and investors reacted swiftly. Shares dropped more than 7 percent.

Delays in production lines also hurt the world's largest producer of agricultural equipment. Ongoing drought in the Midwest had a minimal impact, executives said in a conference call with analysts.

The Moline, Illinois, company, said Wednesday that it earned $788 million, or $1.98 per share for the quarter ended July 31, compared with $712.3 million, or $1.69 per share for the same period last year. Analysts expected $2.31 per share in the most recent quarter, according to FactSet.

Revenue rose 15 percent to $9.59 billion, missing analysts' average prediction of $9.61 billion.

Sales of tractors and other farm equipment, by far its biggest segment, rose 14 percent to $7.27 billion. Deere also makes a wide range of construction and forestry equipment, including backhoes and excavators. That segment's sales jumped 23 percent to $1.66 billion.

While those two segments improved markedly from a year ago, growth has slowed. In last year's third-quarter, sales of agricultural and turf equipment rose 22 percent and construction and forestry equipment revenue leaped 34 percent.

Sales from Deere's financial services segment, where it offers crop insurance, loans and other aid, rose 3 percent to $565 million.

Since it touches many important markets, it provides a unique look into the state of the U.S. and global economies. Deere's earnings have held up better in recent quarters than other U.S. companies that are considered economic bellwethers, such as United Parcel Service Inc. and 3M Co.

Deere said demand in once red-hot international markets like China and India cooled down. China demand is also weakening in part due to a delay in government subsidies reaching customers.

New products with more complicated technology slowed North American production by up to two weeks in the quarter. That, combined with an extremely early harvest, meant some farmers didn't get new machines in time. Canceled orders for new machines hurt the quarter and are partly to blame for a lower full-year revenue forecast.

Deere sees net income of $3.1 billion for the year ending in October, down from $3.35 billion forecast three months ago. Analysts estimate about $3.4 billion.

The ongoing drought nightmare for U.S. farmers is seen as a strong driver of growth for Deere in the next fiscal year starting in November. Although the prolonged drought has shrunk crop estimates and slightly affected demand for new Deere equipment, Deere said continued robust demand for corn, soybeans and other food should keep prices high and business strong.

In midday trading, Deere shares fell $6.02, or 7.5 percent, to $74.11.

Deere and drought: An outlook for crop demand

The Associated Press

Severe drought in the Midwest is shrinking crop sizes, hurting farmers' wallets and driving up prices of corn and other goods for consumers. Deere & Co. said Tuesday that although conditions are leading it to be cautious in its outlook for the next several months, it could end up being a boon for equipment makers and farmers next year.

Here are some positive factors Deere thinks will result next year from one of the worst droughts in 50 years:

--Higher crop prices. The price of corn jumped 34.5 percent in July from June, the largest gain since Oct. 2006.

--Higher crop yields, as farmers play catch up to demand.

--Rapidly increasing demand for agricultural equipment, as farmers' financial conditions improve

Copyright 2012 The Associated Press.

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