While Deere & Co. reduced its profit outlook for 2009, it still expects its U.S. ag market to produce solid results despite the ongoing recession.
Overall, the company slashed its profit results by 21% for the coming year, but sees the North American farm equipment market holding better than other markets. It's projecting as much as a 5% increase in U.S. farm equipment sales compared to 2008. Deere anticipates sales of high-horsepower tractors and combines to buoy the industry throughout 2009l
Deere noted several other factors that it believes will affect the ag equipment industry's profits during the remainder of the year.
On the Plus Side:
- The company sees prices for corn remaining healthy at $4 a bushel in the 2008-09 crop year before falling to $3.35 in 2009-10.
- It expects farm costs for fuel and fertilizer to moderate from last year.
- Deere reports that "very few" orders for new equipment have been canceled. The company also said its financing unit is able to offer credit at attractive rates.
- In December sold $2 billion of debt under the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee program, allowing the company to offer lower interest rates on equipment purchases.
- Deere's loan write-offs are running at 0.54%, just slightly above the 10-year average.
On the Negative Side:
- The company now expects industry sales in South American sales to fall by 15% to 25% as droughts in Brazil and Argentina hold down sales.
- It reports that order cancellations are higher than usual as South American farmers are unable to secure credit for equipment purchases.
- Credit conditions in Europe remain difficult. Deere anticipates that industry sales in western Europe will slip by 10-15% and said sales in eastern Europe will be "down significantly" also due to restricted access to credit.
Overall, Deere sees its 2009 fiscal-year net income at $1.5 billion, 21% below its November estimate of $1.9 billion. The company expect sales to fall by 8% from 2008, compared with flat equipment sales seen earlier.
The following tables and charts are from Deere's conference call with analysts on February 18.