Deere & Co. (DE), the world’s largest farm-equipment maker, reported fiscal third-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as global demand improved. The shares fell after margins on new sales trailed analysts’ projections.
Net income rose to $1.69 a share in the quarter ended July 31 from $1.44 a year earlier, Moline, Illinois-based Deere said today in a statement, topping the $1.67 a share average estimate of 12 analysts in a Bloomberg survey. Deere predicted profit will be $2.7 billion for the year ending Oct. 31, more than the $2.65 billion forecast in May.
Deere, led by Chief Executive Officer Sam Allen, plans to double annual sales to $50 billion by 2018 while increasing the proportion of revenue from outside the U.S. and Canada to 50 percent from 35 percent in fiscal 2010. The company is introducing new products and expanding manufacturing in countries such as China, Russia and India to serve rising worldwide demand for food, shelter and infrastructure.
“We remain confident that these positive macroeconomic trends have staying power,” Allen said in the statement.
Deere fell 90 cents, or 1.2 percent, to $74.26 as of 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 11 percent this year.
Deere’s so-called incremental margin, the profit on new sales, was about 6 percent, compared with the 11 percent estimate from Stephen Volkmann, a New York-based analyst at Jefferies & Co. who has a “hold” rating on the shares.
‘Lower Than Expected’
“The report is neutral to slightly negative for shares,” Larry De Maria, a New York-based analyst for William Blair & Co. who rates Deere “market perform,” said in a telephone interview. “The incremental margins were lower than expected.”
Raw-material costs rose by $165 million in the quarter while expenses primarily related to “global-growth initiatives,” foreign-exchange rates and pay incentives increased by about $75 million, Deere said on a conference call with analysts.
“Over a longer period of time, I think you can think about the incremental margins that this company has historically enjoyed and have every expectation that we’ll enjoy those incremental margins going forward,” Deere Chief Financial Officer James Field said on the conference call.
Net income increased 15 percent to $712.3 million in the quarter from $617 million. Sales climbed 22 percent to $8.37 billion from $6.84 billion. Equipment sales will increase about 20 percent in the fourth quarter, Deere said, and about 25 percent in fiscal 2011, up from a May forecast for the full-year of 21 percent to 23 percent.
Agriculture-industry sales in western and central Europe will advance 10 percent to 15 percent in the current financial year, Deere said.
“Deere’s array of over 100 new products in the region and a renewed focus on its dealer network are contributing to the company’s outperformance in key countries,” Ann Duignan, a New York-based analyst for JPMorgan Chase & Co. who rates the shares “overweight,” said in a report on Aug. 15.