Farm equipment maker Deere & Co. reported lower quarterly profit on Tuesday as farmers cut back on machinery purchases, but its results beat Wall Street’s lowered expectations by a wide margin.
“What a nice little quarter for them, considering all the headwinds,” Morningstar Inc. analyst Scott Burns said, adding that Deere’s ability to pass on high raw materials costs was the quarter’s highlight.
Those headwinds include rising interest rates, high fuel prices and a depressed market for farm commodities, while high raw materials prices have pressured profit margins, according to analysts.
Earnings fell almost 35 percent to $232.8 million, or 96 cents per share, in Deere’s fiscal fourth quarter that ended on October 31, compared with $356.7 million, or $1.41 per share, a year earlier.
Analysts, on average, had expected a profit of 79 cents per share, according to Reuters Estimates. Wall Street lowered its estimates after the company said in August it would cut back production to avoid building up inventory.
Quarterly sales fell 1 percent to $5.18 billion, well above the $4.22 billion expected by Wall Street.
“Going into next year, we see production more or less in line with sales demand out there,” Nate Jones, Deere’s chief financial officer, said on a conference call with analysts.
Deere may gain market share from rivals Agco Corp. and CNH Global because it is the only of the three to offer a major redesign of its farm and lawn care product line, said FTN Midwest analyst Mark Koznarek.
“They’re pretty exciting, I think,” he said of the new, more powerful machines, which were recently previewed for analysts and dealers and will ship in coming months. “It is technology that offers pretty substantial fuel economy benefits.”
The higher market share will help offset some -- though not all -- the lost sales in a weak U.S. market, Koznarek added. He has a “buy” rating on Deere shares and an $81 price target.
The world’s largest farm-equipment maker said U.S. sales of farm machinery could fall as much as 10 percent next year because of higher prices for fuel and fertilizer and the end of tax incentives, but added that overall sales and profits would be slightly above 2005 levels.
Deere forecast fiscal 2006 sales would be 1 percent to 3 percent higher and it expects full-year profit of $1.5 billion, in line with analyst estimates. Deere said it expects a first-quarter profit of $175 million to $200 million.
Deere shares rose $4.17, or 6.6 percent, to $67.17 on the New York Stock Exchange. Counting Tuesday’s rally, the stock is still down about 9 percent in 2005, lagging the Standard & Poor’s 500 index, and far underperforming Caterpillar Inc., another maker of heavy equipment, whose stock has jumped 18 percent this year.
