Deere 1Q Net Down 45%, Cuts Forecast On Forex, Recession

Published: February 19, 2009

Deere & Co.’s (DE) fiscal first-quarter net income slumped 45% on high raw material costs, a stronger dollar and the global recession, as the world’s largest maker of farm equipment also lowered fiscal-year expectations due to currency impacts.

Nonetheless, Chairman and Chief Executive Robert W. Lane said demand for large agricultural machinery has held up well, “due in substantial part to the sound financial health of the U.S. farm sector,” as well as Deere’s ability to tap the credit markets and provide financing to customers. The company’s financing arm in December sold $2 billion of debt under the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee program.

Noting the difficulty in projecting earnings and sales, especially because of currency fluctuations, Deere now sees fiscal-year net income of $1.5 billion, with equipment sales down 8%. Second-quarter equipment sales are seen falling about 9%. The company in November projected full-year net income of $1.9 billion on flat fiscal-year equipment sales, views that were below analysts’ estimates at the time.

Deere shares slipped 1.2% to $33.10 in thin premarket trading. The stock has lost half its value the past six months.

For the period ended Jan. 31, the company – which is seen as a barometer for the strength of global commodities – posted net income of $203.9 million, or 48 cents a share, down from $369.1 million, or 83 cents, a year earlier, well below the company’s November forecast of $275 million, a view which itself was far short of analysts’ expectations at the time.

Net sales fell 1.1% to $5.15 billion as equipment sales rose 0.6% to $4.56 billion.

Analysts surveyed by Thomson Reuters, on average, expected earnings of 63 cents a share on equipment sales of $4.64 billion.

Equipment sales outside the U.S. and Canada were flat because of the stronger dollar, which cut 14 percentage points from results. Deere began, in the latter part of 2008, to see order cancellations in Latin America and Eastern Europe, areas where it had once expected significant growth. The company now expects big sales declines in those areas for this fiscal year, in part on currency impacts but also because of deteriorating economic conditions and credit availability.

Equipment profit fell 33% on higher raw-material costs and currency impacts, partially offset by higher prices. Financial-services earnings slumped 52% on narrower financing spreads and increased credit-loss provisions.

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