Deere Declines After Lowering Its Annual Forecast for U.S. Farmer Revenue

Deere & Co., the largest maker of agricultural equipment, fell the most in three months after lowering its forecast for U.S. farmer revenue, an indicator of demand for its signature green-and-yellow machines.

Deere dropped 3.3 percent to $86.09 at 12:47 p.m. in New York. The shares earlier tumbled 3.8 percent, the biggest intraday decline since Nov. 9.

Total U.S. farm receipts will be $371.9 billion in 2012, down from a November forecast for $374.2 billion and lower than the record $381.4 billion in 2011, as corn, wheat and soybean prices decline, the Moline, Illinois-based company said today in a presentation accompanying its fiscal first-quarter results.

“There is concern about moderation, if not peak, in agricultural equipment,” Larry De Maria, a New York-based analyst for William Blair & Co. who rates the shares “market perform,” said today in a telephone interview.

Farm income in the U.S., Deere’s largest market, will fall 6.5 percent in 2012 from last year’s record $98.1 billion as rising crop acreage and costs trim profits, the Department of Agriculture said Feb. 13. U.S. demand for combines has slowed, with retail sales dropping 50 percent in January from a year earlier, the Association of Equipment Manufacturers said this week.

‘Increased Demand’

While 2012 U.S. farm cash receipts will be down slightly from 2011, they’re “still extremely strong” and “translating into increased demand,” Susan Karlix, a Deere spokeswoman, said today on a conference call with analysts.

The company today reported first-quarter profit and forecast 2012 earnings that topped analysts’ estimates. Net income climbed 3.7 percent to $532.9 million, or $1.30 a share, from $513.7 million, or $1.20. That exceeded the average $1.24- a-share profit estimate of 18 analysts surveyed by Bloomberg. Sales advanced 11 percent to $6.77 billion, beating the average estimate of $6.46 billion of 14 analysts.

Deere raised its fiscal 2012 profit forecast to about $3.28 billion from $3.2 billion previously. The average of 15 estimates was $3.18 billion. The company said sales of its farm, forestry and construction machines will increase 15 percent for the full year.

The farm-equipment industry’s sales in the U.S. and Canada will rise about 10 percent in fiscal 2012, the higher end of Deere’s previous forecast, as “overall conditions remain positive and demand continues to be strong, especially for high- horsepower equipment,” the company said.

‘Favorable’ Conditions

Industrywide sales in the European Union will be up as much as 5 percent on “favorable” conditions in the grain, livestock and dairy sectors, Deere said. Its previous forecast was for sales to be unchanged.

The U.S. and Canada together comprise Deere’s largest market, followed by Europe, according to the company.

Chief Executive Officer Samuel R. Allen is seeking to boost sales 56 percent to $50 billion by 2018 from a record $32 billion in fiscal 2011. The company also has a target to increase the proportion of revenue from outside the U.S. and Canada to 50 percent from 39 percent last year.

The company in the last year has introduced a record number of tractors, combines and harvesters to court farmers overseas. It has also announced plans to build seven factories in China, Brazil and India that will produce farm and construction equipment.

Agricultural equipment made up 76 percent of fiscal 2011 sales while construction and forestry accounted for 17 percent. Farm equipment sales increased 8 percent while construction and forestry gained 22 percent in the quarter.

“Deere is starting to see some real end-market demand” in construction, Andrew Kaplowitz, a New York-based analyst for Barclays Capital Inc. who rates the shares “overweight/ positive.” “A lot has been replacement demand. The market is starting to show improvements.”

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.

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