Deere Beats Sales, Profit Expectations
11/22 9:40 AM
(Dow Jones) -- Deere & Co. easily beat quarterly sales and profit expectations and predicted continued improvement in sales of its agricultural machinery next year.
Deere said Wednesday it expects better demand in 2018 from farmers in North America, where it dominates the market for large tractors and harvesting combines. That would end a stretch of weak sales since 2014, as low commodity prices and a glut of used equipment have weighed on demand for new machinery.
Despite another bumper harvest this year that will keep crop prices and farmers' incomes under pressure, strengthening industrywide sales of high-horsepower equipment lately show that some farmers are buying again. Moline, Ill.-based Deere said sales growth in South America will likely be slower in 2018 following a recent boom there thanks to record harvests in Brazil.
Deere expects its world-wide farm-equipment sales to increase about 9% next year, and its sales of farm and construction equipment to rise 22% in the fiscal year running through Oct. 2018 with the addition of Wirtgen Group, a German road-paving equipment maker that Deere is buying.
Deere's sales of farm and landscaping machinery soared 22% during the fourth quarter from the same period a year earlier to $5.4 billion. Profit for the segment rose 57% to $584 million. Deere said the improvement stemmed from rising production of equipment and higher prices. For 2017, farm equipment sales rose 9% from 2016 to $20.2 billion.
Deere's construction machinery business continued to benefit from a rebound in the North American machinery market. Construction swung from a fourth-quarter loss last year to an $85 million operating profit this year, as sales increased 37% to $1.65 billion. Deere expects sales of its construction and forestry equipment to increase by about 69% in 2018 with added sales from Wirtgen.
The $5-billion acquisition, Deere's largest ever, will expand the reach of its construction machinery business beyond North America and help offset the cyclical farming business. Deere expects Wirtgen to contribute $3.1 billion to Deere's sales in 2018, about 12% of the total, and about $25 million in net income.
"Wirtgen will establish Deere as a substantially more prominent player in global construction equipment markets," Chief Executive Sam Allen said.
In all for the fourth quarter, Deere reported net income of with $510.3 million, or $1.57 a share, compared with $285.3 million, or 90 cents a share, in the year-ago period. Analysts expected the company to earn $1.47 cents. Over all equipment sales in the fourth-quarter rose 26% from last year to $7.1 billion, while analysts anticipated $6.99 billion.
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