Deere quarterly profits fall by 38% - Weak construction spending saps sales

Deere quarterly profits fall by 38% - Weak construction spending saps sales
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: May 20 2009 13:39 | Last updated: May 20 2009 15:35
http://www.ft.com/cms/s/0/cdc9519a-4539-11de-b6c8-00144feabdc0.html


Deere & Company, the world’s biggest maker of tractors and other farm machinery, saw its second quarter profits suffer as the plunge in construction spending sapped its revenues.

Net income at Deere fell by 38 per cent to $472.3m, or $1.11 a share, compared with $763.5m, or $1.74 a share, during the second quarter of 2008. Although the results were slightly better than analysts’ estimates, the company said on Wednesday that the outlook for the rest of the year remained “highly uncertain” with “more risk on the downside”.

The company said worldwide revenues fell by 17 per cent to $6.75bn, driven down by a sharp decline in its construction and forestry division, where sales were off by 55 per cent in the quarter. Fewer shipments and higher material costs saddled the unit with a $75m operating loss.

”Clearly, operations dependent on construction activity and consumer spending are feeling the full impact of the sharp downturn,” Robert Lane, Deere’s chief executive, said in a statement.

The Illinois-based company predicted that sales of construction and forestry equipment would fall by 42 per cent for the year. Overall Deere expects revenue to be down by 19 per cent for the year with net income about $1.1bn. Those projections reveal a more grim outlook than in February when the company estimated sales would be off by 8 per cent for the year with net income of $1.5bn.

In the second quarter, Deere’s commercial and consumer equipment business reported a 24 per cent decline in sales, while agricultural equipment revenue was down by 4 per cent.

The company expects farm machinery sales in the US and Canada to be flat this year, but does expect to see more demand for four-wheel-drive tractors and seeding equipment as food prices rise and farmers plant more crops. Deere expects sales in Europe and South America to fall sharply as global demand continues to deteriorate.

Deere has been banking on the idea that its long-term growth will be solid as people in developing countries are increasingly able to pay for more food and higher-quality protein. The company has become increasingly dependent on markets such as Brazil and Russia: in the last fiscal year, for the first time, more than 50 per cent of its agricultural sales came from outside North America.

However the bursting of the commodity price bubble, weak consumer demand and the lack of credit have dashed short-term hopes, leading the company earlier this year to cut more than 1,000 workers as it slashed costs.

Shares of Deere rose by 7.27 per cent to $47 in early trading on Wednesday.