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Deere first-quarter profit sinks

Farmer Kyle Ross works on his farm Feb. 11, in Opelika, Ala. Agricultural equipment maker Deere & Co. said its fiscal first-quarter earnings slid 45 percent, as the global economic slowdown, higher raw material costs and currency fluctuations hurt results.

AP Photo by Bernard Troncale for The Birmingham News

Pittsburgh (AP) — Deere & Co.’s quarterly profit tumbled 45 percent as the global economic slowdown and stronger dollar hurt demand for its tractors and construction equipment.
The world’s largest manufacturer of farm machinery slashed its 2009 earnings outlook by 21 percent and suspended quarterly profit forecasts, citing limited visibility amid the deteriorating economy.
Deere, which also makes its iconic yellow-and-green lawn movers and forestry equipment, on Wednesday posted net income of $203.9 million for its fiscal first quarter that ended Jan. 31. That was down sharply from $369.1 million a year earlier. Revenue slipped 1 percent to $5.15 billion.
Analysts surveyed by Thomson Reuters had expected higher profit of 63 cents per share, on average, on revenue of $4.64 billion. Those estimates typically exclude one-time items.
High steel costs continued to drag down results of the Moline, Ill.-based company. Prices for the metal soared to historic highs last year, and orders from companies like Deere may be based on those prices.
The agricultural equipment division “did incur higher-than-forecast material costs in the quarter, approximately $80 million more than projected in August,” said Susan Karlix, manager of investor communications. “This simply reinforces the fact that the underlying commodity markets are volatile and extremely hard to predict.”
Deere’s North America sales edged up 1 percent. Sales in the rest of the world remained virtually flat, but would have been 14 percentage points higher if a stronger dollar hadn’t discouraged overseas buying. About 40 percent of Deere’s equipment sales come from outside North America.
Deere’s worldwide agricultural equipment sales — its biggest operation — did jump 18 percent as higher prices and increased volumes offset greater raw material costs and a stronger dollar. Robert W. Lane, Deere’s chairman and chief executive, said demand for large farming machinery has held up well largely due to the financial health of U.S. agriculture.
But sales of commercial and consumer equipment — including products such as riding mowers and chain saws — slumped 25 percent, while construction and forestry sales slid 28 percent, both hurt by lower volumes amid the continued housing slump.
And net income in the company’s credit unit plunged by more than half on a higher provision for bad debt, lower commissions from crop insurance and narrower financing spreads.
Inventory and outstanding payments rose in the quarter to $1.4 billion. As the credit markets tightened, order cancellations surged in Central Europe and Eastern Europe as well as Russia. South American cancellations were “somewhat higher than typical” while customers in the U.S., Canada and Western Europe canceled very few orders.
Deere lowered its fiscal 2009 forecast for net income to about $1.5 billion from the $1.9 billion it forecast in November. Analysts, on average, projected earnings of $1.77 billion, according to a Thomson Reuters poll.
Deere also reduced its forecast for worldwide agricultural equipment sales this fiscal year to a decline of 2 percent from a previous forecast for a 5 percent increase. The company more than doubled its projection for a fiscal 2009 sales decline in its worldwide commercial and consumer business to 14 percent from 6 percent.
Deere also doubled its outlook for a sales decline in its worldwide construction and forestry business to 24 percent. Net income from its lending business is expected to be about $250 million, not the $300 million previously forecast.
Capital expenditures this fiscal year will be $800 million, down from the $1 billion previously forecast.
The company’s outlook remains “unusually uncertain,” particularly because of foreign exchange rates. It suspended its practice of providing quarterly net income forecasts.
The recently signed federal stimulus spending bill is not expected to have a “minimal impact” on Deere in this fiscal year.

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