AP Manufacturing Writer
Pittsburgh (AP) — Deere & Co. reported 38 percent drop in quarterly profit Wednesday but beat Wall Street expectations, even as tight credit and lower crop prices undercut overseas demand for its tractors and combines.
The world’s largest farm equipment makers also slashed its 2009 profit outlook by 27 percent, the second time this year that Deere has cut its annual forecast, citing uncertain market conditions.
Farmers have become more cautious about spending on new equipment as crop prices, which drive machinery sales, tumbled from historic highs last year. The costs of fertilizer and fuel, meanwhile, remain relatively high. And the global credit crunch has made it more difficult to get loans.
Still, Deere shares rose $1.48, or 3.4 percent, to $45.30 in early trading.
The Moline, Ill.-based company earned $472.3 million, or $1.11 per share, in its fiscal second quarter ended April 30, beating Wall Street expectations. Revenue fell 17 percent to $6.75 billion.
Analysts surveyed by Thomson Reuters, on average, had forecast profit of $1.07 per share on revenue of $6.60 billion. Those estimates typically exclude one-time items.
A year earlier, the company earned $763.5 million, or $1.74 per share.
Deere lowered its projected 2009 net income to $1.1 billion, down from $1.5 billion forecast earlier. Deere said the outlook for the remainder of the year “remains highly uncertain.”
The company, which also makes riding mowers and construction and forestry machines, said overall equipment sales plunged 30 percent outside North America. Deere has been trying to expand globally and sold more than half its agricultural equipment outside the region for the first time last year.
Equipment sales dipped 8 percent in the United States and Canada, its largest market.
Sales of tractors, combines and other farm equipment — Deere’s biggest source of revenue — fell 4 percent due to currency exchange fluctuations and lower shipments. Those sales are often driven by prices of corn, wheat and other crops, which have fallen from record levels last year.
The U.S. Department of Agriculture predicts that U.S. farm income will fall some 20 percent in 2009.
Deere’s commercial and consumer division, which makes products like leaf blowers, reported a 24 percent decline, reflecting weaker consumer spending amid the economic downturn.
Construction and forestry equipment sales plummeted 55 percent, mainly because of significantly lower production and higher material costs. Although steel prices have fallen sharply since last year, Deere may have used metal purchased when prices were still high.
To cope with the weaker demand, Deere has laid off more than 1,000 workers this year, though it recalled 68 workers last month.
It also combined its agriculture equipment division with its commercial and consumer business to cut costs and streamline operations. The restructuring, along with news of layoffs and the worker recall, apparently buoyed investors’ hopes, driving Deere stock up 63 percent between early March and the end of April.
Deere’s finance arm reported a 56 percent decline in quarterly profit.