May 19, 2017 / 5:38 PM / 2 months ago

Deere raises 2017 forecast on strong farm equipment demand

3 Min Read

REUTERS - Deere & Co raised its full-year sales and profit forecast for the second time, as demand improves for its farm and construction equipment, particularly in South America, sending its shares to a record high of $122.22.

The company said it expected fiscal 2017 industry sales of tractors and combined harvesters in South America to be at the high-end of its earlier forecast of about 15-20 percent rise, buoyed by improving economic conditions in Brazil and Argentina.

While farmers in South America have been complaining about low prices, they have enjoyed big gains in corn and soybean output.

"We’ve seen a big increase in acres and production, and that requires equipment. If they have available funds, they are willing to invest," said Jack Scoville, a broker at The Price Futures Group in Chicago who has farmer clients in Brazil.

Brazil just completed a record-large soybean harvest of 111.60 million tonnes, according to U.S. Department of Agriculture data.

A 7 percent drop in Brazilian currency on Thursday is also encouraging farmers to sell soybeans as their supplies turn more affordable than exports from the United States, providing them with more cash to spend on equipment.

Latin America is Deere's third-biggest market, accounting for about 9 percent of its total equipment sales.

Deere raised it fiscal 2017 equipment sales growth forecast to 9 percent, from its previous forecast of 4 percent.

FILE PHOTO: A 1941 Model H John Deere tractor is photographed at a farm in Hutto, Texas, U.S., February 16, 2017. Picture taken February 16, 2017.Mohammad Khursheed/File Photo

The company said it now expects fiscal 2017 net income attributable to Deere to be about $2 billion, up from $1.5 billion estimated previously.

Deere's sales had taken a hit as bumper corn and soybeans harvests drove down prices, leaving farmers with less cash to spend on equipment.

To cope with the slump, Deere cut jobs and lowered production of its trademark green tractors and harvesting combines.

Net income attributable to Deere rose 62 percent to $802.4 million, or $2.49 per share, in the second quarter ended April 30, helped by higher shipments, improved pricing and cost cuts.

Excluding the gain of 55 cents on sale of partial interest in affiliate SiteOne Landscape Supply Inc, which provides irrigation supplies, Deere earned $1.94 per share.

Total sales and revenue rose 5.2 percent to $8.29 billion.

Analysts on average were expecting earnings of $1.68 cents per share, according to Thomson Reuters I/B/E/S.

Deere's shares rose as much as 8.5 percent to $122.22 in morning trading.

Reporting by Ankit Ajmera in Bengaluru; additional reporting by Michael Hirtzer in Chicago; Editing by Arun Koyyur

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