Farm slump hits profit at Deere & Co.

By Siyuan Du

Deere & Company reported a 30 percent decrease in second-quarter net income because of a slowdown in the global farm economy, but its stock rose more than 4 percent as the company raised its profit forecast for the full year.

The Moline, Illinois-based agricultural manufacturer earned $690.5 million, or $2.03 per diluted share, for the second quarter ended April 30, compared with $980.7 million, or $2.65 per diluted share in the year-earlier quarter.

The results beat the analysts’ consensus expectation of $1.54 per diluted share, according to Bloomberg L.P.

Shares of Deere rose $3.89 Friday to close at $93.35.

“We remain confident in Deere’s pricing power and its ability to strategically adjust costs for the current challenging environment,” Kwame Webb, analyst at Morningstar Inc., wrote in a research note.

Sales in the quarter fell 18 percent to $8.17 billion, compared with $9.25 billion for the same period last year, mainly due to a 20 percent drop in sales of its farm and other equipment.

The trends were challenging globally for the quarter, with equipment sales outside the U.S. and Canada declining 28 percent, in part because of the strong U.S. dollar.

“John Deere’s second-quarter results were noteworthy in light of the weak conditions that continue to affect the global agricultural sector,” said Samuel R. Allen, chairman and chief executive officer.

Profit in the company’s financial-services sector rose 15 percent to $169.8 million from $147.7 million last year, primarily due to a gain on the sale of its crop insurance business. Construction and forestry sales increased 2 percent for the quarter.

“John Deere expects to be solidly profitable in 2015, with the year ranking among our stronger ones in sales and earnings despite the pullback in the farm sector,” Allen said.

Deere is expecting a 40 percent decline in net income to about $1.9 billion in fiscal 2015, but that is an improvement over its previous estimate for a 45 percent drop to $1.8 billion. Company equipment sales are projected to decrease about 19 percent, compared with the prior expectation of a 17 percent decline.

Photo at top: A slumping farm economy hurt Deere’s quarterly earnings (Nosha/Flickr)