Deere Q1 Profit Down 43%, But Results Beat View; Lowers 2015 Outlook

(RTTNews) - Agricultural machinery maker Deere & Co. (DE) on Friday reported a 43 percent decline in profit for the first quarter from last year, reflecting lower sales of agricultural equipment amid continuing weak conditions in the global farm sector.

However, both revenue and earnings per share for the quarter beat analysts' expectations. Looking ahead, the company lowered its financial outlook for fiscal 2015.

Samuel Allen, chairman and chief executive officer, said, "Deere's first-quarter performance reflected sluggish conditions in the global farm sector, which reduced demand for agricultural machinery, particularly larger models, and led to lower sales and income. At the same time, our construction and forestry and financial services divisions had higher profits, showing the benefit of a well-rounded business lineup."

Net income attributable to Deere for the first quarter was $386.8 million or $1.12 per share, down from $681.1 million or $1.81 per share in the year-ago period.

On average, 21 analysts polled by Thomson Reuters expected the company to report earnings of $0.83 per share for the quarter. Analysts' estimates typically exclude special items.

The company noted that its quarterly performance reflected sluggish conditions in the global farm sector, which reduced demand for agricultural machinery, mainly larger models, and resulted in lower sales and income.

Meanwhile, financial services net income attributable to the company for the quarter increased 10 percent from the prior-year period to $156.8 million, reflecting growth in the credit portfolio and higher insurance margins. This was partially offset by less favorable financing spreads.

Deere's worldwide net sales and revenues for the quarter decreased 17 percent to $6.38 billion from $7.65 billion in the prior-year period. Total net sales of the worldwide equipment operations declined 19 percent to $5.61 billion. Analysts' consensus revenue estimate for the quarter was $5.53 billion.

Net sales included price realization of 1 percent as well as an unfavorable currency-translation effect of 2 percent for the quarter. Equipment net sales in the U.S. and Canada decreased 14 percent, while sales were down 28 percent outside the U.S. and Canada with an unfavorable currency-translation effect of 5 percent.

In the quarter, agriculture and turf sales and revenues declined 27 percent from last year, due largely to lower shipment volumes, sales of the company's landscapes and water operations, and the unfavorable effects of currency translation.

However, construction and forestry's sales rose 13 percent from the year-ago period, reflecting higher shipment volumes. These were partially offset by higher sales-incentive costs and the unfavorable effects of currency translation.

Financial services revenues for the quarter grew 10 percent from last year.

Looking ahead to fiscal 2015, Deere now forecasts net income attributable to the company to be nearly $1.8 billion, down from its prior forecast for net income of about $1.9 billion.

The company now projects equipment sales for the full year to decline about 17 percent and decrease about 19 percent for the second quarter, compared with year-ago periods. The outlook includes a negative currency-translation effect of about 3 percent for the full year and 4 percent for the second quarter.

Earlier, the company forecast full-year company equipment sales to drop by about 15 percent for fiscal 2015.

Street expects the company to report earnings of $5.51 per share for the year on a 13.5 percent decline in revenues to $28.52 billion.

Deere now projects fiscal 2015 worldwide sales of agriculture and turf equipment to decrease by about 23 percent, compared to its earlier forecast for a decline of about 20 percent. The revised forecast includes a negative currency-translation effect of about 4 percent.

The company noted that lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery, especially for larger models. Conditions are more positive in the U.S. livestock sector, supporting the sale of smaller sizes of equipment.

Meanwhile, Deere maintained its outlook for construction and forestry equipment sales for the year to increase by about 5 percent.

Allen said, "Even with a continued pullback in the agricultural sector, John Deere expects to remain solidly profitable in 2015. Our forecast reflects a level of results much better than we've experienced in previous downturns."

DE closed Thursday's trading at $91.71. In Friday's pre-market activity, the stock is down $0.52 or 0.57 percent to $91.19.