John Deere on Wednesday forecast that a surge in spending on tractors and combine harvesters in South America as farmers benefit from improved commodity prices would help drive a sharp rebound in its full-year earnings.
The world’s biggest maker of agricultural equipment now expects sales to grow as much as 13 per cent in 2010 compared with 2009, driving net income to $1.6bn. As recently as February, Deere was expecting sales to increase 6 to 8 per cent, producing profits of $1.3bn. While analysts noted that Deere’s previous forecasts were conservative, the upgrades also point to improvements in the global economy that are driving increased demand for agricultural commodities.
Should the revised estimates prove accurate, they would mark a substantial recovery from Deere’s 2009 lows when full-year net income fell by more than half to $873.5m compared with 2008, on sales down 18 per cent to $23bn.
Like many of its peers, Deere is banking on emerging markets for growth. Brazil and Argentina are expected to perform well because prices for key crops such as soybeans and sugar cane are high, making farmers more willing to buy equipment.
Deere raised its forecast for sales of agricultural equipment in South America and now expects a 25 per cent growth spurt compared with 2009 levels. Its previous forecast predicted 10 to 15 per cent growth.
North American equipment sales, which make up about 55 per cent of revenues, will still play a key role in driving growth as “healthy farm cash receipts, solid commodity prices and low interest rates” push farm machinery sales up 5 to 10 per cent for the year.
For the three months to the end of April, Deere’s net income was $547.5m, or $1.28 per share, as farmers in North America bought more equipment at higher prices and sales of forestry kits rebounded. In the same second quarter period in 2009, net income was $472.3m, or $1.11 per share.
Profits were helped by better pricing, foreign exchange movements and lower raw-material costs. The US healthcare reform legislation that passed earlier in the year however led to a $129.5m tax charge.
Second quarter sales rose 6 per cent to $7.1bn, but 4 percentage points of that was due to currency translation effects. Analysts expected Deere to report earnings of about $1.07 a share on sales of $6.6bn for the period.
The construction and forestry sector was the standout, with sales jumping 52 per cent to $911m.‹