Deere's Profit Rises On Stronger Machinery Sales

Published on: 21 Nov, 2018

Deere & Co. (NYSE: DE) said sales and profits in the latest period were lifted by demand in its construction and farming markets despite results falling short of Wall Street estimates.

The weaker-than-expected results sent shares lower as the market opened, but the stock quickly recovered as the Company stated an upbeat outlook for equipment demand. Shares rose 3.7%, to USD 143.82 in midday trading.

The maker of agricultural and construction equipment reported a 46% boost in profit, to USD 784.8 Million, or USD 2.42 per share. Earnings, adjusted for pre-tax gains, came to USD 2.30 per share, 14 cents short of industry analyst projections, according to a survey by Zacks Investment Research.

Revenue jumped 17% to USD 9.42 Billion, driven by gains from the purchase of The Wirtgen Group, a construction company, late last year. Adjusted revenue of USD 8.34 Billion fell short of Street forecasts for USD 8.59 Billion.

Costs for steel and aluminum have been pushed up by U.S. tariffs on imported metal and a nationwide truck shortage has helped increase shipping expenses for many companies.The Company said that it was still pressured by rising raw-material costs, especially in steel, as well as logistics expenses. It has been working to cut costs and raise prices as a result.

"While many famers believe these issues will be resolved before next year's harvest, there is no doubt trade concerns have had an impact on farmer sentiment," said John C. May, president of Deere's agricultural solutions unit.

The Company expects a 7% boost in revenue in 2019, and profit of about USD 3.6 Billion. Demand for equipment replacement continues to drive order activity, said John D. Lagemann, senior Vice President of Sales and Narketing in the Americas. He said farmer and dealer sentiment remain "cautiously optimistic."

"Key to this gradual recovery is either the continuation of trade flow readjustments," he said, or "a trade resolution between the U.S. and China."

Deere also expects continued growth in the U.S. housing market, along with economic growth worldwide, which would help to drive revenue at its construction unit.

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Austin Chiu

Email: Austin@financialinsiders.com

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