Deere 4Q Profit Up 46 Percent
Deere & Co. says strong sales of its farm equipment helped boost its fourth-quarter profit by 46 percent and says it expects robust demand will lead to further growth next year.
The quarterly results beat Wall Street expectations, and Deere shares rose more than 3 percent in afternoon trading.
The Moline, Ill., company said Wednesday that equipment sales were up 20 percent in the quarter. That included 14 percent sales growth in the United States and Canada, and 31 percent growth in the rest of the world outside those two countries.
The sales growth helped Deere generate net income of $670 million, or $1.62 per share, for the three months ended Oct. 31, up from $457 million, or $1.07 per share, a year ago.
Revenue grew 20 percent to $8.6 billion from $7.2 billion a year ago. Both sales volume and equipment prices increased.
Analysts surveyed by FactSet expected earnings of $1.43 per share on revenue of $7.91 billion.
Deere said equipment sales will increase about 15 percent in fiscal 2012 and profit will grow to $3.2 billion from $2.8 billion in fiscal 2011.
"We are proud of the company's performance in 2011 and look forward to building on these gains in 2012 and beyond," Chairman and CEO Samuel Allen said in a statement. "We have great confidence in the company's future and our role in helping feed, clothe and shelter the world's growing population."
Deere's report offers an indication of how well farmers worldwide are doing because the company is the world's largest maker of agricultural equipment. Deere said it expects farmers to have another good year in 2012 because the demand for agricultural commodities remains strong.
Deere said it expects net U.S. farm income will decline slightly from 2011's projected $115.7 billion to roughly $109.2 billion in 2012.
"I think overall they are betting on a strong farm economy," Edward Jones analyst Jeff Windau said.
Rising steel and administrative costs may be a bit of a concern for investors, Windau said, but Deere's recent results have been great.
"It's an outstanding quarter and a great forecast," Windau said.
Deere has been rolling out new products throughout 2011 to comply with new federal pollution regulations. As part of that, Deere has increased prices for most of its equipment, but its R&D costs have also risen considerably.
Credit Suisse analyst Jamie Cook said in a research note that's it's hard to criticize Deere's fourth-quarter performance, and the company's profit outlook for 2012 is more optimistic than expected.
During the fourth quarter, about 41 percent of Deere's net sales came from outside the United States and Canada.
To help meet the growing demand, Deere announced plans in 2011 to build new manufacturing plants in Brazil, China and India to better serve customers in those countries as well as expansion projects at several of its existing plants.
Deere's total employment has grown about 10 percent over the past year. Just over half of Deere's 61,000 employees are based in the United States. Spokesman Ken Golden said the number of U.S. jobs is up about 9 percent in 2011 while jobs outside America have grown by about 11 percent.
Jefferies & Co. analyst Stephen Volkmann told clients Wednesday that Deere's guidance for fiscal 2012 is more optimistic overall. He said the outlook includes a $500 million increase in raw material costs and a 10 percent increase in research and development expenses.
For all of Deere's fiscal 2011, the company reported net income of $2.8 billion, or $6.63 per share. That's 50 percent higher than the previous year's $1.87 billion, or $4.35 per share.
In addition to agricultural equipment, Deere makes construction and forestry equipment, such as backhoes, excavators, riding mowers and leaf blowers. But construction and forestry sales represent a small portion of Deere's business compared to its agricultural equipment.
Its shares rose $2.51, or 3.5 percent, to $74.43 in afternoon trading after rising as high as $75.98 earlier in the session. Its shares are up 24 percent from a 52-week low of $59.92 in early October. They peaked over the past year at $99.80 in April.