Deere Holds On In Dismal Market
November 27 2015 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 11/27/15)
By Bob Tita
Deere & Co.'s quarterly results handily topped expectations
Wednesday as the farm machinery maker continued to navigate through
a dismal equipment market pinned down by low crop prices.
The world's largest seller of tractors and harvesting combines
reported a 46% drop in fiscal fourth-quarter profit and a 20%
decline in revenue in the midst of what has become the longest
slump in the U.S. farm-machinery market in 15 years.
While Deere expects the downturn to persist in 2016, the company
offered a better-than-expected profit outlook for the year as it
trims costs and it benefits from lower pension expenses.
"Our businesses have remained solidly profitable," said Chief
Financial Officer Rajesh Kalathur during a conference call with
analysts. "We believe John Deere can continue to earn solid returns
even in a weak farm economy."
Deere expects U.S. cash receipts from farming, which is an
important indicator for equipment demand, to be flat next year
compared with 2015, as downward pressure continues on prices for
corn, soybeans and wheat.
Deere predicted industrywide sales of farm equipment in the U.S.
and Canada in 2016 will fall 15% to 20% from 2015. It sees the
sales volume for high-horsepower machinery, which is a market Deere
dominates, plunging 25% to 30% from 2015.
The company is counting on being able to outperform the weak
market in 2016 with a combination of lower equipment inventories,
higher prices on equipment and rising sales of replacement parts
and services. Deere forecast sales of its farm equipment will be
down about 8% from 2015. For Deere's fiscal year ended Oct. 31, its
farm equipment sales declined 25%, while operating income from the
farm business plunged 55%.
Some analysts wonder whether Deere's forecasts for its own
business are too optimistic, especially if the market slump doesn't
reach a bottom in 2016.
Deere tried to head off analysts' concerns about an escalation
of equipment leasing aggravating the oversupply of used equipment
on the market when leases expire. The company said leasing activity
is growing modestly, accounting for 13% of its financing unit's
total portfolio of loans and leases during the fourth quarter, up
from 11% a year earlier.
Deere has pulled back on production and has furloughed assembly
workers to lower its costs. The company reduced overhead expenses
by 13% in fiscal 2015, including a 17% decrease in the fourth
quarter alone. Meanwhile, Deere predicted its pension expense in
2016 will decline by $200 million, which analysts estimate will add
about 40 cents to per-share earnings.
Deere predicted that overall equipment sales, which include its
forestry and construction machinery, will be down about 7% in 2016
to $24 billion. Net income of $1.4 billion is anticipated, implying
per-share earnings of about $4.40. Analysts have forecast $1.3
billion in net income, or $4.14 a share, from $24.5 billion of
equipment sales.
Overall for the fourth quarter, Deere reported a profit of
$351.2 million, or $1.08 a share, down from $649.2 million, or
$1.83 a share, a year earlier. Revenue from machinery declined 25%
to $6.72 billion. Analysts expected 75 cents in per-share profit on
$6.13 billion in revenue.
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(END) Dow Jones Newswires
November 27, 2015 02:47 ET (07:47 GMT)
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