Deere Projects Sharp Decline in Farm-Equipment Sales

By Angela Chen   Deere & Co. projected a 20% decline in farm equipment sales for the 

recently started business year, reiterating its warnings that lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery.

The Moline, Ill., company, which reported a 20% decline in earnings for its November quarter, posted lower equipment sales for the two previous quarters as well, as farmers have been reluctant to buy new equipment.

"The slowdown has been most pronounced in the sale of large farm machinery, including many of our most profitable models," said Chief Executive Samuel R. Allen.

Shares declined about 2% premarket, even as the quarterly results topped Wall Street's expectations.

Deere, the world's largest manufacturer of farm equipment by sales, has been hurt by decreased demand due to unfavorable changes in the agriculture industry. When crop prices were high, farmers flush with cash frequently turned over their equipment, with many large operators buying new models every year or two.

But every new tractor sold generates one to three sales of used equipment, as farmers purchasing used late-model machines trade in their machines, which are eventually bought by other farmers, who unload even older equipment into the used market.

As a result, some analysts are warning the equipment market has become clogged with too much late-model, used machinery that could hold down a recovery in new-equipment demand for years.

In the quarter ended Oct. 31, equipment sales fell 6.7% from a year earlier to $8.04 billion, while operating profit dropped 14% to $1.17 billion.

Farm equipment fell 13% to $6.16 million due largely to lower shipment volumes and unfavorable effects of currency translation.

But in the construction and forestry segment, sales rose 23% to $1.88 billion while operating profit soared 93% to $228 million.

In all, the company reported earnings of $649 million, or $1.83 a share, down from $807 million, or $2.11 a share, a year earlier. Sales fell 5.1% to $9 billion.

Analysts had projected earnings of $1.57 a share on revenue of $7.75 billion.

Looking to the recently started, the company expects total equipment sales to drop 15%, with a 21% decline in the first quarter.

Write to Angela Chen at [e-mail]

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