(Updates throughout with more information on latest quarter and guidance, comments from executives, context and share price.)
By Doug Cameron
Of DOW JONES NEWSWIRES
CHICAGO -(Dow Jones)- Deere & Co. (NYSE:DE) (DE) on Tuesday increased its forecast for global agricultural equipment sales as it reported a 22% increase in fiscal second-quarter profits, but left its full-year profit goal unchanged owing to rising costs and material shortages.
The Moline, Ill., company also lifted its forecast for farm incomes in the U.S. and South America, though it also halved its estimate for sales growth in construction and consumer equipment, in part because of the continued weakness in the U.S. housing market.
Deere is the world's largest agricultural equipment maker by revenues, and booming commodity prices have lifted demand across the sector, particularly for larger high-performance tractors and combine harvesters.
However, Deere and its rivals have struggled at times to meet demand because of production issues and shortfalls in supplies, while rising steel and transport prices have hit margins.
Deere shares fell nearly 10% Wednesday morning as the bottom line for the second quarter ended April 30 narrowly missed the Wall Street consensus and investors expressed concern about rising input costs. The stock was down 8.2% to $82.83 in recent trading.
The sharp fall mirrors the reaction to the earnings reports and positive outlooks issued late last month by Deere's two closest rivals. Shares in CNH Global NV (CNH) and Agco Corp. (NYSE:AG) (AG) both recorded double-digit-percentage declines on the day of their reports.
Deere reported net income of $763.5 million, or $1.74 a share, for the latest quarter, compared with $623.6 million, or $1.36 a share, a year earlier. The company reaffirmed its February forecast for fiscal 2008 net income of about $ 2.2 billion but projected third-quarter net income of $550 million to $575 million, below Wall Street's consensus view of $650 million.
Mike Mack, Deere's Chief Financial Officer, described the second quarter as " terrific" on a call with analysts, with the forecast for full-year sales growth lifted from 17% to 20%. Revenue rose 18% to $8.1 billion in the second quarter.
Mack noted that, for the first time, agricultural equipment revenues in the U.S. and Canada would be smaller this year than those derived from outside North America. While equipment sales revenue in the U.S. and Canada rose 6% in the second quarter, equipment revenue outside the two countries jumped 46%, with 14 percentage points coming from favorable currency-exchange rates.
Growth in international equipment demand is helping to counter the slowdown caused by the continuing problems in the U.S. housing market.
The company said it expects global agricultural equipment sales to jump nearly 35% for its fiscal year, with about 7 percentage points coming from favorable currency-exchange rates.
However, the surge in steel prices and shortages of some components - notably the special tires for its farm equipment - are expected to weigh on margins for the rest of the year.
"We may have some spot issues in terms of availability of materials," said Marie Ziegler, Vice President, Investor Relations on the call. "Tires are an exciting commodity."
Similar production and supply issues have dogged Deere's rivals, but the company still boosted its capital expenditure for the year to increase production, notably in larger tractors.
Indicative of the problems in the U.S. housing sector, construction and forestry earnings slid 14% in the second quarter, while sales fell 7%. Deere warned in February that the sector would see continued pressure from the housing-market slump. Wednesday, it forecast a 3% sales decline for the year and said it expected U.S. housing starts to hit a 60-year low this year.
-By Doug Cameron, Dow Jones Newswires; (312) 750 4135; doug.cameron@ dowjones.com
(Mike Barris contributed to this article)
(END) Dow Jones Newswires 05-14-08 1303 Copyright (c) 2008 Dow Jones & Company, Inc.
