Do-Nothing Democrats Cause Deere 4Q Fall of 18%
- From: Patriot Games <Patriot@xxxxxxxxxxx>
- Date: Thu, 27 Nov 2008 08:41:44 -0500
http://m.apnews.com/ap/db_7736/contentdetail.htm?contentguid=7KcyjsWF
Deere 4Q falls on weaker consumer sales, expenses
A John Deere logo is seen on a tractor at Harvest Equipment in
Montpelier, Vt., Tuesday, Nov. 25, 2008. Deere & Co. reported an 18
percent decline in fiscal fourth-quarter profit Wednesday, as robust
agricultural equipment sales failed to overcome weaker consumer sales
and higher expenses and taxes. (AP Photo/Toby Talbot)Deere & Co.'s
quarterly profit fell 18 percent as weaker results in its small
equipment and credit divisions, coupled with higher expenses,
overwhelmed strong sales of farm machinery.
The world's largest maker of agricultural equipment also forecast
lower earnings next year, citing the global economic downturn, with
equipment sales remaining virtually flat.
Still, shares of Deere, known for its green-and-yellow tractors and
harvesting machines, rose $2.66, or 8 percent, to $35.76 on Wednesday.
The stock, which has fallen about 63 percent since the beginning of
the calendar year and opened sharply lower, rose with the broader
market starting in the late morning Wednesday after President-elect
Barack Obama soothed investors by pledging to deal with the nation's
economic crisis.
Earlier this week, shares of large equipment makers like Deere got a
boost from the President-elect's plan to offer a stimulus package that
would include construction projects.
Even with strong sales of farm equipment, the Moline, Ill.-based
company faced big challenges across its other businesses. Those
division make loans and sell a range of machinery to customers such as
construction firms, forestry companies, and homeowners, which have
been hit hard in recent months by the housing collapse and wider
financial crisis.
Eli Lustgarten, an analyst with Longbow Research, said markets for
Deere's lawn and garden and its construction equipment were sensitive
to larger economic trends, and that they would remain under pressure
in 2009.
"It's going to be a problematic year," he said.
Government data released Wednesday showed disturbing trends last month
that could hurt Deere on several fronts, including plunges in consumer
spending, new home sales, and orders for big-ticket manufactured
goods.
Still, sales of Deere's agricultural equipment climbed 43 percent to
$4.57 billion in its fiscal fourth quarter ended Oct. 31.
"Demand for productive agricultural machinery has continued to be
strong due in large part to the financial health of the farm sector,
which has remained positive to date," Robert W. Lane, Deere's chief
executive, said in a statement.
Although prices have declined for commodities such as corn and
soybeans, they remain high enough for farmers to earn solid income,
company executives say. That is the most important factor driving
equipment purchases, they say.
For the first time, Deere saw more than half its agricultural
equipment sales come from markets outside the United States and
Canada, said Susan Karlix, a company spokeswoman.
Growth of the business was particularly strong in emerging markets
such as South America and Russia, she said in a conference call with
analysts and reporters.
Meanwhile, sales of its commercial and consumer products, such as
lawnmowers, dipped 11 percent during the quarter. Deere, which also
makes backhoes and excavators, said construction and forestry sales
edged up 3 percent, although they eased for the year.
Higher costs for raw materials such as steel weighed on results. A
higher-than-expected tax rate also cut into the quarterly and annual
performance, along with the negative impact of the strengthening
dollar, which makes purchases of exported U.S. goods more expensive
for foreign buyers.
Steeper selling, administrative and general expenses affected annual
results.
Deere's financial services business saw its profit slump 28 percent in
the quarter, mainly due to higher expenses and average leverage,
foreign exchange declines, a higher provision for credit losses and
narrower financing spreads.
Overall quarterly sales and revenue jumped 21 percent to $7.40
billion.
The outlook for next year, Lane said, was "highly uncertain and its
impact on John Deere's operations is difficult to assess."
Deere said it earned $345 million, or 81 cents per share, for the
fourth quarter, down from $422.1 million, or 94 cents per share, in
the year-earlier period. Results included pretax expenses in the
latest quarter of about $50 million, or 8 cents per share, to close a
facility in Welland, Canada.
Analysts surveyed by Thomson Reuters, on average, predicted earnings
per share of 99 cents on revenue of $6.84 billion. Those estimates
typically exclude one-time items.
For the full year, Deere said net income rose 12.6 percent to a record
$2.05 billion, or $4.70 per share, compared with $1.82 billion, or $4
per share, last year.
Next year, Deere said it expected equipment sales to be about flat,
and up about 7 percent for the first quarter, depending on global
economic conditions. That includes a currency impact of about 6
percent for the first quarter and the full year.
The company expects net income to slip about 7 percent to $1.9 billion
for fiscal 2009. For the first quarter, Deere projected that earnings
will plunge more than 25 percent to $275 million.
Analysts had predicted 2009 profit of $2.32 billion and first-quarter
earnings of $363.1 million.
Deere expects agricultural equipment sales in the U.S. and Canada to
rise about 5 percent in fiscal 2009, helped by higher sales of large
tractors and combines. But it forecast a sales drop of 10 to 20
percent in South America, citing limited access to credit in Brazil
and slowing market conditions in Argentina due to dry weather.
.
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