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PITTSBURGH — Deere & Co. on Wednesday posted a 38 percent drop in second-quarter profit as farmers and other customers cut spending on tractors, mowers and construction equipment. The world's largest farm equipment maker slashed its profit forecast for the second time this year.
Despite the poor outlook, shares rose as investors seemed pleased with the company's cost cutting and hopes for increased farm spending.
Sales of Deere's green-and-yellow equipment slid 17 percent, sapped by a global slowdown that has dampened construction and dragged down crop prices. The sharpest sales declines occurred outside the United States and Canada, where Deere has expanded quickly in recent years. Deere said market conditions remain uncertain.
"Clearly, operations dependent on construction activity and consumer spending are feeling the full impact of the sharp downturn," Robert Lane, Deere's chairman and chief executive officer, said in a statement.
Farmers have grown cautious about buying new equipment as prices for corn, wheat and other crops have fallen from record levels last year. Costs of fertilizer and fuel, meanwhile, remain relatively high. And the global credit crunch has made it more difficult to get loans.
The problems in Deere's agriculture markets have compounded the pain of a construction slump and a U.S. recession that has stifled spending on products like lawn care equipment.
As a result, the Moline, Ill.-based company cut its 2009 net income forecast to $1.1 billion, down from $1.5 billion expected in February and almost $2 billion predicted late last year.
It expects a 19 percent drop in equipment sales to contribute to the decline, with farm machinery sales flat or slightly down in North America, down 10 to 15 percent in western Europe and sharply lower in central Europe. Farm machinery sales in South America, where farmers have struggled with a drought, are seen plunging 20 to 30 percent.
Turf equipment and small utility tractors could sink about 20 percent in North America.
Construction and forestry sales are expected to drop about 42 percent, hit by historically low levels of construction in the United States. Deere also predicts lower profit from its credit business.
The company reported fiscal second-quarter earnings of $472.3 million, or $1.11 per share, down from $763.5 million, or $1.74 per share, a year earlier.
Revenue fell 17 percent to $6.75 billion.
Wall Street had expected earnings of $1.07 per share on revenue of $6.60 billion
Deere shares rose 51 cents, or 1 percent, to $44.33 in afternoon trading.
Investors may be heartened by a Deere forecast of higher farm receipts next year, suggesting "perhaps a better year than anticipated," said Lawrence De Maria, an analyst with Sterne, Agee & Leach.
And inventories in Deere's construction equipment business, which lost money during the quarter, are about half the industry average, "so they're running the business pretty well," he said.
To cope with weaker demand, Deere has cut production and laid off more than 1,000 workers this year, though it recalled 68 workers last month.
Deere scaled back global production by 19 percent during the quarter, partly reflecting weak demand for small- and medium-sized agricultural equipment. It expects production to fall about 22 percent for the year.
It also combined its agriculture equipment division with its commercial and consumer business to cut costs and streamline operations. The restructuring, along with news of layoffs and the worker recall, apparently buoyed investors' hopes, driving Deere stock up 63 percent between early March and the end of April.
The company, which also makes riding mowers and forestry machines, said overall equipment sales plunged 30 percent outside North America in the second quarter. Equipment sales dipped 8 percent in the United States and Canada, its largest market.
Sales of tractors, combines and other farm equipment — Deere's biggest source of revenue — fell 4 percent due to currency exchange fluctuations, lower shipments and higher material costs.
Deere's commercial and consumer division, which makes products like leaf blowers, reported a 24 percent decline, reflecting weaker consumer spending.
Construction and forestry equipment sales plummeted 55 percent, because of lower shipments, production and higher costs.
Deere's finance arm reported a 20 percent decline in quarterly profit.
