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Deere fourth quarter falls on weaker consumer sales, expenses


December 5, 2008
By Deere & Co.

November 27, 2008 – Deere & Co.’s quarterly profit fell 18 per cent
as weaker results in its small equipment and credit divisions, coupled
with higher expenses, overwhelmed strong sales of farm machinery.

November 27, 2008 – Deere & Co.’s quarterly profit fell 18 per cent 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.

Government data released Nov. 26 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 per cent 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,” said Robert W. Lane, Deere’s chief executive, 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.

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.

The outlook for next year, Lane said, was “highly uncertain and its impact on John Deere’s operations is difficult to assess.”

Next year, Deere said it expected equipment sales to be about flat, and up about seven per cent for the first quarter, depending on global economic conditions. That includes a currency impact of about six per cent for the first quarter and the full year.

Deere expects agricultural equipment sales in the United States and Canada to rise about five per cent in its 2009 financial year, helped by higher sales of large tractors and combines. But it forecast a sales drop of 10 to 20 per cent in South America, citing limited access to credit in Brazil and slowing market conditions in Argentina due to dry weather.


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