Deere & Co share price up, trims annual profit outlook on slowing farm equipment sales

The worlds biggest farm equipment manufacturer – Deere & Co. – cut its full-year profit projection for FY2015 due to lower farmer spending on high-horsepower equipment.

The U.S.-based company said net income is expected to amount to about $1.8 billion for the financial year ending October 2015, revising down its previous forecast of $1.9 billion. Sales of farm and turf machinery are anticipated to drop by 23% from a year earlier, compared to previous expectations for a 20% decline, while overall sales will slide by 17% after forecasting a 15% decrease in November.

Currently, the company has operations located in Germany, France, Russia, China, India, Canada, South Africa and others. Still, about 62% of its total revenue for 2014 was generated by its divisions in Canada and the U.S. The US government expects farm income in the US to plummet by the most since the Great Depression in 2015.

For the first fiscal quarter ended January 31st, net income declined by 43% to $386.8 million, or $1.12 per share, from $681.1 million, or $1.81 per share, a year ago. Analysts had projected a drop to $0.83. Total revenue, including from its finance unit operations, declined by 17% to $6.38 billion. Equipment sales, excluding the finance unit, slid 19% to $5.61 billion.

The Chief Executive Officer of Deere – Samuel R. Allen – said in a press release: “Deere’s first-quarter performance reflected sluggish conditions in the global farm sector, which reduced demand for agricultural machinery, particularly larger models, and led to lower sales and income.”

The US-based company shared that it expects revenue in its construction and forestry machinery unit to increase by 5% for the year but the projected 23% decline in sales at its largest agriculture and turf division will weigh on overall results.

Deeres downbeat outlook fanned pessimism that the company will continue to face severe headwinds for an extended period.

Eli Lustgarten, an analyst for Longbow Research, said for the Wall Street Journal: “There’s no reason to believe that things get better in 2016. You can make the big tractors look better next year by substantially underproducing them this year. But 2016 will have its problems for Deere.”

Deere & Co. settled 0.79% higher at $92.43 per share on Friday in New York, marking a one-year change of +8.59%. The company is valued at $31.40 billion. According to CNN Money, the 21 analysts offering 12-month price forecasts for Deere & Co have a median target of $86.00, with a high estimate of $106.00 and a low estimate of $69.00. The median estimate represents a -6.96% decrease from the last price of $92.43.