Deere & Co., the world’s largest maker of farm equipment, forecast 2010 profit that trailed analysts’ estimates as the recession reduces demand from growers in North America and Europe.
Profit in the year starting Nov. 1 will be $900 million, Moline, Illinois-based Deere said today in a statement. The forecast implies earnings of about $2.14 per share based on the company’s average share count during the fourth quarter. The average estimate of 17 analysts surveyed by Bloomberg was for net income of $2.76 a share.
Chief Executive Officer Samuel Allen, who took the post in August, has curbed production, reduced inventories and given voluntary separation packages to 800 workers to cut expenses as the recession reduces demand. Fiscal 2010 sales will drop about 10 percent in the U.S. and Canadian farm-equipment industry and decline as much as 15 percent in Western Europe.
“This is a brand new CEO, his first guidance, so he’s obviously going to want to do something that he can deliver,” Stephen Volkmann, a New York-based analyst with Jefferies & Co., said in an interview today. Volkmann recommends buying the shares. “I expected it to be conservative.”
Deere fell 3 cents to $52.26 at 9:46 a.m. in New York Stock Exchange composite trading. The shares increased 36 percent this year before today.
Sales Drop
The fiscal fourth-quarter net loss was $222.8 million, or 53 cents a share, compared with profit of $345 million, or 81 cents, a year earlier, Deere said. Sales fell 28 percent to $5.33 billion in the quarter ended Oct. 31.
The net loss included a $321.8 million charge related to a decline in the value of the landscape supply business and to give the voluntary separation packages. Excluding those items, profit was 23 cents a share.
Deere hadn’t posted a net loss since its first fiscal quarter of 2002. Equipment sales fell 30 percent in the quarter and will slide about 1 percent in 2010, Deere said. First- quarter equipment sales will drop about 10 percent, the company said.
“Farmers are expected to be cautious in their purchasing decisions as a result of sluggish overall economic conditions and near-term profitability issues in the livestock and dairy sectors,” Deere said in the statement.
Agriculture Sales
The company today forecast sales in the agriculture and turf unit will fall about 4 percent in 2010. Deere predicts revenue at the construction and forestry division will climb by about 18 percent after the company trimmed inventories in 2009.
“Despite the subpar 2010 guidance, we believe that Deere’s credit ratings remain durable, given the company’s moderate leverage and good free cash flow,” Joel Levington, director of corporate credit for Brookfield Investment Management Inc., said today in an e-mail. Neither Levington nor Brookfield own shares of Deere.
Deere today forecast total U.S. farm cash receipts of $307.8 billion in 2010, according to a slideshow on its Web site. Previously, the company predicted $309.3 billion. Deere’s forecast for 2009 is $300.6 billion.
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