Deere’s Q2 profit falls but farm equipment market remains strong

21 May 2009

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Deere & Co, the world's largest maker of farm equipment, posted second-quarter profit that beat analysts' estimates as sales of agricultural machines remained ''strong'' amid the economic recession.

The Moline, Ilinois-based company said that net income declined to $472.3 million, or $1.11 a share, from $763.5 million, or $1.74, a year earlier beating the $1.07-a- share average estimates by analysts.

Chief executive officer, Robert Lane is pushing high-horsepower tractor sales as the slump in the housing market hits demand for the company's construction equipment product line. The US market for large farm machinery has, however, remained strong according to Lane.

Analysts say the company is facing the same problems as it competitors, but is strongly placed thanks to its North American tractor and combine business.

Second-quarter sales of the agricultural unit accounting for nearly 60 per cent of its revenue decreased 4 per cent on foreign-exchange fluctuations and lower shipments. Total sales in the second quarter ended 30 April fell 17 per cent to $6.75 billion, which was less than the $6.86 billion average estimated by analysts.

The company's stock gained 51 cents to $44.33 in New York Stock Exchange composite trading. The company's shares have risen 16 per cent this year.

Deere lowered its projected 2009 net income from $1.5 billion to $1.1 billion forecast earlier. The company said the outlook for the rest of the year remained highly uncertain.

The company, which is also into manufacturing of riding mowers and construction and forestry machines, said the overall sales for equipment plummeted 30 per cent outside North America. the company has been looking to expand globally and more than 50 per cent of its sales of agricultural equipment came from outside the region for the first time last year.

Sales of products of its commercial and consumer division, like leaf blowers fell 24 per cent on weaker consumer spending amid economic downturn.

Construction and forestry equipment sales plunged 55 percent, on significantly lower production and higher material costs.

To cope with the weak demand, Deere laid off more than 1,000 workers this year, but recalled 68 last month.

The company also merged its agriculture equipment and commercial and consumer business divisions, in a bid to cuts costs and streamline operations. The restructuring, along with news of layoffs and the worker recall, apparently boosted investor sentiment, driving Deere stock up 63 per cent between early March and the end of April.

Deere's finance arm posted a 56 per cent decline in quarterly profit.

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