Deere has downbeat 2013 outlook, and shares fall

In this Aug. 31, 2011 photo, the John Deere logo is seen on the back of a combine in Decatur, Ill. THE CANADIAN PRESS/AP, Seth Perlman

MINNEAPOLIS - Tractor maker Deere & Co. is taking a cautious view of 2013, as drought and economic uncertainty hold back spending in some of the world's biggest farm economies.

Also, its most recent quarterly profit missed analysts' expectations. Deere shares fell $3.18, or 3.7 per cent, to $82.81 in Wednesday afternoon trading.

Deere is the world's largest maker of agricultural equipment, like the bright green tractors and combines that prowl farm fields during planting and harvest seasons. Its fortunes rise and fall with those of farmers.

In recent years, that's been a booming business as strong crop prices have put money in farmers' pockets. But there were signs of a slowdown in farm spending in Deere's outlook for the fiscal year that began this month.

And with the so-called "fiscal cliff" of potential tax increases and spending cuts looming in the U.S., Deere is cautious about big spending projects.

Deere expects agriculture sales in the U.S. and Canada to be flat for the year, as farmers continue to recover from a major drought in 2012. It predicted farmers will have $402.5 billion in cash receipts for 2013 — down by $2.5 billion from Deere's August prediction — but still higher than in 2012 or 2011.

It also predicted that European sales would be flat to down 5 per cent, and little changed in Asia. It expects 10 per cent growth in South America. Overall Deere predicted that worldwide equipment sales will rise 5 per cent for the year.

Labour expenses are rising, too. Deere hired 5,000 more people this year to support its growth. And it will have spent $480 million shoring up its pension plans in fiscal 2012 — $5 million more than it had expected — and will spend some $550 million in the current fiscal year.

Still, it predicted a fiscal 2013 profit of $3.2 billion, slightly above the expectations of analysts polled by FactSet. It said prices for its equipment will rise 3 per cent for the year, on top of a 4 per cent gain in the fourth quarter.

In the quarter that ended Oct. 31, Deere's net income rose 2.7 per cent to $687.6 million, or $1.75 per share. Revenue rose 14 per cent to $9.79 billion. Analysts surveyed by FactSet expected earnings of $1.88 per share. A year ago Deere's net income was $669.6 million, or $1.62 per share.

Equipment sales rose to $9.05 billion, topping analysts' forecasts of $8.93 billion. Sales were strong in the U.S. and Canada, rising 26 per cent for the quarter. Elsewhere, sales fell 2 per cent. Sales of agriculture and turf equipment rose 16 per cent, while construction and forestry equipment sales rose 7 per cent.

In addition to farm equipment, Deere makes construction and forestry equipment such as backhoes, excavators, riding mowers and leaf blowers, making the company sensitive to movements in the global economy.

Deere is holding off on big spending projects as much as possible until January because of economic uncertainty, said Chief Financial Officer Rajesh Kalathur on a conference call.

"As the economics now become clearer, we may modify our plans. We will pull levers and cut down on investments if the scenario worsens, and we may accelerate our plans" if economies turn more positive, he said.

For the full fiscal year, Deere earned $3.07 billion, or $7.63 per share, up from $2.8 billion, or $6.63 per share, during the prior year. Revenue rose 13 per cent to $36.16 billion for the year.