Profit statements

Deere aims for bigger profit as price hikes outpace energy profits

John Deere tractors are for sale at a dealership in Longmont, Colorado, U.S., February 21, 2017. REUTERS/Rick Wilking/File Photo

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Feb 18 (Reuters) – Deere & Co (DE.N) has raised its full-year profit forecast after reporting better-than-expected quarterly results on Friday, as the world’s largest farm equipment maker expects an increase in its margins thanks to rising prices and solid demand for its tractors and combines.

Demand for agricultural equipment is seen as high this year as farmers are brimming with cash thanks to high grain prices and government support during the COVID-19 pandemic. However, they face challenges related to soaring seed and fertilizer costs.

The US Department of Agriculture estimated that net farm income would have increased by 25% in 2021, but warned it could fall by 4.5% this year.

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Deere has raised equipment prices to combat rising shipping and supply chain costs, but that hasn’t deterred demand as the company’s North American order books are near or full. full for most of its large agricultural equipment and crop care products in 2022.

“Looking ahead, we expect demand for agricultural and construction equipment to continue to benefit from strong fundamentals,” chief executive John May said in a statement.

Until supply and demand begin to stabilize, the agricultural equipment giant will stay the course with price increases of around 8% to offset rising material costs, which will help stimulate margin expansion for the year.

Production issues due to supply issues persist, but Third Bridge senior analyst Patrick Donnelly said he remains optimistic about Deere’s ability to deploy more expensive precision ag technologies in response. on demand.

“Deere’s earnings growth was driven by the strong equipment pricing environment, which was partially able to offset inflationary costs,” Donnelly said.

Last week, AGCO Corp, its smaller rival, also reported upbeat quarterly results and outlook, helped by strong demand.

Deere executives told investors on a conference call that Deere still expects to face the challenges of pandemic-induced supply chain bottlenecks and inflationary pressures that are driving up raw material prices for its big rigs, but doesn’t think those headwinds will impact earnings.

Deere forecasts net income for fiscal year 2022 between $6.7 billion and $7.1 billion, up from an earlier estimate of $6.5 billion to $7.0 billion.

Shares of Deere were down 3% at midday as some investors were disappointed by the magnitude of the raised forecast.

Betting big on its production and precision agriculture segment, the company forecasts a 25-30% increase in net sales in this segment in 2022 as it bolsters automation solutions to capitalize on demand for planting and smart harvest.

“The company has been investing in farmer productivity and automation for years because one of the biggest challenges farmers face is that they have peak times when they need labor 24 hours a day,” said Jerry Revich, head of sustainable machinery, infrastructure and technology research for the Americas at Goldman Sachs.

Equipment business net sales increased approximately 6% to $8.53 billion for the first quarter ended Jan. 30, beating the Refinitiv-IBES consensus estimate of $8.22 billion.

Net income fell to $903 million, or $2.92 per share, as costs weighed, but still beat the average estimate of $2.38.

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Reporting by Abhijith Ganapavaram in Bengaluru; Editing by Ramakrishnan M. and Nick Zieminski

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