Deere & Co. (DE) cut its full-year profit forecast as sales slow in Asia and Latin America, undermining the growth strategy at the world’s largest manufacturer of agricultural equipment.
Net income in the year ending Oct. 31 will be $3.1 billion, Moline, Illinois-based Deere said today in a statement. That compares with its May forecast of $3.35 billion and the $3.33 billion average of 15 analysts’ estimates compiled by Bloomberg. The shares dropped the most in a year.
Deere is facing weaker demand in Argentina and India, which are among the developing economies that Chairman and Chief Executive Officer Sam Allen is targeting as the company aims for $50 billion in annual revenue by 2018. Deere plans to get at least half its sales from outside the U.S. and Canada by then, compared with 39 percent in fiscal 2011. The worst U.S. drought in five decades also threatens the purchasing power of U.S. farmers.
“The fundamentals are deteriorating,” Stephen Volkmann, a New York-based analyst for Jefferies & Co. who has a hold rating on the shares, said in an interview today.
Deere also reported fiscal third-quarter profit that missed analysts’ estimates for the first time in 11 quarters, according to data compiled by Bloomberg.
‘Manufacturing Inefficiencies’
Deere fell 6.3 percent to $75.10 at the close in New York, the biggest drop since Aug. 8, 2011.
Net income climbed 11 percent to $788 million, or $1.98 a share, in the three months ended July 31, from $712.3 million, or $1.69, a year ago. That trailed the $2.32 average of 17 estimates.
Equipment sales rose 16 percent to $8.93 billion from $7.72 billion a year ago, trailing Deere’s May forecast for a gain of 25 percent. The company said sales increased in U.S. and Canada and were “essentially unchanged” elsewhere.
“Sales fell short of our expectations due to weakening in certain international markets and short-term manufacturing inefficiencies resulting from the introduction of a record number of new products,” Allen said in the statement.
Deere maintained its industry farm-machinery sales forecast in the U.S. and Canada for an increase of more than 10 percent. The region’s turf and utility equipment sales are expected to be 5 percent higher at most for 2012 because of the U.S. drought.
EU Forecast
Asia sales will drop “moderately” in the full year because of “softening” in India and China while South American sales will be 5 percent to 10 percent lower because of “uncertainty” in Argentina and drought earlier in the year in parts of the region, Deere said.
“Global economic conditions and dryness in several key markets warrant some caution in coming months,” Allen said. “However, this year’s drought could positively influence our outlook as it spotlights the need for John Deere’s highly productive agricultural equipment.”
Full-year industry sales in the European Union will be unchanged “as strength in the northern European market offsets weakness in the south,” compared with a previous estimate for a gain of as much as 5 percent, Deere also said.
Sales in the Commonwealth of Independent States are expected “to be up” strongly this year.
U.S. Drought
The worst U.S. drought in five decades is seen reducing the country’s corn crop to a six-year low. Corn futures in Chicago have risen to a record in the last month because the drought in the U.S. Midwest.
The country’s net farm income will drop to $91.7 billion this year, the second-highest total, the U.S. Department of Agriculture said in February. The USDA will update its forecast on Aug. 28 to reflect the drought that began hurting crops around June.