By Bob Tita 

Deere & Co. on Friday reported a better-than-expected profit for its fiscal third quarter, helped by lower costs, but sales of its farm and construction equipment continued to slide.

The world's largest seller of farm tractors and harvesting combines raised its profit outlook for the fiscal year. But machinery sales from the quarter were lower than anticipated and Deere further trimmed its sales forecast.

Deere continued to counter weak sales with lower costs. The company's overall expenses in the quarter fell 12% from last year, as lower overhead costs accounted for much of the improvement.

The company's ability to cut expenses has cushioned its stock price against a steep decline this year, but Friday's report gave no indications that the prolonged slump for Deere's equipment is easing.

"Our overarching concerns remain: the weak construction markets and excess inventory in ag markets," said Lawrence De Maria, an analyst for William Blair & Co.

Deere has been struggling against lower prices for farm commodities that have squeezed farmers' incomes and caused them pull back on their equipment purchases. The weakness has spread to Deere's key overseas markets as well, particularly in South America, where a dismal economy in Brazil and a stronger dollar have dragged down equipment demand.

Third-quarter sales of farm equipment slipped 11% to $4.7 billion, though profit from the business rose 21% to $571 million as the operating margin improved.

Deere's construction and forestry equipment business continued its steak of dismal performance. Lower demand for equipment from the North American energy industry contributed to a 24% drop in sales to $1.16 billion and 58% plunge in profit to $54 million.

In all for the quarter ended July 31, Deere reported a profit of $488.8 million, down from $511.6 million a year earlier. On a per-share basis, earnings rose to $1.55 from $1.53 because of a lower number of shares outstanding. Analysts had expected a profit of 94 cents a share. Overall, farm and construction equipment sales fell 14% $5.86 billion.

Deere said it now expects to earn $1.35 billion this fiscal year, up from its May forecast of $1.2 billion. But it expects net sales to slip about 10% for the year, compared with a 9% decrease forecast previously.

Deere shares were trading up 5% Friday morning at $80.79.

Write to Bob Tita at robert.tita@wsj.com

 

(END) Dow Jones Newswires

August 19, 2016 10:59 ET (14:59 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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