Deere Sees Strong Equipment Demand This Year -- Update

By Bob Tita

Deere & Co. raised sales forecasts for its farm and construction equipment this year, even as supply and delivery bottlenecks crimped quarterly sales.

The machinery maker reported a fiscal first-quarter loss on Friday from charges related to new federal tax legislation and lower than expected equipment sales. But Deere said demand for farm and construction machinery is improving, and raised its forecasts for sales this year.

"Deere has continued to experience strong increases in demand for its products as conditions in key markets show further improvement," said Chief Executive Sam Allen.

Deere's stock rose 3.6% to $172.98 a share.

Despite another bumper harvest last year that kept crop prices low and farmers' incomes under pressure, rising sales of high-horsepower equipment lately show that some farmers are buying again. The company said it has encountered difficulties accelerating production from the low volumes of recent years.

"We are working with our suppliers and logistics providers as they adjust to the present conditions," said Chief Financial Officer Rajesh Kalathur. "It takes time for them to actually put the people in place and get them trained and have them working."

Sales of Deere's green-and-yellow farm and landscaping machinery rose 18% during the first quarter to $4.2 billion, while profit from the business soared 78% to $387 million. Deere expects its world-wide farm equipment sales to increase 15% this year, up from a 9% increase anticipated in November.

The Moline, Ill.-based company anticipates overall sales of farm and construction equipment will rise 29% in the fiscal year through Oct. 2018, up from a 22% forecast in November. The sales growth is being aided by the addition of German road-paving equipment manufacturer Wirtgen Group, which Deere bought last year for $5 billion.

The Wirtgen acquisition is also expected to add 56% to sales in Deere's construction unit this year. Deere expects Wirtgen to expand the reach of its construction equipment business beyond North America and help offset sales in the cyclical farming business.

Deere's construction-machinery business also continued to benefit from resurgent demand from the North American construction machinery market.

Deere reported tax-related charges in the quarter of about $965 million. The company wrote down the value of its net deferred tax assets as a result of the lower federal tax rate for corporate income. The company also recorded a charge of $261.6 million for the repatriation of previously untaxed earnings held overseas.

Overall for the first quarter, Deere reported a loss of $535.1 million, or $1.66 a share, compared with $$193.8 million profit, or 61 cents a share, a year earlier. Excluding the tax charges, the company earned $1.31 a share. Analysts expected $1.20 a share.

Quarterly equipment sales rose 27% to $6 billion, but analysts' were expecting $6.42 billion.

Austen Hufford contributed to this article

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

(END) Dow Jones Newswires

February 16, 2018 12:41 ET (17:41 GMT)

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