Deere & Co forecast modest growth this year amid uncertainty about the corn market, putting pressure on the share price of the world’s largest agricultural equipment maker.
After rising in pre-market trading to as high as $98.71 as the company reported record first-quarter net income, the shares fell back 3 per cent to trade at $90.80 by midday in New York on concerns that its best performance for the year was already behind it.
Analysts said investors reacted to the company raising its full-year guidance for net income by $100m to $3.3bn, which was below investors already heightened expectations. The company maintained its guidance for cash flow from equipment operations of $3.4bn, despite a stronger-than-anticipated first quarter.
“The back nine months of the year are still going to be about as expected, which would suggest a lower run rate from the first quarter,” said Adam Fleck, of Morningstar.
Net income at Deere, which also makes forestry and construction equipment, was a record $649.7m, or $1.65 per diluted share, in the quarter ended in January, up 22 per cent from $532.9m, or $1.30 per share, a year earlier.
Consolidated revenues, including equipment and financial services, rose 9.7 per cent year-on-year to $7.42bn. Equipment revenues rose 11 per cent to $6.79bn.
Wall Street analysts had forecast earnings of $1.40 per share on $6.72bn in revenues.
The drought in the Great Plains saw new sales of equipment, including John Deere tractors, in the US and Canada, for the three months to the end of January rise 18 per cent, above previous forecasts.
The drought drove up commodity prices while crop insurance helped guarantee farmer income despite low yields, giving them more money to spend.
Analysts said farmers seemed to have increased spending to take advantage of low interest rates and in anticipation of the removal of tax benefits related to equipment purchasing that were ultimately extended.
Farmers are expected to plant a record corn crop this year as they rebuild inventories depleted by the drought, but that could drive down corn prices.
The company forecast a 6 per cent rise in global equipment sales for the fiscal year ending in October, citing the continuation of relatively high commodity prices and strong farm incomes.
It forecast agricultural machinery sales in the US and Canada to be flat to 5 per cent higher for the current year because of caution in the US livestock sector.
Last year the Illinois-based company said it expected flat growth in North America tractor sales in 2013, compared with 2012’s healthy levels.
“We’re confident our investment in new products and additional capacity will help Deere fully capitalise on the world’s growing need for food, shelter and infrastructure in the years ahead,” said Sam Allen, chief executive. “However, the near-term outlook is being tempered by uncertainties over fiscal, economic and trade issues that are undermining business confidence and restraining growth.”
Deere enters 2013 on the back of record earnings in 2012, when it reported $3.06bn in net income.
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