Deere Downgrades 2013 Equipment Sales Forecast

John Deere, Moline, IL, warned that global financial pressure and cool, wet weather in North America could reduce future sales growth. Deere affirmed its earnings forecast but projected equipment sales to grow 5%, not the earlier forecast of 6%. For the current quarter, Deere forecasts equipment sales to expand 3%.

The cautious outlook weighed on Deere shares in pre-market trading. The stock sank 4% to $90. Deere has been the beneficiary of record-high farm profits in recent years. Last year, for example, U.S. farms brought in the second-largest profit in history (some $114 billion), below only the 2011 haul. Farm values increased 28% in the last five years, while farmers maintained strong financial health. Debt grew by just 10%.

First-quarter profit was $1.08 billion, up from $1.06 billion a year earlier. The strong demand allowed Deere to raise prices by 3% in the quarter, increasing its profit. Revenue from equipment sales increase 9% to $10.27 billion, from $9.41 billion a year ago. Company-wide sales increased 9% to $10.9 billion.

Leading analyst Jerry Revich said Goldman Sachs expects a 15% fall in U.S. agricultural equipment capital expenditure. They base their Deere call on three factors: Rising crop inventories driving a view of $5.25 corn and a 10% fall in farmer revenue; dealer inventories that are 17% above historical averages and 16% higher year-to-date; and four straight years of record capital expenditures.