Deere reports 4Q loss on charges, lower sales
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CHAMPAIGN — Deere and Co. says sales of tractors, combines and other agricultural mainstays slumped in the fourth quarter and it expects farmers to remain cautious about new equipment purchases because of the weak global economy.
The company ended fiscal 2009 with a profit of almost $874 million but lost $223 million in the fourth quarter due to big charges related in part to pension costs and job cuts. Its sales of farm and constrution equipment fell 28 percent in the fourth quarter.
Deere's shares, though, briefly hit a 52-week high Wednesday and analysts said the company has handled the economic downturn well and is positioned to grow after what could be a tough 2010.
Deere, based in Moline, is the biggest U.S. maker of farm equipment, and sluggish economic conditions in the United States and much of the rest of the world continue to drive down demand for tractors, combines and the company's other agricultural mainstays.
Farm prices, though historically high, have dropped sharply from bubble highs of the past couple of years and driven down farm incomes by what the U.S. Department of Agriculture projects will be 34.5 percent by the end of the year.
Corn- and soybean-farmer John Olsson says he has several things on his wish list, among them a $150,000 tractor, but he isn't ready to commit.
"I tend to play it a bit on the conservative side," he said Wednesday from his farm in New Berlin, Ill., near Springfield, noting he's weeks behind on his harvest because of wet weather and doesn't yet know how he'll do on this year's crop. "I like to have cash on hand before I get too aggressive buying things."
Deere's construction equipment business has also been hurt by the sluggish global economy and slowdown in home and commercial construction.
Nonetheless, the company said it would have been profitable without the unusual items in the latest quarter.
The company lost 53 cents a share in the three months ended Oct. 31 in contrast to a profit of $345 million, or 81 cents a share, a year earlier.
The loss included charges of $321.8 million for a write-down in the value of assets and restructuring expenses. The company laid off and bought out hundreds of workers earlier this year and closed a Canadian factory.
Otherwise, Deere said it would have earned 23 cents per share. Analysts were looking for earnings of 3 cents a share before items.
Deere's shares hit a 52-week high at $54.15 before closing at $53.70, up $1.41, or 2.7 percent.
"They've done an excellent job, I think, managing through the current economic downturn," analyst Jeff Windau of Edward Jones said. "I think there's probably still room to manage costs."
Deere's worldwide revenue dropped to $5.3 billion from $7.4 billion a year ago.
Sales of farm and construction equipment dropped 26 percent in the U.S. and Canada and 35 percent in the rest of the world. Deere's equipment operations reported an operating loss of $22 million for the quarter, down from a profit of $549 million a year earlier.
The company noted, however, that its costs for raw materials dropped during the quarter, helping its results. High raw materials costs have been a drag on the results of many heavy equipment makers through the economic downturn.
For the year, Deere reported a profit of $873.5 million, or $2.06 per share, down from $2.05 billion, or $4.70 per share, a year earlier.
Agricultural sales account for more than half of Deere's revenue, and U.S. farmers have seen steep drops in income — from about $87 billion in 2008 to an anticipated $57 billion in 2009. And Deere projects that farmers' cash flow will improve only slightly in 2010.
Deere is forecasting a $900 million profit next year, but bases that in large part on tight inventory control and steps already taken to cut costs. The company expects sales of large farm equipment to be down by more than 10 percent.
"Farmers follow the daily news and are as concerned as anyone about the general economy," said Susan Karlix, Deere's manager of investor communications. "It is one reason farmers are expected to be cautious on farm equipment purchases in the year ahead."
Deere also believes any improvement in the sale of construction equipment is far away.
"We're at least probably six, six to nine months away from a slight uptick in overall construction demand for 2010," said Marie Ziegler, Deere's vice president of investor relations.
Deere also foresees a tough year ahead overseas, with the exception of South America, where it expects a 10 to 15 percent increase in agricultural sales.
"The bottom line," analyst Eli Lustgarten of Longbow Research said, "is 2010 is a challenging year. Farm, which is generating all the earnings, is weaker because big equipment sales domestically are weaker. Construction equipment is still really under pressure."
But Windau — who rates Deere shares "buy," and other analysts say that, next year aside, they see Deere as a good long-term bet based on, among other things, the growing world population alone.
"We really like that long-term story from the growth in population and the need for agriculture, as well as the need for infrastructure."
