Deere says farm orders send 1Q profit up 19 percent

Deere & Co. boosted its outlook for 2010 Wednesday after an unexpected increase in agricultural orders helped drive first-quarter profit 19 percent higher.

Deere said lower costs and a roughly $75 million benefit from favorable currency rates also helped offset the "stubbornly weak" economy and 6 percent lower revenues.

But company officials aren't ready to say the economy has improved significantly.

"In terms of how we view the world, we still think we are on a relatively fragile foundation," Chief Financial Officer James Field said.

The maker of iconic green and yellow machinery said it earned $243.2 million, or 57 cents per share, during the quarter that ended Jan. 31. That's up 19 percent from $203.9 million, or 48 cents per share a year ago.

Analysts surveyed by Thomson Reuters expected profits of 19 cents on average, but Deere beat even the highest profit prediction of 38 cents per share.

Deere shares gained $2.34, or 4.4 percent, to $56.12.

Edward Jones analyst Jeff Windau said Deere delivered an impressive quarter as the company continued to manage its costs well.

"It was interesting to see the increase in farmer demand," Windau said. "Everyone was expecting a bit more of a cautious environment."

Some of the orders Deere is receiving now could be coming from farmers trying to upgrade before new emissions rules take effect next year and drive equipment prices higher.

But Deere estimates that U.S. crop prices and farm income will be slightly higher than expected this year, which could encourage more equipment purchases. Deere predicts American farmers will collectively generate net income of $81.8 billion in 2010, up from an earlier estimate of $77.6 billion.

Deere officials said they now expect North American agricultural equipment sales to remain relatively flat this year instead of dropping roughly 10 percent. That's part of the company's overall prediction for a four percent to six percent sales increase in its main agriculture and turf division.

Longbow Research analyst Eli Lustgarten said North American agriculture is holding up better than expected, but Deere's efficient operations played an important role in the company's results.

Deere, based in Moline, Ill., said its quarterly revenue fell to $4.8 billion from $5.1 billion a year ago, yet it still beat Wall Street expectations of $4.19 billion.

Partially offsetting the 6 percent revenue decline were costs for Deere, which declined 8 percent to $4.5 billion. And its lending unit generated $85.1 million net income in the quarter, nearly double the $46.8 million net income Deere generated from financial services a year ago.

Deere, the world's largest manufacturer of agricultural equipment, also makes construction and forestry equipment, such as backhoes, excavators, riding mowers and leaf blowers.

President and CEO Samuel Allen said Deere should be ready to respond well to a global economic recovery because of its focus on controlling costs.

"Results for the quarter reflected solid execution of our operating and marketing plans throughout the company and are especially gratifying in light of global economic conditions that remain stubbornly weak," Allen said.

Deere boosted its annual outlook above what it predicted in November. The company now expects total sales to grow 6 percent to 8 percent with $1.3 billion in profit. Last fall, Deere officials predicted a $900 million profit in fiscal 2010.