Deere predicts bumper crop of profit

Boosted by improvement in the construction and forestry equipment units, Deere enjoys a blowout first quarter.

By Jim J. Jubak Feb 18, 2011 1:08AM
Jim JubakGood times for the world’s farmers and for Deere (DE) will continue, Deere said in its first-quarter earnings report, released before the market opened Wednesday.

The company’s earnings reports get scrutinized as much for Deere’s projections on farm prices as they do for the company’s own financial results. And Deere’s news for farmers was all good. The company raised its forecast for the 2011-2012 price of corn to $4.90 a bushel from its earlier forecast of $4.35 and its forecast for wheat to $6.35 a bushel from $5.50.

Not that the company’s own results were anything shabby. For the just-completed quarter, Deere announced earnings of $1.20 a share, better than the 99 cents a share expected by Wall Street analysts. In last year’s first quarter, the company earned 57 cents a share. Sales climbed to $6.12 billion, up 27% from the first quarter of 2010.

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Deere gets about 65% of its sales from the United States and Canada, so when the company raised guidance for 2011 it was itself a vote for continued good times in the farm belt. For the full fiscal year, which ends in October 2011, the company now projects that sales will climb by 18% to 20%. That’s a big increase from its previous guidance of 10% to 12% for the fiscal year. Net income will climb to $2.5 billion. That’s substantially above Wall Street projections of $2.36 billion for the fiscal year. The company had previously guided to net income of $2.1 billion.

Deere’s results for the quarter include a huge improvement in the company’s construction and forestry equipment business. Sales in that business climbed by 81% from the first quarter of fiscal 2010. Operating profit of $88 million was in stark contrast to the operating loss of $37 million a year ago.

Deere’s earnings pushed up not just the company’s own shares (which closed Wednesday up 2.4%) but those of fertilizer producers -- Agrium (AGU) rose 1.5% -- and construction equipment makers -- Caterpillar (CAT) rose 0.5%. Agrium rose again on Thursday, but Caterpillar and Deere both fell less than 1%.

Deere has been a member of my Jubak Picks 50 long-term portfolio since the portfolio's inception in December 2008.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund(JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Agrium and Deere as of the end of December. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.

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