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February 15, 2012 8:51 AM EST
Deere & Co., the world's largest maker of farm tractors and combines, reported a 3.7 percent fiscal first-quarter earnings increase that topped analysts' estimates, as U.S. farmers flush with cash update aging fleets.
Deere (NYSE:DE) said net income in the quarter ended Jan. 31 was $532.9 million, or $1.30 a share, up from $513.7 million, or $1.20 a share, a year earlier. That blew past the average $1.23-a-share profit estimate of analysts surveyed by Thomson Reuters. Revenue climbed 11 percent to $6.77 billion.
Deere's equipment operations reported operating profit of $698 million for the quarter, compared with $646 million a year ago.
Equipment sales grew 11 percent to $6.12 billion with a boost from higher prices. Sales were up five percent in the U.S. and Canada, and increased 21 percent elsewhere.
For fiscal 2012, Deere slightly raised its projection for overall profit to $3.28 billion, up from $3.2 billion forecast in November. This will be the first time for the Moline., Ill., company to break the $3 billion mark.
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Deere also affirmed its equipment-sales growth view. The company said it expects to record five percent to 10 percent agricultural equipment growth in North America in fiscal 2012.
"The overall farm business is still robust and growing," said Lawrence DeMaria, an analyst with William Blair. "Deere is a primary global player and is benefiting the most."
"Robust" Farm Business
Deere holds a nearly 50 percent share of the North American farm equipment market, a market that has been incredibly strong the past few years as farmers have used high commodity prices and income to replace their fleets.
"Farmers have significant capital to invest in machinery to replace their fleets, which is what they continue to do on a more accelerated basis than they have in the past, especially in North America," DeMaria said. "Some professional farmers have actually become accustomed to replacing every one to three years, from three to five."
According to Deere, U.S. farming is approaching a peak level and commodities prices are expected to hold at elevated levels creating less volatility in demand.
U.S. cash receipts, a predictor of machinery demand, are at an all-time high. And farmer balance sheets and debt levels are also in excellent shape and credit quality is stellar.
Crop prices, some of which reached the highest averages ever in 2011, sent net farm income up 28 percent to $100.9 billion, the U.S. Department of Agriculture estimates. That's the highest value recorded since 1974.
Crop receipts are expected to rise more than 16 percent in 2011, led by sales of corn, soybeans and wheat. Livestock receipts are expected to increase by 17 percent, with the receipt forecasts for cattle, dairy and hogs reaching nominal highs.
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