Deere & Co reported a stronger-than-expected quarterly profit on Wednesday, and raised its full-year outlook, citing improving business conditions including a recovery in the hard-hit market for construction equipment.
Deere, whose shares rose 1 percent in early trading, expects to earn $1.6 billion in fiscal 2010, up from an earlier forecast of $1.3 billion, thanks in part to rebounding building markets.
They're having as hard a time projecting this year as we are, said Longbow Research analyst Eli Lustgarten, referring to the new 2010 outlook -- the company's third estimate.
We knew this was going to be a good year because Deere was very conservative in its outlook for 2010 and limited its inventory and production. So now they find themselves with much stronger demand and tight supply, he added. This year's going to be a terrific year.
Deere acknowledged that markets in much of Europe remain weak because of troubles in the livestock, dairy and grain sectors, as well as challenging economic conditions in Central Europe and the Commonwealth of Independent States.
But it predicted strength in agricultural markets in the Western Hemisphere, and rebounding demand for construction equipment even in North America, would outstrip that.
During the recent downturn, only a handful of construction markets, like China, grew. But there have been signs of a modest rebound in some other key markets recently, including the United States.
On Wednesday, a report on the Architecture Billings Index, a leading indicator of U.S. nonresidential construction spending, showed a third consecutive monthly rise in April. The gauge approaches a level that indicates expansion in the sector as the economy recovers, according to an architects' trade group.
Deere predicted worldwide sales of its construction and forestry equipment would rise 30 percent for full-year 2010, saying U.S. construction-equipment markets are showing signs of stabilization.
But the company, the world's largest maker of tractors and harvesters, was also upbeat about agricultural markets, saying a combination of healthy farm cash receipts, solid commodity prices and low interest rates would lift sales of its distinctive green farm equipment, especially in North and South America.
Deere reported a fiscal second quarter profit of $547.5 million, or $1.28 a share, for the fiscal second quarter ended April 30, up from $472.3 million, or $1.11 a share, for the comparable quarter last year.
Sales during the quarter rose 6 percent to $7.13 billion, led by a 52 percent jump in sales of construction and forestry equipment.
Stripping out one-time items related to U.S. healthcare reform, the company said it made $1.58 a share.
Analysts, on average, expected the Moline, Illinois-based company to report a profit before items of $1.09 a share, and a net profit of $1.04 a share, on sales of $6.62 billion, according to Thomson Reuters I/B/E/S.
Deere shares were up about 1 percent at $57.78 in early trading on the New York Stock Exchange.
(Reporting by James B. Kelleher; Editing by Derek Caney)