MoneyWednesday, August 15, 2007 11:48 PM CDT

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Deere third-quarter profit rises 23 percent to a record high

By Jan Dennis

Associated Press

MOLINE — Farm equipment maker Deere & Co. posted a record third-quarter profit Wednesday, driving its shares up more than 5 percent amid strong global sales that analysts predict will continue to rise in 2008.

Moline-based Deere also raised its earnings forecast for the year as net income grew 23 percent to $537.2 million, or $2.37 per share, for the quarter that ended July 31, up from $436 million, or $1.85 per share in the same period a year ago.

Analysts polled by Thomson Financial expected earnings of $1.99 per share for the quarter. Shares jumped $3.51, or 3 percent, to $120.60 Wednesday.

Deere credited its better-than-expected profits to strong worldwide machinery sales that offset declines in the U.S. and Canada. Improved manufacturing efficiencies, higher prices and currency translation also boosted earnings.

John Kearney, a Morningstar analyst, said rising global demand bodes well for Deere, with U.S. sales rebounding as renewable fuels drive up commodity prices and farm income.

The “fundamentals of their market are positive to spill over into 2008 and even into 2009,’’ Kearney said.

Net sales and revenue rose 6 percent to $6.63 billion from $6.27 billion in the third quarter of 2006, Deere reported.

Analysts predicted revenue of $6.65 billion.

Worldwide equipment sales grew 5 percent, mainly due to a 16 percent rise in agricultural equipment sales and a 15 percent improvement in commercial and consumer equipment sales. Those gains more than offset a 20 percent dip in construction and forestry equipment sales blamed on a downturn in U.S. housing construction.

Equipment sales in the U.S. and Canada were down 5 percent for the quarter and off 4 percent for the year to date, while net sales outside the U.S. and Canada increased by 30 percent for the quarter and 25 percent for the first three quarters.

Deere predicts equipment sales will increase about 16 percent in the fourth quarter and raised its full-year forecast to 7 percent, up from 6 percent in May. The company now expects full-year profits of $1.7 billion, up from $1.55 billion in May.

“Deere has been fairly conservative thus far in projecting the rebound in its key ag markets, but today’s numbers suggest the story continues to unfold as planned,’’ J.P. Morgan analyst Stephen Volkmann wrote in a note to investors.

Farm equipment sales are expected to rise 16 percent for the year, with renewed growth in the U.S. and Canada amid robust demand for renewable fuels and high commodity prices. Sales of commercial and consumer equipment are forecast to rise 11 percent for the year.

But worldwide sales of construction and forestry equipment are expected to decrease 12 percent for the year as housing construction in the U.S. remains sluggish.

Deere has not issued an earnings forecast for 2008, but expects strong sales to continue next year, company officials told analysts during a conference call.

Commodity prices are expected to remain high amid growing demand for renewable fuels, increasing demand for Deere’s trademark green-and-yellow farm machinery. The company also expects sales growth from new products that will soon be unveiled and further expansion in China, South America and other global markets.

“Dealers say orders are on the upswing now ... I think you’ll probably see even more of that in 2008 once farmers have harvested and have the money in their pocket,’’ Morningstar’s Kearney said.

Along with John Deere tractors and other farm machinery, the company makes construction equipment and consumer equipment including mowers, chain saws and snow blowers.

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