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Earnings preview: Lower profit seen for Deere

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Earnings preview: Lower profit seen for Deere
As if news of a possible sale of Dow Agrosciences is not enough of a wake-up call, Deere & Company is scheduled to report on its first quarter earnings, including weaker demand for its products in light of the global economic crisis.


February 18, 2009
By Associated Press/Forbes.com

February 17, 2009 

Deere & Co., the world's largest maker of agricultural equipment, is scheduled to report fiscal first-quarter results on Wednesday. The following is a summary of key developments and analyst opinion related to the period.

Overview: Like other machinery companies, Deere faces weakening demand for its products amid the global economic crisis. Crop prices – the most important factor driving farm equipment purchases – have tumbled, and the company known for its green-and-yellow tractors and harvesting machines has forecast lower earnings for fiscal 2009, citing the troubled world economy.

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For the fiscal first quarter, Deere has said it expects earnings to decline more than 25 percent, despite a projected seven percent rise in equipment sales.

Deere, which operates a credit division and also makes machinery for the construction, forestry and consumer markets, recently disclosed plans to lay off hundreds of workers in Brazil and Iowa.

By the numbers: Analysts polled by Thomson Reuters, on average, expect Deere to earn 63 cents per share on revenue of $4.65 billion. During the same period last year, the company earned 83 cents per share on revenue of $5.20 billion.

Analyst take: In a note to clients last month, JPMorgan analyst Ann Duignan wrote that farmers were likely to become more cautious in 2009, "at least until the market volatility diminishes and commodity demand becomes more evident."

"Today, beef, dairy and hog industries are under significant pressure, and liquidation of inventories could put further downward pressure on crop prices," she wrote.

In a separate note, Duignan cited government reports of increased corn supply and lower corn demand – two factors expected to lower crop prices and cash receipts, and thus trim farm equipment sales.

Industrywide sales of large tractors fell 14 percent year-over-year in December, she wrote. And while industry combine sales grew two percent during the month, Deere's sales of the machines fell by double digits, according to Duignan.

Analysts have said machinery companies such as Deere may not start to benefit from federal spending linked to President Barack Obama's economic stimulus package until 2010.

For a look at what is ahead for Deere, and to see the rest of this story, go to: www.forbes.com/feeds/ap/2009/02/17/ap6060425.html