Deere & Co. is poised to close at a record high after forecasting 2017 profit that exceeded analysts’ estimates, buoyed by cost cuts amid the longest slump for farmer incomes in decades.
The Moline, Illinois-based company forecast net income will be $1.4 billion in fiscal 2017, more than the $1.21 billion average estimate, it said Wednesday in a statement. Deere also reported better-than-expected profit for the 16th straight quarter.
The company has proved itself to be agile even as farmers cut spending amid three successive years of declining revenue driven by lower commodity prices. Job cuts initiated in the fourth quarter are expected to generate savings of about $75 million, Deere said, reiterating a plan to reduce overall costs by $500 million by the end of 2018. Investors have rewarded the strategy. The shares have surged 19% this quarter, on pace for the biggest gain since 2011.
“The industry stuff doesn’t sound any better,” Stephen Volkmann, an analyst at Jefferies LLC in New York, said by phone. “They’re kind of focused on what they can control, which is costs. Historically, this is a big, slow-moving company. They’re more nimble this cycle.”
Deere was 9.7% higher at $100.97 at 11:11 a.m. in New York. A close at that price would be a record for the stock.
Net income fell to 90 cents a share in Deere’s fiscal fourth quarter, which ended Oct. 31, from $1.08 a year earlier, the company said. That beat the 39-cent average of 18 estimates compiled by Bloomberg.
The company expects sales in its agriculture and turf unit to decrease by 1% in fiscal 2017. It estimates industrywide sales to be 5% to 10% lower next year, due to low commodity prices and weak farm income. Deere expects its global sales of construction and forestry equipment to climb 1% next year. Net income from financial services, the unit that offers finance for equipment purchases, is forecast to be about $480 million. Fourth-quarter equipment revenue fell to $5.65 billion from $5.93 billion a year earlier, beating the $5.44 billion average estimate.
U.S. farmer incomes are projected to fall to the lowest level in seven years as consecutive bumper crops have tempered prices. Tractor inventories are at record highs and credit availability has tightened. North American inventories through October were 5.5% higher than a year ago, data compiled by Bloomberg show.
“The fundamentals have deteriorated because the crop is bigger and prices are softer,” Eli Lustgarten, an analyst at Longbow Securities in Independence, Ohio, said before the release.
To contact the reporter on this story: Mario Parker in Chicago at [email protected]
To contact the editors responsible for this story: Simon Casey at [email protected]
Millie Munshi, Robin Saponar
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