Tractor Maker Deere Reports Strong Earnings, But It's Super-Negative On Europe

farmer,corn,, 1940s

Photo: Library of Congress

In light of BHP Billiton’s hostile offer for fertiliser maker Potash, it’s worth taking a quick look at tractor-maker Deere, another “play” on global food demand, though obviously from a totally different angle.At first blush, the earnings were good. EPS of $1.44 came in well ahead of $1.23, and revenue of $6.8 billion came in about $300 million ahead of what analysts expected.

What’s interesting, though, is how negative Deere is on Europe.

First, from its general outlook:

“John┬áDeere’s third-quarter performance reflected the disciplined execution of our business plans and occurred despite continued weakness in certain key sectors,” said Samuel R. Allen, chairman and chief executive officer. “While we have benefited from positive conditions in the U.S. farm sector, particularly in terms of demand for large equipment, European markets are down sharply. Demand for construction and forestry equipment is improved from last year but still remains far below normal levels. Nevertheless, the company has continued to extend its competitive position as a result of our focus on serving customers with advanced new products while keeping a tight rein on costs and assets.”

And then drilling down specifically to the ag sector:

With support from healthy farm cash receipts, solid commodity prices and low interest rates, industry farm-machinery sales in the United States and Canada are forecast to be up 5 to 10 per cent for the year with much of the strength concentrated in larger equipment. In other parts of the world, industry sales in Western Europe are now forecast to decline 15 to 20 per cent due to general weakness in the livestock and dairy sectors. High levels of used equipment, especially harvesting machinery, also are weighing on Western European markets. Sales in Central Europe and the Commonwealth of Independent States are expected to remain under pressure due to challenging economic conditions. Drought has affected the region as well, particularly in Russia and Kazakhstan.

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