Deere & Co. said Wednesday its fiscal second-quarter profit soared 65 percent because of strong demand for its agricultural equipment, especially in the United States, Canada and Brazil.
The earnings beat Wall Street expectations, and it raised its forecast for 2011 revenue.
But its shares fell 46 cents to $86.50 as Deere predicted higher-than-expected costs and warned about weakness in key South American markets.
"We've noticed this with other industrials: there are high expectations right now in the market," said Jeff Windau, an Edward Jones analyst.
Jefferies & Co. analyst Stephen Volkmann said in a research note that he was somewhat disappointed with Deere's pretax profit margin, and he said a lower tax rate boosted Deere's earnings by 6 cents per share in the quarter.
"Overall the quarter was good, but not great," Volkmann said.
Deere is the world's largest maker of agricultural equipment. It also makes construction, forestry and landscaping equipment, such as backhoes, excavators, riding mowers and leaf blowers.
The Moline, Ill., company said its net income rose to $904.3 million, or $2.12 per share, during the quarter ended April 30. That's up from last year's $547.5 million, or $1.28 a share, weighed down by a $129.5 million charge related to U.S. health care reform.
Analysts surveyed by FactSet expected earnings of $2.06 a share.
Revenue grew 25 percent to $8.9 billion from last year's $7.1 billion. Analysts expected $8.12 billion.
Windau said investors appear to be concerned about the costs Deere reported for raw materials, compensation and research and development because those were higher than expected.
Deere said raw-material costs were up about $175 million in the second quarter. Research and development costs were up 12 percent and administrative costs were 19 percent higher than the previous year.
The company raised its forecast for fiscal 2011 revenue. Deere now predicts sales will be rise 21 to 23 percent even though the Japanese tsunami will hurt sales by $300 million. Earlier this year, Deere predicted sales would increase 18 to 20 percent.
"John Deere is well positioned to address the world's growing need for agricultural commodities, shelter and infrastructure," said Samuel Allen, Deere's chairman and chief executive.
Deere now predicts full year net income will grow to $2.65 billion in 2011. Its previous forecast was for $2.5 billion net income.
Company officials predict that global sales of agricultural and turf equipment will increase 20 percent in 2011 with continued healthy sales growth in North America and Asia. But sales in South America are expected to decline 5 to 10 percent from last year's high levels.
To help deal with higher demand, Deere said it plans to invest $80 million in a new agricultural equipment manufacturing plant in northeast China to serve the region. It would be Deere's seventh manufacturing plant in China including two that are joint ventures.
And Deere said the Kuhn Group will begin producing large John Deere branded square balers for European markets starting in 2012.
Deere said its third quarter sales should be up about 20 percent over last year.
The company said farmers in most of the world's major markets are seeing their income grow because demand for their crops remains high while global stockpiles are relatively low. Deere predicted that this year's crop prices will average well above last year's levels.
Corn prices have more than doubled since last summer and hit an all-time high of $7.76 a bushel on April 11. The price had risen because demand from ethanol producers and overseas consumers has grown faster than supply. Prices have declined this month because new USDA estimates predicted corn supplies will grow this year, but corn prices still remain close to $7 per bushel.
Deere & Co.: http://www.deere.com