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Deere & Co. shows strong first quarter


February 17, 2011
By Mike Jiggens

Strong sales of farm and construction machinery helped Deere & Co.'s first fiscal quarter of 2011 realize a healthy profit margin.

 Full story from Wall Street Journal/Dow Jones Newswires:

By Bob Tita
Of DOW JONES NEWSWIRES

Deere
& Co.'s (DE) fiscal first-quarter profit more than doubled as
robust sales of farm and construction machinery helped offset rising
material expenses that have weighed on profits for other manufacturers.

Deere, the world's largest maker of farm equipment by sales, beat
analysts' expectations for the quarter and raised its sales and profit
forecasts for the fiscal year ending Oct. 31.

"All in all, it was a strong start to what is expected to be a very
strong year," said Susan Karlix, investor relations director, during a
conference call Wednesday with analysts. "Positive, global farm
conditions were certainly a factor, but John Deere is achieving record
results in the face of conditions that remain lackluster in some
sectors."

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First-quarter sales of farm machinery rose 21% from a year ago. The
company reported a 35% increase in sales in the U.S. and Canada,
propelled by higher prices for farm commodities that have given farmers
more money to spend on tractors and harvesting combines. U.S. farmers
also ratcheted up their purchases late last year in advance of higher
prices for 2011 models to comply with stricter U.S. standards on engine
exhaust.

The Moline, Ill., company now sees its world-wide sales of farm
machinery rising about 16% this year, up from a 7% to 9% increase
forecast in November.

Sales of Deere's construction and forestry equipment rose 81% from
a year earlier, mirroring the rebounding demand experienced by rival
Caterpillar Inc. (CAT). The company now expects its construction and
forestry sales to increase 35% this year over 2010, compared with a 25%
to 30% increase anticipated earlier.

Like other manufacturers, Deere reported headwinds from rising
costs for materials and components such as steel, copper and tires. But
higher order volumes for equipment and improved utilization of Deere's
factories drove down other production-related expenses, offsetting some
of the higher material costs. Deere also raised its machinery prices
and reported better sales of higher-margin models, further blunting the
impact of rising material costs in the quarter.

Deere's operating margin on farm equipment was 12.7% in the
quarter, compared with 9.8% a year ago and 12.2% in the fourth quarter.
Meanwhile, the operating margin on construction equipment was 7.7% in
the quarter, as Deere swung from a year-ago loss. Construction's margin
was 4.7% in the fourth quarter.

"They're seeing higher prices just like everybody else," said Adam
Fleck, an analyst for research firm Morningstar Inc. "But at the end of
the day, higher prices and higher factory production levels are going
to mask a lot of those issues at the bottom line."

For the year, Deere raised its profit forecast to $2.5 billion on
equipment-sales growth of 18% to 20%. In November, it forecast profit
of about $2.1 billion and equipment-sales growth of 10% to 12%.

Deere offered industry forecasts for farm machinery sales that were
noticeably more bullish than predictions offered a week ago by rival
Agco Corp.(AGCO). Deere now expects industrywide sales to rise about 5%
in the U.S. and Canada, up from a flat forecast in November, and it
sees sales climbing 10% in Europe, up from a 5% to 10% increase
previously. The company expects industry sales to be flat in South
America, as the Brazilian government scales back some of the financing
assistance for farmers that expanded sales of tractors in recent years.

Deere is looking to put pressure on Agco's market-leading share in
South America with a new lineup of machinery for the region.

During the quarter ended Jan. 31, Deere reported a profit of $513.7
million, or $1.20 a share, up from $243.2 million, or 57 cents a share,
a year earlier. Revenue increased 27% to $6.12 billion.

Analysts polled by Thomson Reuters expected earnings of 99 cents on revenue of $5.67 billion.

Recently, Deere's stock set a new 52-week high at $97.36 and was up $2, or 2.2%, at $95.63.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

–Tess Stynes contributed to this article.


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