Deere sees sales rising in bigger ag machinery

Higher sales of big-ticket ag equipment such as combines, higher-horsepower tractors, seeders and sprayers in Canada and the U.S. are expected industry-wide in what’s left of John Deere’s fiscal year.

Illinois-based Deere and Co. posted that outlook Wednesday in the fiscal report for its third quarter ending July 31, in which it forecasts a 15 per cent drop in full-year sales for its combined ag and turf equipment division.

Deere added that it expects to see an industry-wide 20 per cent decrease in sales of compact utility tractors and turf equipment in the U.S. and Canada.

Across the industry, farm machinery sales in Canada and the U.S. are expected to be down “slightly” for the year, the company said, but added that sales of large tractors, combines, sprayers and seeding equipment are expected to be higher.

Industry-wide ag machinery sales in Western Europe are forecast to drop 10 to 15 per cent for the year while markets in Central Europe and the Commonwealth of Independent States are expected to be “sharply lower,” Deere said.

Deere on Wednesday posted worldwide Q3 net income of $420 million on $5.89 billion in net sales and revenues (all figures US$), down from $575.2 million on $7.74 billion in the year-earlier period.

Equipment net sales in the U.S. and Canada declined 16 per cent for the quarter and nine percent for the year to date. Net sales outside the U.S. and Canada fell 37 per cent for the quarter and 26 per cent for the year to date.

“We have seen continued benefit from strength in the U.S. market for large farm machinery and from our efforts to keep a tight rein on costs and inventories,” Deere CEO Samuel Allen said in the company’s release.

“Deere’s construction and forestry business, as an example, is successfully executing carefully designed plans to adjust expenses and asset levels in response to the severe decline in its markets.”

“Largest decline”

Company equipment sales are projected to be down about 21 per cent for the full year and down about 34 per cent for the fourth quarter, Deere said, predicting full-year net income of about $1.1 billion “despite the largest expected single-year sales decline in at least 50 years.”

“Significant” production cutbacks in line with lower retail demand are also expected to weigh on fourth-quarter results, along with the bills for previously-announced “rationalizing” of its operations.

Deere at the start of its third quarter merged its agricultural equipment and commercial and consumer equipment businesses, which resulted in $16 million in pre-tax charges relating to “voluntary employee separations” in Q3.

Those charges are expected to cost Deere another $85 million in Q4, after which it said it expects to see annual savings from the voluntary separation program worth about $50 million to $60 million starting in 2010.

Despite current economic conditions, Deere said it believes “underlying trends” remain promising. “John Deere is well-positioned to respond to the world’s growing need for food, shelter, infrastructure and energy with a wide range of advanced equipment and services,” Allen said.

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