Deere Outlook Fenced In by Pension Costs

NEW YORK (TheStreet) -- Deere & Company(DE Quote) swept past Wall Street's fiscal fourth-quarter targets by a wide margin, but the company's outlook for the year ahead may have disappointed some heavy-equipment watchers.

Deere's forecast for 2010 calls for net income of $900 million, below the consensus target of $1.2 billion.

As for top-line projections, Deere is more optimistic. It says it now expects sales to drop 1% in 2010 compared with 2009 and 10% in the first quarter compared to the year-ago period -- both better than the declines Wall Street analysts were predicting.

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Larry DeMaria, an analyst at Sterne Agee covering equipment makers, attributed the guidance shortfall on the bottom line to higher-than-expected pension costs, which, he said, have created a significant "headwind" for Deere's earnings growth over the near term. Indeed, in its quarterly report, released before the bell Wednesday, Deere said it anticipates its "postretirement benefit costs" to amount to $400 million more in 2010 than they did in 2009.

But, De Maria added, "The underlying business is generally in-line with where we saw it."