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TheStreet Open House

Farm Slowdown Fears Weigh on Deere & Co. (DE)

NEW YORK (TheStreet) -- Deere & Company's (DE) exposure to a slowdown in the farming industry clouded better-than-expected results on Tuesday.

By midmorning, shares had taken off 0.71% to $86.84.

The heavy machinery maker warned of a 3% decrease in equipment sales over fiscal 2014, and a 6% drop in the three months to April. Full-year net income is expected to be in the range of $3.3 billion, 6.7% lower than a year earlier.

Against "moderating demand for agricultural equipment," the company foresees worldwide sales of agriculture and turf equipment to decline 6% for the full year. The segment accounts for 89% of profits in its equipment sales business (excluding its financial services arm).

"Although farm incomes are expected to remain at healthy levels in 2014, they are forecast to be lower than in the previous year. In Deere's view, the decline will have a dampening effect on demand, especially for larger models of equipment," the company said in a statement.

The U.S. Department of Agriculture recently projected a steep decline in income over 2014, with net farm profits expected to drop 27% to $95.8 million, its lowest level since 2010. Over the past 12 months, decreasing prices and larger harvest for the nation's largest crops, corn and soybeans, ate into growers' profits.

UBS reiterated its "sell" rating on Deere due to its overexposure to agricultural weakness.

"We expect DE stock performance to revert to more historical norms relative to corn price performance, and we expect already lower corn prices to pressure demand for ag equipment in the year ahead. We expect DE's earnings will decline in 2014, driven by weakening ag sales, as farmers anticipate lower cash receipts," wrote analyst Steven Fisher in a note.

Deere & Co. reported a 5% increase in quarterly net income to $681.1 million. Per-share earnings were 10% higher year over year to $1.81, 29 cents more than analysts surveyed by Thomson Reuters anticipated. Including its financial services arm, revenue rose 3% to $7.65 billion.

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