By Abhijith Ganapavaram
(Reuters) -Deere & Co raised its annual profit forecast after posting estimate-beating quarterly earnings on Friday, as the world’s largest farm equipment maker expects a margin boost from price hikes and solid demand for its tractors and combines.
Demand for agricultural equipment is seen to be high this year as farmers are flush with cash from high grain prices and government support during the COVID-19 pandemic. They, however, face challenges from soaring costs for seeds and fertilizers.
The U.S. Department of Agriculture estimated net farm income to have risen 25% in 2021 but has warned it may fall 4.5% this year.
Deere has raised equipment prices to combat rising shipping and supply chain costs, but that has not deterred demand, with the company’s North American order books full or nearly full for most of its large farm equipment in 2022.
“Looking ahead, we expect demand for farm and construction equipment to continue benefiting from strong fundamentals,” Chief Executive John May said in a statement.
Shares in Deere were up 0.8% in early trading.
Production problems due to supply snarls linger, but Third Bridge senior analyst Patrick Donnelly said he remained bullish on Deere’s ability to roll out more higher-priced precision agriculture technology in response to demand.
“Deere’s earnings beat was driven by the strong equipment pricing environment, which was partially able to offset inflationary costs,” said Donnelly.
Smaller rival AGCO Corp last week also reported upbeat quarterly results and outlook, helped by strong demand.
Deere forecast fiscal 2022 net income between $6.7 billion and $7.1 billion, up from a prior estimate of $6.5 billion to $7.0 billion.
Net sales from equipment operations rose about 6% to $8.53 billion for the first quarter ended Jan. 30, beating the Refinitiv-IBES consensus estimate of $8.22 billion.
Net income fell to $903 million, or $2.92 per share, as costs weighed, but still beat the average estimate of $2.38.
(Reporting by Abhijith Ganapavaram in Bengaluru; Editing by Ramakrishnan M.)
