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Nov 22, 2017

Deere shares surge after earnings beat

Deere shares hit record as Q4 profit results top expectations

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Deere & Co's (DE.N) shares surged on Wednesday after the equipment maker beat quarterly earnings estimates and predicted further improvements in the coming year, amid strong sales in South America and higher demand in the United States and Canada.

The Moline, Illinois-based company forecast net sales for fiscal 2018 to jump 19 per cent, translating into sales of US$35.39 billion, and earnings to rise to about US$2.6 billion.

Analysts on average expect 2018 net sales of US$28.06 billion and earnings of US$2.3 billion, according to Thomson Reuters I/B/E/S.

Deere's shares leapt more than four per cent to US$145.00 shortly after midday, bringing its gain this year to about 41 per cent.

Demonstrating that U.S. industrial companies are benefiting from a tailwind in overseas markets, Deere's sales outside North America jumped 30 per cent in the fourth quarter ended Oct. 29.

In the U.S. and Canada, Deere's biggest market, net equipment sales were up 23 per cent in the latest quarter.

The results came weeks after Caterpillar smashed earnings estimates, riding on surging sales in Asia-Pacific.

Deere expects higher demand for large agriculture equipment to push up U.S. and Canadian sales by five to 10 per cent in 2018, in contrast to its 2017 projection in mid-August where sales were expected be down about five per cent.

"Despite current commodity prices, the industry is experiencing stronger replacement demand for large equipment, while demand for small equipment remains solid," Joshua Jepsen, Deere's manager of investor communications, told analysts at a post-earnings conference call.

But with U.S. farmers tightening belts in the face of four years of global oversupply that has pushed down grain prices, demand for large tractors is likely to stay over 25 per cent, below what Deere's considers to be a mid-cycle level.

The company expects U.S. farm incomes to drop two per cent next year from 2017 due to lower livestock and crop cash receipts.

Hence, its sales guidance relies largely on replacement demand for aging fleet and the strength of small agriculture equipment market.

In South America, sales of tractors and combines are projected to be flat to up five per cent in 2018.

CONSTRUCTION AND FORESTRY

Deere expects higher housing starts in the U.S. and increased activity in the oil and gas sector to lift worldwide sales of construction and forestry equipment by 69 per cent in 2018.

The division posted a 37-per-cent jump in sales in the latest quarter and is expected to receive a fillip once the acquisition of Germany's Wirtgen Group closes in December.

Deere said the US$5.2 billion acquisition will likely contribute about US$3.1 billion in net sales next year.

Net income attributable to Deere rose 79 per cent to US$510.3 million, or US$1.57 per share, in the fourth quarter, while total net sales rose 25.5 per cent to US$7.09 billion, beating analysts' average estimate of US$1.47 earnings a share on sales of US$6.99 billion.

This is the fifth straight quarter in which the company beat the Thomson Reuters I/B/E/S consensus analyst estimate.