Deere beats and raises outlook

The results provided an early impressive report card on the company8217;s new chief executive,55-year-old Sam Allen,a life-long Deere employee who took over last summer after heading up the company8217;s construction and forestry division for four years.

But they also reflect continued solid fundamentals in much of the farm world,where strong crop prices 8212; which translate into strong income for growers 8212; and low interest rates have helped encourage investment in new equipment.

Marie Ziegler,the head of Deere8217;s investor relations unit,said the biggest factor in the raised sales guidance for the year was that the company8217;s order book 8220;developed pretty dramatically over the course of the first quarter.8221;

Profitability in the unit that makes Deere8217;s green tractors and harvesters was especially impressive,reporting margins of nearly 10 per cent 8212; three times what investors had expected,according to Eli Lustgarten,an analyst at Longbow Securities.

8220;It looks like brilliant profitability in ag in a relatively weak market,8221; Lustgarten said. 8220;It8217;s a combination of restructuring,it8217;s a combination of operating efficiency,it8217;s execution,and brilliant ag margins.8221;

US manufacturers have laid off some 2.2 million workers since the recession officially began in December 2007 8212; more than a quarter of the 8.4 million workers idled in the downturn.

Those payrolls cuts,combined with the continued streamlining of their production lines and other structural cost reductions,have turned the sector into what one analyst recently called an 8220;operating leverage beast,8221; capable of turning modest increases in demand into big jumps in profitability.

In Deere8217;s case,the company also credited lower raw material costs for its better-than-expected performance.

Deere,the world8217;s largest maker of agricultural equipment,reported a fiscal first-quarter net profit of 243.2 million,or 57 cents a share,up from 203.9 million,or 48 cents a share,a year earlier.

Revenue fell 6 per cent to 4.84 billion.

Net income at the company8217;s financial services arm nearly doubled to 85.1 million,from 46.8 million last year,as the spread between Deere8217;s borrowing costs and the interest it charges customers widened.

Deere said commodity prices 8212; and farm income 8212; would remain healthy in 2010,supporting industry sales of farm equipment in the United States and Canada at levels comparable to those seen in 2009,but lifting sales in South America as much as 15 per cent.

The company now expects total US farm cash receipts to approach 308 billion this year,off the record 336.4 billion of 2008,but up from the 300.6 billion in 2009.

Demand for large tractors has been greater than expected. It said farmers wanting its new 8R series row-crop tractor were on a waiting list that went out to September.

It warned,however,that industry sales in Europe,especially Central Europe and the former Soviet Union would 8220;remain under pressure as a result of challenging economic conditions and low levels of available credit.8221;

Deere,which also makes construction and forestry equipment,said it expected that business to remain 8220;deeply depressed for the year as a result of a decline in non-residential construction and relatively high used-equipment levels.8221;

Deere shares closed up 2.70,or about 5 per cent,at 56.48 on the New York Stock Exchange after earlier rising as high as 58.05.