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Shares of Deere surge

Rise comes despite profits skid, forecast of sales slowdown

Bud Robinson of Jacksonville, Ill., inspects a mint condition vintage 1941 John Deere tractor in August.
Bud Robinson of Jacksonville, Ill., inspects a mint condition vintage 1941 John Deere tractor in August.
Seth Perlman, Associated Press

MOLINE, Ill. — Farm equipment maker Deere & Co.'s shares rose sharply Tuesday despite fourth-quarter profits that skidded 35 percent from a year ago and company forecasts that a two-year sales surge for tractors and other implements will slow in 2006.

Moline-based Deere, one of the world's largest makers of farm and lawn-care equipment, reported earnings fell to $232.8 million, or 96 cents a share, for the quarter that ended Oct. 31, down from $356.7 million, or $1.41 cents a share, last year.

But profits were well above the estimate of 79 cents a share by analysts polled by Thomson Financial, sending Deere shares up $4.40, or 7 percent, to close at $67.40 Tuesday on the New York Stock Exchange.

"I have a hard time seeing what the excitement is," Ingalls & Snyder analyst Alexander Blanton said of the price climb. "Just because the quarter was higher than people forecast, there seems to be an assumption that you can imply something about the future by that, but you can't."

Scott Burns, an equity analyst with Morningstar, disagreed. Along with topping Wall Street's expectations, Burns said Deere also trimmed production, invested in research and raised prices during its fourth-quarter "weak patch" — moves he said will pay off for the company in 2006.

Deere said sales and revenue dipped 0.6 percent to $5.18 billion as depressed farm machinery sales and plans to introduce new products in 2006 combined to scale back fourth-quarter production. Sales topped $5.21 billion a year ago.

"We're pleased the company remained solidly profitable for the quarter, even though our results were affected negatively by substantial production cutbacks," Chairman and Chief Executive Robert W. Lane said in a statement.

Deere said a 10 percent dip in fourth-quarter farm equipment sales will likely carry into 2006, predicting a 2 to 4 percent sales decline because of higher fuel and fertilizer costs, along with the loss of tax incentives that helped fuel U.S. sales in early 2005. But the company said sales will get a boost from new farm products planned for 2006, including a line of more powerful and fuel-efficient tractors.

Burns said 2006 farm equipment sales will likely beat Deere's forecast, which he said is based on commodity prices that have dipped from their record levels of 2004 but remain high.

"There are still a lot of strong balance sheets out there on the farm," Burns said.

Overall, Deere expects sales to rise 1 to 3 percent in 2006, with a 10 to 12 percent jump in consumer equipment sales and a 5 to 7 percent sales increase for construction and forestry machines. The company forecasts 2006 earnings of about $1.5 billion, including $175 million to $200 million in the first quarter.

Blanton said long-range predictions are tough for Deere, which relies on the often volatile agriculture industry for about half its total revenue.

"There is no way to forecast it that has any reliability. You don't know what commodity prices are going to do, you don't know what the weather is going to do," Blanton said.

In 2005, Deere said full-year earnings rose 3 percent to a record $1.45 billion, or $5.87 per share, compared with $1.41 billion, or $5.56 per share, last year. Annual sales and revenue increased 10 percent to $21.93 billion from $19.99 billion. Analysts expected a full-year profit of $5.68 per share on sales of about $20.2 billion.

For the year, Deere farm machinery sales rose 9 percent, while construction equipment sales were up 24 percent, the company said. Consumer equipment sales fell 4 percent as a drought that gripped much of the Midwest held back sales of riding lawn equipment.

Along with farm and construction equipment, the company makes consumer products that include mowers, chain saws and snow blowers.