Deere & Co. (NYSE: DE), the world’s largest farm equipment maker, has reported an increase in profit for the quarter ended Feb. 2 that was unexpected by analysts. Quarterly profit was $517 million, or $1.63 per share, up from $498 million, or $1.54 per share, in the same period of last year. That beat the average analyst estimate of $1.26 per share.
Sales fell 6 percent, dragged down by lower construction shipment volume and unfavorable currency effects. That was offset by signs of stabilization in the U.S. farm sector and a lower tax rate. The company retained its 2020 profit forecast of $2.7 billion to $3.1 billion. That compares with the $2.9 billion average analyst estimate for fiscal 2020. Shares rose the most in three years after the news, surging 9.7 percent to their highest-ever level.
The farm sector has been buffeted by a nearly two-year-long trade war with China. American agricultural exports to China were hit hard, especially exports of soybeans. Farmers were left struggling to turn a profit, which hurt purchases of new farm machinery. Large farm equipment is Deere’s top moneymaker.
President Donald Trump’s interim trade deal with China has raised hopes of a recovery in farm machinery demand. Farm commodity prices remain depressed as Chinese purchases have been way below the pre-trade war levels. The U.S. Department of Agriculture expects American soybean stockpiles to sink to pre-trade war levels as China comes back into the market.
The company warned the outbreak of coronavirus would hit sales and earnings in the second quarter. The outbreak forced Deere to close all eight of its facilities in China. The outbreak is also threatening to affect its factories in the United States, which are having trouble obtaining several components that formerly came from China. Deere said limited production has restarted at some of its Chinese facilities.
