Deere Profit Beats Forecast, 2023 Outlook Raised; Shares Jump 6%

Deere & Co raised its annual profit forecast on Friday after beating Wall Street estimates for the latest quarter on higher revenue for its high-horsepower tractors and an increase in spending from construction customers.

Shares of the world's largest farm equipment maker rose 6.1%.

The industrial bellwether, a barometer for the global economy, has maintained strong profit margins despite recession concerns. Demand from farmers has been strong, after higher commodity prices last year aided producers to purchase new equipment or upgrade their fleets.

Deere's margins have remained high as it has been able to raise prices across its equipment divisions, offsetting rising shipping costs and tight supply chains.

After posting results for the first quarter ended in January, the company expects net income of $8.75 billion to $9.25 billion for the year, higher than the $8 billion to $8.5 billion estimated last quarter.

Analysts believe the revised outlook was due to "a combination of stronger pricing and producing machines on the manufacturing line as efficiently as possible," said Matt Arnold, equity analyst at Edward Jones.

The Moline, Illinois-based company's equipment sales rose 34%, while its production and precision agriculture division saw the most growth, with quarterly sales increasing 55% from the year prior, as the company expands its product portfolio in autonomous solutions for crop planting and harvesting.

Strong pricing for Deere's herbicide applicator products, like See & Spray, helped operating profit in the production and precision agriculture division rise 308% from last year. The company noted that prices for the segment will increase 14% as demand from farmers remains solid.

"Our dealers are also optimistic about the level of adoption and demand for precision solutions as customers look to reduce expensive inputs, which improve profitability and sustainability," said Joshua Jepsen, Deere's chief financial officer.

Deere has been able to replenish its dealer inventories as easing supply chains constraints allowed the manufacturer to assemble and ship equipment. Overall, inventories remain below historic averages, executives said on a conference call.

Net sales for the machinery-maker's construction and forestry segment rose 26% year-over-year.

The company's financial services business has been resilient, however income for the segment in the latest quarter fell to $185 million from $231 million previously.

Deere's equipment revenue for the quarter came in at $11.4 billion, topping Refinitiv analysts' estimates of $11.28 billion.

Net income rose to $1.96 billion, or $6.55 per share, outpacing analysts' estimates of $5.57 earnings per share.

Global net sales and revenue increased 32% to $12.65 billion from $9.57 billion for the first fiscal quarter ending in January.