Moline-based Deere & Co. said Wednesday its full-year earnings increased by 9.5 percent from last year but missed analyst's expectations for the fourth quarter due to higher production and raw materials costs and lower sales outside of the U.S. and Canada.
"As we all know, the world faces some big economic challenges today ranging from the U.S. fiscal cliff possibilities to euro debt crisis and the slowdown in emerging market economies," Rajesh Kalathur, Deere's senior vice president and chief financial officer, said during a conference call. "Today's economic uncertainties are real and troubling and John Deere is taking serious precautions in response."
The company expects sales to increase by about 10 percent for the first quarter of 2013 and 5 percent for the full year with net income of about $3.2 billion.
Shares slipped by about 4 percent to $82.59 per share in mid-day trading.
Adam Fleck, an analyst for research firm Morningstar Inc., said investors are likely reacting to the company's bottom line forecast, which is nearly flat from 2012. Investors like to see net income grow higher than sales, Fleck said.
Deere's 2012 net income was $3.07 billion, or $7.63 per share, up from $2.8 billion, or $6.63 per share, last year. Revenues for the year were $36.2 billion.
Fleck said higher production costs continue to pose challenges for the company.
Earlier this year, Deere experienced delays of up to 14 days as the company increased production of a new combine line during the third-quarter. As a result, the company allowed dealers to cancel orders because the machines would have been shipped too late for harvest. That, in turn, resulted in higher inventory.
The company blamed the delays on an increase in unique part numbers for the new combines and new workers who needed training. Deere said it was running production at capacity, so once it fell behind it didn't have time to get caught up. The factories have since caught up to demand.
In total, Deere hired 5,000 workers in 2012, mostly in the last three quarters of the year. The company is also opening two factories in Brazil and one in China, which will add additional costs with little to no revenue through 2013 and well into 2014.
"These factories position us well for the future as Brazil is one of the world's fastest-growing construction equipment markets and China is an important market long-term," Susan Karlix, Deere's manager of investor communications, said in a conference call.
Sales of agricultural and turf equipment in South America are expected to increase by 10 percent thanks to favorable commodity prices and higher planting in Brazil. Asia sales are expected to be flat, impacted by softer tractor sales in India and a decrease in soybean production in China.
Worldwide sales of construction and forestry equipment are expected to increase by about 8 percent due, in part, to improvement of the U.S. economy. However, Deere projects sales in world forestry markets to be about flat for the year as further weakness in European markets offsets stronger demand in the U.S.
Fourth quarter net income rose by 2.7 percent to $688 million, or $1.75 per share, from $670 million, or $1.62 per share, last year. Revenues were $9.8 billion. Analysts surveyed by Bloomberg expected $1.88 per share.
The company said its fourth-quarter profit was also impacted by writedown of $33 million related to its water business and a strong dollar.
Distributed by MCT Information Services
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