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Associated Press
Deere Reports Record First-Quarter Profits
Tuesday February 15, 6:57 pm ET
By Jan Dennis, Associated Press Writer
Deere Reports Record First-Quarter Profits on Continued Strong Sales of Construction Equipment

PEORIA Ill. (AP) -- Farm implement maker Deere & Co. posted record first quarter profits Tuesday, riding an economic upturn that has unleashed pent-up demand for construction equipment and its trademark agricultural machinery. But its shares fell sharply amid concerns on Wall Street that sales could slow.

Moline, Ill.-based Deere, the world's largest agricultural equipment maker, reported earnings topped $22.8 million for the quarter that ended Jan. 31, up 30 percent from $170.8 million during the same quarter last year. Profit per share was 89 cents, up from 68 cents a year ago.

Though profits matched the estimate of analysts surveyed by Thomson First Call, Deere shares fell $3.25, or 4.7 percent, to close at $66.10 in Tuesday trading on the New York Stock Exchange.

Analysts said investors are worried about a sales decline on the heels of robust demand that has helped boost company profits for 12 straight quarters. Deere predicts sales will rise 6 to 8 percent for the year, compared with 21 percent in the first quarter.

The company also said Tuesday that production will decline this year to reduce inventories. That could be a sign that Deere overestimated demand, said Alexander Blanton, an analyst with Ingalls & Snyder.

"I think people are seeing some of the growth strength evaporating, not only in agricultural machinery but also in construction equipment and the consumer business," said Charlie Rentschler, an analyst with Langenberg & Co.

The company said construction and farm equipment sales that fueled record 2004 profits also paced Deere's first quarter earnings gain. Construction equipment sales rose 33 percent for the quarter, while farm machinery sales were up 26 percent.

Sales dipped 8 percent in Deere's commercial and consumer equipment lines, which includes lawn tractors sold to Home Depot Inc., the world's largest home-improvement chain, the company reported.

Revenue for the quarter topped $4.1 billion, up 18 percent from $3.4 billion during the same period a year ago.

"Our pattern of consistent product investment has allowed customers to appreciate the value in our advanced new models of equipment. ... As a result, the company is positioned to meet our objectives for strong financial performance," Deere Chairman and CEO Robert W. Lane said in a prepared statement.

Observers say Deere's three-year sales surge might slow in 2005 but should remain strong, fueled in part by demand in China and other world markets. Deere opened a factory in Russia this month and is building an $80 million factory in Brazil as it seeks to expand its global reach.

"I don't think there's any reason why it wouldn't continue, at least for the short run and perhaps longer," said Fred Giertz, a University of Illinois economics professor.

But analysts say sales could be affected by unknowns hovering over the U.S. farm economy, including President Bush's proposed 5 percent cut in farm subsidies and the potential spread of soybean rust.

Rentschler said the threat of soybean rust could curtail equipment buying, with farmers saving money in case costly spraying is needed to combat the disease.

"It's the potential of devastation as opposed to the actual devastation. It could be a huge problem, but no one knows. It's like asking how many hurricanes we're going to have this summer," Rentschler said.

For the year, Deere predicts construction equipment sales will increase 10 to 12 percent, while farm machinery sales will rise 7 to 9 percent. The company also projects commercial and consumer equipment sales will rebound, increasing 4 to 6 percent for the year.

Deere predicts annual profits of about $1.5 billion, versus a record $1.4 billion in 2004.

Farm machinery, including Deere's trademark tractors, account for about half of Deere's sales. The company also makes construction and forestry equipment, along with consumer products that include lawn tractors, chain saws and snow blowers.
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