Earnings preview: equipment maker Deere & Co.
Deere & Co., the world's largest maker of agricultural equipment, will release its first-quarter earnings report on Wednesday before the markets open and give investors a sense of how farmers worldwide are doing.
Investors will be watching to see how much the Moline, Ill., based company's costs have increased and how optimistic the company remains about global demand for its products.
Deere officials have predicted that first-quarter sales would jump 34 percent over last year. Through all of fiscal 2011, Deere expects to generate $2.1 billion in net income.
Farmers in most of the company's key markets are experiencing solid levels of income due to strong global demand for agricultural commodities and relatively high crop prices.
American farmers fared better last year than their European counterparts, so European sales may weigh down Deere's profits. And Brazil's stimulus program may not be as generous in 2011 because officials in that country are worried about inflation.
Edward Jones analyst Jeff Windau said he'll be interested to hear Deere's commentary on markets like Brazil, and he'll be looking for details about how much Deere's raw materials costs may have increased.
But Windau said he expects another solid quarter.
"I would anticipate similar trends to what we have been seeing," Windau said.
The company says 2011 will be a record year of new-model introductions mostly because of the implementation of tougher emissions standards.
"I'm assuming there will be price increases," Windau said, because of rising material costs and the new pollution standards in 2011.
Within the past two months, Deere has announced plans to build new manufacturing plants in both India and China to help meet demand in the developing world.
Deere plans to invest about $100 million in India to build a new factory and expand an existing tractor plant. Deere also said it plans to invest $50 million in a new construction equipment manufacturing plant in China to make four-wheel-drive loaders and excavators.
WHY IT MATTERS: Deere's results offer an indication of how well farmers worldwide are doing. In addition to agricultural equipment, Deere makes construction and forestry equipment, such as backhoes, excavators, riding mowers and leaf blowers. But construction and forestry sales represent a small portion of Deere's business compared to its agricultural equipment.
WHAT'S EXPECTED: Analysts, on average, are expecting earnings of 97 cents per share on $5.5 billion in revenue, according to FactSet.
LAST YEAR'S QUARTER: Deere earned $243.2 million, or 57 cents per share, during last year's first quarter after an unexpected increase in agricultural orders boosted the company's profits.