February 16, 2018 / 2:33 PM / 9 months ago

UPDATE 2-U.S. tractor maker Deere upgrades 2018 outlook on improving equipment demand

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By Rajesh Kumar Singh

Feb 16 (Reuters) - U.S. farm equipment maker Deere & Co on Friday boosted its sales outlook for fiscal 2018, citing strengthening conditions in agricultural and construction markets.

For the past four years, Deere has been battling weak demand for farm equipment as global oversupplies pushed down prices, sending U.S. farm incomes plunging.

The Moline, Illinois-based company now expects full-year sales to be up 29 percent from a year ago, a 7-percentage-point increase from its previous estimate, helped by its acquisition of Germany’s Wirtgen Group last year and a favorable currency effect.

Equipment sales in the second quarter are expected to increase by 30 percent to 40 percent.

“Deere has continued to experience strong increases in demand for its products as conditions in key markets show further improvement,” said chief Executive Officer Samuel R. Allen.

However, it cut the net income estimate to $2.1 billion for the year, from $2.6 billion earlier, on U.S. tax reform-related adjustments of $750 million. Adjusted net earnings for the year are projected to be $2.85 billion.

Equipment sales rose 27 percent year-on-year to $5.97 billion in the first quarter. The company said sales in the quarter were weighed down by supply chain and logistical delays in shipping products to their dealers.

The company expects U.S. net farm cash income to drop by 5 percent this year from 2017. The decrease, however, is estimated to be smaller than expected earlier.

Yet, it expects higher demand for large agricultural equipment to lift industry sales in the United States and Canada, Deere’s biggest market, by 10 percent this year.

In South America, sales of tractors and combines are projected to be flat to up 5 percent in 2018.

Wirtgen’s acquisition is expected to lift full-year sales at its construction and forestry division by 80 percent. The segment, which is primarily focused on the North American market, saw a 57 percent jump in net sales in the latest quarter.

Deere posted a net loss of $535.1 million, or $1.66 per share, including a $965 million charged related to U.S. tax reform. A year earlier, it recorded net income of $199.0 million, or 62 cents per share.

Adjusted net income was $430.0 million, or $1.31 per share.

Overall revenues rose 23 percent to $6.91 billion in the quarter ending Jan. 28.

The company’s shares, which have outperformed S&P 500 this year, were down 1 percent at $164.75 in premarket trading on Friday on the New York Stock Exchange. The stock has gained over 50 percent in the past one year. (Reporting by Rajesh Kumar Singh; Editing by Jeffrey Benkoe and Jonathan Oatis)

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