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raised its profit forecast for the year, while rising costs for materials and parts continued to pressure the farm equipment maker’s margins.
The Moline, Ill.-based company, the largest supplier of farm machinery in the U.S., said continued high prices for crops are keeping farmers interested in buying tractors, harvesters and other equipment, despite higher costs for seed, fertilizer and other supplies.
Deere on Friday raised its profit outlook for the year, with help from a one-time gain of $220 million stemming from the dissolution of its long-running joint venture with Japan’s Hitachi Construction Machinery Co.
The U.S. Department of Agriculture expects net farm income to fall 4.5% this year to $113.7 billion, still higher than the 20-year average. Deere maintained its earlier sales outlook for its large farm equipment, predicting that sales will increase by as much as 30% in 2022.
Despite higher sales of small farm machinery during the three months ended May 1, Deere said its quarterly profit fell by 20% as its operating margin shrank by nearly 5 percentage points. Quarterly profit from large farm equipment rose 5% from a year earlier, but the profit margin contracted.
Deere’s shares fell 12% to $320.33 in midday trading.
The company’s profit margins are coming under increasing pressure from higher costs for materials, parts shortages and rising freight expenses. To blunt those increases, Deere said it expects to continue raising prices on its equipment.
Deere executives said the company’s operations and sales during the second half of year should improve as it starts to ship partially completed machines that have been piling up at factories, waiting for parts. The company expects to skip some of its customary summertime shutdowns at factories to push production rates higher.
“The biggest challenge in the quarter was the number of partially completed machines,” said
Brent Norwood,
Deere’s director of investor relations, on a conference call. “We have confidence that we’ll be able to complete and ship those in the second half of the year.”
For the quarter ended May 1, Deere reported a profit of $2.1 billion, or $6.81 a share, compared with $1.79 billion, or $5.68 a share, a year earlier. The company’s profit topped analysts’ expectations. Overall, sales rose 11% from last year to $13.37 billion.
Deere raised its net income forecast for this year by $300 million to a range of $7 billion to $7.4 billion.
—Will Feuer contributed to this article.
Write to Bob Tita at robert.tita@wsj.com
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