ST. LOUIS — Deere & Co., the world's largest maker of agricultural equipment, said Wednesday its quarterly net income more than doubled as rising crop prices encouraged U.S. farmers to buy new farm machinery and plant their fields fence post to fence post.
The company also raised its earnings prediction for the fiscal year, reflecting optimism that global food prices will stay high enough to keep farmers profitable and willing to pay top dollar for the company's new lines of tractors and combines.
Deere's sales increase was driven by demand for heavy farm equipment, with revenue for four-wheel-drive tractors and large combines rising more than 50 percent. Such machines can cost hundreds of thousands of dollars, but a boom in crop prices has left U.S. farmers flush with cash.
The global price of corn and wheat has roughly doubled since July, while the price of soybeans jumped 56 percent. That's encouraged farmers to plant crops on every possible acre of soil, said Susan Karlix, Deere's manager of investor communications. Farmers feel confident in forking over cash, or taking on debt, to buy new John Deere equipment as crop prices continue to climb.
"Our order books are strong," Karlix told analysts during a conference call. Even demand for used Deere tractors and rentals has jumped, she said.
Deere is expanding overseas operations, but its sales are rooted in North America, with U.S. and Canadian sales rising 35 percent in the quarter. Outside those core regions, sales rose 22 percent in the quarter.
While Deere's performance in 2011 will be tied to farm income, its profit margins could be hurt by rising steel prices, said Sterne Agee analyst Lawrence De Maria. But the company should be able to raise prices during the second half to offset any increased costs, De Maria said.
During the conference call, Deere executives said it was difficult to predict how high steel prices might be later in the year. Investor relations director Tony Huegel said the company is "always looking" at possible price increases.
The Moline, Ill., company earned $513.7 million, or $1.20 per share, for the fiscal first quarter that ended Jan. 31, up from $243.2 million, or 57 cents per share, a year earlier. That beat analyst expectations of 97 cents per share, according to a survey by FactSet.
Total revenue rose 27 percent to $6.12 billion. Sales were helped by a 2 percent increase in prices.
Deere's agriculture and turf sales rose 21 percent during the quarter on a combination of higher demand and prices.
The turf division includes Deere's line of compact tractors and mowers that are used in many locations, including golf courses and backyards. The company said its sales of smaller "utility" tractors used for yardwork grew more than 10 percent during the quarter, suggesting that consumer spending was increasing, even if more slowly than spending on the farm.
Deere representatives said construction demand is up as well. Construction and forestry sales climbed 81 percent, and the unit turned an operating profit in the quarter after losing money in the year-ago quarter. Higher costs for raw materials slightly weighed down results.
Strong demand from farmers is expected to continue through 2011. A survey by the Kansas City Federal Reserve released this week found that half of farmers in the central United States expect their income to rise over the next three months. Farmer's capital spending closely tracks their income, according to the bank.
Deere predicts a net income this fiscal year of about $2.5 billion, up from a November prediction of $2.1 billion. Analysts currently predict $2.37 billion.
Deere projects equipment sales will rise 18 percent to 20 percent during the current fiscal year that ends in October and about 25 percent in the current quarter.
Worldwide sales of agriculture and turf equipment are forecast to increase by about 16 percent in 2011.
Deere's worldwide sales of construction and forestry equipment are forecast to rise by about 35 percent this year on higher wood and pulp prices and improved construction equipment sales to rental companies.
Shares rose $2.24 to close at $95.86.