By Ankit Ajmera
REUTERS - Deere & Co reported quarterly sales below estimates and its full-year farm equipment sales forecast indicated sluggish demand for its trademark green tractors and harvesting combines in the United States, sending its shares down 9 percent.
The third-quarter report, coming off strong second-quarter results, surprised investors who were expecting another upbeat quarter underpinned by the company's ability to control costs amid weak demand.
While analysts have said the weakness in the farm sector has bottomed out, bumper corn and soybeans harvests in the United States have kept prices low, leaving farmers with less cash to spend on farm equipment.
"We thought 3Q would mark the last big operating beat quarter of FY17 before focus fully shifted to FY18 ... this proved not to be the case," Baird Equity Research analyst Mig Dobre wrote in a note.
"Investors have rewarded Deere shares with meaningful multiple expansion as (agriculture) markets have bottomed and management made visible and meaningful progress on cost reduction," Dobre noted.
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Before Friday's losses, the stock had gained 20 percent this year and 50 percent in the past 12 months.
Deere's results were in sharp contrast to those of rival Caterpillar Inc, which smashed expectations and raised its full-year forecast for a second time in July.
Unlike Deere, Caterpillar has a large exposure to the construction equipment market, which is being driven by strength in China.
Deere said it continued to expect its full-year farm equipment sales in the United States and Canada, its biggest markets, to be down about 5 percent, partly due to continuing impact of low crop prices.
The company, however, maintained its forecast for a 20 percent increase in sales of tractors and combined harvesters in South America.
Deere's overall agriculture and turf equipment sales are expected to be up 9 percent for the full year, up from 8 percent previously. The forecast includes a benefit of positive foreign currency translation.
Deere's total equipment sales in the third quarter rose about 16 percent to $6.83 billion, but missed the average analyst estimate of $6.92 billion, according to Thomson Reuters I/B/E/S.
However, the company eked out a slim beat on profit, helped by lower effective tax rate.
Net income attributable to Deere jumped 31.3 percent to $641.8 million, or $1.97 per share.
Deere's shares fell as much as 8.9 percent to $112.90 in early trading on Friday, their biggest percentage loss in two years.
(Reporting by Ankit Ajmera in Bengaluru; Editing by Maju Samuel and Saumyadeb Chakrabarty)