(Reuters) – Deere & Co’s (DE.N) shares surged on Wednesday after the equipment maker beat quarterly earnings estimates and predicted further improvements in the coming year, amid strong sales in South America and higher demand in the United States and Canada.
The Moline, Illinois-based company forecast net sales for fiscal 2018 to jump 19 percent, translating into sales of $35.39 billion, and earnings to rise to about $2.6 billion.
Analysts on average expect 2018 net sales of $28.06 billion and earnings of $2.3 billion, according to Thomson Reuters I/B/E/S.
Deere’s shares leapt more than 4 percent to $145.00 shortly after midday, bringing its gain this year to about 41 percent.
Demonstrating that U.S. industrial companies are benefiting from a tailwind in overseas markets, Deere’s sales outside North America jumped 30 percent in the fourth quarter ended Oct. 29.
In the U.S. and Canada, Deere’s biggest market, net equipment sales were up 23 percent in the latest quarter.
The results came weeks after Caterpillar (CAT.N) smashed earnings estimates, riding on surging sales in Asia-Pacific.
Deere expects higher demand for large agriculture equipment to push up U.S. and Canadian sales by 5-10 percent in 2018, in contrast to its 2017 projection in mid-August where sales were expected be down about 5 percent.
“Despite current commodity prices, the industry is experiencing stronger replacement demand for large equipment, while demand for small equipment remains solid,” Joshua Jepsen, Deere’s manager of investor communications, told analysts at a post-earnings conference call.
But with U.S. farmers tightening belts in the face of four years of global oversupply that has pushed down grain prices, demand for large tractors is likely to stay over 25 percent, below what Deere’s considers to be a mid-cycle level.
The company expects U.S. farm incomes to drop 2 percent next year from 2017 due to lower livestock and crop cash receipts.
Hence, its sales guidance relies largely on replacement demand for aging fleet and the strength of small agriculture equipment market.
In South America, sales of tractors and combines are projected to be flat to up 5 percent in 2018.
CONSTRUCTION & FORESTRY
Deere expects higher housing starts in the U.S. and increased activity in the oil and gas sector to lift worldwide sales of construction and forestry equipment by 69 percent in 2018.
The division posted a 37 percent jump in sales in the latest quarter and is expected to receive a fillip once the acquisition of Germany’s Wirtgen Group closes in December.
Deere said the $5.2 billion acquisition will likely contribute about $3.1 billion in net sales next year.
Net income attributable to Deere rose 79 percent to $510.3 million, or $1.57 per share, in the fourth quarter, while total net sales rose 25.5 percent to $7.09 billion, beating analysts’ average estimate of $1.47 earnings a share on sales of $6.99 billion.
This is the fifth straight quarter in which the company beat the Thomson Reuters I/B/E/S consensus analyst estimate.