(Bloomberg) -- Deere & Co. is forecasting record profit for the next year as soaring farm income stokes tractor demand, allowing the biggest maker of agricultural machinery to boost prices.
Shares of the Moline, Illinois-based company rose as much as 7.6% Wednesday to an all-time intraday high, leading the S&P 500 Index. Deere said in a statement Wednesday that full-year net income will be as much as $8.5 billion -- above analysts’ estimates -- while reporting fiscal fourth-quarter earnings that also beat expectations.
Farmers have more spending power to upgrade an aging fleet after drought in the US and China and disruptions from Russia’s war in Ukraine pushed up crop prices. That’s allowing Deere to increase prices for its tractors and other agriculture equipment by 11% next year.
“We are particularly impressed with the pricing power DE continues to exhibit and believe this will be a crucial differentiator” in fiscal 2023 and beyond, analysts at Baird Equity Research said in a note.
“I truly believe our best years are still ahead of us,” Chief Executive Officer John May said on Deere’s earnings call. Order books across the company’s businesses are full into the third quarter, and demand for machinery equipment continues to outstrip supply.
“It’s important to note that not only do the order books continue to fill when we open them, but the velocity of orders has remained strong,” May said.
For the fiscal fourth quarter, Deere’s adjusted per-share earnings of $7.44 beat the average analyst estimate of $7.09 a share.
Sales in the production and precision agriculture segment benefited from both higher volumes and prices, which offset a rise in costs and expenses. Management sees sales for the segment rising 15% to 20% in fiscal 2023, while construction and forestry is seen gaining about 10%. One soft spot is seen in Asia, where sales may fall moderately.
Higher interest rates may start to hit some customers. While Deere’s financial services group expects slightly better results despite less-favorable financing spreads, it’s forecasting a higher provision for credit losses in 2023, excluding the portfolio in Russia.
(Updates with analyst, CEO comments from fourth paragraph. A previous version corrected net income amount.)
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