Deere & Co. posted a 4 percent jump in its quarterly profits thanks to strong equipment sales, but some expected better and potential headwinds from currency exchange rates overshadowed even a healthier outlook.
Shares dipped over 5 percent and other industrials fell as well, making it the worst performing sector on the Standard & Poor's 500 index.
The world's largest maker of agricultural equipment posted first-quarter earnings of $532.9 million, or $1.30 per share in its fiscal first quarter. That's up from $513.7 million, or $1.20 per share, last year.
Deere's quarterly revenue grew 11 percent to $6.77 billion from last year's $6.12 billion.
The results topped Wall Street expectations, but Deere's 11 percent sales growth fell short of the 16 percent to 18 percent growth the company had predicted for the quarter. Analysts surveyed by FactSet expected earnings per share of $1.23 on revenue of $6.56 billion, on average.
Deere's stock slid 5.4 percet, or $4.77 to close at $84.28 Wednesday.
Deere, based in Moline, Ill., says it still expects equipment sales to be up about 15 percent in fiscal 2012, but the company now predicts net income of $3.275 billion, up from last fall's forecast of $3.2 billion in net income.
It was a solid quarter, Credit Suisse analyst Jamie Cook said, but the outlook for the year was only modestly improved. She said there will be questions about why Deere was so conservative.
Executives said their outlook for the year would have been higher, but the company now expects exchange rates will cost the company about $100 million this year. Without those costs, sales growth would have reached about 19 percent, Deere said.
CEO Samuel Allen the Deere is investing in numerous new products and seven new factories throughout the world in preparation for stronger demand as the economy improves and developing countries improve infrastructure.
Key markets are "in the early stages of recovery," Allen said.
Edward Jones analyst Jeff Windau the quarter looked good initially, but investors may have been bothered by the lower-than-predicted sales figure and headwinds related to research and development, as well as foreign exchange rates.
"I think there was a good headline number with the earnings beat," Windau said. "I think as people started to dig in a little deeper, there's just a few items that raise questions."
Deere forecast that U.S. farm income will decline to $103.9 billion this year from last year's $115.7 billion, and Windau said that might make some investors nervous because a drop in farm income usually hurts tractor sales.
Deere predicted 10 percent growth industrywide for agricultural equipment sales in Canada and the U.S., but it tempered its forecast for some other regions. Deere predicts ag sales in Asia will increase only moderately this year because tractor sales in India will likely be flat. Agricultural sales in South America may also be flat or even down 5 percent because of drought. Deere officials predict their sales will exceed those industrywide predictions.
Research and development costs will likely grow about 12 percent in 2012, Deere said, as it rolls out more new models to comply with tighter emissions standards. That's slightly higher than the 10 percent growth in costs that Deere had earlier predicted.
During the first quarter, Deere said equipment sales grew 11 percent. Sales outside the United States and Canada led the way with a 21 percent increase while sales in those two countries grew only 5 percent.
Deere said it was also helped by strong 22 percent sales growth in its construction and forestry division. That unit contributed $1.4 billion to Deere's sales in the quarter, up from $1.1 billion a year ago.
Quarterly sales of the company's agriculture and turf equipment grew 8 percent to $4.7 billion from last year's $4.4 billion. Deere expects sales percentage growth of 15 percent in the sector for the year, with farmers in major markets seeing strong demand.
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Deere & Co.: www.deere.com