Deere & Company (DE) has received a loan of 4.7 billion roubles or $168 million from the European Bank for Reconstruction and Development (EBRD) to set up a leasing firm in Russia. The loan with a five year term will support renewal of out dated farm equipment and will also target the forestry and construction industries.
Since the collapse of the erstwhile Soviet Union, the number of tractors and harvesters in Russia has been dwindling. The average age of agricultural equipment is above 10 years and is deteriorating faster than it is being replaced. Thus, in order to tap the country's vast agricultural resource, renewal of equipment is necessary.
The new firm will target medium-sized customers whose equipment is in urgent need of renovation, typically mid-sized former collective farms which have turned profitable in the past few years.
Deere’s second quarter EPS of $2.12 beat the Zacks Consensus Estimate and climbed 34% year over year, largely driven by strong demand for farm machinery along with improved conditions in the construction and forestry markets. Deere expects equipment sales to grow 20% in the third quarter and between 21% and 23% for fiscal 2011. Net income is estimated to be $2.65 billion in 2011.
Farm cash receipts are expected at record levels in fiscal 2011, which is promising. Deere seeks to grow its competitive position in the agricultural equipment business as well as in the construction and forestry segment in the emerging and high potential markets such as Brazil, China, India and Russia. Deere’s consistent investment in new products and expanded global capacity help create a solid footing for the future.
Given increased global demand for food, shelter and infrastructure, we believe the long-term outlook for Deere remains strong. However, in the near term, margins are expected to be constrained due to elevated raw material costs and increased R&D costs associated with rigorous global emissions standards. The company currently retains a Zacks #3 Rank (short-term Hold recommendation).
Illinois-based Deere & Co. is engaged in the production and distribution of agricultural and forestry equipment, construction equipment and engines worldwide. The company sells products in the U.S. and Canada through branch offices as well as through distributors and dealers for the resale of products internationally. Deere competes with Caterpillar Inc. (CAT), CNH Global NV (CNH) and Kubota Corporation (KUB).
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