UPDATE 3-Deere sees weak equipment sales in 2016 as farm economy remains soft

(Adds comments from conference call)
By Meredith Davis
Nov 25 (Reuters) - Deere & Co DE.N on Wednesday reported a
drop in quarterly earnings that was not as steep as Wall Street
expected and gave a less dire outlook than analysts had feared,
saying it was well-positioned to weather a worsening slump in
demand for its farm equipment.
Shares of the maker of John Deere tractors were up 4 percent
at $79.40 in afternoon trading.
Chief Financial Officer Raj Kalathur told analysts on a
conference call that while the company forecasts its third
straight year of declines in sales of agricultural equipment,
its main business, in fiscal 2016, it also expects to remain
"solidly profitable."
"We are forecasting a very healthy level of cash flow of
over $2.5 billion in 2016," Kalathur said. "Our actions and
proactively controlling expenses, costs, and managing assets
have enabled us to deliver substantially better results than in
any of the past downturns."
Deere expects total equipment sales to drop about 11 percent
in its first quarter, which began on Nov. 1, and fall about 7
percent for the year.
Deere also forecast net income attributable to the company
at about $1.4 billion for fiscal 2016, down from $1.94 billion
in 2015. Analysts on average were expecting about $1.31 billion,
according to Thomson Reuters I/B/E/S.
While Deere has managed to beat analysts' expectations,
market fundamentals largely remain weak.
The company relies on the United States and Canada for the
bulk of its sales and revenue. But industry sales of
high-powered two-wheeled drive tractors in those countries fell
34 percent in October, the Association of Equipment
Manufacturers said.
The U.S. Department of Agriculture expects U.S. net farm
income to show a 38 percent drop to $55.9 billion in 2015.
In Europe, the agriculture market is also under pressure due
to lower farm income. And in South America, Brazil has gone
further into a recession.
Deere also faces a glut of used equipment, which could force
it to slow production or cut jobs, said Argus Research analyst
Bill Selesky.
Used equipment, especially large tractors in the United
States and Canada, remain a challenge, Tony Huegel, Deere
director of investor relations, said on the call, but moving
them out of inventory stocks will be a focus in 2016.
In the fourth quarter ended Oct. 31, net income attributable
to Deere fell 45.9 percent to $351.2 million, or $1.08 per
share, from a year earlier.
Analysts on average expected 75 cents per share, according
to Thomson Reuters I/B/E/S.