By Bianca Flowers and Aishwarya Nair
(Reuters) -Deere & Co on Friday topped Wall Street profit expectations on strong sales of its tractors and precision agriculture equipment, and raised its net income forecast for the rest of the year as order books remain robust.
But shares in the world's largest farm equipment maker fell 1.7% even after the manufacturer reported a 36% rise in second-quarter profit.
Analysts pointed to increasing production levels potentially translating to an oversupply of equipment.
"It's a subtle way of saying to investors 'don't extrapolate a better expected second-quarter into the next couple," said Matt Arnold, equity analyst at Edward Jones.
Executives noted that dealers' inventories remain below historic levels.
Deere (NYSE:DE) expects 2023 net income in the range of $9.25 billion to $9.50 billion, higher than the $8.75 billion to $9.25 billion forecast earlier.
The industrial bellwether, a barometer for the global economy, has maintained resilient operating profit margins, despite global market volatility.
Economists have cited high inflation as problematic for cyclical industrials as it can push up manufacturing costs, but Deere executives told analysts on a conference call that production costs have retreated to their lowest levels since the first quarter of 2021.
Farmers' demand for new equipment and parts to repair aging machinery has bolstered Deere's sales. Even though crop commodity prices continue to come down from last year's peak, which spurred spending from growers to upgrade their fleets, executives have reiterated that order books are still robust.
The company's production and precision agriculture division retail sales outpaced other segments with a 53% jump in revenue. Operating profit increased 105% year-over-year, aided by a 20% price hike for the equipment line, said Kristen Owen, executive director at Oppenheimer & Co. Inc.
Deere has leveraged price increases across its equipment divisions to counter higher material and logistics costs.
Net income increased to $2.86 billion from $2.1 billion a year ago. Including this quarter, the heavy machinery manufacturer has beat earnings estimates for eight of the last nine quarters.
Deere posted earnings per share of $9.65, outpacing analysts' estimates of $8.59.
Total net sales and revenues rose 30% to $17.39 billion for the second quarter.