(Adds share move, CFO comments from conference call, details)
By Meredith Davis
Aug 19 (Reuters) - Deere & Co shares rose nearly 12 percent on Friday after the world’s largest farm equipment manufacturer posted a much smaller-than-expected drop in quarterly profit and highlighted its cost-cutting measures.
The company also raised its fiscal-year outlook as cost controls helped it weather a global agricultural recession and difficult market for its construction machinery.
Deere has been working on reducing selling, general and administrative expenses and material costs, Chief Financial Officer Raj Kalathur said during a conference call with analysts.
“We have devoted more of our R&D resources to focus on cost reductions in the last two years,” Kalathur said, “and we have increased our focus on efficiency improvement and structural cost-reduction activities.”
Shares of Deere were up 11.6 percent at $85.84 in afternoon trading.
The company said it expected production hours to be down 60 percent this quarter at its East Moline, Illinois, combine factory and planned to reduce them by 20 percent at its Waterloo, Iowa, tractor plant.
Deere increased its fiscal-year earnings outlook to $1.35 billion from $1.2 billion. However, it said it expected an equipment sales decline of 10 percent for the year, steeper than the 9 percent drop it had forecast in May.
For this quarter, Deere forecast an 8 percent decrease in equipment sales.
“Revenues were worse than we expected, but Deere (is) doing a great job cutting costs,” S&P Global Market Intelligence analyst Jim Corridore said in a statement.
But market conditions are likely to remain unfavorable into 2017, Corridore said.
The U.S. farm economy is in its third down year, with the U.S. Department of Agriculture forecasting a 3 percent drop in nationwide income to $54.8 billion in 2016. Costs of seeds and chemicals remain high, while record-large harvests are pressuring crop prices.
During a time of sluggish machinery sales, Deere has slowed production and reduced labor. About 2,000 employees in its Midwestern factories have been on indefinite layoff since 2014, spokesman Ken Golden said.
The company’s global workforce is now about 57,000 employees, down from about 67,000 in 2013.
Net income fell 4.5 percent to $488.8 million in the third quarter ended on July 31, but earnings per share of $1.55 handily beat the analysts’ average estimate of 94 cents.
Revenue declined 11 percent to $6.72 billion.
In the agriculture and turf segment, sales fell 11 percent, but operating profit rose 21 percent on improved pricing, lower production costs and a decrease in selling, administration and general expenses.
The company said its much smaller construction and forestry segment’s sales dropped 24 percent, while operating profit sank 58 percent due to reduced shipments and an unfavorable product mix.
Reporting by Meredith Davis in Chicago; Editing by Lisa Von Ahn