Deere & Co joined the farm operators cutting profit
forecasts, citing "moderating conditions" in the farm sector thanks to lower
crop prices, with prospects retreating particularly in the North and South
The maker of John Deere machinery again cut its sales forecast
for its full financial year, which ends in October, foreseeing a 6% decline in
takings, compared with a previous estimate of a 4% drop.
And this time, it reduced its forecast for full-year profits
too, to about $3.1bn, from a previous estimate of $3.3bn.
"Earnings are forecast to be somewhat lower than in 2013," said
Deere, which has not since 2009 reported a drop in full-year profits.
'Reduction in farm
The group blamed the downgrade on the dent to growers' profitability
prospects from lower crop values.
"Although the agricultural economy remains in a relatively
healthy state, falling commodity prices are contributing to a reduction in farm
income," Deere said.
The group reduced by $6.4bn to $108.3bn its forecast for US
net farm cash income in 2014 – a drop of $17.3bn year on year.
"The decline is putting pressure on demand for farm equipment,
especially larger models," with orders for smaller machinery being support
somewhat by the boost to livestock sector prosperity from lower feed costs.
The group revised to 10%, from 5-10%, its forecast for the
drop in industry-wide farm machinery sales in Canada and the US, and to 15%,
from 10%, the decline expected in South America.
For the former Soviet Union it kept an expectation of a "significant"
drop in industry sales, while highlighting that market conditions there "have
"Strong headwinds persist" in the region, Deere said, noting
declining economic growth, and a "further tightening" in credit availability
for farmers, while also highlighting that "geopolitical uncertainty impacting
One of the main Deere dealers in Russia, Ekotechnika, has
reported widening losses.
For Europe, Deere, noting "sound margins" for livestock
farmers, stuck with a forecast of a 5% drop in industry sales.
The comments came as Deere unveiled a 14.6% drop to $850.7m
in earnings for the May-to-July period, equivalent to $2.33 per share, a little
above Wall Street expectations for a $2.22-per-share result.
Revenues dropped 6.0% to $9.50bn as a decline of 11.2% in
agriculture sales more than offset the boost from a 19.4% rise in takings at the
smaller construction division.
"Deere's third-quarter performance reflected moderating
conditions in the global farm sector, which have negatively affected demand for
farm machinery and contributed to lower sales and profits for our
agricultural-equipment business," said Samuel Allen, the Deere chairman
and chief executive.
"At the same time, our construction and forestry and
financial services divisions had higher profit, showing the benefit of a
broad-based business line-up."
The group, echoing rival Agco, the maker of Fendt and Massey
Ferguson equipment, said that it was reducing production of farm machinery "in
line with demand".
"These actions illustrate our commitment to responding with
speed and decisiveness to changes in market conditions," Mr Allen said.
With quarterly earnings ahead of forecasts, and Wall Street having already being sceptical that Deere would reach its previous $3.3bn annual profits estimate, shares in the group suffered minimal losses in early deals in New York, standing down 0.3% at $86.20.
Other farm machinery groups cautioning over decreasing demand include irrigators maker Lindsay Corp and satellite technology group AgJunction.