Deere & Co announced an efficiency drive as the equipment group, noting a “high degree of uncertainty” in agriculture, revealed below-market results and cut its earnings forecast for a second time.
Samuel Allen, the Deere chairman and chief executive, said that the farm and building machinery manufacturer was “conducting a thorough assessment of our cost structure and initiating a series of actions to make the organisation more structurally efficient and profitable”.
The comments came as the group, which in May revealed it was constraining production in an effort “to prudently manage” inventories, revealed that its earnings for the quarter ending July 28 had fallen by 1.3% to $899m, driven by a slump in agriculture profits.
Earnings per share, at $2.71, fell below the $2.85 that investors had expected – representing a sixth successive quarter in which Deere’s results have fallen short of Wall Street forecasts.
Indeed, the group lowered to $3.2bn its forecast for its earnings for the year to October, below a previous forecast of $3.3bn, which was in turn lowered from $3.6bn three months ago.
The forecast for full-year sales growth was trimmed to 4% from 5%, and previous expectation of 7% expansion.
‘High degree of uncertainty’
Mr Allen said that the latest results “reflected the high degree of uncertainty that continues to overshadow the agricultural sector.
“Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases.”
While “positive” economic conditions had supported hopes for the group’s construction and forestry machinery operations, Deere ditched expectations of growth of up to 5% in the North American agriculture market during its financial year, seeing instead a flat industry performance.
The US farm sector has been especially hit by trade tensions, thanks to the country’s tariff war with China, with Canada also suffering a downturn in rapeseed exports to China, amid a diplomatic spat.
Ag vs construction
In the latest quarter, Deere reported a 35% jump to $378m in operating profit for the construction and forestry division, on sales up 1% at $3.02bn, helped by price increases.
However, in agriculture, operating profits slumped by 24% to $612m, on sales down 5.5% at $5.95bn.
Deere said that its sales were depressed by “lower shipment volumes” and unfavourable foreign exchange moves, effects only partially offset by price rises.
Deere shares stood 2.6% higher at $147.38 in midday deals in New York, on a strong day for Wall Street stocks.