Deere to Raise Prices as Steel Costs Climb -- WSJ
19 May 2018 - 05:02PM
Dow Jones News
Higher expenses for steel and shipping will show up in 2019
models to protect earnings
By Bob Tita and Allison Prang
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 19, 2018).
Deere & Co. is raising equipment prices this year to protect
profit as costs rise.
The maker of farm and construction machinery said on Friday that
profit was up 50% and equipment sales up 34% annually in its latest
quarter, though both figures disappointed analysts. Deere's shares
rose 5.8% to close at $155.25, as investors appeared to focus on
Deere's strong outlook for sales growth this year, analysts
said.
Rising expenses in recent quarters have weighed on Deere's
performance even as machinery demand picks up. Deere said Friday
that it was still paying more for freight and materials.
Chairman and Chief Executive Samuel Allen said the company would
cut costs and raise prices to protect profit.
Deere joined a host of U.S. manufacturers reporting rising
expenses as a growing U.S. economy drives up prices for materials
and shipping. Prices for steel and aluminum have been pushed up by
U.S. tariffs on imported metal.
Deere executives said they had to pay more to get their
shipments made early this year, pushing up transport costs. They
said they would raise prices to reflect that and higher steel
expenses as Deere begins taking orders on 2019 models later this
year.
"We do expect the pricing we're going to take for 2019 to be
more than offsetting the inflation we're seeing," said Josh Jepsen,
Deere's director of investor relations.
The Moline, Ill., company now expects net income of about $2.3
billion for the year ending Oct. 31, up from its previous forecast
of $2.1 billion. The company predicts overall sales of farm and
construction equipment will increase by about 30% this year to
$33.7 billion.
Deere forecast a 14% increase this year in sales of its iconic
green and yellow farm machinery and landscaping equipment after
several years of tough sales in its home market. U.S. farm incomes
remain constrained by low commodity prices. Many farmers have been
planting more soybeans in recent years to offset anemic corn
prices.
But the market for U.S. soybeans has grown increasingly
precarious in recent months as China's government threatens to
impose a tariff on U.S. bean exports in retaliation for U.S.
tariffs on Chinese metal and other goods.
Sales of Deere's farm and landscaping machinery rose 22% to $7
billion in the quarter that ended April 29, while profit from the
business rose 5% to $ 1.1 billion. Deere expects sales for the
construction unit to rise by 83% this year, aided by the addition
of German road-paving equipment maker Wirtgen Group.
On an adjusted basis, Deere said it made $1.03 billion, or $3.14
a share, in the second quarter. Equipment sales were $9.7 billion.
Analysts, though, were expecting the company to earn $3.31 a share
on $9.8 billion in sales.
Write to Bob Tita at robert.tita@wsj.com and Allison Prang at
allison.prang@wsj.com
(END) Dow Jones Newswires
May 19, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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