Deere Says Trade Tensions Holding Down Sales -- Update
16 February 2019 - 5:56AM
Dow Jones News
By Bob Tita
Deere & Co. said farmers are delaying purchases of machinery
as they wait for a resolution of trade standoffs between the U.S.
and major foreign buyers of farm commodities such as China.
The company said Friday that initial orders of tractors, combine
harvesters and other equipment were weak, contributing to the
lower-than-expected quarterly profits.
"The trade uncertainty is pausing some purchasing decisions as
customers take a wait-and-see approach," said Joshua Jepsen,
director of investor relations, on an investor call.
Deere's shares were recently down almost 2% at $159.35.
Early orders are typically a strong driver of annual sales for
the Moline, Ill.-based company. Farmers often place orders for
multiple pieces of equipment in the late fall and winter in
exchange for price discounts. The company said initial buying
across its major equipment categories was flat or down moderately
from last year.
Trade disputes with major buyers of U.S. farm commodities such
as China and Mexico have further rocked agricultural markets
already struggling from a multiyear slump in prices for corn,
soybeans and other commodities, caused by a world-wide glut.
Deere said farmers are closely watching a March 1 deadline for a
potential trade settlement between the U.S. and China. The U.S. has
threatened to impose more tariffs on March 2 if a deal isn't
reached. Exports of U.S.-grown soybeans to China collapsed last
year. China imposed a tariff in retaliation for U.S. duties on
hundreds of manufactured goods from China.
Even without a trade deal, Deere is betting that farmers will
step up their purchases of equipment later in the year to replace
older machines. The company maintained guidance issued in November
for net income of $3.6 billion in its fiscal year ending in
October, and raised its global sales growth outlook for farm
equipment to 4% from 3%.
Revenue from farm and turf equipment rose 10% during the
company's fiscal first quarter, but the company said sales were
weighted toward smaller, lower-margin equipment. As a result,
profit from the farm unit slipped 10% from a year earlier to $348
million. The operating margin from the farm machinery business fell
to 7.4% from 9.1%.
The company said profit was squeezed by rising costs for steel
and other materials and transportation for components. The
company's expenses rose 43% during the quarter from last year.
Deere said it continues to rely on costly airfreight to deliver
some critical components.
Deere reported higher sales and profit in its construction
machinery business stemming from the 2017 acquisition of Wirtgen, a
road-paving equipment maker in Germany.
For the quarter to Jan. 27, Deere reported net income of $498.5
million, or $1.54 a share, compared with a loss of $535.1 million,
or $1.66 a share, a year earlier. The company took a $977 million
charge last year because of U.S. tax law changes. Total equipment
sales increased 16% to $6.9 billion. Analysts were expecting
earnings per share of $1.76 from equipment sales of $6.8
billion.
Kimberly Chin contributed to this article.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
February 15, 2019 13:41 ET (18:41 GMT)
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