(Reuters) — Deere & Co. cut its fiscal-year sales and profit outlook and reported lower quarterly earnings Feb. 19 as farmers’ declining income weakened demand for agricultural equipment, and its shares fell more than three percent.
The maker of John Deere tractors said it expected farming and construction equipment sales to fall 10 percent in the year ending in October, compared with an earlier forecast of a seven percent decline. It lowered its earnings outlook to US$1.3 billion from $1.4 billion.
Deere’s agricultural equipment sales have slid as falling crop prices slashed farmers’ income.
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The U.S. Department of Agriculture forecast America’s net farm income at US$54.8 billion in 2016, down from $123.3 billion in 2013, when corn prices reached record highs.
Farm income has also declined in Europe, while in South America, Brazil, the world’s top exporter of soybeans, has fallen further into a recession.
As the global farm economy slows, farmers are less inclined to buy new equipment, which has hurt sales for both Deere and its rivals.
In Deere’s construction and forestry segment, lower shipment volumes and unfavorable currency exchange rates contributed to a 23 percent equipment sales declined.
For the current quarter, Deere expects total equipment sales to fall eight percent from a year earlier.
Deere shares closed the day down 4.15 percent at $77 per share.
“A key issue will be Deere’s ability to maintain good cost control with revenue declines in both its business units,” Jefferies analyst Stephen Volkmann said in a note.
Net income attributable to Deere fell 34 percent to $254.4 million, or 80 cents per share, in the first quarter ended on Jan. 31 from $387 million, or $1.12 per share, a year earlier.
Analysts on average expected a profit of 70 cents per share, according to Thomson Reuters.
At the John Deere Capital Corp .financial unit, net income fell to $99.9 million from $133.6 million. Deere attributed the drop to de-clines in leased equipment value, unfavourable financing spreads and higher provision for credit losses.
The company derives the bulk of its revenue from North America, but industry sales of high-powered, two-wheeled drive tractors in the region fell 38.5 percent in January, according to the Association of Equipment Manufacturers.
Deere expects North American industry sales for agricultural equipment to decline 15 percent to 20 percent in 2016.
