Reuters — Deere and Co. missed quarterly profit estimates for the fifth-straight quarter and cut its full-year outlook May 17, as an escalating United States-China trade war threatens to further hit farm incomes and hurt demand for the company’s equipment.
Shares of Deere, fell as much as six percent to US$137.18, as a slump in demand for big agricultural machines has forced the company to cut production by 20 percent at two of its large factories in North America.
“Ongoing concerns about export-market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases,” chief executive officer Samuel Allen said in a written statement.
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U.S. agricultural exports are likely to suffer, as the world’s two largest economies level escalating tariffs on each other’s imports in the midst of negotiations.
Earlier this week, soybean futures fell to their lowest in more than 10 years, which is squeezing U.S. farmers whose incomes have already been under pressure from a global grain glut.
China, the world’s top importer of soybeans, bought about $12 billion worth of U.S. soy in 2017, but mostly shifted purchases to Brazil last year because of the trade fight, leaving U.S. farmers with surplus supply.
Deere, which gets nearly 60 percent of its sales from the U.S. and Canada, said it now expects full year equipment sales to rise by five percent, compared with a seven percent rise, it had previously expected.
The company lowered its fiscal 2019 profit outlook to $3.3 billion, from its previous forecast of $3.6 billion, while raising its estimate for full-year costs by one percentage point to 76 percent of net sales, as the company speeds up research and development expenses.
“The lower forecast is partly a result of actions we are taking to prudently manage field inventories, which will cause production levels to be below retail sales in the second half of the year,” said Allen.
Some U.S. company executives have warned that costs related to the latest round of tariffs on goods from China will be passed along to consumers in the form of higher prices.
Walmart said May 16 that prices for U.S. shoppers will rise due to higher tariffs on goods from China.
Net income attributable to Deere fell 6.1 percent to $1.14 billion, or $3.52 per share, in the second quarter ended April 28, missing analysts’ estimates of $3.62 per share, according to IBES data from Refinitiv.
Net sales rose 5.4 percent to $10.27 billion, and were above the Wall Street’s estimate of $10.19 billion.
