Deere Forecasts Sales Drop
The world's largest seller of farm equipment by sales said Wednesday it will continue to cut costs in the response to a market weakened by trade tensions with China.
The company cut production of farm equipment by 20% this summer to reduce inventories of unsold equipment. Deere said it will initiate a voluntary layoff program for salaried employees, which is expected to cost about $140 million. The company also plans to assess overseas plants to eliminate excess production capacity.
"Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about major investments in new equipment," said new Chief Executive John May.
Cold, rainy weather delayed spring planting in the U.S. and held down crop yields. Later-than-usual harvesting of crops this fall also kept some farmers from placing early orders for equipment next year and discouraged last-minute purchases of harvesting combines from dealers' lots.
The U.S. Department of Agriculture estimated this week that 84% of the corn crop has been harvested compared with 93% at this time last year.
Lower exports of farm products in response to China's tariffs are putting further pressure on already-low prices for corn and soybeans that have shaved U.S. farmers' incomes. Over the first eight months of 2019, China bought about $8 billion of U.S. agricultural goods, about 41% of the of $19.5 billion that Chinese importers purchased in 2017 before retaliatory tariffs for U.S. duties on imports from China priced U.S. farm products out of the Chinese market.
A strong U.S. dollar is making it difficult for U.S. farmers to sell commodities in other countries as well.
The Moline, Ill.-based maker of tractors, combines and construction machinery said it expects net income next year in a range of $2.7 billion to $3.1 billion, after earning $3.25 billion in fiscal 2019, which ended Nov. 3. Analysts were expecting the company to earn about $3.4 billion in 2020. Deere sees sales of its farm and landscaping equipment dropping by 5% to 10% next year following a 2% increase in 2019.
Deere has been countering declining equipment sales by leasing more equipment to farmers. But the company reported a 41% decline in quarterly income from its financing business, citing rising inventories of machines coming off expired leases and write downs in the value of that equipment to reflect lower used market prices.
The company said it plans to involve its dealers more in selling equipment or leasing it again to avoid a glut of returned machines after leases expire.
Mr. May also is expected to accelerate the roll out of new technology and data services on Deere's equipment in hopes of attracting buyers interested in the improved productivity of the new models.
Deere's shares were down 4.3% at $169.03 in recent trading. The stock is up 18% since the start of the year, compared with a 25% increase in the S&P 500 index.
For the fourth quarter, the company reported net income of $722 million, or $2.27 a share, compared with $785 million, $2.42 a share, during the same period last year.
Excluding one-time items, earnings were $2.14 a share, compared with $2.30 a share in the year-ago period. Net equipment sales, including Deere's construction machinery, were $8.7 billion. Analysts were expecting earnings of $2.13 a share and $8.4 billion of equipment sales.