Deere cuts outlook as machinery sales slow further

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Deere & Co has cut its fiscal full-year earnings outlook as lower commodity prices hurt farmers’ income and a glut of unsold machinery continues to pile up at dealerships. Source: Bloomberg News

Full-year net profit will be about US$1.2 billion in the year through October Deere said in a statement, compared with the US$1.3 billion it forecast in February. The shares fell as much as 4.3%.

Industry-wide sales of agricultural equipment in the US and Canada will drop as much as 20% this year, Deere said.

It described market conditions as “challenging” and added it sees further weakness in the construction industry, a sector Deere also serves.

The company has battled the downturn by eliminating jobs and cutting production and said it’s still looking at ways to cut more costs.

Corn and soybean prices have fallen for the past three years, and the US Department of Agriculture predicts farm net income sliding this year to the lowest level since 2002.

However, a recent rebound in those commodities may give some farmers enough confidence to start buying machinery again as this year’s US growing season starts up.

Soybean futures traded in Chicago entered a bull market last month as heavy rains flooded fields in Argentina, among the world’s top exporters.

There was some slightly more positive news in Deere’s earnings: full-year equipment sales are now projected to decline about 9%, instead of an earlier forecast for a drop of about 10%.

The company also posted better-than-expected second-quarter earnings.

“If people are comfortable with the thesis that we’re nearing a bottom, I don’t think there’s anything here to dissuade them,” Stephen Volkmann, a New York-based analyst at Jefferies Group, said referring to Deere’s report.

“There’s a little something here for everybody.”

Deere said it expects third-quarter machinery sales to be about 12% lower than in the same period a year ago.