Deere posts lower quarterly profit, cuts full-year outlookDeere & Co posted a lower quarterly profit on Aug. 12 and cut its full-year outlook as declining grain prices discouraged farmers from purchasing its tractors, harvesters and other agricultural machinery.
By: James B. Kelleher, Reuters
Deere & Co posted a lower quarterly profit on Aug. 12 and cut its full-year outlook as declining grain prices discouraged farmers from purchasing its tractors, harvesters and other agricultural machinery.
The Moline, Ill.-based company, the world’s largest maker of farm equipment, says it now expects to earn $3.1 billion in fiscal 2014, down from its previous forecast of $3.3 billion.
The company says it expects total U.S. farm cash receipts, which correlate closely with investment in new ag equipment, to fall to $387.1 billion in 2014, down from $407.1 billion in 2013 and below its previous forecast of $392.7 billion.
Ann Duignan, an analyst at JP Morgan, says the company’s forecast, which came just one day after the U.S. Department of Agriculture released its World Agricultural Supply and Demand Estimates, remained “overly bullish.”
USDA predicted U.S. corn production will top the 14 billion-bushel mark for the first time ever this year. It also says it expects the U.S. soybean crop to come in at a record of 3.82 billion bushels, up 16 percent.
The prospect of a bumper crop has sent corn and soybean prices plummeting and soured farmers on making new capital investments in their operations.
Deere also cut its forecast for South America, where rising interest rates in Brazil and tight credit in Argentina are hurting sales.
Deere says it now expects full-year industry sales in the region to fall 15 percent in 2014, down from a previously forecast decline of 10 percent.
Lawrence De Maria, an analyst at William Blair & Co., says the lowered outlook proved that Deere, which outperformed rivals Agco and CNH in previous quarters because of strong back orders, was “not immune” to the deteriorating fundamentals in the sector.
The company also repeated the warning it issued earlier this year that sales in the countries that once formed the Soviet Union would be “down significantly” in 2014 as a result of “geopolitical uncertainty” in the region.
Deere chairman and chief executive Sam Allen says the company is scaling back production in line with falling global demand for its agricultural products.
The one bright spot in Deere’s core farm market was the U.S. livestock sector, where the company says rising meat and poultry prices are driving sales of smaller tractors and helping moderate the weakness in the grains sector.
For the most recent quarter ended July 31, Deere reported a net profit of $850.7 million, or $2.33 a share, compared with $996.5 million, or $2.56 a share, a year earlier.
Sales fell 5 percent to $9.5 billion.
The quarterly results were better than expected and reflected strong sales of the company’s construction and forestry equipment.