By Bob Tita
Deere & Co. said the coronavirus pandemic will intensify a yearslong slump in agricultural equipment sales, as farmers further reduce spending amid lower demand for their crops and livestock.
Deere on Friday reset its profit forecast for this year at a significantly lower range after tossing out its previous guidance in March as the pandemic disrupted its farm-and-construction equipment businesses.
"We are still operating in a very uncertain environment," Deere finance chief Ryan Campbell said during a conference call.
The Moline, Ill.-based company reported better-than-expected equipment sales and profit for the latest quarter. Its share initially rose Friday, but finished the session down 1.5% at $140.71.
Deere said it expects world-wide sales of its farm equipment to contract by 10% to 15% this year. In February, it had forecast a decline of 5% to 10%.
The company has been cutting expenses since last fall by offering a voluntary employee layoff program and shrinking inventories of equipment. The U.S. machinery market is stuck in a six-year slump caused by lower grain prices and trade tensions.
Farmers are now facing increased pressure as the pandemic damps demand for farm products and disrupts the meat industry. With schools and restaurants in the U.S. closed for more than a month, farmers have plowed under vegetables, dumped millions of gallons of milk and euthanized livestock. Dozens of meat-processing plants have been idled in recent weeks as the coronavirus hit their workforces hard, forcing slaughtering operations to cease.
Deere's U.S. dealers and assembly plants, deemed essential for food production, have remained open during state lockdowns. But the company said its operations have endured interrupted deliveries from suppliers, higher costs for shipping and temporary plant closures to improve workers' safety.
Deere has kept busy filling orders for farm equipment that were placed months ago. The company said it has nearly a full order book for large tractors and harvesting combines for this year. Favorable weather this spring allowed farmers to plant most of the corn crop already and about half of the soybeans.
Deere said it expects rising exports of farm products later this year to boost farmers' confidence. Under a new trade deal that the U.S. and China negotiated last year, China agreed to lift its tariffs on U.S. farm goods and pledged to purchase $36.5 billion worth of U.S. farm products in 2020.
For Deere's fiscal second quarter, which ended May 3, sales of its farm and landscaping equipment fell 18% from a year earlier and operating income plunged 22%. Sales of Deere's construction equipment fell 25%. Operating profit plunged 72% from lower shipments and shrinking margins.
Income from Deere's financing business decreased by 56% during the quarter as the company reported rising costs and losses on the value of leased equipment returned to the company.
Deere reported net income of $665.8 million, or $2.11 a share, compared with $1.13 billion, or $3.52 a share, in the year-earlier quarter. Total equipment sales fell 20% to $8.22 billion. Deere expects net income this year of $1.6 billion to $2 billion. The company started the year with an income forecast of $2.7 billion to $3.1 billion.
Write to Bob Tita at email@example.com