CHICAGO (Reuters) – Deere & Co. (DE.N) on Friday announced a review of costs after quarterly profits yet again missed Wall Street’s estimates, hurt by bad weather and the U.S.-China trade war that have depressed sales of farm machines.
FILE PHOTO: A John Deere combine harvester, with self-driving capabilities and an onboard neural network, is displayed during the 2019 CES in Las Vegas, Nevada, U.S. January 9, 2019. REUTERS/Steve Marcus/File Photo
The company’s focus on controlling costs in the face of weak demand helped investors overlook disappointing earnings, sending its shares up 3.9% at $149.43.
Deere said it was reviewing cost structure and initiating a series of measures after its production costs in the third-quarter shot up by 2 percentage points from a quarter ago. Yet despite its efforts, full-year production costs are projected to be above its previous estimates.
In response to weak equipment demand, in May Deere announced a 20% production cut at its factories in Illinois and Iowa.
The Moline, Illinois-based company cut its full-year earnings outlook for the second time in the past three months.
It now expects full-year net income of $3.2 billion on annual sales growth of 4%, lower than the income of $3.3 billion on sales increases of about 5% projected earlier.
“Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases,” said Chief Executive Officer Samuel Allen.
Agricultural machine makers AGCO Corp (AGCO.N) and CNH Industrial (CNHI.N) have also slashed production to keep inventory in line with retail demand.
The year-long tariff war between the United States and China has slashed the export earnings of American farmers. China imported $9.1 billion of U.S. farm produce in 2018, down from $19.5 billion in 2017, according to the American Farm Bureau.
U.S. shipments to China of soybeans, the country’s most valuable farm export, sank to a 16-year low last year as Beijing mostly shifted purchases to Brazil, leaving American farmers with surplus.
A record-wet spring, meanwhile, has devastated a wide swath of the U.S. farm belt and inflicted more economic pain on soybean and corn producers, particularly those whose fields were too wet to ever plant, dampening hopes of an improvement in farm income and equipment sales.
Deere expects industry sales of agricultural equipment to be about the same as last year in the United States and Canada, which account for 60% of its overall business. Sales in the region were earlier projected to be flat to up 5% earlier.
For the quarter ended July 28, adjusted profits came in at $2.71 per share, below $2.85 per share expected by analysts in a Refinitiv IBES survey.
Sales at its agriculture & turf segment, the biggest source of the company’s revenues, declined 6% year-on-year during the quarter. Overall, equipment sales were down 3%.
Reporting by Rajesh Kumar Singh; Editing by Mark Potter, Keith Weir and Nick Zieminski