Deere No Longer 'Cautiously Optimistic' as 2Q Earnings Miss Estimates
Deere & Co. (DE.N) shares dropped after the world’s biggest tractor maker missed on earnings for a sixth straight quarter and cut guidance as an escalation in trade tensions threatens to erode the market share of U.S. farmers and derail an equipment recovery.
Sales for fiscal 2019 are projected to increase about 5 per cent with net income forecast at about US$3.3 billion, the Moline, Illinois-based company said Friday. A quarter ago, it forecast 7 per cent sales growth and net income of about US$3.6 billion.
“Ongoing concerns about export-market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases,” Chief Executive Officer Sam Allen said.
-The statement marks a shift in tone. Last quarter, Allen said that while customer concerns over tariffs had hurt results, the company was cautiously optimistic about the year ahead and hopeful of getting more clarity on trade polices soon.
-Worried about overseas demand for their crops, farmers may be hesitating to pull the trigger on major purchases, including for Deere’s iconic yellow and green tractors.
-U.S.-China tensions are escalating at a time wet weather in the Midwest is keeping farmers out of their fields just when they should be planting. Demand for soybeans used in feed is expected to take a hit from the spread of African swine fever in China. All that prompted JPMorgan Chase & Co. to cut Deere to underweight this week.
-While Deere reported an increase in quarterly sales from a year earlier, investors may be more interested in its outlook for the rest of 2019 and how much farmers’ pain will impact discretionary upgrades of machinery.
-While a trade aid package for farmers of US$15 billion or more could help sentiment, the real boost would come from a resolution to the trade war.
-Shares dropped as low as 3.6 per cent before the start of regular trading Friday
-With grain prices near multi-year lows, Deere is down 12 per cent in May, heading for its worst month in a year