By Angela Chen Deere & Co. projected a 20% decline in farm equipment sales for the
recently started business year, warning again that lower
commodity prices and falling farm incomes are putting pressure on
demand for agricultural machinery.
The Moline, Ill., company, which also reported a 20% decline in
earnings for its fourth quarter, posted lower equipment sales for
the two previous quarters as well, as farmers have been reluctant
to buy new equipment.
However, Wednesday's comments appeared somewhat bleaker than
those the company made three months ago when it called the
agricultural economy relatively healthy.
"The slowdown has been most pronounced in the sale of large farm
machinery, including many of our most profitable models," Chief
Executive Samuel R. Allen said in a news release.
In the year that ended Oct. 31, farm equipment sales dropped
13%.
Shares declined about 3% premarket.
Deere, the world's largest manufacturer of farm equipment by
sales, has been hurt by decreased demand due to unfavorable changes
in the agriculture industry. When crop prices were high, farmers
flush with cash frequently turned over their equipment, with many
large operators buying new models every year or two.
But every new tractor sold generates one to three sales of used
equipment, as farmers purchasing used late-model machines trade in
their machines, which are eventually bought by other farmers, who
unload even older equipment into the used market.
As a result, some analysts are warning the equipment market has
become clogged with too much late-model, used machinery that could
hold down a recovery in new-equipment demand for years.
In the most recent quarter, equipment sales fell 6.7% from a
year earlier to $8.04 billion, while operating profit dropped 14%
to $1.17 billion.
Farm equipment sales fell 13% to $6.16 million due largely to
lower shipment volumes and unfavorable effects of currency
translation.
But in the construction and forestry segment, sales rose 23% to
$1.88 billion while operating profit soared 93% to $228
million.
In the company's financial-services business, earnings increased
9.6% to $172 million due to growth in the credit portfolio, though
the company had a higher provision for credit losses.
In all, the company reported earnings of $649 million, or $1.83
a share, down from $807 million, or $2.11 a share, a year earlier.
Sales fell 5.1% to $9 billion. Analysts had projected earnings of
$1.57 a share on revenue of $7.75 billion.
Looking to the year ending in October, the company expects total
equipment sales to drop 15%, with a 21% decline in the first
quarter. Deere forecast earnings for the year of $1.9 billion,
while analysts called for $2.2 billion.
Write to Angela Chen at angela.chen@wsj.com
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