Deere cuts costs after the trade war

CHICAGO – Deere & Co. announced Friday a review of its costs after the US-China trade war and bad weather weighed on its quarterly profits, forcing the company to cut its annual earnings guidance for a second times these past three years months.

Investors welcomed the decision to control costs by sending its shares up 3.1% to $ 148.07.

The company based in Moline, Illinois, said it was currently evaluating its manufacturing footprint as part of the revised cost structure.

It will reduce production by 20% at its facilities in Illinois and Iowa during the second half of the year. The cuts will have an impact on the production of big tractors.

The cost control measures are expected to save $ 25 million this year and will be a focus of its strategy for the next three years, the company said to analysts.

These comments came after Deere's third quarter production costs increased by 2 percentage points from the previous quarter. Despite its efforts, annual production costs are expected to exceed previous estimates.

Deere is now expecting a net profit of $ 3.2 billion over the full year, an annual growth of 4% in sales, which is lower than the revenue of 3 , $ 3 billion generated by a sales increase of about 5% previously forecast.

"Concerns about access to export markets, short-term demand for commodities such as soybeans and general crop conditions have caused many farmers to postpone their purchases." important equipment, "said Chief Executive Samuel Allen.

Competitive agricultural machine builders AGCO Corp and CNH Industrial also reduced production to keep inventories in line with retailers' demand.

The one-year tariff war between the United States and China has significantly reduced the export earnings of American farmers. China imported $ 9.1 billion worth of US agricultural products in 2018, up from $ 19.5 billion in 2017, according to the American Farm Bureau.

US soybean exports to China, the country's most valuable agricultural export, reached their lowest level in 16 years last year, while Beijing mainly shifted its purchases to Brazil, leaving a surplus to American farmers.

Meanwhile, a record spring with record rain devastated much of the US agricultural belt and caused more economic problems for soybean and corn producers, especially those whose fields were too wet to plant, reducing hopes for improved incomes and farm equipment. Sales.

Deere expects agricultural equipment sales in the industry to be about the same as last year in the United States and Canada, which account for 60% of the total sales of agricultural equipment. all of its activities. Sales in the region were expected to be stable at 5% earlier.

For the quarter ended July 28, adjusted earnings were $ 2.71 per share, less than $ 2.85 per share expected by analysts in a Refinitiv IBES survey.

Sales in its agriculture and turf business, the company's main source of revenue, declined 6% year-over-year. Overall, equipment sales declined 3%.

(Report by Rajesh Kumar Singh, edited by Mark Potter, Keith Weir and Nick Zieminski)