Deere increases outlook as agricultural demand slows

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A Deere & Co. combine harvester is used to harvest soft red winter wheat in Kirkland, Illinois, USA on Friday, July 17, 2020. Winter wheat production in the United States is estimated at $ 1.00. 22 billion bushels, down 4% from the June 1 forecast and 7% in 2019.

(Bloomberg) – Deere & Co., the world’s largest manufacturer of farm machinery, increased its sales outlook for the year as demand for farm equipment remained resilient despite an “uncertain” market due to the coronavirus pandemic.

The Moline, Ill.-Based producer said net income for the year would be $ 2.25 billion, compared to a May estimate of $ 1.6 billion to $ 2 billion. The company said it expects sales of agricultural and turf equipment to decline 10%, from an earlier range of 10% to 15%, with better prospects in the United States and in Canada. Shares jumped 6.2% and closed at a record high of $ 199.50 in New York City.

“While volatile market conditions and the associated customer uncertainty are expected to have a dampening effect in key markets in the near term, we believe Deere is well positioned to help make our customers more profitable and sustainable,” said the CEO John May in a statement Friday.

Deere shares have risen 15% this year as agricultural demand has held up better than other sectors despite the coronavirus and uncertainty over U.S.-China trade relations. Sales of farm equipment in North America surged in July, led by small tractors, according to Bloomberg Intelligence, as farmers replace aging fleets. Fiscal third quarter net income of $ 2.57 per share was down from $ 2.81 a year earlier, but exceeded the highest estimate among analysts.

Deere achieved “remarkable operational performance” during the quarter, analysts at Robert W. Baird & Co., including Mircea Dobre, said in a note. “Above all, this pace was not just a question of cost reduction as revenues were well ahead of expectations. The fundamentals of agriculture in the United States remain in question, although they are stabilizing. “

Still, sales of corn for food, automotive fuel and animal feed have narrowed as efforts to stem the spread of the coronavirus have closed restaurants, moved drivers off the road and shut down meat factories. That, along with the prospect of record yields and large inventories, can keep pricing pressure low and limit any increase in machinery spending.

See also: Ugly Harvest is the latest test of farmers’ patience in Trump country

In June, Deere shook its leadership and adjusted the way it operates to respond more quickly to changing market conditions.

“The company has announced extensive employee separation programs that will be completed during the fourth quarter in support of its strategy to create a leaner and more agile organization,” according to the income statement.

In addition to improving its outlook for its agriculture and turf equipment group, Deere said the construction and forestry group’s estimated sales decline was reduced to 25% from the previous drop of 30 % to 40%.

(Update shares in second paragraph)

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Video: Deere hits new all-time high for earnings and improved outlook (CNBC)