Deere cuts profit forecast as farmers rein in orders for new tractors

Thu, 15 Feb, 2024 - 16:57

Bianca Flowers and Shivansh Tiwary

Deere, the the world's largest farm equipment maker, cut its 2024 profit forecast as farmers remained hesitant about large equipment purchases due to high borrowing rates and falling crop prices, even as its first-quarter sales and profit topped analysts' estimates.

With farmers reassessing orders, particularly for compact tractors, Deere said it now expects net income for the financial 2024 year of $7.5bn (€7bn) to $7.7bn.

"That's not particularly unusual for the first year of a market correction," said Stephen Volkmann, senior machinery analyst at Jefferies.

"The lower guidance that they put out is just a factor of that lower large agriculture outlook," the analysts said.

Deere, a barometer of the global economy, said operating margins contracted due to lower sales for large agriculture equipment which the company is expecting to decline 20% this year. Operating profit across its equipment divisions fell 13% in aggregate.

Executives have expressed caution about margin performance amid a weakening farm economy, and said Deere intends to cut equipment production in 2024. Rival CNH Industrial has also tempered investor expectations even after posting better than expected profit for the fourth-quarter, saying softening commodity prices will lead to a downturn in farm equipment demand.

Net farm income in the US is set to fall 27% this year to $116bn from its inflation-adjusted total in 2023, according to the US Department of Agriculture. US grains and soybeans are at three-year lows and face stiff competition for export business from South America and the Black Sea region, translating to tighter balance sheets for growers and causing them to pull back on new equipment purchases.

Deere's sales for production and precision agriculture equipment, its largest division, declined 7% year-over-year. Revenue for equipment operations fell 8% to $10.5bn.