Deere Beats on Earnings, Misses on Guidance Amid Virus Barriers

(Bloomberg) -- Deere & Co. may have done a better job than expected navigating the first months of the pandemic, but there’ll be no letup in threats to the machinery maker in the months ahead.

Declines in sales and profit in the February-April period were less severe than analysts predicted as agriculture -- deemed essential in the lockdown era -- proves relatively resilient. Lower costs and better pricing helped prop up margins even amid supply-chain disruptions and China trade deal concerns weighing on its customers.

The company, which dropped annual guidance in March as it cut back operations, bucked an industry trend by providing a new profit forecast -- of $1.6 billion to $2 billion. That’s just below the average analyst estimate and a sharp drop from last year. Shares fell for the first time in three days.

“Deere continues to produce and ship machinery and repair parts to meet demand,” it said in a statement. “Responding to this demand in the face of the pandemic has been a challenge as a result of various regulatory, economic, and other barriers that have affected production facilities and the supply chain.”

Deere forecast its 2020 worldwide agriculture equipment sales to be down 10% to 15%, and said industry sales would decline 10% in the U.S. and Canada -- its biggest money-making region. It said construction and forestry equipment sales would drop 30% to 40%.

Deere Beats on Earnings, Misses on Guidance Amid Virus Barriers

Deere’s fiscal second quarter is often its strongest as farmers buy planting equipment for the growing season.

The cycle of farmers replacing aging machinery will persevere through near-term challenges like the trade war, tough growing conditions and the economic shutdown, according to Edward Jones analyst Matt Arnold. A $19 billion government aid package may also boost American farmers’ purchasing power.

The decision to reinstate guidance is positive, and may prove to be conservative given the solid quarter, said Chris Ciolino, an analyst with Bloomberg Intelligence. Results showed “really just strong execution on the cost side and better pricing.”

Defensive Play

The Moline, Illinois-based company is also shoring up its liquidity. It raised $4.5 billion in funding during the pandemic.

“Deere’s solid balance sheet, good credit metrics and management prudence are likely to help soften the impact of the virus outbreak, at least in the near term,” said Stephane Kovatchev, a credit analyst with Bloomberg Intelligence.

Fiscal second-quarter adjusted earnings were $2.11 cents a share. compared with the $1.62 average estimate and $3.52 a year ago.

©2020 Bloomberg L.P.

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