Deere Raises Outlook With Farm Demand Cushioning Downturn

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Deere & Co., the largest maker of agricultural machinery, increased its sales outlook for the year as farm-equipment demand remained resilient despite an “uncertain” market due to the coronavirus pandemic.

The Moline, Illinois-based producer said net income for the fiscal year would be $2.25 billion, up from a May estimate of $1.6 billion to $2 billion. The company said it expects agriculture and turf equipment sales to decline 10%, compared with a prior range of 10% to 15%, with a better outlook in the U.S. and Canada. The shares surged as much as 6.2% and closed at a record high $199.50 in New York.

“Although unsettled market conditions and related customer uncertainty are expected to have a moderating effect on key markets in the near term, we believe Deere is well-positioned to help make our customers more profitable and sustainable,” Chief Executive Officer John May said in a statement Friday.

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

Deere turned in a “remarkable operating performance” in the quarter, Robert W. Baird & Co. analysts including Mircea Dobre said in a note. “Importantly, this beat was not just about cost cutting as revenue was well ahead of expectations. U.S. ag fundamentals remain challenged though stabilizing.”

Still, sales of corn for food, auto fuel and animal feed have shriveled as efforts to stem the spread of coronavirus shut restaurants, kept drivers off the road and closed meat plants. That, along with prospects for record yields and ample inventories, may keep pressure on prices and limit any increases in spending on machinery.

In June, Deere shook up its management and adjusted how it operates in an effort to respond more quickly to changing market conditions.

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

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

©2020 Bloomberg L.P.

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