CHICAGO (Reuters) - Deere & Co. on Friday cut its earnings forecast and announced a review of costs after quarterly profits yet again missed Wall Street’s estimates, hurt by bad weather and the U.S.-China trade war that have depressed sales of its farm machines.
The Moline, Illinois-based company now expects full-year net income of $3.2 billion on annual sales growth of 4%, lower than the income of $3.3 billion on sales increases of about 5% projected earlier.
This is the second cut to the full-year earnings outlook in the past three months.
Deere said it was reviewing cost structure and initiating a series of measures after its production costs in the third-quarter shot up by 2 percentage points from a quarter ago. Yet despite its efforts, full-year production costs are projected to be higher than its previous estimates.
Deere shares were down 1.75% in premarket trade.
In response to weak equipment demand, in May Deere announced a 20% production cut at its factories in Illinois and Iowa.
Agricultural machine makers AGCO Corp and CNH Industrial have also slashed production to keep inventory in line with retail demand.
“Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases,” said Chief Executive Officer Samuel Allen.
The year-long tariff war between the United States and China has slashed the export earnings of American farmers. China imported $9.1 billion of U.S. farm produce in 2018, down from $19.5 billion in 2017, according to the American Farm Bureau.
U.S. shipments to China of soybeans, the country’s most valuable farm export, sank to a 16-year low last year as Beijing mostly shifted purchases to Brazil, leaving American farmers with surplus.
A record-wet spring, meanwhile, has devastated a wide swath of the U.S. farm belt and inflicted more economic pain on soybean and corn producers, particularly those whose fields were too wet to ever plant, dampening hopes of an improvement in farm income and equipment sales.
Deere expects industry sales of agricultural equipment to be about the same as last year in the United States and Canada, which account for 60% of its overall business. Sales in the region were earlier projected to be flat to up 5% earlier.
For the quarter ended July 28, adjusted profits came in at $2.71 per share, below $2.85 per share expected by analysts in a Refinitiv IBES survey.
Sales at its agriculture & turf segment, the biggest source of the company’s revenues, declined 6% year-on-year during the quarter. Overall, equipment sales were down 3%.
Reporting by Rajesh Kumar Singh; Editing by Mark Potter, Keith Weir and Nick Zieminski