Weaker outlook for agricultural equipment demand and disappointing profit guidance for 25F from Deere & Company (DE.US)
1min read Intelligible Finance learned that the world's largest agricultural machinery manufacturer, Deere & Company (DE.US) reported its fourth-quarter earnings. Q4 revenue fell 27.7% YoY to $11.14 billion, topping market expectations. EPS was $4.55, topping market expectations of $3.93. Meanwhile, the company expects its profits next year to be lower than expected, as farmers' income declines and inflation pressures affected the demand for its tractors and other agricultural equipment.
Over the past two years, the industry's sales have fallen from the peak level in 2022, when the outbreak of the Russia-Ukraine war led to soaring crop prices and farmers had more money to buy farming tools. Worries about the supply chain and the surge in demand led dealers to significantly increase their inventories, boosting Deere's sales. Deere mainly sells agricultural and construction equipment through independent and franchised dealers.
However, in the recent slowdown in demand, skeptical dealers slowed down their pace of replenishing inventories. The decline in agricultural income, high interest rates, and uncertain economic conditions forced farmers to re-evaluate the massive spending on agricultural machinery and forced dealers to limit inventory replenishment. Deere is struggling to cope with the weak demand environment, which led the company to cut its earnings guidance in May and then announced plans to lay off employees to better align production with demand.
US agricultural profits are expected to fall for the second consecutive year in 2024, as corn and soybean prices hover near four-year lows. The US Department of Agriculture estimates that net agricultural profits will reach $140 billion this year, down 4.4% YoY, or $6.5 billion. Net agricultural profits is a widely used measure of the profitability of the agricultural economy.
Deere said on Thursday that its net profit in fiscal 2025 would be between $5 billion and $5.5 billion, lower than analysts' expectations of $5.83 billion and lower than about $7 billion in the just-ended 2024 fiscal year. Deere expects its net sales of its entire machinery business to decline by about 10% to 15% in 2025.
Deere's earnings put an end to a dismal quarter for the industry. Competitors CNH and AGCO lowered their sales expectations earlier this month due to disappointing results.
At the same time, Deere made this forecast as US President-elect Trump threatened to impose tariffs on any products manufactured in Mexico by Deere and sold in the US - a potential uncertainty, although farmers' confidence has been rising recently. "We proactively adjusted our business operations to better align with the current environment in the face of this year's challenging market," Deere CEO John May said in a statement.