Deere & Co raised its earnings guidance for a second time, saying the ag machinery market would continue to enjoy “positive fundamentals”, despite supply chain hiccups, and the soaring costs confronting its farmer customers.
However, shares in the maker of John Deere equipment slumped by 10.1% nonetheless to $327.635 in early deals in New York, wiping more than $11bn from the company’s stockmarket value, after it posted quarterly revenues well short of investor expectations.
“Weak sales overshadow” the improved full-year earnings target, Millennium BCP said.
The group lifted to $7.0bn-7.4bn, from $6.7bn-7.1bn, its forecast for group earnings in the year to October.
Deere, which achieved $5.96bn in earnings last year, had initially forecast this year’s result coming in at $6.5bn-7.0bn.
The upgraded figure included a $220m boost from one-off factors – notably an uplift to the value of its equity stake in a construction joint venture with Hitachi, which Deere has now taken control of.
However, John May, the Deere chairman and chief executive, also highlighted “strong demand, even as we face supply chain pressure affecting production levels and delivery schedules”.
“Looking ahead, we believe demand for farm equipment will continue benefiting from positive fundamentals in spite of availability concerns and inflationary pressures affecting our customers’ input costs,” Mr May added.
Deere stood by expectations of “about 20%” growth in the Canadian and US market for large farm machinery over its fiscal year, and raised to “about 10%”, from 5-10%, its forecast for industry expansion in South American combine and tractor sales.
However, the forecast for the Asian market was downgraded to “down moderately”, from a previous expectation of a “flat” performance.
For the three months to May 1, Deere’s second fiscal quarter, the group reported earnings up 17.2% at $2.10bn, on revenues up 9.4% at $12.03bn.
The construction and forestry division led the expansion, with operating profits up 66% at $814m, backed by a boost to sales from both higher prices and volumes.
Operating profits in the key production and precision ag business rose by a more modest 5% to $1.06bn, as the impact of a 13% increase to $5.12bn in sales was largely offset by higher production costs, and charges related to the Ukraine war.
“As a result of the events in Russia / Ukraine, the company has suspended shipments to Russia, which will reduce forecasted revenue for the region,” Deere said.
The small agriculture and turf division reported a 20% dip to $520m in operating profits, as higher administration, as well as production, costs offset a boost from product price rises.
The group’s second quarter earnings came in at the equivalent of $6.81 per share, on an underlying basis, marginally above the $6.71-per-share figure investors had expected.
However, the sales figure of $12.03bn fell well short of the $13.2bn that Wall Street had pencilled in.
Deere shares slumped by 6.0% to $382.74 in before-the-bell trading.