Deere & Co shares eased after the agricultural machinery giant unveiled worse-than-expected results and cut its earnings hopes for 2022, citing logistical hiccups and higher factory costs.
The US-based group, the maker of John Deere equipment, cut to $7.0bn-7.2bn, from $7.0bn-7.4bn, its forecast for full-year earnings.
The reduction by Deere – which three months ago lifted its earnings forecast from the initial guidance of $6.7-7.1bn – came as it revealed that, amid “challenging circumstances”, its performance for the April-to-June period had come in short of Wall Street expectations.
While earnings for the quarter rose by 13.0% to $1.88bn, equivalent to $6.16 per share, investors had forecast a $6.69-per-share result, according to Refinitiv.
Deere shares dipped by 3.8% in opening deals in New York, before recovering ground to stand at $365.82, down 0.6% on the day.
Although Deere’s revenues, buoyed by higher volumes and prices, soared by 22% to $14.10bn in the quarter, exceeding market expectations, profitability was slowed by higher production costs, as well as the knock-on effects of the strengthened dollar.
“Our results reflected higher costs,” said John May, the Deere chairman and chief executive, citing too “production inefficiencies drive by the difficult supply-chain situation”.
Operating margins eased in both its farm divisions, although in particular in the small agriculture and turf business, where they fell by 3.3 points to 15.2% – driving the unit’s operating profits down 5.3% to $552m despite a rise in revenues.
Operating profit at the division “decreased primarily due to higher production costs, higher selling, administrative, and general expenses, increased research and development expenses, and the unfavourable effects of foreign currency exchange,” Deere said.
Mr May added that Deere was, based on its own customers orders, expecting that “favourable conditions will continue into 2023.
“We are working closely with our factories and suppliers to meet higher levels of customer demand next year.”
Nonetheless, Deere trimmed expectations for ag market growth this year in both of the key US and European markets.
Europe’s ag machinery market was now seen holding flat this year, rather than posting the growth of about 5% that Deere had previously expected.
For the US and Canada, the market for large equipment was forecast expanding by about 15% in 2022, down from a previous estimate of circa 20% growth.
However, South American market conditions have improved, with growth now expected at 10-15% this year, compared with a previous estimate of about 10%.