Deere Sees Quarterly Sales Dip 3% on Uncertainty in Agricultural Sector

Deere & Company reported a net income of $899 million for the third quarter ended July 28, 2019, or $2.81 per share, compared with net income of $910 million, or $2.78 per share, for the same period last year. For the first nine months of 2019, net income was $2.532 billion, or $7.87 per share, compared with $1.584 billion, or $4.82 per share, for the same time frame in 2018.

Worldwide net sales and revenues fell 3%, to $10.036 billion, for Q3 2019 and rose 5% to $29.362 billion for the first nine months. Net sales of the equipment operations were $8.969 billion for the quarter and $26.182 billion for nine months, compared with $9.286 billion and $25.007 billion last year. 

"John Deere's third-quarter results reflected the high degree of uncertainty that continues to overshadow the agricultural sector," said Samuel R. Allen, chairman and chief executive officer. "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. At the same time, general economic conditions remain positive and are contributing to strong results for Deere's construction and forestry business." 

Construction & Forestry net sales were higher for the quarter (+1%) and nine months (+11%) compared to the previous year. The inclusion of Wirtgen’s sales accounted for about 6% of the year-to-date net sales increase. Wirtgen’s operating profit was $159 million for the quarter and $275 million for nine months, compared with $88 million and $37 million for the corresponding periods last year.

Company Outlook

Company equipment sales are projected to increase by about 4% for fiscal 2019 compared with 2018. Included in the forecast are Wirtgen results for the full fiscal year of 2019 compared with 10 months of the prior year. This adds about 1% to the company's net sales forecast for the current year. Net sales and revenues are projected to increase about 5% for fiscal 2019. Net income attributable to Deere & Company is forecast to be about $3.2 billion. 

Industry sales of agricultural equipment are expected to be about the same as last year for the U.S. and Canada, as well as for the EU28-member nations. South American industry sales of tractors and combines are projected to be flat to up 5% benefiting from strength in Brazil. Asian sales are forecast to be flat to down slightly. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5% for 2019.

The Construction & Forestry forecast includes a full year of Wirtgen sales, vs. 10 months in fiscal 2018, with the two additional months adding about 4% to division sales for the year. The outlook reflects generally positive fundamentals and economic growth worldwide. In forestry, global industry sales are expected to be flat to up 5% mainly as a result of improved demand in EU28 countries and Russia.

"In spite of present challenges, the long-term outlook for our businesses remains healthy and points to a promising future," Allen said. "We continue to expand our global customer base and are encouraged by response to our lineup of advanced products and services.

“Furthermore, we are fully committed to the successful execution of our strategic plan focused on achieving sustainable profitable growth,” he continued. “In support of the strategy, we are conducting a thorough assessment of our cost structure and initiating a series of actions to make the organization more structurally efficient and profitable." 

Such actions could include a shrinking of the company’s organizational footprint, as well as investments to further diversify its product portfolio. More details are expected to emerge in the fourth quarter.