Dive Brief:
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Deere & Co. lowered its fiscal 2024 earnings outlook after sales declined by double digits for agricultural machinery in the second quarter.
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Equipment sales totaled $13.61 billion, a 15% decline over last year as high interest rates, weather volatility and an oversupply of commodities weighed on customer purchase decisions for tractors, lawnmowers and other equipment around the world.
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In response to growing levels of retail inventory, Deere will strategically underproduce machinery in the back half of the year.
Dive Insight:
Agricultural companies have encountered challenges this quarter as farmers delay planting due to weather concerns and cut back on discretionary spending for everything from pesticides to machinery.
“Uncertainty has caused a decline in farmer sentiment. And as a result, we are seeing a softer retail environment today than we did just six months ago,” Josh Beal, Deere’s director of investor relations, said in an earnings call Thursday morning.
Deere has laid off hundreds of workers in its Midwest factories within the last year as it works through some production imbalances. The tractor giant recently cut about 400 jobs between two Iowa plants and told 34 Illinois employees they would be let go at the end of May.
Net income for the quarter fell 17% over last year to $2.37 billion, driven by higher production costs and weaker sales of tractors, lawnmowers and precision agriculture equipment. Beal said used inventories have also increased, affecting purchasing decisions.
Deere expects declining demand to continue throughout the year, leading to a $750 million downward revision to its full-year outlook. The Illinois-based manufacturer is optimistic about the growth of its financial services business and anticipates that the construction and forestry results will be on par with last year.
Deere’s growing financial services business posted net income of $162 million, up from $28 million the previous year due to a one-time, non-recurring accounting correction.
Competitors CNH Industrial and Agco also had weaker agricultural machinery sales in the quarter and are expecting soft demand to hang around the rest of the year.
Deere shares fell nearly 5% after the earnings update on Thursday.