Deere tractor sales hold up in pandemic

PLANTING SEASON

Deere & Co. shares rose after the top tractor maker navigated pandemic upheavals better than expected and surprised analysts by reinstating earnings guidance.

For the three months through April, sales and profit fell less than estimated as agriculture — deemed essential in the lockdown era — proves more resilient than many other industries.

Lower costs helped defend margins in a quarter that’s often Deere’s strongest as farmers buy planting equipment for the growing season.

While uncertainty weighs on its customers and the China trade deal is a wild card, Deere reported better pricing for its products through the quarter.

The company, which dropped annual guidance in March as it cut back operations amid the virus uncertainties, bucked an industry trend by providing a new forecast — of US$1.6 billion to US$2 billion compared with the average estimate of US$2.1 billion. Shares rose about four per cent before the start of regular New York trading, and were up about 1.9 per cent at mid-day, but closed at US$140.71, down 1.5 per cent.

The decision to reinstate 2020 guidance is a positive sign, and conservative given the solid quarter, said Chris Ciolino, an analyst with Bloomberg Intelligence. Results showed “really just strong execution on the cost side and better pricing.”

The cycle of farmers replacing aging farm machinery will persevere through near-term challenges like the trade war, tough growing conditions and the economic shutdown, according to Edward Jones analyst Matt Arnold.

There are still supply chain issues, though not enough to derail sales and operations. Responding to customer demand “has been a challenge” due to “barriers,” the company said in a statement, noting the uncertainties could hurt its results and financial position in the future.

The Moline, Ill.-based company is also shoring up its liquidity. It raised US$4.5 billion in funding during the pandemic.

“Deere’s solid balance sheet, good credit metrics and management prudence are likely to help soften the impact of the virus outbreak, at least in the near term,” said Stephane Kovatchev, a credit analyst with Bloomberg Intelligence.

Deere forecast its 2020 worldwide agriculture equipment sales to be down 10 per cent to 15 per cent, and said industry sales would decline 10 per cent in the U.S. and Canada — its biggest money-making region.

Deere said construction and forestry equipment sales would fall 30 per cent to 40 per cent.

Fiscal second-quarter adjusted earnings were US$2.11 cents a share compared with the US$1.62 average estimate and US$3.52 a year ago.