Deere predicts record profit
Deere & Co.’s financial outlook for the next year signals that global supply chain delays and higher labour costs following a month-long strike in the U.S. won’t significantly dent profits at the world’s largest farm equipment maker.
Deere expects record net income for fiscal 2022 of between US$6.5 billion and US$7 billion, compared to the average estimate of US$6.66 billion by 17 analysts, the Moline, Ill.-based company said Wednesday in a statement. The tractor maker posted fourth-quarter profit that topped analysts’ estimates, though revenue for the period fell short of expectations for the first time in more than two years.
“Looking ahead, we expect demand for farm and construction equipment to continue benefiting from positive fundamentals, including favourable crop prices, economic growth, and increased investment in infrastructure,” chief executive John May said in the statement. “At the same time, we anticipate supply-chain pressures will continue to pose challenges in our industries.”
Deere shares rose 5.3 per cent Wednesday to close at US$367.86 in New York.
The company’s upbeat outlook comes despite the work stoppage that slowed Deere’s factory output of equipment ranging from tractors and combines to sprayers and more in the U.S. during the busiest farming season of the year. Workers initially rejected two contracts that left customers waiting weeks for parts and components that normally take a couple of days to deliver, before finally approving a third deal a week ago.
Net income for fiscal 2021 reached US$5.96 billion, its highest ever. Record earnings were part of the reason employees went on strike, arguing that they risked their lives as “essential” workers during the pandemic, and that they had worked with the company to take pay cuts in prior contracts when times were leaner.
“This was a very solid quarter, when you consider the challenges Deere faced,” Matt Arnold, an analyst at Edward Jones, said in an email. “The company navigated a labour strike and significant cost inflation due to the supply chain issues across the economy, and still grew earnings over 70 per cent.”
Ongoing supply chain disruptions, rising raw material costs, about a Us$3.5-billion rise in labour costs on the new deal and a slowdown at factories due to the strike remain some hurdles Deere must navigate in the months ahead. The company likely will have to raise prices on its equipment by about 1.5 per cent to fully offset the increase in labour costs, according to Jpmorgan.
Still, strong demand for crops such as corn, soybeans and wheat is driving agriculture prices to the highest in years, padding the pockets of farmers eager to buy new equipment.