Worries over costs, supply hurdles hit Deere stock
Shares of Deere & Co., the largest maker of agricultural machinery, fell Friday amid concerns that rising costs and supply-chain snags will intensify going into next year.
Executives told analysts on Friday’s earnings call that the challenges are broad-ranging, from rising raw material costs to labor issues to logistics with the supply chain. The commentary comes after the machinery producer said net income for the year will be between $5.7 billion to $5.9 billion, up from a previous range of $5.3 billion to $5.7 billion.
“We’ve seen the upward move in commodity prices, which means higher raw materials costs for companies like Deere,” Matt Arnold, an analyst at Edward Jones & Co., said in a phone interview. “We’ve seen headlines of labor availability being tough for virtually every type of business, which means higher wage costs. These are situations all companies, not just Deere, will be forced to navigate.”
Deere shares closed 2% lower at $351.43 in New York.
Domestic steel prices have risen almost 90% this year as demand increased for everything from washing machines to automobiles to combine harvesters, aided by reopening economies across the globe. AGCO Corp., one of Deere’s competitors, warned investors last month that the big increase in steel prices is finally hitting the wallets of farmers. While Deere warned of increased supply-chain challenges in the fourth quarter and into 2022, it said price increases will offset costs for the full year.
The tractor-maker is benefiting from surging agricultural prices, with crops including wheat, corn, soybeans and coffee soaring to multiyear highs on rising global demand as economies start recovering from the pandemic and from supply concerns exacerbated by weather woes in key producing regions. Deere’s sales were aided by higher machinery prices.
“Looking ahead, we expect demand for farm and construction equipment to continue benefiting from favorable fundamentals,” Deere Chief Executive Officer John May said in the statement.
Deere didn’t change it’s outlook for the U.S. and Canada, saying it still sees sales in the year rising about 25% for large agricultural equipment, with South America tractors and combines up about 20%.