Deere Hits Bumpy Road: Tariffs & Slowdown Forecast Weaker Profits Ahead

Deere & Company, a name synonymous with robust green and yellow machinery tilling fields and building roads, recently delivered a bit of a mixed bag to investors and the market at large. While their latest quarterly earnings managed to just edge out analyst expectations, it's the future outlook that really caught attention – and not in a particularly cheerful way. The company is bracing for a weaker year ahead, with profit forecasts taking a significant hit.

So, what’s going on? Well, it seems the ongoing U.S.-China trade spat, with its tariff tit-for-tat, is truly taking its toll. Farmers, particularly those who rely heavily on exports like soybeans, have been caught in the crossfire. This uncertainty, coupled with falling commodity prices, makes them understandably hesitant to invest in big-ticket items like brand-new combines or tractors. When farmers aren’t buying, Deere feels the pinch.

For fiscal year 2020, Deere is now projecting net income to land somewhere between $2.7 billion and $3.1 billion. That’s quite a step down from their previous forecast of around $3.25 billion, and notably below what analysts were generally hoping for – closer to $3.48 billion, if you can believe it. It’s a pretty clear signal that the headwinds are stiff.

Looking back at the fourth quarter itself, Deere did manage to report adjusted earnings per share of $2.27, which was a pleasant surprise compared to the $2.14 analysts had predicted. But here’s the rub: revenue for the quarter actually fell short, coming in at $9.89 billion against an expected $10.27 billion. Beyond agriculture, their Construction & Forestry segment also saw sales dip by a noticeable 8%, hinting at a broader slowdown. Even their Production & Precision Ag division, which handles those big farm machines, saw sales decline by 5%. The only real bright spot? Their Small Ag & Turf equipment, which managed a modest 4% gain.

John C. May, Deere's CEO, pretty much summed it up, pointing to "further moderation in the agriculture and construction sectors." It’s a polite way of saying things are slowing down across the board. An analyst from Jefferies, Stephen Volkmann, didn’t mince words, remarking that it’s "difficult to find a bright spot" in the company's guidance. When even the analysts are struggling to find good news, you know it’s a tough situation.

In response to all this, it’s no shocker that Deere's shares took a hit, initially dipping around 4% right after the announcement. The company is, of course, trying to navigate these choppy waters by carefully managing production and keeping a tight lid on costs. But let's be honest, until those trade tensions ease and farmer confidence returns, it looks like Deere might be in for a bumpy ride.