Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To "Downturn In Global Farm Economy"

It is not just Caterpillar that continues to post horrendous numbers, and has now recorded 38 consecutive months of declining Y/Y sales, double the length of the contraction of the great financial crisis. Moments ago heavy farm equipment maker Deere likewise shocked its investors with a round of terrible numbers, when at first it reported a revenue and EPS beat, announced it had earned $0.80 EPS in Q4, above the $0.71 estimate, on $5.53BN in revenue, well above the $4.90BN expected, however it was the unprecedented drop in the forecast that was the punchline.

According to the company's announcement, equipment sales are projected to decrease about 10% for fiscal 2016 and to be down about 8 percent for the second quarter compared with the same period a year ago.

Here is how CEO Samuel Allen tried to spin the cut in guidance which DE had previously seen at just -7%: "Although Deere expects another challenging year in 2016, our forecast represents a level of performance much better than we have experienced in previous downturns," Allen said.

Downturn? We thought the Fed was hiking because of the "strong recovery."

Some more details: Deere cuts 2016 U.S. farm cash receipts forecast to $381.3b, had seen $394.4b (Nov. 25)

  • Cuts 2016 U.S. farm net cash income to $90.8b, had seen $106.9b (Nov. 25)
  • Sees yr U.S. farm commodity price:
    • Corn 2015/16 $3.60/bushel vs prior $3.65
    • Wheat 2015/16 $5.00/bushel, unchanged
    • Soybeans 2015/16 $8.80/bushel vs prior $8.90
    • Cotton 2015/16 60c/pound vs prior 59c
  • Cuts DE 2016 capex outlook to ~$775m from ~$800m

"This illustrates the impact of our efforts to establish a more durable business model and a wider range of revenue sources."

Alas, a 10% drop in revenue does not validate the "durable business model" with more revenue sources.

He continued: "As a result, the company's financial condition remains strong and we are well-positioned to continue investing in innovative products, advanced technology and new markets. These actions, we're confident, will provide significant value to our customers and investors in the years ahead."

So thousands of layoffs imminent to make room for buybacks?

Finally, some more about that downturn:

"John Deere's first-quarter results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment markets."

Surely that alone is worth another 25 bps in rate hikes by Yellen and crew.