For those asking this morning if the US-China trade war is hurting the economy - and America's farmers - look no further than heavy industrial equipment giant Deere which this morning cut its earnings guidance for a second straight quarter and announced a review of costs as U.S. farmers - battered by trade and weather disruptions - were unable to splurge on expensive new tractors.
While Deere's Q3 results were dismal - with the company missing on both the top line, reporting 3Q net sales of $8.97 billion, down -3.4% y/y, and below the estimate of $9.38 billion, and the bottom line, with Q3 adjusted EPS of $2.71 missing estimates of $2.84 - its guidance was worse.
Deere cut its net income and its construction & forestry equipment sales forecasts for the full year, with the guidance missing the average analyst estimate. The company now sees FY net income about $3.2 billion, down from $3.3 billion previously, and below the sellside estimate of $3.29 billion. The company also cut its FY construction & forestry equipment sales forecast to +10%, from +11%, and below the +11% estimate. Deere also said it was "conducting a thorough assessment of its cost structure and initiating a series of actions to make the organization more structurally efficient and profitable." For fiscal 2019, equipment sales are now projected to rise about 4%, with net income forecast at $3.2 billion, the Moline, Illinois-based company said. Three months ago, it predicted 5% equipment sales growth and $3.3 billion profit.
And so with fiscal Q3 earnings missing estimates and a sharp guidance cut, Deere shares fell 3.7% in pre-market trading on Friday before recovering some ground. The stock has badly underperformed the S&P since the start of the year.
The quarterly results "reflected the high degree of uncertainty that continues to overshadow the agricultural sector,” Chief Executive Officer Samuel Allen said in a statement Friday. “Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases."
According to Bloomberg, the reason for the disappointing results was that US farmers were hesitating to upgrade their aging fleets of Deere’s iconic yellow and green tractors as the U.S.-China trade war stretches into a second year, undermining crop demand and fanning fears of recession. At the same time, record rainfall in the U.S. planting season gave way to hot, dry weather that has dimmed the outlook for yields and farmer incomes.