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International Business Deere cuts profit outlook amid mounting U.S.-China trade war

Deere & Co. on Friday missed quarterly profit estimates for the fifth-straight quarter and cut its full-year outlook, as an escalating U.S.-China trade war threatens to further hit farm incomes and demand for the company’s equipment.

Shares of Deere, known for its trademark green tractors and harvesting combines, fell as much as 6 per cent to US$137.18, as a slump in demand for big agricultural machines has forced the company to cut production by 20 per cent at two of its large factories in North America.

“Ongoing concerns about export-market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases,” chief executive officer Samuel Allen said in a statement.

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U.S. agricultural exports are likely to suffer, as the world’s two largest economies level escalating tariffs on each other’s imports in the midst of negotiations.

Earlier this week, soybean futures fell to their lowest in more than 10 years, which is squeezing U.S. farmers whose incomes have already been under pressure from a global grain glut.

China, the world’s top importer of soybean, bought about US$12-billion worth of U.S. soy in 2017, but mostly shifted purchases to Brazil last year because of the trade fight, leaving U.S. farmers with surplus produce.

Deere, which gets nearly 60 per cent of its sales from the United States and Canada, said it now expects full-year equipment sales to rise by 5 per cent, compared with a 7 per-cent rise, it had previously expected, as large farm machinery sales lag.

The company lowered its fiscal 2019 profit outlook to US$3.3-billion, from its prior forecast of US$3.6-billion, while raising its estimate for full-year costs by one percentage point to 76 per cent of net sales, as the company speeds up research and development expenses.

“The lower forecast is partly a result of actions we are taking to prudently manage field inventories, which will cause production levels to be below retail sales in the second half of the year,” Mr. Allen said.

Some U.S. company executives have warned that costs related to the latest round of tariffs on goods from China will be passed along to consumers in the form of higher prices.

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Walmart Inc. on Thursday said that prices for U.S. shoppers will rise because of higher tariffs on goods from China.

Net income attributable to Deere fell 6.1 per cent to US$1.14-billion, or US$3.52 a share, in the second quarter ended April 28, missing analysts’ estimates of US$3.62 a share, according to IBES data from Refinitiv.

Net sales rose 5.4 per cent to US$10.27-billion, and were above the Wall Street’s estimate of US$10.19-billion.

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