Deere signals recovery as U.S. farmers to benefit from relief program

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Deere & Co. on Friday topped quarterly sales and profit estimates and forecast a smaller-than-expected fall in farm equipment sales for the year, signaling a recovery in demand for its harvesters and tractors.

Shares of the company, which withdrew its outlook in March due to an escalating COVID-19 pandemic, rose as much as 4 per cent in early trading.

Deere’s fresh forecast comes more than a month after President Donald Trump announced a $19 billion relief program to help U.S. farmers cope with the impact of the health crisis. The company’s sales were likely to benefit from the additional liquidity, analysts have said.

“Deere noted signs of stabilization (in farm equipment sales) despite the week farm sentiment,” said Jefferies analyst Stephen Volkmann, adding that fiscal 2020 North American sales outlook of a decline of 10 per cent was “surprisingly benign”.

The company said it expects farm and turf equipment sales to fall between 10 per cent and 15 per cent this year. According to Jefferies, the midpoint is better than a 14 per cent drop estimated by analysts.

Deere typically sees a pick-up in sales of farm equipment after January as farmers start planting fields. That likely helped second-quarter demand for farm machinery hold up better than sales of construction equipment.

It forecast 2020 profit in a range of $1.6 billion to $2 billion, down 39 per cent to 51 per cent from a year earlier.

In the quarter ended May 3, farm and turf machinery sales fell 18 per cent to $5.97 billion and construction and forestry equipment sales dropped 25 per cent to $2.26 billion.

Net income fell 41 per cent to $666 million, or $2.11 per share in the quarter, but beat analysts’ average estimate of $1.62 per share, according to IBES data from Refinitiv.

Equipment sales declined 20 per cent to $8.22 billion, topping expectation of $7.69 billion.

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