Deere says higher borrowing costs will hit demand in coming year

By Bianca Flowers and Shivansh Tiwary

(Reuters) -Deere & Co forecast 2024 profits below analysts' expectations on Wednesday, saying high borrowing costs and tighter budgets will likely dent demand for the farm equipment maker's agriculture and construction machinery.

Deere (NYSE:DE), a barometer for the global economy, predicted a downturn in agriculture and construction equipment sales across all of its regions for the fiscal year ahead, validating analysts' concern that demand may have peaked for big industrial companies.

"We all believed that the market was getting softer, but not this soft," said Stephen Volkmann, senior machinery analyst at Jefferies.

Shares for the world's largest farm equipment were down 5% on Wednesday. The company now expects 2024 net income between $7.75 billion and $8.25 billion, far below the consensus for $9.33 billion, according to LSEG data.

The heavy equipment maker's net income for the quarter rose to $2.37 billion, or $8.26 per share, topping the consensus of $7.47 per share.

Despite beating Wall Street profit estimates, the Illinois-based manufacturer's stock slump mirrors peers such as Caterpillar (NYSE:CAT) that also outperformed forecasts.

Executives on a conference call told investors that Deere intends to cut farm equipment production and said "shifting agriculture market dynamics" will lead to a decline in demand.

The company has been bullish on growth in South America but elevated inflation in the region and weakening commodity prices, particularly in Brazil, are weighing on farmers' decision to purchase or upgrade machinery.

"We experienced industry demand weaken much faster than expected in the second half of the year," Deere Chief Financial Officer Joshua Jepsen said.

Persistent inflation dragged on consumer appetite for big-ticket items, causing dealer inventories to rise and order activity to tail off. Experts say weaker consumer sentiment is a sign Americans are being more frugal, including farmers.

Net farm income is forecast to decline 18% from a year ago, according to the Agriculture Department.

Sales for production and precision agriculture products for crop care such as fertilizers and applicators have consistently outpaced other equipment divisions, but revenue for the segment fell 6% from the year prior. Net sales for its precision ag portfolio are expected to be down 15%-20% next year.

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Sales from equipment operations declined to $13.8 billion from $14.35 billion a year ago.

Total net sales and revenue fell about 1% to $15.41 billion for the fourth quarter ended on Oct. 31.