Deere cuts 2024 profit view as borrowing costs hurt farm equipment demand

By Bianca Flowers and Shivansh Tiwary

(Reuters) -Deere & Co cut its 2024 profit forecast on Thursday as farmers remained hesitant about big-ticket equipment purchases due to high borrowing rates and falling crop prices, even as its first-quarter sales and profit topped Wall Street estimates.

Shares of the world's largest farm equipment maker were down 5.4% in early trading as the manufacturer has seemingly passed its peak for robust demand.

With farmers reassessing expenses, particularly for compact tractors, Deere (NYSE:DE) said it now expects net income for fiscal 2024 of $7.50 billion to $7.75 billion. This is below its prior forecast of $7.75 billion to $8.25 billion and below analysts predictions of $7.93 billion, which already marked a decline from the prior quarter.

"That's not particularly unusual for the first year of a market correction," said Stephen Volkmann, senior machinery analyst at Jefferies. "The lower guidance that they put out is just a factor of that lower large agriculture outlook."

Demand for Deere's farm equipment is expected to be weaker in Central and Eastern Europe, executives told analysts on an earnings call, as commodity markets remain disrupted by the ongoing conflict in Ukraine. Recent extreme weather conditions in the region have also impacted crop yields, which squeezed farmers' profits.

Executives have been conservative about margin performance amid a weakening farm economy, and said Deere intends to cut equipment production in 2024 as the company focuses on managing new and used inventory levels.

"We're exercising good caution there, knowing where our order books are, but also what are the some of the leading indicators, said Joshua Jepsen, the company's Chief Financial Officer.

Deere, a barometer of the global economy, said operating margins contracted due to lower sales of large agriculture equipment which the company is expecting to decline 20% this year. Operating profit across its equipment divisions fell 13% in aggregate.

Deere's sales of production and precision agriculture equipment, its largest division, declined 7% year-over-year in the fiscal first quarter. Revenue for equipment operations fell 8% to $10.5 billion year over year, but topped consensus forecasts of $10.3 billion.

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Net income fell to $1.75 billion, or $6.23 per share, for the first quarter, beating analysts estimates of $5.21 per share, according to LSEG data.