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Deere & Co. shares slid 4.3% in premarket trade Wednesday, after the maker of agricultural equipment issued a profit warning for fiscal 2020 and said uncertain farmers are reluctant to invest in new equipment.
“Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment,” Chief Executive John May said in a statement. “Additionally, financial services results have come under pressure due to operating-lease losses.”
Moline, Illinois-based Deere DE, +0.02% said it expects 2020 net income to range from $2.7 billion to $3.1 billion, compared with a current FactSet consensus of $3.4 billion.
The warning overshadowed a better-than-expected fiscal fourth-quarter performance. The company posted a net profit of $722 million for the quarter to Oct. 28, or $2.27 a share, down from $785 million, or $2.42 a share, in the year-earlier period. Sales rose 5% to $9.896 billion. The FactSet consensus was for EPS of $2.13 and sales of $8.467 billion.
Sales at the company’s agriculture and turf division rose 3% to $5.756 billion. Sales at its construction and forestry division rose 8% to $2.947 billion, but sales at its financial services division fell 66% to $261 million.
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“Excluding tax-reform adjustments, the decrease in financial services net income for the quarter and full year of 2019 was mainly due to impairments and higher losses on operating-lease residual values and unfavorable financing spreads, partially offset by income earned on a higher average portfolio,” said the statement.
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The company is expecting agriculture and turf sales to fall 5% to 10% in 2020. Sales in the U.S. and Canada are expected to fall about 5%, driven by weak demand for large equipment. In the European Union, sales are expected to be flat, while South American industry sales of tractors and combines are expected to be flat.
Construction and forestry sales are expected to fall 10% to 15%, due to slowing construction activity and the company’s efforts to manage dealer inventories.
See: U.S. farmers, battered by low commodity prices and trade war, brace for things to get worse
Financial services are expected to be hit by higher provisions for loan losses, less-favorable financing spreads and higher costs.
Deere shares have gained 18% in 2019, while the S&P 500 SPX, +0.22% has gained 25%.
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