U.S. Markets closed

Deere Gains as Savings Vow, Forecast Ease Investors’ Alarm

Lydia Mulvany

(Bloomberg) -- Deere & Co.’s shares jumped after it pledged to lower its costs and offered an outlook cut that was less than some investors feared as it fights to overcome a disruptive trade war and a slowing global economy.

The world’s top tractor maker gained the most in seven months, climbing as much as 5.1% after announcing earnings Friday to recover some of the losses earlier in the week. While quarterly earnings trailed the average estimate, its guidance and a vow to boost efficiency may have comforted investors buffeted by a tumultuous two weeks in agriculture markets.

American growers are resisting major purchases as the U.S.-China trade war stretches into a second year and after a season when wild weather batters their crops. An escalation in trade tensions led to China halting purchases of American farm products, while corn prices tanked Monday when the U.S. government came out with acreage and yield numbers that exceeded estimates.

“There’s been so much negative sentiment with the erosion of the trade environment and then the disastrous WASDE report,” said Chris Ciolino, a Bloomberg Intelligence analyst. “People were bracing for more doom and gloom.”

With production costs in some segments rising, the Moline, Illinois based company said it’s “initiating a series of actions to make the organization more structurally efficient and profitable.”

For fiscal 2019, equipment sales are now projected to rise about 4%, with net income forecast at $3.2 billion, Deere said in a statement. Three months ago, it predicted 5% equipment sales growth and $3.3 billion profit.

While Deere remains positive on general economic conditions, it lowered guidance for construction and forestry and now expects fiscal 2019 economic growth in the U.S. to be in line with 2018, downgrading a previous forecast for acceleration.

On a net basis, quarterly profit slipped to $899 million from $910 million a year ago. Sales fell 3%.

“We view Deere’s 3Q results and outlook as more resilient than feared,” Goldman Sachs Group Inc. analysts said in a note to clients.

(Adds comment in the third paragraph.)

--With assistance from Karen Lin.

To contact the reporter on this story: Lydia Mulvany in Chicago at lmulvany2@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Reg Gale

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.