Deere Falls With Supply-Chain Challenges Worsening Into 2022

(Bloomberg) — Shares of Deere & Co., the largest maker of agricultural machinery, fell as much as 4% amid concerns that rising costs and supply chain snags will intensify going into next year.

Executives told analysts on Friday’s earnings call that the challenges are broad-ranging, from rising raw material costs to labor issues to logistics with the supply chain. The downtrodden commentary comes after the machinery producer said net income for the year will be between $5.7 billion to $5.9 billion, up from a prior range of $5.3 billion to $5.7 billion.

“We’ve seen the upward move in commodity prices, which means higher raw materials costs for companies like Deere,” Matt Arnold, an analyst at Edward Jones & Co., said in a phone interview. “We’ve seen headlines of labor availability being tough for virtually every type of business, which means higher wage costs. These are situations all companies, not just Deere, will be forced to navigate.”

Deere shares traded 2.9% lower to $348.67 at 11:07 a.m. trading in New York.

Domestic steel prices have risen almost 90% this year as demand increased for everything from washing machines to automobiles to combine harvesters, aided by reopening economies across the globe. AGCO Corp., one of Deere’s competitors, warned investors last month that the massive rise in steel prices is finally hitting the wallets of farmers. While Deere warned of increased supply chain challenges in the fourth quarter and into 2022, it said price increases will offset costs for the full year.

Deere is seeing increasing fortunes in Europe and Asia, where the company said agricultural and turf sales will be more than previously expected. The Moline, Illinois-based firm forecasts its European ag and turf business to be 10% to 15% higher, up from a prior expectation of a 10% increase, while sales of the same segment in Asia will be up “significantly” after having only expected it to be “slightly” higher.

Crop Boost

The tractor maker is benefiting from surging agricultural prices, with crops including wheat, corn, soybeans and coffee soaring to multiyear highs on rising global demand as economies start recovering from the pandemic and from supply concerns exacerbated by weather woes in key producing regions. Deere’s sales were aided by higher machinery prices.

The world’s current farm-equipment fleet is the oldest in more than two decades, with low inventories and extended order books underpinning a possible multiyear recovery for agricultural equipment, according to Bloomberg Intelligence.

“Looking ahead, we expect demand for farm and construction equipment to continue benefiting from favorable fundamentals,” Deere Chief Executive Officer John May said in the statement.

Deere didn’t change it’s outlook for the U.S. and Canada, saying it still sees sales in the year rising about 25% for large agricultural equipment, with South America tractors and combines up about 20%. The company reduced its outlook for global forestry sales, expecting it up about 15% from a prior range of 15% to 20%.

(Updates throughout)

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Harry Byrne

Harry Byrne

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