Deere trims earnings forecast on trade war effects

Deere trims earnings forecast on trade war effects

Deere & Co. on Friday announced a review of costs after a combination of the U.S. Now, U.S. farmers are scaling back their purchases as a result of a yearlong trade dispute with China.

Deere also announced a review of its cost structure and measures including a 20% production cut at its factories in IL and Iowa in the face of weak demand after Q3 production costs rose by two percentage points from the year-ago quarter.

In response to weak equipment demand, in May, Deere had announced a 20% production cut at its factories in IL and Iowa.

The comments came after Deere's production costs in the third-quarter shot up by 2 percentage points from a quarter ago. Its prior outlook was for earnings of $3.3 billion.

China, one of the largest importers of USA soybeans and pork over the past decade, said earlier this month it would suspend all imports of US agricultural products in retaliation for the Trump administration's plan to expand US tariffs on goods made in China starting previous year.

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"In the United States, 2019 has been a volatile year for farmers, particularly through the Corn Belt", Deere Chief Economist Luke Chandler said during a call with analysts.

It now expects full-year net income of $3.2 billion on annual sales growth of 4%, lower than the income of $3.3 billion on sales increases of about 5% projected earlier. However, escalating trade tensions between the two countries and export sales uncertainty have made USA farmers hesitate to buy new equipment, said analysts.

Sales fell by 3 percent in the third quarter of the broken financial year to $ 10 billion.

Deere expects to put a net profit around $ 3.2 billion in the books by the end of 2019, while the company previously assumed a $ 3.3 billion profit.

Although the company's construction and forestry segment reported higher quarterly profits, the continued uncertainty in agricultural sector weighed on overall results. Beside trade uncertainty, Deere said rainy weather that delayed spring planting of crops and weakening equipment sales in Canada also contributed to falling equipment sales in the quarter.

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