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Deere & Company (DE)
Deere Profit Drops 38%
Deere & Company (DE: Charts, News, Offers) announced today that its second quarter earnings fell 38 percent. The world's largest maker of farm equipment also saw net income drop to $472.3 million from last year's $763.5 million. Deere's recent disappointing sales performance has led to a 17 percent slide in revenue. Despite its recent woes, the iconic yellow-and-green tractor manufacturer is hopeful for a performance turnaround. What exactly caused Deere's second quarter problems? How does the world's largest maker of farm equipment intend to improve performance?
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A big factor in the farming industry is crop prices, which have been recently falling. As a result, many farmers are tentative to purchase new, expensive equipment. Farmers seem to be waiting for a better idea of future crop prices before making any long term investments. Last year's boom in crop prices helped spark a spike in demand for farming equipment. However, with crop prices cooling off, many Deere retailers are stuck with an inventory surplus from the year's previous demand spike. In addition, the gradual deterioration of the housing market has been a problem for Deere.
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The recent housing market slump has led to a reduction in housing construction, which has impacted Deere's construction equipment sales. Deere & Company saw its construction and forestry sales dip 55 percent this quarter. This drop in construction business has really stifled any performance improvements for Deere. The state of the global market has also caused considerable issues for the Illinois-based tractor company. Deere & Company has seen its net equipment sales decline 30% outside the United Sates and Canada. Deere was anticipating growth in its global sales, but instead it is now experiencing order cancellations and a drop in consumer activity. The deterioration of Deere's global sales performance seems to be attributed to the current economic climate and credit availability crunch.
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Although Deere is struggling at the moment, the world's largest maker of farm equipment has been actively working to improve performance. Deere & Company has made a conscious effort to streamline its infrastructure and cut costs. It recently merged its agriculture business with its commercial and consumer business. In addition, Deere has been forced to initiate several rounds of employee layoffs over the past months. Deere & Company is also hoping that crop prices will begin to increase as United States famers are forced to plant late this year due to spring rain patterns. There is also optimism surrounding the Government's recent, increased involvement with the U.S. agriculture industry.
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Deere & Company had a rough quarter, but seems to have pinpointed all its problem areas. It will be an uphill battle for the Illinois-based tractor company, but Deere is hoping to see the impact of its improvement strategy sooner rather than later. Deere is relying on cost reduction and tighter inventory forecasting to carry them through this current economic slump. The Deere & Company's recent efficiency efforts and an increasing industry sentiment of rising crop prices could be the making of a very promising situation for Deere. Only time will tell if a potential shift in crop prices will be enough to jumpstart a performance turnaround for this tractor manufacturer.
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