Deere’s profit beat overshadows tepid 2025 outlook, shares rise

1:16 pm Thursday, November 21st, 2024

By Shivansh Tiwary and Utkarsh Shetti

(Reuters) -Deere & Co forecast its 2025 profit below market expectations but reported an upbeat quarterly earnings on Thursday, as lower production costs helped cushion a downturn in farm equipment demand, sending its shares up 8%.

A cool-off in raw material prices and reduced freight expenses have led to a year-over-year fall in production costs, Deere said on an analyst call.

Deere shares, which hit their highest levels in more than a year, also got a leg up from market sentiment that the company’s 2025 profit expectations were conservative, CFRA analyst Jonathan Sakraida said.

A decline in farm incomes and high interest rates have compelled farmers to reassess large expenses on agricultural machinery and forced dealers to limit inventory restocking, leading the company to provide a downbeat forecast.

U.S. farm income is expected to fall for a second consecutive year in 2024, as farmers grapple with corn and soybean prices hovering near four-year lows.

“We expect farm fundamentals to remain depressed globally in 2025, putting additional pressure on farm profitability,” CFO Joshua Jepsen said.

The world’s largest farm equipment maker expects its 2025 profit to be between $5 billion and $5.5 billion, compared with analysts’ average estimate of $5.93 billion, according to data compiled by LSEG.

For the year, the company expects its net sales to fall in the range of about 10% to 15% across all machinery segments.

Concerns around supply chain and a surge in demand led dealers to significantly increase their inventories last year, boosting sales for Deere.

However, the recent demand slowdown has made dealers cautious on inventory restocking.

“As expected, farmers are pulling back on equipment purchases, given the growing P&L pressure, and that is reflected in Deere’s results and guidance for 2025,” said Chad Dillard, senior analyst at Bernstein.

“It is encouraging Deere is managing channel inventories and defending price.”

The company’s profit of $4.55 per share for the fourth quarter ended Oct. 27, topped expectations of $3.87.

(Reporting by Shivansh Tiwary and Utkarsh Shetti in Bengaluru; Editing by Pooja Desai and Shilpi Majumdar)