A slowdown in the global farm economy sent Deere & Co. third-quarter profits 15 percent lower, the Moline-based manufacturer reported Wednesday.
As a result, the production schedule for the remainder of the year will be cut, Deere's top executive said.
“For the balance of the year, the company will be scaling back production in line with demand for our agricultural products,” Samuel R. Allen, chairman and CEO, said in a news release. “These actions illustrate our commitment to responding with speed and decisiveness to changes in market conditions.”
Asked whether that could translate into employee layoffs, Deere spokesman Ken Golden said "there has been no announcement about layoffs."
"Already in two of our factories, we have extended seasonal shutdowns," Golden said. "We will communicate first with our employees if any action is needed. We pay very close attention to market conditions and make decisions based on what is forecast."
Deere & Co. stock started the day on the New York Stock Exchange at $86.48 per share and closed at $84.49, down $1.99 per share.
Allen said the reduction in profits was a result of changing demand.
“Deere’s third-quarter performance reflected moderating conditions in the global farm sector, which have negatively affected demand for farm machinery and contributed to lower sales and profits for our agricultural-equipment business,” he said.
“At the same time, our construction and forestry and financial services divisions had higher profit, showing the benefit of a broad-based business lineup. Overall, it was a quarter of solid performance, with income exceeded only by last year’s record for the corresponding period.”
However, he said, Deere's plans to expand its market presence throughout the world are on track and moving forward.
“We remain confident the company is well-positioned to earn solid returns throughout the business cycle and to realize substantial benefits from the world’s growing need for food, shelter and infrastructure well into the future,” Allen said.
Net income was $850.7 million, or $2.33 per share, for the third quarter, which ended July 31. That compares with $996.5 million, or $2.56 per share, for the third quarter last year. For the first nine months of the year, net income was $2.513 billion, or $6.79 per share, compared with $2.730 billion, or $6.97 per share, last year.
The company also reported that worldwide net sales and revenues decreased 5 percent, to $9.5 billion, for the quarter and were down 4 percent, to $27.102 billion, for the first nine months. Net sales of equipment operations were at $8.723 billion for the quarter and $24.918 billion for the first nine months, as opposed to $9.316 billion and $26.373 billion for the same periods last year, or an 8 percent drop over nine months.
Also, net sales of worldwide equipment operations declined 6 percent for the quarter and nine months from 2013. Equipment net sales in the United States and Canada decreased 8 percent for the quarter and 7 percent year to date. Deere reported that outside the U.S. and Canada, net sales were down 4 percent for the quarter and down 3 percent for nine months.
Equipment sales are projected to decrease about 6 percent for the year and to be down about 8 percent for the fourth quarter from a year ago.
Overall, Golden said, quarterly results were positive.
"This is a solid third quarter," he said. "It is the second-highest third quarter in income in company history. When you compare it to records, that is a difficult comparison. Last year's third quarter was the only one higher. We projected $3.1 billion for the year in net income. We did think it would be $3.3 billion. But if we are able to meet the $3.1 billion forecast, it will be our second-highest in history for the year. Last year was the most in history, at $3.5 billion in net income."
Like Allen, Golden said the decline is a result of the changing global farm sector.
"It decreased more than we anticipated three months ago," he said. "Nonetheless, we said all year that farm conditions would be lower than a year ago. But conditions moderated more than expected. Ag is our biggest business."
Deere’s worldwide sales of agriculture and turf equipment also are forecast to decrease by about 10 percent. Although the agricultural economy remains in a relatively healthy state, falling commodity prices are contributing to a reduction in farm income. The company reported that "the decline is putting pressure on demand for farm equipment, especially larger models. At the same time, strength in the U.S. livestock sector is providing support to sales of mid- and smaller-size tractors."
Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5 percent for 2014. Deere’s worldwide sales of construction and forestry equipment are forecast to increase by about 10 percent for the full year. Its equipment operations reported operating profit of $1.135 billion for the quarter and $3.387 billion for nine months, down from $1.443 billion and $3.943 billion in 2013.
Net income of the company’s equipment operations was $680 million for the third quarter and $2.061 billion for the first nine months, compared with $846 million and $2.324 billion in 2013.
Construction and forestry sales increased 19 percent for the quarter and 8 percent for nine months.
Operating profit was $194 million for the quarter and $420 million for nine months, compared with $107 million and $259 million last year.