Final hours! Save up to 55% OFF InvestingProCLAIM SALE

Deere raises earnings forecast, flags production risks

Published 05/21/2021, 06:27 AM
Updated 05/21/2021, 01:21 PM
© Reuters. FILE PHOTO: Equipment for sale is seen at a John Deere dealer in Denver, Colorado, U.S. May 14, 2015.  REUTERS/Rick Wilking/File Photo
US500
-
DE
-
SPY
-

By Rajesh Kumar Singh and Shreyasee Raj

(Reuters) -Deere & Co on Friday raised its full-year earnings on buoyant demand for farm and construction machines, but warned a global shortage of semiconductor chips posed a "significant" risk to its production schedule.

As the global economy roars back from the pandemic-induced recession, it is generating unusually high orders for parts and materials at a time when COVID-19 disruptions have caused capacity constraints all along the supply chain.

This has left manufacturers short of labor, steel, plastics, microchips and tires they need for their products, making it tougher to keep up with orders.

Deere (NYSE:DE) said it is "cautiously optimistic" of fulfilling customer orders. The company revised up raw material and freight costs for the year to $1 billion, from $500 million estimated in February.

Supply constraints mean farm equipment inventories, which are at a record low, will remain lean this year, it said.

However, a combination of higher farm income, the need to replace aging fleets and low inventory levels is expected to prolong equipment demand beyond 2021.

The world's largest farm equipment manufacturer said orders for large tractors now extend into next year.

"The current market dynamics, coupled with production constraints for the industry, point to a multi-year cycle for ag equipment," Cory Reed, head of Deere's Production & Precision Ag unit, told investors on an earnings call.

The Illinois-based company said net income in fiscal 2021 would be between $5.3 billion and $5.7 billion, up from $4.6 billion to $5.0 billion estimated in February. It is the second time in four months it has upgraded the outlook.

Deere's shares, which have outperformed the S&P 500 with a gain of about 32% this year, were up 1.8% at $361.73 in afternoon trade.

© Reuters. FILE PHOTO: Equipment for sale is seen at a John Deere dealer in Denver, Colorado, U.S. May 14, 2015.  REUTERS/Rick Wilking/File Photo

The company expects industry sales of large agricultural equipment in the United States and Canada - its biggest combined market - to grow by 25% this year compared with growth of 15% to 20% estimated in February.

Earnings for the second quarter came in at $5.68 per share, up 169% from a year ago. Equipment sales rose 34% year-on-year to about $11 billion.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.