Deere plans price increases to offset rising costs

Reading Time: 2 minutes

Published: May 21, 2018

(Deere.ca)

Chicago | Reuters — Shares of Deere and Co. soared Friday after the U.S. tractor maker revised up its full-year earnings estimate on stronger equipment demand and shared its plans to increase prices to offset increased costs.

The company’s stock was up 6.4 per cent at $156.24 in early afternoon trading on the New York Stock Exchange (all figures US$).

Deere missed its second-quarter profit estimates amid higher freight and raw-material costs. The company’s sales costs shot up by 35 per cent in the quarter from a year ago and it also expects input costs during fiscal 2018 to be higher than its previous estimate.

Read Also

 Photo: Canada Beef

Trump tariff on Brazilian goods could jack up U.S. burger price

U.S. President Donald Trump’s plan for a 50 per cent tariff on goods from Brazil will likely raise prices for the beef that is used in American hamburgers, traders and analysts said on Thursday, as food manufacturers increasingly rely on imports during a time of declining domestic production.

“Material and freight costs have exceeded our forecast for the year, due largely to inflation in U.S. steel prices and a tight market for logistics,” said chief financial officer Raj Kalathur.

In response to those increases, the Moline, Ill.-based company said it was carrying out structural cost cuts and price increases.

U.S. President Donald Trump’s tariffs on steel and aluminum imports have inflated raw material costs for U.S. manufacturers. Caterpillar last month warned that rising materials costs could squeeze profit margins in the coming quarter.

Deere expects full-year adjusted earnings to be $3.1 billion, higher than $2.85 billion forecast earlier. Net sales and revenues are expected to jump about 26 per cent from the previous year.

It sees a 30 per cent annual increase in full-year equipment sales.

Adjusted profit in the quarter ended April 29 came in at $3.14 per share, lower than analysts’ average estimate of $3.31 per share.

Freight costs were up as the company resorted to premium freight to address supply issues.

Deere’s sales in the first quarter were hemmed in by delays in shipping products to dealers and supply constraints, but the company on Friday said the supply situation has improved.

Deere has been battling tepid demand in North America, its biggest market, for the past four years as U.S. farm income has more than halved since 2013.

Replacement demand for an aging fleet continues to drive farm equipment sales in the region, the company said. But it trimmed its farm equipment sales growth forecast to 14 percent for 2018 as it expects U.S. net farm cash income to dip further this year.

That projection could change if a U.S. trade spat with China escalates, increasing trading costs for farmers who are already feeling squeezed by rising interest rates and high land prices.

In retaliation for U.S. President Donald Trump’s proposed crackdown on Chinese imports, Beijing has proposed duties on U.S. farm imports such as soybeans, wheat and corn.

— Reporting for Reuters by Rajesh Kumar Singh.

About the author

GFM Network News

GFM Network News

Glacier FarmMedia Feed

Glacier FarmMedia, a division of Glacier Media, is Canada's largest publisher of agricultural news in print and online.

explore

Stories from our other publications