Deere & Company (DE, Financial), the world's largest agricultural machinery manufacturer, announced its fourth-quarter financial results. Revenue fell 27.7% year-over-year to $11.14 billion, surpassing market expectations. Earnings per share were $4.55, higher than the anticipated $3.93. However, the company forecasts lower profits for the next year, citing declining farmer income and inflation pressures affecting demand for tractors and other agricultural equipment.
Over the past two years, the industry's sales have declined from their 2022 peak when the Russia-Ukraine conflict caused a surge in crop prices, giving farmers more purchasing power for equipment. Concerns over supply chain issues and increased demand led dealers to significantly boost inventories last year, which in turn supported Deere's sales. Deere primarily sells agricultural and construction equipment through independent and franchised dealers.
Recently, skeptical dealers have slowed inventory replenishment due to weakening demand. Declining agricultural income, high interest rates, and uncertain economic conditions have forced farmers to reassess large expenditures on machinery, prompting dealers to limit inventory restocking. Deere is striving to adapt to the weak demand environment, which led to a reduction in its performance guidance in May, followed by plans for layoffs to better align production with demand.
Corn and soybean prices are hovering near four-year lows, and U.S. agricultural profits are expected to decline for the second consecutive year in 2024. The U.S. Department of Agriculture estimates that net farm income will reach $140 billion this year, down 4.4%, or $6.5 billion, from the previous year. Net farm income is a broad measure of agricultural economic profitability.
Deere projected its fiscal 2025 net income to be between $5 billion and $5.5 billion, below analysts' expectations of $5.83 billion and the approximately $7 billion for the recently concluded 2024 fiscal year. By 2025, Deere expects net sales in its machinery operations to decrease by about 10% to 15%.
Deere's results conclude a bleak quarter for the industry. Competitors CNH Industrial (CNH) and AGCO Corporation (AGCO) also lowered their sales forecasts earlier this month due to underperforming results.
