Deere Raising Prices; Points to Freight, Material Costs

May 18, 2018 08:45 AM
 
Deere & Co says rising freight costs and higher prices for raw materials is forcing the equipment to raise prices.

(Bloomberg) -- Deere & Co. is planning to raise prices as the world’s biggest farm-machinery manufacturer is buffeted by rising costs for freight and raw materials.

Trucking costs have been climbing in recent months in the U.S. amid a shortage of big-rig drivers, and fuel is becoming more expensive. Walmart Inc. said Thursday that increased transportation costs will probably be a headwind for the next few quarters. Also hitting Deere and other manufacturers is the recent increase in the cost of steel and aluminum.

Rising expenses "are being addressed through a continued focus on structural cost reduction and future pricing actions," Chief Executive Officer Sam Allen said Friday in the company’s second-quarter earnings statement.

Deere’s shares dropped as much as 3.3 percent in early trading in New York before moving higher. The company posted disappointing earnings per share, but also raised its forecast for full-year earnings. Allen said demand for both Deere’s signature green-and-yellow tractors and the company’s construction machinery is increasing globally.

The CEO also said that said supply-chain bottlenecks, a problem in the preceding quarter, are now easing as the company works with suppliers to raise production levels.

In Deere’s agricultural-equipment segment, demand is being driven by farmers replacing tractors and combines. An expanding global economy is lifting sales of construction machines. These cycles usually see multiple years of growth before there’s a peak, and they’re gaining steam, said Matt Arnold, an analyst at Edward Jones & Co.

“It’s young,” Arnold said of the upward swing in agriculture machinery, before Deere reported earnings. “It will gain momentum.”

Deere posted net income per share of $3.67 the three months through April 29, up from $2.50 a year earlier. Excluding one-time tax-related adjustments, profit was $3.14 per share, trailing the $3.31 average of analysts’ estimates compiled by Bloomberg. The Moline, Illinois-based company said full-year net income, excluding one-time items, will be about $3.1 billion, compared with a previous projection of $2.85 billion. It also raised its projection for revenues from both agricultural and construction equipment. Shares of Deere rose 0.4 percent lower to $147.35 at 8:34 a.m. before the start of regular trading in New York.

 

Copyright 2018, Bloomberg

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