John Deere to Raise Prices to Cover Increased Steel Costs

Deere & Co. is raising equipment prices this year to protect profit as costs rise.

The maker of farm and construction machinery said on Friday that profit was up 50% and equipment sales up 34% annually in its latest quarter, though both figures disappointed analysts. Deere’s shares rose 5.8% to close at $155.25, as investors appeared to focus on Deere’s strong outlook for sales growth this year, analysts said.

Rising expenses in recent quarters have weighed on Deere’s performance even as machinery demand picks up. Deere said Friday that it was still paying more for freight and materials.

Chairman and Chief Executive Samuel Allen said the company would cut costs and raise prices to protect profit.

Deere joined a host of U.S. manufacturers reporting rising expenses as a growing U.S. economy drives up prices for materials and shipping. Prices for steel and aluminum have been pushed up by U.S. tariffs on imported metal.

Deere executives said they had to pay more to get their shipments made early this year, pushing up transport costs. They said they would raise prices to reflect that and higher steel expenses as Deere begins taking orders on 2019 models later this year.

“We do expect the pricing we’re going to take for 2019 to be more than offsetting the inflation we’re seeing,” said Josh Jepsen, Deere’s director of investor relations.

The Moline, Ill., company now expects net income of about $2.3 billion for the year ending Oct. 31, up from its previous forecast of $2.1 billion. The company predicts overall sales of farm and construction equipment will increase by about 30% this year to $33.7 billion.

Deere forecast a 14% increase this year in sales of its iconic green and yellow farm machinery and landscaping equipment after several years of tough sales in its home market. U.S. farm incomes remain constrained by low commodity prices. Many farmers have been planting more soybeans in recent years to offset anemic corn prices.

But the market for U.S. soybeans has grown increasingly precarious in recent months as China’s government threatens to impose a tariff on U.S. bean exports in retaliation for U.S. tariffs on Chinese metal and other goods.

Sales of Deere’s farm and landscaping machinery rose 22% to $7 billion in the quarter that ended April 29, while profit from the business rose 5% to $ 1.1 billion. Deere expects sales for the construction unit to rise by 83% this year, aided by the addition of German road-paving equipment maker Wirtgen Group.

On an adjusted basis, Deere said it made $1.03 billion, or $3.14 a share, in the second quarter. Equipment sales were $9.7 billion. Analysts, though, were expecting the company to earn $3.31 a share on $9.8 billion in sales.

Source: Dow Jones

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