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Deere Turns to Costs After Agriculture Operating Profits Slammed

Aug. 16, 2019
Deere & Co. said Friday it’s conducting a thorough assessment of its cost structure and taking actions to be more structurally profitable and efficient.

Deere & Co. isn’t selling as many tractors these days, with trade wars raging and crop prices near multi-year lows. Since many of its farmer customers aren’t buying, it’s looking for ways to save.

The Moline, Illinois-based company said Friday it’s conducting a thorough assessment of its cost structure and taking actions to be more structurally profitable and efficient. What measures those are exactly will be a focus for investors in a call to discuss financial results at 10 a.m. New York time.

Operating profit in the company’s biggest money-making segment, agriculture machinery, fell 24% from a year ago. Higher production costs was one of the culprits, along with lower shipment volumes. Deere is also forecasting slightly higher costs as a percentage of net sales for its equipment operations -- about 77% compared with 76% previously.

That’s in contrast with smaller peer, AGCO Corp., which last month said it secured lower steel costs that widened margins and helped it beat earnings estimates.

There isn’t much in Deere’s near-term outlooks to cheer about. North American agriculture machinery sales for the industry was revised to flat, from flat to up 5% last quarter. Its expectation for fiscal 2019 U.S. economic growth -- an indicator for its construction and forestry segment -- was revised to flat, while just last quarter, it expected an acceleration.

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