Deere's supply chain issues hit revenue, shares plunge
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[May 21, 2022] By
Bianca Flowers and Aishwarya Nair
(Reuters) -Deere & Co on Friday missed Wall
Street revenue targets and said it was having difficulty securing parts
for its heavy machinery, sending shares down 14%.
Deere gave a strong profit forecast for the full year that was
overshadowed by comments that many of the machines it intended to sell
were on hold because of supply-chain issues.
The company had only missed sales expectations once in the previous 10
quarters. It was expected the agricultural equipment maker would post
net sales of $13.2 billion, but revenue came in at $12.02 billion.
Although the machinery giant has weathered the storm of supply-chain
bottlenecks, revenue nearly 9% below analysts consensus suggest that raw
material shortages, compounded by inflationary pressures, are starting
to take their toll.
"I do think the Street was thinking this could happen because
expectations were elevated, quite frankly," said Stephen Volkmann,
senior machinery analyst at Jefferies. "Their guidance for the full year
tells you that they think things are going to improve."
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Shares fell 14%, trading at $311.84.
Company executives told analysts on a conference call that supply chain
snafus will last through the year.
"Given the strong fundamentals in agriculture, coupled with the
underlying supply constraints, we do not see the industry being able to
meet all of the demand that exists in 2022," said Ryan Campbell, chief
financial officer.
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![](../images/052122pics/busine5.jpg)
Equipment for sale is seen at a John Deere dealer in Denver,
Colorado, U.S. May 14, 2015. REUTERS/Rick Wilking/File Photo
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Deere's net income was $2.09 billion or $6.81 per share for the quarter ended
May 1, slightly beating the Refinitiv-IBES consensus estimate of $6.71 per
share.
Prior to earnings, the manufacturer's stock performance has largely outpaced the
general market, unlike other industrials where supply constraints have been a
consistent pain point for top-line growth.
The company continues to be bullish on its suite of precision ag technologies
with sales up 13% year-over year, yet revenue still fell below analysts
expectations.
Higher input costs have pinched farmers' profits, but net income for farmers
remains relatively strong, which is a bright spot for equipment sales. Sentiment
for tractors and small ag sales is positive, and company executives believe
aging machinery will encourage farmers to upgrade their fleet.
"They've navigated the pandemic and post-pandemic supply chain pretty well up
until this point," said Jerry Revich, an analyst at Goldman Sachs. "The fact
that they have over a billion dollars of inventory in-house does suggest they
have some level of visibility on ramping up production, so we'll see if they can
execute."
(Reporting by Aishwarya Nair in Bengaluru; Editing by Krishna Chandra Eluri,
Alexander Smith and Nick Zieminski)
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