Deere warns of lower profits in 2020 on lingering trade tensions

 Deere & Co. (DE.N) on Wednesday warned of lower earnings next year after reporting a fall in quarterly profits, hurt by trade tensions as well as poor weather in the U.S. farm belt that has slowed equipment purchases by farmers.

The profit warning sent the company’s shares sinking 4.6% in premarket trading.

The world’s largest farm equipment maker expects net income of $ 2.7 billion to $ 3.1 billion next year, lower than $ 3.25 billion in 2019. The forecast is lower than Refinitiv’s average analyst estimate of $ 3.5 billion for 2020.

“Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment,” said new Chief Executive John May.

The Moline, Illinois-based company said it had undertaken a series of measures to manage costs. While it did not share the details of those measures, its research and development and selling, administrative, and general expenses are projected to decline next year.

Capital expenditure is also forecast to be lower in 2020.

Deere gets a little over half of its revenue from the United States. Sales have taken a hit in the wake of the U.S.-China trade war that has dented U.S. agricultural exports, leaving farmers struggling to turn a profit.

The U.S. Agriculture Department estimates that principal crop cash receipts, an important indicator for equipment demand, in 2019 will hit the lowest level in at least eight years. A sharp decline in U.S. corn exports and President Donald Trump’s ethanol policy have further pressured farm incomes.

Poor weather, meanwhile, has delayed the harvest in the U.S. grain belt.

In response to the weak equipment demand, Deere has cut production and laid off workers.

It expects global agriculture and turf equipment sales to decline 5% to 10% next year. Industry sales of farm equipment in the U.S. and Canada are forecast to decline about 5% decline on the back of lower demand for large equipment.

Sales of Deere’s construction and forestry machines are projected to be down 10% to 15% in 2020.

It reported an adjusted profit of $ 2.14 per share in the latest quarter, down from $ 2.30 per share last year.

Equipment sales were up in the quarter from a year ago. But profit from those sales declined due to higher operating expenses.

Operating-lease losses resulted in lower quarterly profits at the financial services division.