Mon, 04 Jul 2022

Supply chain issues hit Deere's revenue, shares plunge

Robert Besser
25 May 2022, 14:16 GMT+10

MOLINE, Illinois: After missing Wall Street revenue targets, Deere and Co. said it was having difficulty securing parts for its heavy machinery, causing shares at one stage to drop 14 percent.

While the company delivered a strong profit forecast for the full year, many sales of its machines were placed on hold because of supply-chain issues.

Deere was predicted to record net sales of $13.2 billion, but revenue was only $12.02 billion, some 9 percent below analysts' forecasts, indicating that raw material shortages, compounded by inflationary pressures, are taking their toll.

"I do think the Street was thinking this could happen because expectations were elevated, quite frankly. Their guidance for the full year tells you that they think things are going to improve," said Stephen Volkmann at Jefferies, as reported by Reuters.

In a conference call, executives at Deere told analysts that supply chain problems will last throughout 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," noted Ryan Campbell, chief financial officer at Deere.

The company's net income was $2.09 billion or $6.81 per share for the quarter ending 1st May, greater than the earlier estimate of $6.71 per share.

Unlike other industrials in which supply constraints have been a consistent pain point for top-line growth, Deere's stock performance has mainly been above the general market's.

In the U.S., farmers' net incomes have remained relatively high, despite higher input costs hitting their profits, which is a bright spot for equipment sales, and company executives believe aging machinery will encourage farmers to upgrade their fleets.

"They have navigated the pandemic and post-pandemic supply chain pretty well, up until this point," said Jerry Revich, analyst at Goldman Sachs, said, according to Reuters.

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