Deere & Co. on Wednesday cut its earnings forecast for the year, after reporting third-quarter income that fell 15 percent on weaker sales of its iconic farm equipment.
Net income in the quarter that ended July 31 fell to $851 million, or $2.33 per share, from $996.5 million, or $2.56 per share, in the same year-ago period. Revenue dropped 5 percent to $9.5 billion.
Despite Deere’s lower third-quarter results, they still beat Wall Street’s expectations. Analysts had been expecting net income of $812 million, or $2.20 per share, on revenue of $8.72 billion.
Illinois-based Deere said worldwide net sales of equipment declined by 6 percent for the quarter. The biggest drop came from the U.S. and Canada.
The company said that while the agricultural economy remains in a “relative healthy state,” falling commodity prices are contributing to lower farm income. The decline, it said, has affected demand for large models of farm equipment.
Deere said industry sales of agricultural and farm machinery are expected to decline by 10 percent for the year in the U.S. and Canada, remain flat in Asia and fall by 5 percent in the European Union. Sales of tractors and combines are expected to fall by 15 percent in South America.
Based on that forecast, Deere now expects worldwide sales of its agriculture and turf equipment to decline by 10 percent, compared to 7 percent in its previous outlook.
Asked if the company thought the decline in agricultural sales would last multiple years, Deere said in a conference call with analysts that it was too early to say. The answer, it said, would largely depend on what happens to the crops planted next year and weather conditions worldwide.
The decline in sales of agricultural equipment is expected to be partially offset by a 10 percent increase in worldwide sales of construction and forestry equipment.
Deere said it now expects total revenue to decline by 6 percent in fiscal 2014, down from a previous forecast of 4 percent.
It now expects full-year net income of $3.1 billion. It had previously expected net income of $3.3 billion.
Allen said the company will be scaling back production to be in line with demand for agricultural products.
CFO Rajesh Kalathur said in a conference call with analysts that lower production will hurt overhead, especially for plants making large agricultural products.
Deere said it is also dealing with high records of used agricultural equipment. To help its dealers move that inventory, Deere said earlier this month it introduced a John Deere-certified pre-owned program for combines and tractors. It called the program a “game changer” in used equipment.
The company said the products will be backed by a one-year, 500-hour comprehensive manufacturer warranty.