(Bloomberg) – Deere & Co. slipped the most in 14 years after the world’s largest farm equipment maker was the last major U.S. company battered by supply chain issues and rising inflation.
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Shares fell 14% on Friday, wiping out a record market capitalization of $15.7 billion after the company posted disappointing quarterly sales and said supply chain challenges will persist through the end of the year. Continued chip shortages prevent Deere from producing more tractors to meet customer needs, and ongoing problems with trucking and ocean shipments have forced the company to use more expensive air freight to get key components to its factories. .
“Very surprising – Deere was seen as a relative safe haven in a volatile market,” said William Blair analyst Larry De Maria. Going forward, the company will be forced to rely more heavily on ramping up production in the second half “in a world where the supply chain is challenged to meet its targets,” he said.
Deere has become the latest major US company to warn of the effects of inflation and supply chain issues. Walmart Inc., Target Corp. and Cisco Systems Inc. cut their earnings forecasts this week, prompting a sell-off in the stock market. The company also said it was suffering from higher production costs as supply chain issues continued to plague the manufacturer.
Disruptions are hampering sales just as U.S. farmers are poised for another year of profits as war and global weather challenges have prolonged higher prices for 2021 crops. Russia’s invasion of Ukraine has increased the cost of fuel and fertilizers, threatening to limit farmers’ purchasing power. Soaring diesel prices mean some farmers are paying twice as much as a year ago to refuel their tractors. The costs of weed killers, insecticides and nitrogen fertilizers are also skyrocketing.
“The issue is more about supply chain constraints,” Jefferies analyst Stephen Volkmann said over the phone. “The good news is that they can sell anything they can do, but the bad news is that they are limited on what they can do.”
Deere forecasts 2022 net income of between $7 billion and $7.4 billion, above analysts’ average estimate of $6.99 billion and above a previous range of $6.7 billion to $7. .1 billion. The company also cited writedowns related to the Russian invasion of Ukraine. It told investors in March that it had halted shipments of its equipment to Russia.
On its earnings call, company executives said they hadn’t seen demand for large farm machinery cool down and expect strong agricultural demand through 2023.
“This is definitely not a market to post a shortfall,” said Edward Jones analyst Matt Arnold. The selloff “was an overreaction that creates a buying opportunity,” he said. “Demand remains very strong and earnings will eventually reflect that strength.”
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