Deere eyes cost cuts to defend margins squeezed by farm pain
Deere & Co. isn’t selling as many tractors these days, with trade wars raging and crop prices near multi-year lows. Since many of its farmer customers aren’t buying, the company is now looking for ways to save.
The Moline, Illinois-based company said Friday it’s conducting a thorough assessment of its cost structure and taking actions to be more “nimble and efficient.”
Steps include boosting organizational efficiency through a footprint assessment. The company is also looking to make investments “with the most opportunity for differentiation,” including precision agriculture. It’s aiming for a 15% structural operating profit by 2022.
Executives said the company had already taken some measures in the third quarter, and was contemplating some for the fourth. All in all, these total just $25 million. More details will come in the fourth quarter call, executives said.
The reductions could be more long-term structural changes to adjust to current market dynamics, which could take years, said Chris Ciolino, an analyst at Bloomberg Intelligence.
Operating profit in the company’s biggest money-making segment, agriculture machinery, fell 24% from a year ago. Higher production costs was one of the culprits, along with lower shipment volumes. Deere is also forecasting slightly higher costs as a percentage of net sales for its equipment operations – about 77% compared with 76% previously.
With assistance from Karen Lin.