By Bianca Flowers
(Reuters) -Deere & Co, the world’s largest farm equipment maker, on Friday lowered its full-year profit outlook and said it has sold out of large tractors as it continues to grapple with parts shortages and high costs.
Deere has struggled to make enough tractors to meet strong demand from farmers and is paying premiums in freight to assembly machines depending on where it has parts available, executives at the company said.
Total costs and expenses rose 24.4% year over year, resulting in quarterly earnings missing expectations despite strong sales.
“Anytime we have to touch machines, or move them into factories more than once comes at a cost,” said Joshua Jepsen, deputy financial officer at Deere.
With tractors out of stock and booked ahead through early 2023, however, strong revenue growth may signal supply chain issues improving ahead of next year’s planting season.
“If the supply chain improved enough for them to beat revenue this quarter, although in a very inefficient manner, it means that there’s a good chance that the worst of the supply chain issue is behind them,” said Matt Arnold, an equity analyst at Edward Jones.
The industrial giant reported net income of $1.88 billion, or $6.16 per share for the quarter ended July 31, below analysts estimates of $6.69 per share, according to Refinitiv IBES data.
Commodity crop prices touched decade highs between April and June, encouraging spending by farmers on new equipment. Deere said it has responded with expedited shipping to get tractors and combines on dealer showroom floors.
Jerry Revich, head of Americas Machinery at Goldman Sachs, said Deere had resorted to air freight to deliver equipment.
Moline-based Deere revised its full-year net income guidance to between $7.0 billion and $7.2 billion, down from its previous outlook of $7.0 billion to $7.4 billion.
Sales of $13.0 billion beat analysts projections of $12.78 billion. Shares of the company were down 1.7% in morning trading, after tumbling as much as 7% in premarket.
(Reporting by Aishwarya Nair in Bengaluru and Bianca Flowers in Chicago; Editing by Krishna Chandra Eluri, David Holmes and Elaine Hardcastle)