By Joe Cahill, Crain News Service
MOLINE, Ill. (Dec. 3, 2014) — Deere & Co. has replaced Caterpillar Inc. as the industrial stock that keeps investors up at night.
The Moline-based farm equipment manufacturer rattled Wall Street with a Nov. 26 prediction that sales would fall 15 percent in fiscal 2015, which began Nov. 1. That's a lot worse than the 5-percent decline it reported for fiscal 2014. Deere shares fell almost 1 percent on the news and were down 4.7 percent for the year through Nov. 26.
The cause is familiar to anyone who has followed Deere for a while: “Lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery, especially for larger models,” Deere said in its earnings report.
Deere's sales have risen and fallen with farm incomes since the company's founding in 1837 by an entrepreneurial blacksmith. In the most recent upcycle, sales surged 45 percent between 2010 and 2013 as global demand lifted prices for corn and other crops. With prices cycling down again, Deere's sales naturally are heading lower, too.
A sharp sales drop like the one expected in 2015 can divert attention from the longer-term trend, which matters most for a company like Deere. Even if sales do fall to about $30 billion, they'd still be 50 percent above the $20 billion Deere posted 10 years ago.