The world's largest farm equipment maker John Deere has raised its profit forecast for fiscal year 2023. The company expects to sell 20% more machines this year and expects product prices to continue to support farmers' rejuvenation policies. The share price is also getting a big boost from it.
John Deere recorded a record profit of €6,83 billion. At the end of November, the company expected to sell between 15% and 20% more agricultural machinery and equipment for precision agriculture worldwide. In mid-February - during the presentation of the new quarterly figures - it turned out that this expectation was indeed correct and may be even higher.
Healthy demand for machines
In the first fiscal quarter, the green giant posted net income of $1,959 billion. Converted into euros, about 1,83 billion. Sales rose 32% during the period to $12,65 billion in revenue. A year ago that was $8,53 billion. According to CEO John May, the figure reflects the healthy market and demand for machines.
After the annual results were announced, the share price peaked in early December to $445,61, before continuing to stabilize at a stable level. The new figures resulted in the price on the New York Stock Exchange jumping from $404,24 to $433,31.
Deere & Company estimates it could generate annual revenue of $8,75 billion to $9,25 billion in fiscal year 2023. So that is €8,18 to €8,65 billion. There is a good chance that last year's financial record will be shattered. The company is once again stacking records. By the way, it is not the only machine manufacturer that does this. CNH Industrial and Agco Corp are also doing well. The net turnover figures are approximately a quarter higher than the year before.
Small farmer affected
The American machine manufacturer from Moline, Illinois, expects that prices for wheat, soybeans and grain corn will remain at a relatively high level this year. Not only because of the war in Ukraine, but also drought in the US and China and logistical problems. It is mainly the large agricultural companies that can benefit from this, as the company deduces from the sales figures. Small farmers actually buy fewer machines. It is the large companies that invest in machines. Higher prices for all inputs (fertilizer, seed, crop protection) put pressure on the farmer's balance sheet.
At the end of November, the company's order books were already largely full and the production capacity for the fourth quarter is now also full, as became apparent during the presentation of the financial figures. An advantage for the manufacturer is that the availability of parts has improved, CEO May announced, which has increased production capacity. The costs for many materials have also fallen.
Machine costs
Just as with the (usurious) profits of energy companies, fertilizer producers and other companies - which benefit from the global economic situation - agricultural entrepreneurs are probably also gritting their teeth at the enormous profit figures. Why? It is not uncommon for the cost of a new tractor or machine to have increased by 20% or more. Where just three decades ago 1.000 guilders per horsepower was the norm, today it has become €1.000. The pain is somewhat alleviated by the higher resale values.
In addition to the increased machine costs, the financing costs an increasingly important role. Leasing machines for 0%, or an amount close to that, is a thing of the past. This plays a role in Europe, but certainly also in North America.