Deere sees some stability on farms in bruising trade fight

Deere & Co. had a surprisingly strong first quarter after an extended period in which the tractor and construction equipment maker was bruised by the ongoing trade war between the United States and China.

“Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports,” CEO John May said in a prepared statement Feb. 21.

China announced Feb. 21 that it suspended more punitive tariff s on imports of U.S. industrial goods in response to a truce in its trade war with Washington. Under their “Phase 1” agreement signed in January, Washington agreed to cancel additional tariff hikes and Beijing committed to buy more American farm exports.

Related: China suspends more penalties on U.S. goods after trade truce

China’s retaliatory tariffs have clobbered exports of soybeans and other commodities, hurting farmers, and in turn, farming equipment manufacturers.

The Trump administration has provided US$27 billion in aid to farmers to ease the pain of his trade war. And in a tweet Feb. 21, he promised to expand the bailout if farmers need it as they await the economic benefits of his recent trade deals with Mexico, Canada and China. He said the aid would be financed by revenue from his tariffs on foreign goods — taxes that are paid by American importers.

Deere, based in Moline, Illinois, has posted three consecutive quarters of falling profits and slowing sales growth with trade tensions between the world’s two largest economies ongoing.

And it stuck to a conservative outlook for the year.

Deere expects sales in its agriculture-and-turf business to fall between 5% and 10%, and a decline of between for those of the construction-and-forestry segment to fall 10% to 15%.

Like almost all multinational operators, Deere is navigation the virus outbreak in China that has spread elsewhere.

Catperpillar has included a $40 million cost increase to its supply lines, said Chief Financial Officer Ryan Campbell in a conference call Friday.

“When we think about kind of the impacts a and potential impacts of the coronavirus, there’s kind of two components that we’ve mentioned,” Campbell said. “One is direct exposure, our sales into the China market. Relatively small for our Ag & Turf business and for our traditional C&F business. Road building, though, has a bigger exposure there, so road building in China will tend to be 10% to 15% of their overall sales. So more of an impact there.”

For the three months ended Feb. 2, Deere & Co. earned $517 million, or $1.63 per share. The per-share earnings easily beat the $1.28 that industry analysts had expected, according to a survey by Zacks Investment Research, and it topped last year’s quarterly profit of $498 million, or $1.54 per share.

Adjusted revenue — which excludes financial services revenue — was $6.53 billion, also beating Wall Street’s estimate of $6.2 billion.

Shares of Deere & Co. jumped 8% Feb. 21.