Reuters/Jonathan Ernst
- John Deere, the farming equipment manufacturer, sank after announcing its projected net income would be lower than analysts expected.
- Deere fell 5.3% in opening trading, after its CEO cited the trade war as one of the main reasons for the fall in income, saying that "lingering trade tensions" were causing uncertainty among farmers.
- Last month new data revealed that farming bankruptcies were at their highest point since 2011.
- View Business Insider's homepage for more stories.
John Deere, the farming equipment manufacturer, is plunging after announcing that its projected net income will be lower than analysts expected after orders for new equipment plunged due to the trade war.
Deere's stock fell 5.3% in opening trading at 9:30 a.m. in New York, after saying its full-year fiscal 2020 forecast would be $2.7 billion to $3.1 billion, compared to the $3.46 billion average analyst estimate collected by Bloomberg.
The fall wiped roughly $3 billion from Deere's market cap of $55.62 billion at Tuesday's close after the stock rallied just shy of 20% since the start of the year.
In its fiscal fourth-quarter earnings statement, CEO John May said that the lowered outlook "reflected continued uncertainties in the agricultural sector," led by "lingering trade tensions coupled with a year of difficult growing and harvesting conditions."
May added that this caused farmers to become "cautious about making major investments in new equipment."
Deere also had a negative outlook for 2020 in both agriculture and turf, and construction and forestry segments. Agriculture and turf sales are expected to decline 5-10%, while construction and forestry is expected to fall 10-15%.
"At the same time, general economic conditions have remained favorable. This has supported demand for smaller equipment and led to solid results for Deere's construction and forestry business, which had a record year for sales and operating profit," May said in the statement.
Deere reported net income of $2.27 per share for the quarter, compared with $2.42 per share in the same period last year.
Farmers in the last year have been plagued by tariffs damaging orders for American agricultural goods. Just last month, data from the American Farm Bureau Federation showed that farm bankruptcies are at their highest level since 2011.
Soybean farmers have been particularly affected, mainly due to the crop being one of the largest export sectors from the US to China.
For Trump's reelection campaign, farming support is expected to play a crucial part, given that many farmers are located in areas that could swing the election.
Earlier this week, a new study showed that Trump's trade war cost seats for the Republicans in Congress in 2018. The Trump administration has also given billions in payouts to farmers to counter the effects of the trade war. However, the study showed that the payouts allocated before the elections had little effect on votes because the money went to areas that were already strongly Republican.
