Deere shares drop after company misses earnings, cuts outlook

© Reuters. FILE PHOTO: John Deere tractors are seen for sale at a dealer in Longmont, Colorado, U.S., February 21, 2017. REUTERS/Rick Wilking/File Photo

By Bianca Flowers and Aishwarya Nair

(Reuters) -Deere & Co on Friday revised its full-year profit outlook after missing Wall Street earnings expectations, as the world's largest farm equipment maker grappled with parts and semiconductor shortages stemming from supply chain constraints.

Shares of the company were down some 5% in premarket trade.

Elevated inflation, logistics bottlenecks and worsening global economic conditions have plagued production for industrial manufacturers, putting pressure on margins and curbing output.

"Our results reflected higher costs and production inefficiencies driven by the difficult supply-chain situation," said John May, chief executive of the company which also makes drivetrains and diesel engines.

Commodity crop prices touched decade highs between April and June, encouraging spending by farmers on new equipment. Yet Deere (NYSE:DE) has had trouble keeping up with demand as supply issues have still to stablize, analysts said.

"The supply chain issues may simply be keeping Deere from producing, a trend we have seen all year," Michael Shlisky, managing director at DA Davidson, said in an emailed note.

The Moline-based company 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.

It 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.

Sales of $13.0 billion beat analysts projections of $12.78 billion.

With order books full for 2023, annual revenue growth may signal that supply chain issues will start to abate 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.

Total net sales and revenue rose about 22% to $14.10 billion.