Deere Aggressively Managing Inventories

CHELSEA, Ala. (DTN) -- While Deere & Company last week reported sharply lower sales and revenue at the end of its third quarter, Deere stock turned upward over the last two days of the week, perhaps in recognition of the company's focus on reducing costs and balancing its new and used inventory with reduced demand.

On Thursday, Deere reported net sales and revenue for its third quarter (ending July 28, 2024) were down 17%, or $13.15 billion in the quarter just ended compared to $15.8 billion at the end of its third quarter in 2023.

Deere's net income was down 42%, third quarter 2024 compared to the same quarter last year. For the first nine months of this year, Deere reported its net income is down 25% compared to the same nine months in 2023. All of this is the result of soft sales. For example, early orders for planters and sprayers are off by double-digit percentages.

Deere's third-quarter results for production and precision agriculture sales were similarly off. Net production and precision ag sales were down 25% from the third quarter of 2023. Deere reported its ag operating profit was down 35% in the quarter just ended, compared to the third quarter 2023.

Still, with those results, Deere apparently beat market expectations. The result shows in stock prices that closed up more than 20 points Thursday and were up slightly on Friday near the market's close.

Deere's plans for the current down business cycle in agricultural equipment include two main features.

One is cost control, a measure that hit its workforce particularly hard. Deere in recent months has laid off more than 2,000 hourly employees. In an action last month, Deere reduced its salaried workforce by a percentage it says is in the "mid-single-digits." Deere has not released exact numbers, but says the program will cost about $150 million.

"When we started to see some demand soften, we went back to prior periods where we saw the industry began to cycle downward or soften," Deere CEO John May told analysts in an earnings call. "We saw a lot of mistakes that we made, and frankly, the industry made as well. We decided this time we were going to control what we can control. We were going to act with speed, action, and tight collaboration with our dealer channel. And that's all about taking out inventories, underproducing retail demand. It's all about taking out excess costs and restructuring the business to function in a much leaner environment. In the past, that might have taken us two (or) two-and-a-half years to react. (Now) we reacted in the first quarter."

Of the layoffs, May said it was a difficult action, "But it was the right thing to do." He added that the employee reductions, "help us maintain our competitiveness through the business cycle."

Deere is managing inventory by underproducing the market for new equipment. Underproducing the market is one tactic -- Deere calls it an "aggressive tactic" -- to balance supply and demand.

Another tactic is incentives. In a recent meeting with dealers, Deere offered support for efforts to move used equipment off their lots. It is a program that gives dealers the ability to shift dollars earned from new sales to be used as incentives on used equipment, Deere explained.

Deere also is announcing plans -- at a faster pace than it ever has, it said -- to closely manage its production lines, a result it said will be apparent in the fourth quarter of 2024. For example, Deere will limit production of its 8 series tractors at its Waterloo, Iowa, plant to 50% of normal production days.

Deere expects the year-end result of production and inventory management efforts will see less than one row-crop tractor per dealer location, on average.

Deere did tell market watchers it is happy with the result of its first-year rollout of See & Spray Ultimate (green-on-green weed treatment) and Premium (retrofit) systems.

Some producers are buying a lot of acres, others are doing their own trials. But Deere said it is getting good feedback about the technology and efficacy, with some farmers reporting up to a 50% reduction in herbicide applications with See & Spray Premium.

Dan Miller can be reached at dan.miller@dtn.com

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