In another attempt to scale back its agricultural equipment
production in the wake of weak market demand for agricultural
Deere & Company
) announced its plans to retrench 460 employees at its Waterloo, IA
operations, scheduled on Oct 20, 2014. Shares of Deere slipped 1.7%
following the news.
This news comes on the heels of Deere's announcement a week ago of
laying off over 600 factory employees at four of its plants. The
locations concerned include John Deere Harvester Works, East
Moline, Ill.; John Deere Seeding and Cylinder, Moline, Ill.; John
Deere Des Moines Works, Ankeny, IA; and John Deere Coffeyville,
None of these however come as a surprise as Deere, during its
third-quarter earnings call on Aug 14, had stated its intentions to
cut back on agricultural equipment production in the ensuing
In order to remain competitive, Deere continuously strives to align
the size of its manufacturing workforce with market demand for
products. In the recent past, Deere hired several manufacturing
employees to meet increased demand for products manufactured in its
Midwest U.S. factories. Thus, the current weak demand calls for
production cut down across several plants. In July this year, Deere
informed employees at its Ankeny facility of an extended shutdown.
Further, Deere has implemented a seasonal shutdown at the John
Deere Ottumwa Works, Ottumwa, IA.
Notably, news of these layoffs follows Deere's lackluster earnings.
The company reported a decline in both its top and bottom line for
the third quarter of fiscal 2014 (ended Jul 31, 2014). Lower
shipment volumes, higher production costs primarily related to
engine-emission requirements and unfavorable effects of
foreign-currency exchange partially offset benefits from price
Meanwhile, Deere provided a bearish outlook for fiscal 2014,
expecting equipment sales to decrease around 8% year over year in
the fourth quarter of fiscal 2014 and full-year sales to drop 6%.
Deere also lowered its net income projection to $3.1 billion from
$3.3 billion in fiscal 2014.
Given the increased global demand for food, shelter and
infrastructure, we believe that the long-term outlook for Deere
remains strong. Meanwhile, in the near term, even though net farm
income remains at high levels, farmer sentiments regarding capital
goods purchases are becoming more conservative due to lower
Deere will nevertheless benefit from recovery in the construction
sector and stabilization in the European economy. Furthermore,
banking on its strong balance sheet, the company has the leverage
to hike dividends and execute share repurchases.
Moline, IL-based Deere is engaged in the production and
distribution of agricultural and forestry equipment, construction
equipment and engines worldwide. The company sells products in the
U.S. and Canada through branch offices as well as through
distributors and operates through dealers to resell products
Deere currently holds a Zacks Rank #3 (Hold). Some better-ranked
stocks in the sector include ACCO Brands Corporation (
), AO Smith Corp. (
) and ARC Document Solutions, Inc. (
). All of these carry a Zacks Rank #2 (Buy).
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