What Will Lead To 13% Drop In Deere 2020 Revenues: Agriculture Or Construction Equipment?

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Deere & Company’s (NYSE:DE) Construction & Forestry Equipment segment has seen revenues grow from $5.9 billion in 2017 to $11.5 billion in 2019, though we expect the segment revenues to plunge 16% to $9.6 billion in 2020, as we detail in our interactive dashboard, Deere & Company Revenues: How Does DE Make Money?

The massive 94% surge in segment revenue can largely be attributed to the Wirtgen acquisition, and higher shipment volumes. The overall economic growth and robust U.S. housing market bolstered the segment growth. However, 2020 will be challenging for Deere’s Construction & Forestry Equipment segment, as it will be for several other industrial companies in this business. Construction activity is expected to be sluggish in 2020, due to the impact of COVID-19 in several states. In fact, March housing starts plunged 22% from a month earlier, and April is feared to see even worse trends. The current pandemic is also taking a toll on the economy, which is feared to go into recession. More than 20 million people in the U.S. have lost their jobs in April, marking the most rapid and largest decline ever (since 1939, when the government started collecting data). It should be noted that close to 1 million job losses came in for the construction sector, implying the weakness in the sector, and this will likely have a meaningful impact on Deere’s direct sales.

Beyond Construction & Forestry Equipment, the company’s Agriculture & Turf Equipment segment is also expected to take a hit in 2020, though the decline in segment sales will likely be lower, compared to the Construction & Forestry Equipment segment. Farmers currently face labor issues, volatility in crop prices, and logistics related concerns, which along with the broader economic slowdown will result in lower sales for Deere. Looking at farming, the expected decline in consumer spending will likely impact the agricultural produce pricing. Given the restrictions on movement of people, and social-distancing norms, restaurants buying has reduced, and significantly low oil prices have reduced demand for ethanol. As such, 2020 is going to be challenging for the farming industry as well, and impact Deere’s sales, as we detail in our interactive dashboard on Deere’s Revenues.

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Company Overview

Deere & Company, also commonly known as John Deere, is an agriculture and construction equipment manufacturer based out of Moline, Illinois. It also manufactures turf and forestry equipment and service parts for its products. Apart from its equipment manufacturing operations, Deere also has a financial services division that offers financing solutions for sales and leases of its products. Deere has an established global presence through its manufacturing plants, joint ventures, and dealers. The company is primarily responsible for supporting customers using machinery in infrastructure, agriculture, forestry, and building construction. Deere’s business model faces stiff challenges and competition from offerings by its global competitors such as Caterpillar, Volvo Group, and AGCO Corporation, among others.

Deere reported $39.3 billion in Total Revenues for full-year 2019. This includes 3 operating segments:

  • Agriculture & Turf Equipment : This segment primarily manufactures and distributes a full line of agriculture and turf equipment and related service parts, including: large, medium, and utility tractors, along with a broad line of associated implements and other outdoor power products.
  • Construction & Forestry Equipment : This segment primarily manufactures and distributes a broad range of machines and service parts used in construction, earthmoving, road building, material handling, and timber harvesting.
  • Financial Services : This segment primarily finances sales and leases by John Deere dealers of new and used agriculture and turf equipment as well as construction and forestry equipment.

Overall, all of the company’s segments are expected to face headwinds in the near term, though Construction & Forestry Equipment could be the worst hit, in our view. Additional details about how other components of Deere’s Revenues have changed over the years and are likely to trend going forward, along with comparison of the company’s top line with peers, Caterpillar and Eaton, are available in our interactive dashboard. Trefis estimates an outlier case of Deere’s falling to $90, in view of the current pandemic and its impact on businesses.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

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