Supply chain snarls, Derry plunges deepest into inflation since 2008

(Bloomberg) – Deere & Co. The supply chain of the latest U.S. company, the world’s largest agricultural equipment maker, has slipped the most in 14 years after being hit by snags and rising inflation.

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After the company posted disappointing quarterly sales and the supply chain challenge will continue until the end of the year, the market capitalization fell 14% on Friday, clearing a record $ 15.7 billion. The ongoing chip shortage has prevented Deer from producing more tractors to meet customer demand, and constant problems with trucking and sea shipping have forced the company to use more expensive aircraft cargo to get key components to its plants.

Larry de Maria, an analyst at William Blair, said: “It’s amazing – Derry was seen as a relatively safe haven in a volatile market.” Now the company will be forced to rely more on increasing production in the second half “to achieve its goal in a supply chain challenge world,” he said.

Deere has become the latest U.S. corporate name to warn about the impact of inflation and supply chain problems. Walmart Inc., Target Corp. And Cisco Systems Inc. Their profit forecasts have dropped this week, shutting down sales across the stock market. The company added that it is suffering from high production costs as supply chain snags continue to plague manufacturers.

War and global weather challenges are pushing U.S. farmers to prepare for another year of profits as the 2021 crop price rally expands, hampering sales. At the same time, Russia’s aggression in Ukraine has increased fuel and fertilizer costs, threatening to limit farmers’ ability to spend. The increase in diesel prices means that some farmers are paying twice as much as a year ago to fill their tractors. The prices of herbicides, pesticides and nitrogen fertilizers are also increasing.

Stephen Volkman, an analyst at Jefferies, said over the phone, “The problem is more in the vicinity of supply chain constraints.” “The good news is that they can sell what they make, but the bad news is that they are limited in what they can do.”

Deere forecasts net income of 22 7 billion to $ 7.4 billion in 2022, with analysts estimating the average at $ 6.99 billion and the previous range from $ 6.7 billion to $ 7.1 billion. The agency also cited obstacles to Russia’s aggression in Ukraine. It told investors in March that it had stopped shipping its equipment to Russia.

In its earnings call, company executives say they have not seen a drop in demand for large farm machinery and expect strong agricultural demand in 2023.

Matt Arnold, an analyst at Edward Jones, says, “This is definitely not a market for an earnings miss release.” The selloff is “an overwhelming response that creates a buying opportunity,” he said. “Demand remains very strong, and earnings are finally going to reflect that strength.”

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