CNH Industrial cut its annual profit forecast on Thursday, squeezed by slowing demand for its tractors and farm equipment as choppy crop prices and higher borrowing costs hinder farmers from making big-ticket farming purchases.
Global crop prices have moderated while farm incomes have dwindled, setting up for a murky demand backdrop for the agriculture equipment sector as farmers pull back on big purchases such as tractors and combines.
A surge in demand for agriculture equipment early last year had also seen machinery dealers bulk up on inventories, but that trend is now set to reverse as dealers look to tighten their stocks, which translates to lower margins for equipment makers like CNH.
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While strong infrastructure spending in the United States was expected to prop up construction equipment demand, softer trends in other global markets like China have hurt machinery makers.
CNH’s larger rival Caterpillar last week forecast glum current-quarter sales, hurt by weak construction equipment sales in all regions but North America.
At CNH, sales of agriculture equipment, which make up close to 75 per cent of overall revenues, fell 14 per cent to $3.37 billion in the first quarter ended March 31, while construction equipment, which typically accounts for around 16 per cent of sales, reported a drop of 11 per cent to $758 million.
CNH now expects full-year adjusted profit between $1.45 and $1.55 per share, compared with the previously estimated range of $1.50 to $1.60 per share.
It also projected an 11 per cent to 15 per cent drop in agriculture segment sales for the year, steeper than the previously expected eight per cent to 12 per cent drop.
Still, higher prices helped CNH top market expectations for quarterly sales and profit, sending its shares up about two per cent in premarket trading. Its adjusted per-share profit of 33 cents beat expectations of 26 cents, according to LSEG data.
—Reporting for Reuters by Deborah Sophia in Bengaluru
