Farmers facing high interest rates and weaker crop prices are leaning more towards renting rather than buying machinery, hitting sales of big-ticket equipment such as tractors and combines.

Deere was able to cushion the blow from softer demand and keep its margins steady by lowering production and warranty-related expenses.

Tariffs imposed by U.S. President Donald Trump have added to production costs and led to uncertainty for large industrial firms in international markets.

The company would continue to make “significant investments” in its core U.S. market, Deere said.

Peer CNH Industrial slashed its annual profit forecast earlier this month, citing a hit from lower shipments due to cooling demand and dealer destocking.

Deere and CNH struggled to keep pace with strong tractor demand in 2022, when farm income hit a record high and pandemic assistance payments gave farmers extra money to upgrade their fleets.

The world’s largest agricultural-equipment maker expects its annual net income to now be between $4.75 billion and $5.5 billion, compared to its prior forecast of $5 billion to $5.5 billion.

Its revenue for the second quarter fell about 18 per cent to $11.17 billion from last year, compared to analysts’ estimate of about $10.8 billion, according to data compiled by LSEG.

Quarterly net income fell to $1.8 billion or $6.64 per share, compared with $2.37 billion or $8.53 per share a year ago. Analysts on average had expected the company to report a profit of $5.58 per share.

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Nickolas most recently served as CFO at construction material firm Martin Marietta and spent about a decade at construction equipment maker Caterpillar.

Outgoing CFO Incisa has worked with CNH and the former Fiat Group for nearly three decades.

CNH said Incisa and Nickolas will work side by side through April to ensure a seamless transition. Nickolas will take on full responsibility as CFO on May 6.

—Reporting by Nathan Gomes in Bengaluru

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The Basildon, UK-based company expects 2025 adjusted earnings to be in the range of 65 cents to 75 cents per share, missing analysts’ estimates of 85 cents per share, according to data compiled by LSEG.

The company said it continues to produce fewer units than the retail demand to reduce elevated inventory levels at its dealers. CNH exited its third quarter with $1 billion to $1.5 billion in excess dealer inventories, it said in its previous earnings call.

It expects sales in its agriculture segment to be down between 13 and 18 per cent year-over-year, while sales in the construction segment is expected to fall between 5 and 10 per cent.

The forecast comes days after peers Deere DE.N and AGCO AGCO.N released their full-year forecasts, which also failed to impress Wall Street.

Farm equipment demand remains subdued due to falling farm incomes globally, forcing farmers to rethink their big-ticket purchases, leading to higher inventories at dealerships and moderation in restocking efforts.

CNH, famous for its Case IH and New Holland brand of tractors, reported quarterly net sales of $4.88 billion, down 28% from the same period last year, but beats analysts’ estimates of $4.51 billion.

The company, formed through the merger of Fiat Industrial and CNH Global in 2013, reported quarterly adjusted profit of 15 cents per share, missing estimates of 18 cents per share.

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A sharp drop in crop prices coupled with rising production costs have lowered farm incomes around the world, forcing farmers to rethink purchasing heavy equipment, thus setting a gloomy demand environment for agriculture equipment makers.

CNH now expects its full-year adjusted profit to be in a range of $1.30 to $1.40 per share, compared with $1.45 to $1.55 per share previously.

The Basildon, UK-based company now expects its agriculture segment net sales to be down between 15 per cent and 20 per cent year-over-year, compared with a fall of 11 per cent to 15 per cent expected previously.

“Our view is that the current down-cycle is likely to extend into 2025 given the current commodities backdrop and the impact on farmer economics globally,” Oppenheimer analyst Kristen Owen said.

U.S. farmer income, a broad measure for farm profitability, is expected to fall about 25 per cent to $116 billion, from $156 billion in 2023.

Still, robust pricing and job cut initiatives undertaken by the company have helped it top revenue estimates in the quarter even as demand remains subdued in an industry-wide downturn.

The company reported a 16 per cent fall in second-quarter revenue to $5.49 billion, but beat analysts’ estimates of $5.32 billion, according to LSEG data.

Shares of the company were up 2.1 per cent in morning trade.

On an adjusted basis, the company earned 38 cents per share, slightly above analysts’ estimates of 37 cents.

“We will continue to manage the business prudently through 2024 while positioning ourselves for 2025,” CEO Gerrit Marx, who took over CNH’s helm on July 1, said in a statement.

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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.

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

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The announcement comes as heavy machinery manufacturers, including Deere and Agco, set their sights on the electric vehicle market as the U.S. agriculture industry shifts to smart farming.

The agreement with Monarch Tractor is the first manufacturing contract Foxconn, best known for assembling Apple’s iPhone, has entered since purchasing the Ohio facility that was formerly a General Motors assembly plant last year.

Production for Monarch’s battery powered MK-V series tractor is scheduled to begin in the first quarter of 2023, said Foxconn, formally known as Hon Hai Technology Group.

Monarch, which is based in Silicon Valley, debuted its first pilot series, autonomous electric tractor to a select group of farmers last year. The company has since entered into a multi-year licensing agreement with Italian-American vehicle manufacturer CNH Industrial.

CNH Industrial has a minority stake in Monarch Tractor.

With competition brewing among farm equipment manufacturers to expand product lines in precision agriculture technology and autonomous machinery, Monarch CEO Praveen Penmetsa told Reuters that the company’s business model to target smaller farmers gives them unique opportunity to increase the marketshare while being on the same playing field with bigger manufacturers.

“Their technology is focused on the large farm operations and commodity crops. Fruits and vegetable farmers use much smaller tractors so we are focused on smaller farmers — that differentiates us a lot,” Penmetsa said.

The company did not disclose the cost of the tractor but said the autonomous software will be sold separately and that farmers will have to pay a monthly fee to access the services.

— Bianca Flowers is a U.S. manufacturing sector correspondent for Reuters.

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“Whether we face a global recession in 2023 is up for debate, but we are preparing for this eventuality,” Chief Executive Scott Wine told analysts in a post-earnings call.

The Italian-American company, whose brands include Case IH, Steyr and New Holland, said adjusted earnings before interest and tax (EBIT) from industrial activities reached $654 million in the April-June period, topping a $605 million forecast in an analyst poll compiled by Reuters.

“Pricing, volumes and favourable mix offset significant cost escalation,” Wine said.

He cautioned about “a decidedly less advantageous climate for the next several quarters” but said the group expected to meet its full-year forecast for an increase in its net sales from industrial activities of between 10-14 percent and for a free cash flow of more than $1 billion.

By 1520 GMT Milan-listed shares in the group were up 5.6 percent, among the best performers within Italy’s blue chip index .FTMIB.

Wine cited the strong U.S. dollar impacting soft commodity prices, with potential further deterioration in farmer sentiment and income, and a possible decline of European industrial demand due to the war in Ukraine, energy risks and inflation.

However, he added, there were hints the supply chain crunch was easing.

“Raw material, labour, and freight cost escalations are sadly familiar to us, but we are finally starting to see signs of their impact diminishing,” he said.

Wine also said CNH had closed this week the sale of Aerostar, the aerospace and defence solutions business of its U.S. unit Raven.

In a separate statement, Maryland-based TCOM Holdings later on Friday announced the purchase of Aerostar.

Financial details of the transaction were not disclosed.

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CNH Industrial, owner of the Case IH and New Holland brands, announced May 23 it has bought Specialty Enterprises, which is billed as North America’s biggest maker of aluminum spray booms for farm applications as well as boom accessories such as cradles, swing arms, transoms and bracketry.

Specialty, which has one plant at Wautoma, about 130 km southwest of Green Bay, has been a supplier to Case IH since 2020, CNH said. Financial terms of the deal weren’t disclosed.

“The direct ownership of spray boom production is the latest step in Case IH’s strategic road map for its sprayer product platform,” CNH said, and the use of “longer, lighter” booms has allowed for “accelerated development and deployment” of new technologies.

Aluminum spray booms are up to 50 per cent lighter than their steel counterparts, CNH said, making for better weight distribution and less field compaction and rutting.

Specialty, which started in 1987 as a welding and fabrication job shop, tacked to specialize in sprayer boom manufacturing by 2010, designing the Legacy line and, in 2015, the “ultra-durable” Millennium line of booms used by manufacturers including Deere, Agco, Hagie and Buhler Versatile, among others.

Specialty’s sprayer boom design incorporates multiple patents to “virtually eliminate” the fatigue cracking associated with other aluminum boom designs, CNH said, noting the aluminum used in Specialty products is both sourced and extruded in the U.S. — Glacier FarmMedia Network

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The deal marks a further step in efforts by the Italian-American vehicle maker to bolster its agricultural businesses, while preparing to spin-off its lower-margin truck, bus and engine operations.

CNH Industrial, which already owns a minority stake in Silicon Valley-based Monarch Tractor, said in a statement that electrification and machine automation were key elements of its strategy to become an even stronger technology leader in agriculture.

“We are confident that the new pathways provided by Monarch will rapidly strengthen our competitive position in sustainable precision farming,” Chief Executive Scott Wine said.

No financial details of the agreement were provided.

Earlier this year CNH Industrial – the world’s second largest agricultural equipment maker after John Deere, operating under the New Holland, Case IH and Steyr brands – struck a $2.1 billion deal to buy Raven Industries to bolster its precision agriculture and autonomy operations.

The agreement is based on the launch of a scalable, modular electrification platform for low horsepower tractors, that will be developed across multiple product families in the coming years, CNH Industrial said in a statement.

“This agreement also furthers CNH Industrial’s ongoing commitment to decarbonizing agriculture through alternative propulsion systems,” it said.

“This partnership allows CNH Industrial to enhance its electrification capabilities and to develop new electric platforms more quickly,” Equita analyst Martino De Ambroggi said in a note, adding more details on the scope of the agreement and electrification strategy were expected.

CNH Industrial will complete early next year a plan to spin off and separately list under the Iveco Group name its truck and bus units along with its FPT engine division.

After the spin-off CNH, which is controlled by Exor , the holding company of Italy’s Agnelli family, will retain its construction equipment business.

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“It’s the worst supply chain situation I’ve seen in my career,” Chief Executive Scott Wine told analysts. “I recently equated our tireless efforts to manage this crazy supply chain situation to a game of whack-a-mole.”

The maker of farm machinery, Iveco commercial vehicles, construction equipment and powertrains said it now estimated an impact from raw material cost increases, freight costs and other supply chain bottlenecks worth around $1 billion in 2021.

The CEO however said a “robust environment” contributed to expand CNH’s order books and to an “excellent” performance across all its main businesses in the second quarter of this year and that it was poised for a “noteworthy second half”.

The group now sees its sales from industrial activities to grow by 24-28 percent this year versus a previous forecast of between 14-18 percent. Free cash flow is seen in excess of $1 billion, from a previous forecast of $0.6 billion-$1.0 billion.

The outlook improvement came as CNH said its adjusted operating earnings (EBIT) of industrial activities stood at $699 million in the second quarter, versus a $58 million loss a year earlier. That compares with a $496 million forecast in an analyst poll compiled by Reuters.

Sales at the group’s industrial activities rose 65 percent in the April-June period to $8.49 billion, topping a $7.06 billion analyst forecast.

Milan-listed shares in CNH turned positive to rise as much as 1.7 percent after results were published. By 1515 GMT they were up 0.1 percent.

CNH, controlled by Exor, the holding company of Italy’s Agnelli family, last month announced a $2.1 billion deal to buy U.S.-based Raven Industries to bolster its agricultural equipment business, as it prepares to spin off its truck, bus and engine operations.

Asked whether he saw interference from potential rival bidders, Wine said he believed CNH was the “right owner” for Raven.

“We think that we’re going to bring this home and quite confident,” he said, adding he saw no impediments to complete the deal – expected to be finalised in the fourth quarter – “in a timely fashion”.

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