(Reuters) -Deere & Co on Friday raised its full-year earnings on buoyant demand for farm and construction machines, but warned a global shortage of semiconductor chips posed a “significant” risk to its production schedule.
As the global economy roars back from the pandemic-induced recession, it is generating unusually high orders for parts and materials at a time when COVID-19 disruptions have caused capacity constraints all along the supply chain.
This has left manufacturers short of labor, steel, plastics, microchips and tires they need for their products, making it tougher to keep up with orders.
Deere said it is “cautiously optimistic” of fulfilling customer orders. The company revised up raw material and freight costs for the year to $1 billion, from $500 million estimated in February.
Supply constraints mean farm equipment inventories, which are at a record low, will remain lean this year, it said.
However, a combination of higher farm income, the need to replace aging fleets and low inventory levels is expected to prolong equipment demand beyond 2021.
The world’s largest farm equipment manufacturer said orders for large tractors now extend into next year.
“The current market dynamics, coupled with production constraints for the industry, point to a multi-year cycle for ag equipment,” Cory Reed, head of Deere’s Production & Precision Ag unit, told investors on an earnings call.
The Illinois-based company said net income in fiscal 2021 would be between $5.3 billion and $5.7 billion, up from $4.6 billion to $5.0 billion estimated in February. It is the second time in four months it has upgraded the outlook.
Deere’s shares, which have outperformed the S&P 500 with a gain of about 32% this year, were up 1.8% at $361.73 in afternoon trade.
The company expects industry sales of large agricultural equipment in the United States and Canada – its biggest combined market – to grow by 25% this year compared with growth of 15% to 20% estimated in February.
Earnings for the second quarter came in at $5.68 per share, up 169% from a year ago. Equipment sales rose 34% year-on-year to about $11 billion.
(Reporting by Rajesh Kumar Singh in Chicago and Shreyasee Raj in Bengaluru;Editing by Vinay Dwivedi, Chizu Nomiyama, Emelia Sithole-Matarise and Nick Zieminski)
