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Deere cites trade war issues for earnings miss; shares fall

Key Points
  • Shares of Deere fell more than 4 percent in premarket trading after the tractor supplier reported first-quarter earnings that missed Wall Street's expectations.
  • Higher raw material costs and concerns over tariffs and trade policies hurt the company's results, the company said.
  • Deere expects company equipment sales to increase by about 7 percent for fiscal year 2019 compared to 2018.
An attendee passes in front of John Deere brand tractors displayed during the World Agriculture Expo in Tulare, California, on Tuesday, Feb. 12, 2019.
Patrick T. Fallon | Bloomberg | Getty Images

Shares of Deere fell more than 4 percent in premarket trading after the tractor supplier reported first-quarter earnings that missed Wall Street's expectations.

The Illinois-based company earned $1.54 per share. Analysts polled by Refinitiv had expected $1.76 per share. The company beat revenue expectations, reporting $6.941 billion versus $6.828 billion analysts expected.

Deere Chairman and CEO Samuel Allen said higher raw material costs and concerns over tariffs and trade policies hurt the company's results. The trade war with China and uncertainty over trade negotiations made farmers more cautious about making large purchases, Allen said.

"We believe cost pressures should abate as the year progresses and are hopeful we will soon have more clarity around trade issues," Allen said in a release.

Deere projects company equipment sales will increase by about 7 percent for fiscal year 2019 compared to 2018.

On Wednesday, Bank of America Merrill Lynch downgraded Deere to a neutral rating from a buy rating based on the trade deadlock between Washington and Beijing and weaker demand for equipment.

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Key Points
  • Bank of America Merrill Lynch downgrades the tractor supplier to a neutral rating, two days before the company's first-quarter profit and sales report.
  • The brokerage says the downgrade is based on the lack of apparent progress between Washington and Beijing in trade talks and weaker demand for equipment.
  • "It's remarkable to us that Caterpillar is viewed by many as the poster child of the U.S.-China trade war, while Deere is viewed by many to be far less vulnerable," analyst Ross Gilardi writes.