Wires

UPDATE 2-Deere warns of lower profits in 2020 on lingering trade tensions

Rajesh Kumar Singh

(Recasts first paragraph, adds more details, updates share price)

CHICAGO, Nov 27 (Reuters) - Deere & Co. on Wednesday warned of lower earnings in the fiscal year 2020 after reporting a fall in quarterly profits, hurt by trade tensions as well as poor weather in the U.S. farm belt that have slowed equipment purchases by farmers.

The world's largest farm equipment maker expects net income of $2.7 billion to $3.1 billion next year, lower than $3.25 billion in 2019. The forecast is lower than Refinitiv's average analyst estimates of $3.5 billion for the year.

Deere's shares, which have gained about 19% this year, were last down 3.8% in pre-market trade.

The Moline, Illinois-based company blamed "continued uncertainties" in the farm sector for its travails.

"Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment," said new chief executive officer John May.

Deere gets a little over half of its revenues from the United States. Sales have taken a hit in the wake of the U.S.-China trade war that has dented U.S. agricultural exports, leaving farmers struggling to turn a profit.

The U.S. Agriculture Department estimates principal crop cash receipts, an important indicator for equipment demand, are forecast this year to hit the lowest level in at least eight years. A sharp drop in U.S. corn exports and President Donald Trump's ethanol policy have further pressured farm incomes.

Poor weather, meanwhile, has delayed the harvest in the U.S. grain belt.

In response to the weak equipment demand, Deere has cut production and laid off workers.

It expects global agriculture and turf equipment sales to decline 5% to 10% next year. Industry sales of farm equipment in the U.S. and Canada are forecast to decline about 5% decline on the back of lower demand for large equipment.

Sales of Deere's construction and forestry machines are projected to be down 10% to 15% in 2020.

For the quarter ended on Nov. 3, it reported an adjusted profit of $2.14 per share, down from $2.30 per share last year, but above average analyst estimates of $2.13 per share.

Sales for both farm and construction equipment were up in the quarter from a year ago. But profit from those sales declined due to higher production costs and increased selling, administrative, and general expenses.

Adjusted profits at Deere's financial services division fell about 41% on year in the latest quarter due to operating-lease losses. (Reporting by Rajesh Kumar Singh, editing by Louise Heavens and Chizu Nomiyama)