DE Deere and Co

By Bob Tita 

Deere & Co. said Friday it plans to cut more production of its trademark tractors and harvesters this fall in response to the continued downturn in the global farm economy.

The world's largest maker of farm equipment by sales is trimming output and laying off workers at plants in Illinois and Iowa due to weak demand in North America and big overseas markets in Europe and South America.

Falling crop prices have hit farmer incomes and made them more reluctant to buy new machinery, while Deere and its rivals also face a glut of used equipment bought during a near decadelong sales boom that ended three years ago.

Deere outlined its latest cost-cutting efforts as it reported better-than-expected fiscal third-quarter profit and raised its full-year guidance, boosting shares that were recently up 11.2% at $85.56.

The company faces its fourth year of falling sales in 2017 and plans to cut hours at the East Moline, Ill., plant that assembles harvesters by 60% from a year ago, with those at the Waterloo, Iowa, factory that builds high-horsepower tractors falling by a fifth, said Tony Huegel, Deere's director of investor relations, on a call with analysts.

The market for large tractors in the U.S. and Canada that Deere leads has been particularly weak. Industrywide retail sales so far this year are down 24% from 2015, according to the Association of Equipment Manufacturers, a trade group.

U.S. farmers' cash receipts from major crops are forecast to drop 9% to $95.4 billion for the current growing season even as farmers are set to bring in record corn and soybean harvests, according to J.P. Morgan.

The Moline, Ill.-based company has been throttling back on production to avoid swelling inventories of new machinery at its dealers. The company reported Friday that fiscal third-quarter sales of farm equipment slipped 11% to $4.7 billion, though profit from the business rose 21% to $571 million as cost cuts boosted margins.

The outlook for its construction and forestry equipment business has weakened even further. Lower demand for equipment from the North American energy industry contributed to a 24% drop in segment sales to $1.16 billion and a 58% plunge in profit to $54 million. The company now expects construction business sales for the year to be down 18% from 2015, compared with its prior forecast of a 13% drop.

For the quarter to July 31, Deere reported a profit of $488.8 million compared with $511.6 million a year earlier. On a per-share basis, earnings rose to $1.55 from $1.53 because of a lower number of shares outstanding. Analysts had expected a profit of 94 cents a share. Overall, farm and construction equipment sales fell 14% to $5.86 billion.

The company's overall expenses in the quarter fell 12% from a year earlier, as lower overhead costs accounted for much of the improvement. Deere raised its profit outlook for year, even as it widened its forecast sales decline.

The company said it now expects to earn $1.35 billion this fiscal year, up from its May forecast of $1.2 billion. But it expects net sales to slip about 10% for the year, compared with a 9% decrease forecast previously.

Joshua Jamerson contributed to this article.

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

August 19, 2016 14:15 ET (18:15 GMT)

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