Deere Plans To Slow Down Production Amid Sales Drop

In a recent report released by John Deere, a significant drop has been witnessed which has impacted the company’s overall net revenue. Deere is one of the top market players in the construction equipment industry that puts its dedication and liability before its interest. However, this major downpour in sales has affected many of its departments forcing the company to make some hard decisions.

The company has just announced it to slow down its production at some of the major facilities to cover up the gap in revenue by the end of this year. All the stakeholders in the industry are optimistic about Deere’s strong comeback in a few months, as the slowdown of production is to control the piled-up inventory.

A brief background of Q3 sales drop

The ongoing drop in sales of John Deere equipment has dragged a big concern to the company. Considering the last quarter’s sales, the company has revealed the Q3 sales of the following year.

For its construction segment, the company reported net revenues of $3.24 billion, a notable 13% decrease over the same period the previous year. Furthermore, this segment’s operational profit fell by 37% to $448 million, mostly as a result of a decline in shipment volumes.

Joshua Rohleder, manager of investor relations stated that this decrease in the sales is due to the reduction in demand for compact construction equipment and earth moving equipment since the rental equipment is in demand. The rental market is flourishing because the prices of new and used equipment have soared along with the high mortgage rate. The rising inventory level at the fleet has also fueled the slowdown of equipment sales.

Deere decided to alter its production facilities

As Rohleder stated the decrease in demand for earthmoving and compact equipment caused a slowdown in sales, and Deere decided to stop the production of such equipment for the time being. Due to the fewer sales of these machines, the inventory levels have risen and it will take a little time to clear up. Since then, the new production will only put the burden on the piled-up inventory and not more.

However, some of Deere’s equipment is still in demand such as 772GP and 770GP Motor Graders, which are the most sought-after machines at challenging construction sites.

This production slowdown decision came after a major layoff from Deere’s facility to cover up the declined sales and revenue. (Read the detailed article here).

For almost one-third of the working days in the quarter, the 6 Series tractor manufacturer in Mannheim, Germany, is scheduled to stop operations. In a similar vein, the Waterloo, Iowa plant that manufactures the 8 Series tractors is likely to close. The director of investor relations at Deere, Josh Beal, stated that

“Field inventories in the construction industry are doing well right now. However, the company expects “mid-single-digit underproduction in Construction Equipment for this year” as a result of the softening of industry retail sales. Although Deere has been increasing inventory in its Compact Construction Equipment business, there will be a minor decrease in production during the fourth quarter.”

What challenges are waiting ahead?

The drop in overall sales has not only forced Deere to stop production but also caused the company to face troubles in many other ways. Although the road building industry is still seeing steady volume growth, the earth moving industry is seeing some reluctance to make equipment purchases. This reluctance is caused by several things, such as delicate competition in bids for jobs, greater financing expenses, and higher equipment carrying costs as a result of recent high inflation.

Although the market for earth moving projects has stayed mostly steady, rising costs and greater competition are negatively impacting Deere’s clients’ profitability. These fluctuations are part of business and Deere has all the ability to come back with more power and a strong presence in the market.

Two Cents

Despite challenges in the construction industry, Deere is committed to controlling inventory levels and preserving profitability in a ruthless market. How these initiatives affect the company’s overall performance and its standing in the construction equipment market will be determined in the upcoming quarters.

When it comes to the top brands, MY Equipment stands out among all dealers in town. We deal with used equipment from all leading brands whether it is Volvo or Caterpillar. Browse through our inventory and find the best equipment for your next project.

Don’t forget to subscribe to our YouTube channel for more equipment offers and insights into the industry.