Deere Takes Action at the Start of a Potential Down Cycle: Credit Investing.com

Deere & Co . (NYSE: ) is taking proactive steps to mitigate the effects of a potential economic downturn, according to a note from corporate bond research firm Gimme Credit.

The firm notes that the agricultural and construction equipment maker faced weak demand in its markets, including its construction and forestry (CF) segment, which was a bright spot earlier this fiscal year.

However, they add that as of the third-quarter report, CF has begun to show signs of slowing demand, joining Deere’s agriculture and turf segments, which have seen progressively weaker year-over-year outlooks .

Gimme Credit explains that to address this, Deere initiated underproduction in both the agriculture and construction sectors, particularly in earthmoving equipment.

According to the company, “advance action to address weakening demand could temper the effects of the next cycle.”

However, it is considered worrying that Deere’s efforts to diversify outside the agricultural cycle are being challenged by a simultaneous slowdown in construction.

Demand for Deere products was said to have been tempered by several factors, including lower commodity prices driven by increased grain inventories and favorable weather, as well as an increase in used inventory, particularly in the US and Canada.

Gimme Credit says this has affected demand for both agricultural and construction equipment. In addition, global demand continues to be hampered by high interest rates and geopolitical uncertainties.

Deere has implemented a cost-cutting plan, including a single-digit reduction in its global salaried workforce.

These measures are expected to generate annual savings of $230 million, with $100 million anticipated in the current fiscal year. Despite these difficulties, Deere reaffirmed its full-year net income guidance of $7 billion, reflecting confidence in its cost-saving initiatives.

Gimme Credit reaffirmed its “stable” credit score and “outperform” rating on Deere’s (2030 notes), citing the company’s strong free cash flow and early actions to support profitability amid a potentially challenging economic environment.