Deere Has Good News for Investors, Not Workers

Deere & Co.’s improving outlook provides more fodder for an equity market that’s ready to believe in a recovery from the coronavirus pandemic. The company’s plan to cut jobs anyway should give pause.

The agricultural equipment maker said on Friday that it expects to earn about $2.25 billion in 2020, up from a high-end estimate of $2 billion in its May guidance range. Sales declines in its agricultural segment won’t be as steep as previously thought as farmers replace aging equipment and non-professionals stock up as part of the pandemic-fueled boom in spending tied to landscaping, hobbies and home improvement. Even the construction division that’s been hit hard by the macroeconomic downturn and the woes of the oil and gas industry is holding up better than expected. Sales in that business are projected to be down 25% globally this year, compared with an earlier forecast of as much as a 40% slump. Both divisions benefited from price increases in the most recent quarter.

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Deere’s results are in line with the overall “could have been worse” theme of the industrial earnings season. It is in no way a V-shaped recovery, but the damage isn’t as bad as it might have been and businesses are seeing early evidence of demand improvement. There’s a major caveat to this messaging in the form of jobs, however. The boosted profit outlook doesn’t just come from a market demand recovery; one reason Deere thinks its financial statements can weather the crisis better than expected is because it’s expanding workforce reductions. The company said it has announced “broad employee-separation programs” due to be completed in the fourth quarter in an effort to create a “leaner, more agile organization.” About $175 million of associated restructuring expenses are included in the net income forecast, with estimated annual savings of $175 million.

These kinds of announcements just keep piling up from manufacturing companies, with more and more cuts being labeled permanent. Can things really be trending in the right direction if so many workers are being left behind?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

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