The Moline, Illinois-based ag and construction equipment manufacturer is reporting a loss of more than $535 million, or $1.66 per share. That compares with a net profit of $199 million for the first quarter last year.
This was the first loss Deere has experienced since the fourth quarter of 2009. But rather than an operating loss, Deere says it’s a result of initial accounting adjustments related to the U.S. tax reform legislation. Deere chairman and CEO Samuel R. Allen says in line with strengthening conditions, the company has raised its sales and adjusted-earnings forecasts for 2018.
Deere’s largest North American manufacturing complex is located in Waterloo. This is the first quarterly report since Deere bought the Germany-based Wirtgen Group, which makes road construction equipment. Economics professor James Bang, at St. Ambrose University in Davenport, says the Wirtgen buy was likely a good move for Deere.
“John Deere is a huge company,” Bang says. “In 2016, they had something like $27-billion in revenues compared with $2.5 or 3-billion in revenues for the Wirtgen Group at about the same time. So, it’s a really big company buying up a relatively-big but still-much-smaller company, in this case.” Initially, investors should just look at the bottom line, but Bang also notes diversification may not be the only reason Deere bought Wirtgen.
“Probably one of the things in this case is that you get access to patents,” Bang says. “That’s probably one of the biggest things that this deal did for John Deere is that once you buy the company, you own their intellectual property as well.” Deere paid $5.2 billion for the Wirtgen Group and will retain all five of its existing brands.
“The organization gets John Deere’s access to capital and financing and markets to sell their products which allows a smaller company like that to grow its operations and become more competitive with other firms doing similar types of production,” Bang says.
When the deal closed in December, a Deere spokesman said it’s rare for a company to find another one to buy that has a similar work culture, with no overlap in products. Wirtgen employs more than 8,000 people and operates factories in Germany, Brazil, China and India.
(Thanks to Phil Roberts, Davenport, and Michelle O’Neill, WVIK, Rock Island)