Deere Plans Production Slowdown of Construction Equipment After Sales Drop

After months of layoffs, John Deere is now planning to slow production at multiple factories in its fourth quarter.

CEO John C. May confirmed during the company’s third-quarter earnings call that, following a similar approach to its large ag equipment segment, the company had adjusted production schedules on its earthmoving product lines in North America to reduce field inventory “in response to signs of moderating demand.”

Deere also plans to shut down production at several factories periodically, including at the Mannheim, Germany, factory, which produces the 6 Series tractors. In that facility, Deere is planning to shut down roughly a third of fourth-quarter production days. John Deere recently updated its 6M utility tractor lineup for the model year 2025.

The company’s 8 Series tractor production in Waterloo, Iowa, is forecast to shut down for about 50% of total production days in the fourth quarter.

Josh Beal, director of Investor Relations, said field inventories on the construction side are in a good place, though industry retail sales have been softening. Deere is planning “mid-single-digit underproduction in Construction Equipment for this year.”

“On Compact Construction, we were still building some inventory this year,” he said. “We'll under-produce a little bit in the fourth quarter there. But net for Compact is still pretty much production in line.”

Construction Revenue Down

Deere recorded $3.24 billion in third-quarter construction net sales, down 13% year-over-year from last year’s third quarter. Operating profit in the construction segment was down 37% to $448 million, primarily due to lower shipment volumes.

Construction operating profit was down mostly on a $223 million hit to volume.John Deere

“Demand for earthmoving and compact construction equipment is down from robust levels of 2023 and increasingly competitive as rental re-fleeting decelerates and used inventory levels rise,” said Manager of Investor Relations Joshua Rohleder during the earnings call. “While U.S. government infrastructure spending remains supportive and manufacturing investments continue to increase, we are witnessing a sequential slowdown in single-family housing starts amid interest rate uncertainty.”

Regarding volatility in its construction and forestry business, Beal had this to say during the earnings call:

“This is really a story of two businesses, earthmoving and roadbuilding,” Beal said. “While our roadbuilding business continues to experience more stable volumes, we've seen some hesitation in earthmoving equipment purchases. Project demand for our earthmoving customers has remained relatively unchanged.

“However, those same customers are seeing increased competition on their job bids, as well as higher financing costs and overall higher equipment carrying costs following years of – recent years of high inflation. That means that while still profitable, many customers are experiencing lower profitability compared to just a year ago. And as a result, we are seeing some slowdown in order velocity, which is reflected in our guidance update.”

Layoffs Create $124 Million in Expenses

After multiple layoffs at manufacturing facilities across the U.S., followed by salaried layoffs, Deere reported its third-quarter employee-separation programs generated pretax expenses of approximately $150 million, with $124 million recorded in the third quarter. Deere reported $20 million of these expenses in the third quarter in its construction and forestry business.

Annual pretax savings from these programs are estimated to be approximately $230 million, of which $100 million is estimated to be realized in 2024, according to Deere.