After months of layoffs, John Deere now plans to slow down production at multiple factories in the fourth quarter.
During the company's third quarter earnings conference call, CEO John C. May confirmed that the company has adjusted production plans for its earthmoving product line in North America to reduce inventory. This is consistent with similar strategies adopted by the company in the large agricultural equipment sector, aimed at addressing signs of slowing demand.
John Deere also plans to regularly suspend production at multiple factories, including one located in Mannheim, Germany, which produces the 6 series tractors. At the factory, John Deere plans to close approximately one-third of production days in the fourth quarter. John Deere has recently updated its 6M multifunctional tractor series for the 2025 model year. The production of 8 series tractors in Waterloo, Iowa, USA is expected to shut down approximately 50% of the total production days in the fourth quarter. Josh Beal, Director of Investor Relations, stated that although retail sales in the industry have weakened, inventory in the construction equipment sector is in good condition. John Deere plans to achieve a "mid single digit reduction" in construction equipment production this year. In terms of small building equipment, we are still accumulating some inventory this year, "he said. We will slightly reduce production in the fourth quarter. However, overall, the production of small construction equipment remains largely consistent. John Deere's net sales of construction equipment in the third quarter were $3.24 billion, a year-on-year decrease of 13%. The operating profit of the construction equipment department decreased by 37% to $448 million, mainly due to a decrease in shipment volume. The demand for earthwork and small-scale construction equipment has declined from its high level in 2023, and competition is becoming increasingly fierce as rental equipment updates slow down and second-hand inventory levels rise, "said Joshua Rohleder, Investor Relations Manager, during the earnings conference call. Although the US government's infrastructure spending still supports the development of the construction industry and manufacturing investment is constantly increasing, the number of single family housing starts has gradually slowed down due to interest rate uncertainty
Regarding the volatility of the construction and forestry businesses, Beal said during the earnings conference call, "This is actually the story of two businesses, earthmoving equipment and road construction equipment," Beal said. Although our road construction business still maintains relatively stable sales, we have seen some hesitation in purchasing earthmoving equipment. The project needs of our earthmoving equipment customers have remained largely unchanged. However, these customers face greater competition in project bidding, as well as higher financing costs and equipment holding costs, all of which are the result of high inflation in recent years. This means that although there are still profits, the profitability of many customers has declined compared to a year ago. Therefore, we have seen a slowdown in order speed, which is also reflected in our guidance updates. After multiple layoffs in manufacturing facilities across the United States, John Deere reported that its employee turnover plan for the third quarter has resulted in a cost of $124 million. Approximately $150 million in pre tax expenses, Among them, $124 million was recorded in the third quarter. John Deere reported that there were $20 million in these expenses in its construction and forestry business in the third quarter. According to John Deere's estimate, the annual pre tax savings from these plans will be approximately $230 million, of which $100 million is expected to be achieved by 2024.