John May, Deere’s incoming chief executive, will take charge as the tractor maker switches course from its sluggish global expansion to a narrower focus on its U.S. market.
With demand receding worldwide, dealers for Deere and industry analysts say they expect May to focus on cutting costs and adding new technology and data services to its equipment that will justify higher prices in the U.S.
The shift comes at a time when it will be difficult to ask U.S. farmers to pay more for tractors and combines.
The focus on new technology aimed at U.S. farmers is a pivot from current CEO Sam Allen’s emphasis on selling more equipment in developing markets overseas.
After he took the helm a decade ago, Allen said more productive farms would be required to provide crops and livestock to feed a growing middle class around the world. After the 2008 recession, Deere opened or expanded factories in Brazil, Russia, China, India and elsewhere in pursuit of $50 billion in annual sales by 2018.
Executives have talked less about the company’s global ambitions in recent years as slowing demand for equipment at home and decelerating economic expansion in developing countries made the $50 billion goal unattainable. The U.S. and Canada accounted for 57 percent of Deere’s $33.3 billion in equipment sales last year, which also included the company’s construction and forestry machinery lines.
The company has seen strong sales growth in South America and Western Europe, where farmers use the same large equipment as farmers in North America. In Brazil, which has been a growth market for U.S. farm-equipment manufacturers in the past decade, Deere gained market share in tractors at the expense of market leader AGCO Corp.
But sales expansion has been tougher in other developing markets. Other U.S. manufacturers, including construction-equipment maker Caterpillar and industrial conglomerate 3M Co., made big bets on developing markets and have been disappointed in their results.
Deere’s sales of farm equipment over the past three quarters are up 2 percent from the year-ago period because of price increases. Profit from those sales fell 12 percent, partly due to higher material costs and rising factory expenses. Deere’s gross profit margin on equipment has been flat for most of the past decade even though overall equipment sales have increased about 61 percent during that time.
May will become CEO in November. Allen will remain chairman of the company’s board.
Source: Wall Street Journal