Deere CEO Says Debt Debate May Send ‘Shock’ Through Economy
“I have a lot of concerns for the economy,” Allen, who leads the world’s largest maker of farm equipment, said yesterday in an interview in Bloomberg’s Chicago bureau. “I don’t think we are out of this.”
Deere, which had 65 percent of its sales in U.S. and Canada in fiscal 2010, plans to double revenue to $50 billion by 2018. President Barack Obama is touring the U.S. to promote his proposal to cut long-term budget deficits after Standard & Poor’s said April 18 the country risks losing its AAA credit rating unless policy makers agree on a plan.
“From a long-term standpoint, the debt is a tremendous issue,” he said. “How we address the debt and the dialogue and discourse” can have “more of a near-term shock implication on the economy than what I maybe perceive others do.”
Allen, 57, who became CEO at Moline, Illinois-based Deere in 2010, said the U.S. economy is in a “more precarious shape” than those who forecast growth of about 3 percent or 4 percent. The economy will expand 2.9 percent this year, according to the median of 75 economists’ estimates compiled by Bloomberg, which range from 2.2 percent to 4 percent.
The debate between Democrats and Republicans over raising the current debt ceiling of $14.3 trillion is intensifying. The Treasury Department projects the government could reach the limit as soon as mid-May and run out of options for avoiding default by early July.
“Sometimes people in Washington lose sight of how much the rest of us go into paralysis when you don’t know what’s going to happen or both sides start so far apart,” Allen said.
“You end up creating these doomsday scenarios,” he said. “We may have to cut back from record levels of capital expenditures if all of a sudden the economy goes south.”
The long-term conditions driving demand for Deere’s tractors, combines and excavators are still intact, Allen said. Global food output must double by 2050 as the populations in emerging economies expand, become more prosperous and increasingly migrate from rural areas to cities, he said.
Deere is positioning itself to help farmers to meet those needs by improving productivity, because simply cultivating more arable land won’t be enough, Allen said.
“That’s high-production, precision agriculture,” he said. “That is John Deere’s sweet spot. That is a tremendous opportunity.”
Deere rose $1.51, or 1.6 percent, to $93.89 at 4:15 p.m. in New York Stock Exchange Composite trading. The shares have climbed 56 percent in the past year, compared with a 10 percent advance in the Standard & Poor’s 500 Index.
Fiscal first-quarter net income was $513.7 million on sales of $6.12 billion. Deere is scheduled to report second-quarter earnings May 18 and will probably say adjusted profit increased 55 percent to $850.2 million, according to the median of nine analyst estimates in a Bloomberg survey.
Deere in February forecast fiscal 2011 sales will gain 18 percent to 20 percent, with revenue climbing 25 percent in the three months through April. It also raised its projected full- year earnings to $2.5 billion, from $2.1 billion previously.
Deere is building factories in China and India and doubling manufacturing capacity in Russia. The company may be at a disadvantage to competitors from other countries if Russia doesn’t join the World Trade Organization and the U.S. doesn’t establish permanent normal trade relations, Allen said.
“You are much better off having them in the game and having them play by the rules,” he said.
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