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Technology to Aid Farm Equipment Industry Amid Tariff Woes

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The Manufacturing - Farm Equipment industry has been witnessing a downtrend over the past five years since peaking in 2013. The decline was mainly due to the impact of low commodity prices and sluggish farm incomes. The industry’s performance has also been impaired by decline in capital spending and fall in demand due to the appreciating dollar. Nevertheless, farm equipment demand has recently picked up mainly driven by the need to replace the aging equipment. So, until there is a meaningful improvement in commodity prices that can bolster farm income, replacement demand will fuel its results.

Tariffs Hurting Manufacturing - Farm Equipment Industry

Tariffs imposed on steel and aluminum are hurting farm equipment manufacturers. Rising input costs could potentially slow margin improvement and constrain earnings growth of companies. In addition, lower profit margins have made the industry less attractive to new entrants, making it more competitive.

Also, China has begun levying retaliatory tariffs on U.S. agricultural exports, particularly soybeans, sorghum, and live hogs.

Recently, Trump imposed a new tariff of 10% on Chinese goods worth $200 billion. In turn, China has warned of retaliation with expected tariffs on American goods worth $60 billion. Thus, tariff issues remain a major roadblock for farm-equipment sales.

Manufacturing - Farm Equipment Rides on Technology Upswing

With advancements on the technological front, farm-equipment manufacturers are targeting new customer bases by providing innovative and cost-effective products. The technology upgradation in agricultural automation and robotics has been fueling application of farm equipment.

Further, increased adoption of technology in agriculture will boost crop yield, streamline operations, and increase overall efficiency, which will help drive farmer’s income and in turn, enhance their investments in farm equipment. Lately, farmers are focusing on sustainable agriculture practices and benefiting from the introduction of precision farming as well.

Industry Performance Vs the S&P 500

The Zacks Manufacturing - Farm Equipment industry has outperformed the broader Industrial Products Sector over the past year. The stocks in this industry have collectively gained around 9% in a year’s time, in line with the S&P 500 Composite. However, the Zacks Industrial Products Sector has lost around 7% during the same time frame.


The Zacks Manufacturing - Farm Equipment industry currently carries a Zacks Industry Rank #177, which places it at the bottom 31% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Bottom Line

The Manufacturing - Farm Equipment industry is already plagued with tariff challenges, while shift from manual operations to automated methods, replacement demand, rising urbanization rate and growing population remain catalysts for growth.

While none of the stocks in Manufacturing - Farm Equipment industry currently sport a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy), investors may want to hold on to the Zacks Rank #3 (Hold) stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company (DE - Free Report) : This Moline, IL-based company has a Zacks Rank #3. The Zacks Consensus Estimate for earnings for fiscal 2018 indicates year-over-year growth of 42%. Moreover, the company’s earnings outpaced the Zacks Consensus Estimates in two out of the trailing four quarters, with an average positive beat of 2.06%. The Zacks Consensus Estimate for the current-year EPS has inched up 0.1% over the last 30 days. The stock has returned 16% over the past year.

Titan International, Inc. : This Quincy, IL-based company is another Zacks Rank #3 stock. The Zacks Consensus Earnings Estimate for fiscal 2018 indicates year-over-year growth of 147%. The company has delivered an average positive earnings surprise of 108.27% over the trailing four quarters.

We recommend investors to stay away from the following stocks as they presently have an unfavorable Zacks Rank. They have also gone negative revisions in their estimates lately.

AGCO Corporation (AGCO - Free Report) : This Duluth, GA-based company carries a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the current-year EPS has edged down 0.8% over the last 90 days.

Briggs & Stratton Corporation : This Wauwatosa, WI-based company has a Zacks Rank #4. The Zacks Consensus Estimate for the current-year EPS has declined 9% over the last 90 days.

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