Dive Brief:

• Heavy equipment maker Deere & Co. announced that it will lay off 57 workers at its Davenport, Iowa, manufacturing plant, citing reduced building activity that is expected to lower sales of its construction equipment by as much as 15% next fiscal year, according to the Des Moines Register.
• The company said it notified employees of the cuts about a week ago; they become effective Jan. 6.
• This marks the second round of layoffs in recent months for the Moline, Illinois-based company. In late September, Deere laid off about 50 employees at John Deere Harvester Works in East Moline, Illinois, and 113 employees at the Davenport plant. At that time, the company lowered its full-year sales and income expectations for 2019 due to "decreased customer demand."

Dive Insight:

While Deere has long struggled with economic uncertainties affecting sales of its agricultural equipment, in recent weeks it has indicated a weakening in its construction sector business as well. In a fourth quarter earnings call Nov. 27, Deere CEO John C. May reported that company leaders expect sales of its construction equipment to fall between 10% and 15% next fiscal year.

"The outlook reflects slowing construction activity as well as the company’s efforts to manage dealer inventory levels," he said.

The company's fourth-quarter earnings declined 8% to $722 million compared to a year earlier, reflecting lingering trade tensions and this year's difficult growing and harvesting conditions, according to the company.

Deere is not the only U.S. heavy equipment manufacturer facing layoffs or dealing with fallout from the trade war. In early November, Deerfield, Illinois-based Caterpillar laid off 120 temporary workers at its plant in Victoria, Texas, saying sales had slowed due to the trade war with China.

The OEM has been affected not only indirectly by its customers' worries over a U.S.-China trade war, but also directly by an increase in tariffs. In July, Caterpillar said it paid $70 million in tariffs in the second quarter of 2019. The tariffs, along with a loss of incentives in Brazil and warranty expenses, led to a $328 million increase in manufacturing costs during the quarter.

CFO Andrew Bonfield said the manufacturer expects to pay $250 million to $350 million in tariffs for the year.

Both Caterpillar and Deere are seen as economic bellwethers for the construction industry and the health of these companies is tracked closely by economists and other industry watchers. This summer, Barron's named them two of seven publicly traded construction-related companies to watch in the coming months in the wake of analyst downgrades.