Deere & Company (DE) announced its plans to lay off 367 employees at the John Deere Harvester Works in Illinois. The layoff is effective September 21. Also, most of the plant’s remaining employees will face a four-week inventory adjustment shutdown and a two-week vacation shutdown starting September 21.

The John Deere Harvester Works manufactures combines and front-end equipment for harvesting. The company said the decision was taken in response to the declining market demand for the factory’s products.

Deere has been witnessing weak demand levels for the last couple of quarters as farmers and other customers cut their spending under recessionary conditions. The company expects a 21% drop in equipment sales for fiscal 2009.

We expect continued weakness in both the segments for the next couple of quarters, as we do not see any drivers for growth in farm spending and U.S. construction activity over the coming months.

The company is taking various actions to offset some of this impact on its earnings. Deere is cutting down expenses, curtailing factory production, and reducing inventories and trade receivables.

During its earnings conference call, the company stated that it will continue to adjust its production and inventory levels to match market demand. The company said that it will be in a position to capitalize on the expected upturn in the market and is bullish about the long-term growth prospects.

We hold a Neutral recommendation on Deere shares.
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