The Wall Street Journal - 19.08.2019

B10| Monday, August 19, 2019 THE WALL STREET JOURNAL.

The signposts in America’s

heartland are getting depressing.

Uncertainty over trade and a

soggy spring planting season have

cut into farmers’ profits. Adding to

their pain last week, the U.S. Envi-

ronmental Protection Agency

granted ethanol waivers to 31 re-

fineries, a decision that could

damp demand for corn. U.S. corn

and ethanol prices have dropped

sharply this month.

For companies such as Deere &

Co., which reported results on Fri-

day, the condition of some of its

biggest customers is a concern.

The company said profit in its

third quarter ended July 28 de-

clined to $899 million from $910

million in the year-ago period.

Earnings per share missed ana-

lysts’ expectations.

Although strong agriculture

markets in Brazil and Argentina

helped buoy Deere’s performance,

Chief Executive Samuel Allen said

the results reflected “the high de-

gree of uncertainty” overshadow-

ing the U.S. agricultural sector.

“Concerns about export-market ac-

cess, near-term demand for com-

modities such as soybeans, and

overall crop conditions, have

caused many farmers to postpone

major equipment purchases,” Mr.

Allen said.

The U.S. manufacturing sector

overall is suffering as a result of

trade frictions: Output has fallen

more than 1.5% since December, ac-

cording to the Federal Reserve. But

making farm equipment is an espe-

cially tough business at the mo-

ment. Over the first six months of

this year, China’s agricultural im-

ports from the U.S. were down 20%

from the same period last year.

Deere, which operates globally,

can pivot somewhat, and its South

American customers are indirect

beneficiaries of trade tensions. But

its business is still vulnerable and

U.S. farmers, among its largest

customers, aren’t as lucky. As Pres-

ident Trump threatened fresh tar-

iffs, China earlier this month said

that it would suspend all imports

of U.S. agricultural products in re-

taliation. The Iowa Corn Growers

Association estimates that the re-

cent ethanol exemptions could zap

another billion bushels of corn

demand.

For Deere, U.S. purchases of its

equipment may suffer until the un-

certainty settles. The company

brought down its forecast for its

U.S. and Canadian agriculture busi-

ness and now expects a 4% in-

crease in equipment sales this year

overall, down from previous esti-

mates of a 5% rise. Deere—and

farmers—are watching trade head-

lines with trepidation.

—Lauren Silva Laughlin

Deere’s Customers Take a Hit

The farming-equipment company is holding up better than U.S. growers are

HEARD

ON

THE

STREET

FINANCIAL ANALYSIS & COMMENTARY

Parenting Trends Offer

Lift for Bright Horizons

Much like paying up for child

care makes sense, it may be worth

paying up for it in your portfolio.

Following competitor Care.com ’s

48% year-to-date selloff, Bright Ho-

rizons Family Solutions is looking

relatively expensive. The stock is

trading at a 2019 high of 40 times

forward earnings. In light of its ri-

val’s recent issues, though, the day-

care giant’s record of helping work-

ing parents justifies an even richer

premium, given its vast growth po-

tential.

The company is relatively un-

known to those without children

and even to investors. Despite its

$9.3 billion market capitalization,

only seven brokers tracked by Fact-

Set cover the stock. By comparison,

26 cover Domino’s Pizza , which

has similar market value.

One possible explanation could

be that Bright Horizons doesn’t

neatly fit into any one sector. Chief

Executive Stephen Kramer calls it a

care organization first, enabled by

technology. And far more people or-

der pizza than book child care.

That could be changing, though.

It is becoming more common for

women to outearn their spouses

and some 65% of mothers with chil-

dren under six were in the U.S. la-

bor force last year, according to the

Bureau of Labor Statistics, under-

scoring the acute need for quality

child care.

In the U.S., interest around child-

care policy has surged in the politi-

cal sphere ahead of the 2020 elec-

tion. Companies are paying

attention, too. Bright Horizons said

it has registered a 70% increase in

companies offering backup-care

benefits over the past five years.

That still accounted for just 9% of

large U.S. employers in 2016, ac-

cording to the Society for Human

Resource Management, suggesting a

large runway for growth.

Essential to the Bright Horizons’

business model are yearslong part-

nerships with employers such as

Microsoft and Home Depot. Bright

Horizons says that it is the largest

provider of employer-sponsored

child care in the U.S. and that up to

98% of its contracts are renewed in

any given year.

While the majority of its opera-

tions are domestic, the company

also is actively pursuing business

overseas, including a new partner-

ship recently unveiled in Germany.

Offering further validation to

Bright Horizons’ model, which vets

and employs the majority of its

caregivers, Care.com has been ex-

panding its competing Care@Work

platform, on which it also vets and

employs caregivers.

In March, a Wall Street Journal

investigation showed Care.com pro-

vided limited vetting of its caregiv-

ers on its U.S. consumer platform,

sometimes with tragic results. The

company now has an activist inves-

tor who is calling for management

to explore a sale, citing loss of con-

sumer trust in the brand.

Bright Horizons, meanwhile,

hasn’t missed a step. Management

has projected more rapid sales and

profit growth in the third quarter.

The juggle is real for working

parents. That spells a long-term op-

portunity for this established day-

care provider. —Laura Forman

BrightHorizon’squarterlyrevenue

Source:thecompany

$500

0

100

200

300

400

million

2016 ’17 ’18 ’19

A damp spring season and uncertainty over trade have bruised farmers who use the company’s machinery.

ROGELIO V. SOLIS/ASSOCIATED PRESS

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