March 29, 2024

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Deere (DE) Up 8.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Deere (DE). Shares have added about 8.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Deere due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Deere’s Earnings And Revenues Beat Estimates In Q2

Deere posted second-quarter fiscal 2020 (ended May 3, 2020) earnings of $2.11 per share, beating the Zacks Consensus Estimate of $1.94. The reported figure slumped 40% from the prior-year quarter’s earnings per share of $3.52.

Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $8.22 billion, down 20% year over year. Revenues, however, surpassed the Zacks Consensus Estimate of $8.01 billion. Total net sales (including financial services and others) came in at $9.3 billion, down 18% year over year.

Operational Update

Cost of sales in the reported quarter was down 19% year over year to $6.3 billion. Total gross profit for the reported quarter fell 18%, year over year, to $2.96 billion. Selling, administrative and general expenses dipped 4% to $906 million from the prior-year quarter. Equipment operations reported operating profit of $890 million in the quarter compared with the $1,366 million witnessed in the prior-year quarter. Total operating profit (including financial services) plunged 37% year over year to $965 million in the fiscal second quarter.

Segment Performance

The Agriculture & Turf segment’s sales dipped 18% year over year to $5.97 billion, primarily due to lower shipment volumes and unfavorable currency-translation impact, partly offset by price realization. Operating profit in the segment decreased 22% year over year to $794 million, resulting from lower shipment volumes / sales mix, along with the unfavorable effects of foreign-currency exchange. However, this was offset by price realization, lower production and operational costs.

Construction & Forestry sales slid 25% to $2.26 billion from the year-earlier quarter, on lower shipment volumes and unfavorable foreign currency, partly negated by price realization. This segment’s operating profit plummeted 72% year over year to $96 million, mainly due to lower revenues, partially muted by lower production costs and price realization.

Net revenues in Deere’s Financial Services division came in at $875 million in the reported quarter, down 1% year on year. The segment’s operating profit came in at $75 million, down 56% year over year.

Financial Update

Deere reported cash and cash equivalents of $8.9 billion at the end of the fiscal second quarter 2020 compared with the $3.5 billion recorded at the end of the prior-year quarter. Cash generated from operating activities were $776 million in the six-month period ended May 3, 2020 compared with the cash outflow of $1.5 billion witnessed in the prior-year comparable period. At the end of the reported quarter, long-term borrowing was $34 billion, up from the $28 billion witnessed at the year-ago quarter’s end.

Deere has undertaken significant actions also to strengthen the company’s financial position and preserve liquidity. This includes raising $4.5 billion in medium- to long-term funding, lowering operating expenses and reducing capital spending.

Outlook

Net income for fiscal 2020 is projected at $1.6-$2 billion. However, the company has stated that uncertainties regarding the effects of the COVID-19 pandemic might affect the company’s results.

Deere expects Agriculture and Turf equipment sales to be down 10-15% for fiscal 2020. The Construction and Forestry equipment segment’s sales are expected to plunge 30-40% for the fiscal year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -17.65% due to these changes.

VGM Scores

Currently, Deere has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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