Smarter Analyst

Stock Update (NYSE:DE): Deere & Company Announces First-Quarter Earnings Of $254 Million

Net income attributable to Deere & Company (NYSE:DE) was $254.4 million, or $0.80 per share, for the first quarter ended January 31, compared with $386.8 million, or $1.12 per share, for the same period of 2015. Worldwide net sales and revenues for the first quarter decreased 13 percent, to $5.525 billion, compared with $6.383 billion last year. Net sales of the equipment operations were $4.769 billion for the quarter compared with $5.605 billion a year ago.

“John Deere’s first-quarter results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment markets,” said Samuel R. Allen, chairman and chief executive officer. “At the same time, all of Deere’s businesses remained solidly profitable, benefiting from the sound execution of our business plans and the success of actions to develop a more responsive cost structure.”

Summary of Operations

Net sales of the worldwide equipment operations declined 15 percent for the quarter. Sales included price realization of 2 percent and an unfavorable currency-translation effect of 4 percent. Equipment net sales in the United States and Canada decreased 18 percent. Outside the U.S. and Canada, net sales were down 9 percent, with unfavorable currency-translation effects of 11 percent.

Deere’s equipment operations reported operating profit of $214 million for the quarter, compared with $414 million in 2015. The decline for the quarter was due primarily to lower shipment volumes, the unfavorable effects of foreign-currency exchange and the impact of a less favorable product mix. Partially offsetting these factors were price realization, lower selling, administrative and general expenses and lower production costs. Net income of the company’s equipment operations was $127 million for the quarter, compared with $241 million for the same period last year. In addition to the operating factors mentioned above, a lower effective tax rate benefited results.

Financial services reported net income attributable to Deere & Company of $129.4 million for the quarter compared with $156.8 million last year. Lower results for the quarter were primarily due to the unfavorable effects of foreign-currency exchange translation, higher losses on residual values primarily for construction-equipment operating leases, less favorable financing spreads and a higher provision for credit losses. These factors were partially offset by a reduction in selling, administrative and general expenses.

Company Outlook & Summary
Company equipment sales are projected to decrease about 10 percent for fiscal 2016 and to be down about 8 percent for the second quarter compared with the same period a year ago. Included in the forecast is a negative foreign-currency translation effect of about 3 percent for the full year and second quarter. For fiscal 2016, net income attributable to Deere & Company is anticipated to be about $1.3 billion.

“Although Deere expects another challenging year in 2016, our forecast represents a level of performance much better than we have experienced in previous downturns,” Allen said. “This illustrates the impact of our efforts to establish a more durable business model and a wider range of revenue sources. As a result, the company’s financial condition remains strong and we are well-positioned to continue investing in innovative products, advanced technology and new markets. These actions, we’re confident, will provide significant value to our customers and investors in the years ahead.”

Equipment Division Performance

Market Conditions & Outlook

Shares of Deere & Company are down nearly one percent in pre-market trading. DE has a 1-year high of $98.23 and a 1-year low of $70.16. The stock’s 50-day moving average is $75.68 and its 200-day moving average is $78.44.

On the ratings front, DE has been the subject of a number of recent research reports. In a report issued on January 19, Barclays analyst Robert Wertheimer maintained a Sell rating on DE, with a price target of $63, which reflects a potential downside of -21.6% from last closing price. Separately, on January 6, Deutsche Bank’s Vishal Shah maintained a Buy rating on the stock and has a price target of $90.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Robert Wertheimer and Vishal Shah have a total average return of 17.7% and -22.8% respectively. Wertheimer has a success rate of 50.0% and is ranked #856 out of 3640 analysts, while Shah has a success rate of 23.9% and is ranked #3623.

The street is mostly Bullish on DE stock. Out of 7 analysts who cover the stock, 3 suggest a Buy rating , 2 suggest a Sell and 2 recommend to Hold the stock. The 12-month average price target assigned to the stock is $69.75, which reflects a potential downside of -13.2% from last closing price.

Deere & Company operates in three business segments: agriculture/ turf, construction/forestry, & financial services. The Company helps customers to be more productive to improve the quality of life for people around the world.