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Deere (DE) Rides on Farm Equipment Demand & Product Launches
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Deere & Company (DE - Free Report) is gaining from higher agricultural commodity prices that will likely spur agricultural equipment demand in the near term. An improved scenario in the construction and forestry sector as well as a focus on investments in precision agriculture will continue to aid growth.
The company recently reported fourth-quarter fiscal 2021 results. Adjusted earnings per share (EPS) in the quarter was $4.12, which beat the Zacks Consensus Estimate of $3.82. The bottom line surged 72% from the prior-year quarter’s levels. Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) were $10.276 billion, reflecting an increase of 19% year over year. However, revenues fell short of the Zacks Consensus Estimate of $10.344 billion.
Higher Commodity Prices to Aid Growth
According to the USDA’s (U.S Department of Agriculture) farm income forecast, net farm income is anticipated to increase 23.2% from 2020 to $116.8 billion in the current year — the highest level since 2013. This upbeat projection can be attributed to higher commodity prices stemming from the tightening of global stocks and strong import demand from China throughout the year. In inflation-adjusted 2021 dollars, the net farm income is projected to increase 18.7% in the current year. The increased commodity prices will drive farm income, encouraging farmers to boost spending on new agricultural equipment and replace their aging fleets. This, in turn, will boost Deere's top line.
Even though government support is expected to decline this year, total crop cash receipts in the United States will likely be up 17.9% year over year on higher commodity prices. The U.S customer sentiment has moved up over the last few quarters with elevated exports to China. Considering these factors, Deere projects fiscal 2022 net income in the band of $6.5-$7 billion, suggesting an increase from $5.96 billion in fiscal 2021.
Upbeat Farm Equipment Sales Forecast Bodes Well
Positive farm fundamentals, including favorable crop prices, economic growth and increased infrastructure spending in fiscal 2022, will continue to drive farm and construction equipment demand. For the Agriculture & Turf segment, Deere expects industry sales of large agricultural equipment in the United States and Canada to be up roughly 15% in fiscal 2022. Small agricultural and turf equipment are expected to be up 15-20%. In Europe, industry sales are projected to be up 5% as higher commodity prices favor business conditions in the arable segment and dairy prices remain resilient. In South America, the industry sales of tractors and combines are likely to go up 5%.
Net sales for Deere’s Production and Precision Agriculture segment are anticipated to be up between 20% and 25% in fiscal 2022. The segment’s operating margin is estimated between 20% and 21%. The company is also witnessing improvement in the Construction & Forestry segment. North American earthmoving and compact construction equipment industry sales are likely to be up between 5% and 10%. Earthmoving and compact equipment end markets are expected to remain strong in fiscal 2022, owing to continued strength in the housing market, increased activity in the oil and gas sector as well as strong capex programs from the independent rental companies. Forestry equipment sales are expected to be up 10% to 15%, as lumber demand remains robust. Sales in the Construction & Forestry segment are projected to be up 10-15% and the operating margin is likely to be 13.5% to 14.5% in fiscal 2022.
Advanced Farming Technology to Stoke Growth
Deere is well poised for growth in the long term, backed by steady investments in new products and geographies. Focus on launching innovative products equipped with advanced technologies and features as well as making investments in precision agriculture provides a competitive edge. The company recently launched ExactRate planter-applied fertilizer systems and AutoPath. Deere envisions to revolutionize agriculture with technology and make farming automated, easy to use and more precise across the production process. Farmers’ growing reliance on advanced technology to run their complex operations smoothly will continue to fuel Deere’s revenues.
Price Performance
Deere’s shares have gained 44% in the past year, compared with the industry’s growth of 39%.
SiteOne Landscape has an estimated earnings growth rate of around 77.2% for the current year. In the past 30 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 14%.
In a year’s time, the company’s shares have increased 68%. SiteOne Landscape has a trailing four-quarter earnings surprise of 130.9%, on average.
A. O. Smith has an expected earnings growth rate of around 35% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised upward by 1% in the past 30 days.
A. O. Smith’s shares have surged 44% in a year’s time. The company has a trailing four-quarter earnings surprise of 16.8%, on average.
ScanSource has a projected earnings growth rate of around 19% for 2021. The Zacks Consensus Estimate for current-year earnings has been revised upward by 1% in the past 30 days.
The company’s shares have appreciated 23% in the past year. ScanSource has a trailing four-quarter earnings surprise of 34.6%, on average.
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Deere (DE) Rides on Farm Equipment Demand & Product Launches
Deere & Company (DE - Free Report) is gaining from higher agricultural commodity prices that will likely spur agricultural equipment demand in the near term. An improved scenario in the construction and forestry sector as well as a focus on investments in precision agriculture will continue to aid growth.
The company recently reported fourth-quarter fiscal 2021 results. Adjusted earnings per share (EPS) in the quarter was $4.12, which beat the Zacks Consensus Estimate of $3.82. The bottom line surged 72% from the prior-year quarter’s levels. Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) were $10.276 billion, reflecting an increase of 19% year over year. However, revenues fell short of the Zacks Consensus Estimate of $10.344 billion.
Higher Commodity Prices to Aid Growth
According to the USDA’s (U.S Department of Agriculture) farm income forecast, net farm income is anticipated to increase 23.2% from 2020 to $116.8 billion in the current year — the highest level since 2013. This upbeat projection can be attributed to higher commodity prices stemming from the tightening of global stocks and strong import demand from China throughout the year. In inflation-adjusted 2021 dollars, the net farm income is projected to increase 18.7% in the current year. The increased commodity prices will drive farm income, encouraging farmers to boost spending on new agricultural equipment and replace their aging fleets. This, in turn, will boost Deere's top line.
Even though government support is expected to decline this year, total crop cash receipts in the United States will likely be up 17.9% year over year on higher commodity prices. The U.S customer sentiment has moved up over the last few quarters with elevated exports to China. Considering these factors, Deere projects fiscal 2022 net income in the band of $6.5-$7 billion, suggesting an increase from $5.96 billion in fiscal 2021.
Upbeat Farm Equipment Sales Forecast Bodes Well
Positive farm fundamentals, including favorable crop prices, economic growth and increased infrastructure spending in fiscal 2022, will continue to drive farm and construction equipment demand. For the Agriculture & Turf segment, Deere expects industry sales of large agricultural equipment in the United States and Canada to be up roughly 15% in fiscal 2022. Small agricultural and turf equipment are expected to be up 15-20%. In Europe, industry sales are projected to be up 5% as higher commodity prices favor business conditions in the arable segment and dairy prices remain resilient. In South America, the industry sales of tractors and combines are likely to go up 5%.
Net sales for Deere’s Production and Precision Agriculture segment are anticipated to be up between 20% and 25% in fiscal 2022. The segment’s operating margin is estimated between 20% and 21%. The company is also witnessing improvement in the Construction & Forestry segment. North American earthmoving and compact construction equipment industry sales are likely to be up between 5% and 10%. Earthmoving and compact equipment end markets are expected to remain strong in fiscal 2022, owing to continued strength in the housing market, increased activity in the oil and gas sector as well as strong capex programs from the independent rental companies. Forestry equipment sales are expected to be up 10% to 15%, as lumber demand remains robust. Sales in the Construction & Forestry segment are projected to be up 10-15% and the operating margin is likely to be 13.5% to 14.5% in fiscal 2022.
Advanced Farming Technology to Stoke Growth
Deere is well poised for growth in the long term, backed by steady investments in new products and geographies. Focus on launching innovative products equipped with advanced technologies and features as well as making investments in precision agriculture provides a competitive edge. The company recently launched ExactRate planter-applied fertilizer systems and AutoPath. Deere envisions to revolutionize agriculture with technology and make farming automated, easy to use and more precise across the production process. Farmers’ growing reliance on advanced technology to run their complex operations smoothly will continue to fuel Deere’s revenues.
Price Performance
Deere’s shares have gained 44% in the past year, compared with the industry’s growth of 39%.
Zacks Rank and Stocks to Consider
Deere currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector include SiteOne Landscape Supply (SITE - Free Report) , A. O. Smith Corporation (AOS - Free Report) and ScanSource, Inc. (SCSC - Free Report) . While SiteOne Landscape and A. O. Smith flaunt a Zacks Rank #1, (Strong Buy), ScanSource carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SiteOne Landscape has an estimated earnings growth rate of around 77.2% for the current year. In the past 30 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 14%.
In a year’s time, the company’s shares have increased 68%. SiteOne Landscape has a trailing four-quarter earnings surprise of 130.9%, on average.
A. O. Smith has an expected earnings growth rate of around 35% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised upward by 1% in the past 30 days.
A. O. Smith’s shares have surged 44% in a year’s time. The company has a trailing four-quarter earnings surprise of 16.8%, on average.
ScanSource has a projected earnings growth rate of around 19% for 2021. The Zacks Consensus Estimate for current-year earnings has been revised upward by 1% in the past 30 days.
The company’s shares have appreciated 23% in the past year. ScanSource has a trailing four-quarter earnings surprise of 34.6%, on average.