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Deere (DE) Down 5.1% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Deere (DE - Free Report) . Shares have lost about 5.1% in that time frame, underperforming the S&P 500.

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

Deere Earnings Surpass Estimates in Q4, Improve Y/Y

Deere reported fourth-quarter fiscal 2021 earnings of $4.12 per share, which beat the Zacks Consensus Estimate of $3.82. The bottom line surged 72% from the prior-year quarter, reflecting strong demand. Its shares gained 3.4% in pre-market trading on the upbeat results despite the ongoing inflationary pressures and supply chain disruptions.

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. Revenues fell short of the Zacks Consensus Estimate of $10.344 billion. Total net sales (including financial services and others) were $11.327 billion, up 16% year over year.

Operational Update

Cost of sales in the reported quarter was up 21% year over year to $7.8 billion. Total gross profit for the reported quarter climbed 13% year over year to $2.5 billion. Selling, administrative and general expenses declined 7% to $936 million from the prior-year period. Equipment operations reported an operating profit of $1,313 million in the quarter compared with $867 million in the year-earlier quarter. Total operating profit (including financial services) surged 45% year over year to $1,613 million in the fiscal fourth quarter.

Segment Performance

The Production & Precision Agriculture segment’s sales were up 23% year over year to $4.7 billion, primarily driven by higher shipment volumes and price realization. Operating profit in the segment increased 34% year over year to $777 million.

Small Agriculture & Turf sales rose 17% to $2.8 billion from the year-earlier quarter on higher shipment volumes and price realization. This segment’s operating profit improved 23% year over year to $346 million.

Construction & forestry segment sales were $2.8 billion, reflecting year-over-year growth of 14%, backed by higher shipment volumes and price realization. The segment’s operating profit went up 38% year over year to $270 million.

Net revenues in Deere’s Financial Services division were $869 million for the reported quarter, down 2% year on year. The segment’s operating profit amounted to $299 million, up 20% year over year.

Financial Update

Deere reported cash and cash equivalents of $8 billion at the end of fiscal 2021 compared with the $7.1 billion recorded at the end of the prior fiscal. Cash generated from operating activities was $7.7 billion in the fiscal 2021 compared with $7.5 billion in the prior fiscal. At the end of the fiscal 2021, long-term borrowing was roughly $33 billion compared with the $33 billion at the end of fiscal 2020.

Fiscal 2021 Performance

Deere’s earnings per share soared 119% year over year to $18.99 in fiscal 2021. The bottom line surpassed the Zacks Consensus Estimate of $18.73. Net sales of equipment operations were up 27% year over year to $39.7 billion but missed the Zacks Consensus Estimate of $39.8 billion. Total net sales came in at $44 billion, up 24% year over year.

Outlook

Deere expects net income for fiscal 2022 between $6.5 billion and $7 billion, compared with $5.963 billion in fiscal 2021. Demand for farm and construction equipment will continue to be supported by positive fundamentals, including favorable crop prices, economic growth and increased infrastructure spending. However, supply-chain pressures will persist.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -45.87% due to these changes.

VGM Scores

Currently, Deere has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Deere has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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