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Deere (DE) Gains From Solid Order Levels Despite Cost Woes
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Deere & Company (DE - Free Report) is witnessing solid growth in order levels, which is expected to aid its top-line performance in the forthcoming quarters. This is impressive, given the ongoing supply-chain issues and elevated costs.
Strong replacement demand is driving the company's results. It is poised to benefit in the long run from rapid growth in the global population and the rising worldwide infrastructure needs.
Shares of this Zacks Rank #3 (Hold) company have gained 26.3% in the past year compared with the industry’s growth of 24.1%.
Image Source: Zacks Investment Research
Strong Order Levels to Aid Results
Deere’s orders are booked till the fourth quarter of fiscal 2023. This reflects improved demand in its markets. The need to replace aging equipment will also support Deere’s top-line performance.
Demand for its construction equipment will be supported by increased infrastructure spending in the United States.
Upbeat Outlook to Instill Confidence
Deere expects net income for fiscal 2023 between $9.25 billion and $9.50 billion, up from the previously disclosed $8.75-$9.25 billion.
In the United States and Canada, industry sales for construction and compact construction equipment are expected to be flat to up 5% in fiscal 2023. Sales for the Construction & Forestry segment are projected to be up 10-15% in fiscal 2023 and the operating margin is likely to be 18-19% in fiscal 2023.
The Production and Precision Agriculture segment’s sales are expected to be up 20% in fiscal 2023 on positive price/cost. The segment’s operating margin is expected between 25% and 26%, reflecting a solid financial performance across various geographical regions.
The Small Agriculture and Turf segment’s net sales are expected to be flat to up 5%, while its operating margin is forecast between 13.5% and 16.5% for fiscal 2023.
Positive Farm Fundamentals Bode Well
The USDA (U.S. Department of Agriculture) projects net farm income at $136.9 billion for 2023. It suggests a 15.9% dip from that reported in 2022 mainly due to elevated production expenses and lower direct government payments.
Despite the decline, net farm income in 2023 will be 26.6% above the 20-year average (2002-2021) of $108.1 billion in inflation-adjusted dollars. This will continue to support Deere’s margin.
The farm size has been on the rise in the United States, which requires more laborers. Given the escalation in labor costs every year, farmers are resorting to farming equipment to replace labor. The U.S. agricultural machinery market is projected to reach $52.73 billion by 2027, seeing a CAGR of 3.3% over 2021-2027.
Strategic Actions to Boost Performance
Deere is assessing its cost structure by reviewing organization efficiency and footprint assessment, which, in turn, will help improve margins. Its price realization action is expected to offset higher material and freight costs.
Deere’s smart industrial strategy is aiding customers in managing escalating input costs while improving their yields.
The company is focused on driving capital allocation decisions, intensifying investments in precision agriculture, and enhancing capabilities in its aftermarket and retrofit business. Deere has implemented actions to strengthen its financial position and preserve liquidity.
Supply Issues & High Costs Act as Headwinds
Deere has been affected by rising material, labor and logistic costs. The company reported a 20.3% rise in its cost of goods sold in the second quarter of fiscal 2023.
Also, supply-chain issues led to delays in the deliveries of some parts, causing partially completed machinery to stack up at assembly plants as the company waited for the parts to arrive. This resulted in factories becoming less efficient lately. Consequently, overhead spend has been high. Higher SG&A and R&D spend is weighing on margins.
Deere’s small agricultural and turf equipment will continue to suffer from supply constraints, limiting industry production, and higher material and freight costs. Equipment inventories remain well below normal and are unlikely to begin recovering until 2023.
Hubbell has an average trailing four-quarter earnings surprise of 21%. The Zacks Consensus Estimate for HUBB’s fiscal 2023 earnings is pegged at $13.81 per share. The consensus estimate for 2023 earnings has moved north by 22.5% in the past 60 days. Its shares gained 87% in the last year.
Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. MTW’s shares gained 66.8% in the last year.
The Zacks Consensus Estimate for Grainger’s 2023 earnings per share is pegged at $35.83, up 7.6% in the past 60 days. It has a trailing four-quarter average earnings surprise of 9.1%. GWW gained 65.7% in the last year.
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Deere (DE) Gains From Solid Order Levels Despite Cost Woes
Deere & Company (DE - Free Report) is witnessing solid growth in order levels, which is expected to aid its top-line performance in the forthcoming quarters. This is impressive, given the ongoing supply-chain issues and elevated costs.
Strong replacement demand is driving the company's results. It is poised to benefit in the long run from rapid growth in the global population and the rising worldwide infrastructure needs.
Shares of this Zacks Rank #3 (Hold) company have gained 26.3% in the past year compared with the industry’s growth of 24.1%.
Image Source: Zacks Investment Research
Strong Order Levels to Aid Results
Deere’s orders are booked till the fourth quarter of fiscal 2023. This reflects improved demand in its markets. The need to replace aging equipment will also support Deere’s top-line performance.
Demand for its construction equipment will be supported by increased infrastructure spending in the United States.
Upbeat Outlook to Instill Confidence
Deere expects net income for fiscal 2023 between $9.25 billion and $9.50 billion, up from the previously disclosed $8.75-$9.25 billion.
In the United States and Canada, industry sales for construction and compact construction equipment are expected to be flat to up 5% in fiscal 2023. Sales for the Construction & Forestry segment are projected to be up 10-15% in fiscal 2023 and the operating margin is likely to be 18-19% in fiscal 2023.
The Production and Precision Agriculture segment’s sales are expected to be up 20% in fiscal 2023 on positive price/cost. The segment’s operating margin is expected between 25% and 26%, reflecting a solid financial performance across various geographical regions.
The Small Agriculture and Turf segment’s net sales are expected to be flat to up 5%, while its operating margin is forecast between 13.5% and 16.5% for fiscal 2023.
Positive Farm Fundamentals Bode Well
The USDA (U.S. Department of Agriculture) projects net farm income at $136.9 billion for 2023. It suggests a 15.9% dip from that reported in 2022 mainly due to elevated production expenses and lower direct government payments.
Despite the decline, net farm income in 2023 will be 26.6% above the 20-year average (2002-2021) of $108.1 billion in inflation-adjusted dollars. This will continue to support Deere’s margin.
The farm size has been on the rise in the United States, which requires more laborers. Given the escalation in labor costs every year, farmers are resorting to farming equipment to replace labor. The U.S. agricultural machinery market is projected to reach $52.73 billion by 2027, seeing a CAGR of 3.3% over 2021-2027.
Strategic Actions to Boost Performance
Deere is assessing its cost structure by reviewing organization efficiency and footprint assessment, which, in turn, will help improve margins. Its price realization action is expected to offset higher material and freight costs.
Deere’s smart industrial strategy is aiding customers in managing escalating input costs while improving their yields.
The company is focused on driving capital allocation decisions, intensifying investments in precision agriculture, and enhancing capabilities in its aftermarket and retrofit business. Deere has implemented actions to strengthen its financial position and preserve liquidity.
Supply Issues & High Costs Act as Headwinds
Deere has been affected by rising material, labor and logistic costs. The company reported a 20.3% rise in its cost of goods sold in the second quarter of fiscal 2023.
Also, supply-chain issues led to delays in the deliveries of some parts, causing partially completed machinery to stack up at assembly plants as the company waited for the parts to arrive. This resulted in factories becoming less efficient lately. Consequently, overhead spend has been high. Higher SG&A and R&D spend is weighing on margins.
Deere’s small agricultural and turf equipment will continue to suffer from supply constraints, limiting industry production, and higher material and freight costs. Equipment inventories remain well below normal and are unlikely to begin recovering until 2023.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Hubbell Incorporated (HUBB - Free Report) , The Manitowoc Company, Inc. (MTW - Free Report) and W.W. Grainger, Inc. (GWW - Free Report) . HUBB and MTW flaunt a Zacks Rank #1 (Strong Buy) at present, and GWW has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hubbell has an average trailing four-quarter earnings surprise of 21%. The Zacks Consensus Estimate for HUBB’s fiscal 2023 earnings is pegged at $13.81 per share. The consensus estimate for 2023 earnings has moved north by 22.5% in the past 60 days. Its shares gained 87% in the last year.
Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. MTW’s shares gained 66.8% in the last year.
The Zacks Consensus Estimate for Grainger’s 2023 earnings per share is pegged at $35.83, up 7.6% in the past 60 days. It has a trailing four-quarter average earnings surprise of 9.1%. GWW gained 65.7% in the last year.