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Deere (DE) Gains From Pricing Actions Despite Elevated Costs
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Deere & Company (DE - Free Report) has been gaining from solid growth in order levels, which is expected to aid its top-line performance in the forthcoming quarters. Strong replacement demand will continue to boost the company's results.
However, inflated material and labor costs are anticipated to impact the company's margins. Supply-chain challenges are other woes. Nonetheless, the company's efforts to improve pricing will somewhat help offset these headwinds.
Deere’s row-crop tractor orders are booked through most of the fiscal second quarter of 2024 and four-wheel drive tractors are sold out through the end of the fiscal third quarter. Its order books are about 45% full. 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.
The company is assessing 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 helping customers manage 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 the aftermarket and retrofit business. Deere has implemented actions to strengthen its financial position and preserve liquidity.
Strategic Investments Support Margins
Deere remains well-poised for growth over the long term, backed by steady investments in new products and geographies. The company will benefit from a concerted focus on launching products with advanced technologies and features, which provides it with a competitive edge. These investments will aid its customers in achieving improved profitability, productivity and sustainability through the effective use of technology.
It remains focused on revolutionizing agriculture with technology in an effort to make farming automated, easy to use and more precise across the production process.
The company is seeing strong demand from its new product launches like ExactRate planter applied fertilizer systems and AutoPath. ExactRate signifies the precision application of fertilizer, while AutoPath leverages Deere's onboard technology linked to its operation center throughout a customer's entire production cycle.
AutoPath will strengthen automated farming in the future with its new features and technologies as part of the company’s Precision Agriculture software package strategies.
Deere also launched its groundbreaking See & Spray Ultimate in March 2022. It can identify the difference between a weed and a healthy crop plant, and only spray the weed and lower chemical use.
Positive Farm Fundamentals to Aid Growth
The U.S. Department of Agriculture projects a net farm income of $141.3 billion for 2023, suggesting a 23% decline from that reported in 2022. The decline is mainly due to lower direct government payments.Despite this decline, net farm income in 2023 will be higher than the 2003-2022 average. 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.
In the years to come, the demand for agricultural equipment will be fueled by increased global demand for food from both population growth and an increasing proportion of the population aspiring for better living standards. Drought and water scarcity issues in the United States and other parts of the world support the need for efficient irrigation.
Higher Costs & Supply Constraints Remain Woes
Deere has been affected by rising material, labor and logistical costs. Also, supply-chain issues led to delays in 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 spending has been high. Higher SG&A and R&D spendings are also weighing on Deere’s margins.
Price Performance
Deere’s shares have fallen 4.6% in the past six months compared with the industry’s 7.8% decline.
Image Source: Zacks Investment Research
Zacks Rank & Stocks to Consider
Deere currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks from the Industrial Products sector are Crane Company (CR - Free Report) , Applied Industrial Technologies (AIT - Free Report) and A. O. Smith Corporation (AOS - Free Report) .
The Zacks Consensus Estimate for Crane Company’s 2023 earnings per share is pegged at $4.18. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 29.8%. CR shares have rallied 36.9% in the past six months.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have gained 27.3% in the past six months.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 12.5% in six months.
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Deere (DE) Gains From Pricing Actions Despite Elevated Costs
Deere & Company (DE - Free Report) has been gaining from solid growth in order levels, which is expected to aid its top-line performance in the forthcoming quarters. Strong replacement demand will continue to boost the company's results.
However, inflated material and labor costs are anticipated to impact the company's margins. Supply-chain challenges are other woes. Nonetheless, the company's efforts to improve pricing will somewhat help offset these headwinds.
Higher Sales & Positive Pricing Actions Drive Results
Deere’s row-crop tractor orders are booked through most of the fiscal second quarter of 2024 and four-wheel drive tractors are sold out through the end of the fiscal third quarter. Its order books are about 45% full. 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.
The company is assessing 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 helping customers manage 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 the aftermarket and retrofit business. Deere has implemented actions to strengthen its financial position and preserve liquidity.
Strategic Investments Support Margins
Deere remains well-poised for growth over the long term, backed by steady investments in new products and geographies. The company will benefit from a concerted focus on launching products with advanced technologies and features, which provides it with a competitive edge. These investments will aid its customers in achieving improved profitability, productivity and sustainability through the effective use of technology.
It remains focused on revolutionizing agriculture with technology in an effort to make farming automated, easy to use and more precise across the production process.
The company is seeing strong demand from its new product launches like ExactRate planter applied fertilizer systems and AutoPath. ExactRate signifies the precision application of fertilizer, while AutoPath leverages Deere's onboard technology linked to its operation center throughout a customer's entire production cycle.
AutoPath will strengthen automated farming in the future with its new features and technologies as part of the company’s Precision Agriculture software package strategies.
Deere also launched its groundbreaking See & Spray Ultimate in March 2022. It can identify the difference between a weed and a healthy crop plant, and only spray the weed and lower chemical use.
Positive Farm Fundamentals to Aid Growth
The U.S. Department of Agriculture projects a net farm income of $141.3 billion for 2023, suggesting a 23% decline from that reported in 2022. The decline is mainly due to lower direct government payments.Despite this decline, net farm income in 2023 will be higher than the 2003-2022 average. 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.
In the years to come, the demand for agricultural equipment will be fueled by increased global demand for food from both population growth and an increasing proportion of the population aspiring for better living standards. Drought and water scarcity issues in the United States and other parts of the world support the need for efficient irrigation.
Higher Costs & Supply Constraints Remain Woes
Deere has been affected by rising material, labor and logistical costs. Also, supply-chain issues led to delays in 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 spending has been high. Higher SG&A and R&D spendings are also weighing on Deere’s margins.
Price Performance
Deere’s shares have fallen 4.6% in the past six months compared with the industry’s 7.8% decline.
Image Source: Zacks Investment Research
Zacks Rank & Stocks to Consider
Deere currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks from the Industrial Products sector are Crane Company (CR - Free Report) , Applied Industrial Technologies (AIT - Free Report) and A. O. Smith Corporation (AOS - Free Report) .
CR currently sports a Zacks Rank #1 (Strong Buy), and AIT and AOS carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Crane Company’s 2023 earnings per share is pegged at $4.18. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 29.8%. CR shares have rallied 36.9% in the past six months.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have gained 27.3% in the past six months.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 12.5% in six months.