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Why Is Deere (DE) Up 6.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for Deere (DE - Free Report) . Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Deere due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Deere Q4 Earnings Beat, Shares Dip on Muted FY24 View
Deere reported fourth-quarter fiscal 2023 earnings of $8.26 per share, beating the Zacks Consensus Estimate of earnings of $7.49 per share. The bottom line increased 11% from the prior-year quarter’s levels, backed by favorable market conditions and price realization.
Despite the outperformance, DE shares dipped 5.3% in pre-market trading as the company’s fiscal 2024 guidance indicates a decline in sales in all its segments along with lower net income. The midpoint of the company’s provided range for net income indicates a year-over-year slump of 21%, thus reflecting the company’s expectations of weak demand.
Net sales of equipment operations (comprising Agriculture and Turf, Construction and Forestry) were $13,801 million, down 4% year over year. Revenues topped the Zacks Consensus Estimate of $13,628 million. Total net sales (including financial services and others) were $15,412 million, down 1% year over year.
Operational Update
The cost of sales in the reported quarter went down 7.7% year over year to $9,427 million. Total gross profit increased 5.7% year over year to $4,374 million. Selling, administrative and general expenses (SA&G) rose 1% to $1,203 million from the year-ago quarter levels.
Total operating profit (including financial services) was up 2% year over year to $3,025 million in the fiscal fourth quarter.
Segment Performance
The Production & Precision Agriculture segment’s sales declined 6% year over year to $6,965 million. The figure was higher than our model’s estimated revenues of $6,567 million for the quarter. Gains from price realization were offset by low volumes.
Operating profit increased 6% year over year to $1,836 million mainly due to price realization. Lower shipment volumes/sales mix, higher SA&G and research and development (R&D) expenses offset some of the gains. Our estimate for the segment’s operating profit was $1,677 million.
Small Agriculture & Turf sales were down 13% year over year at $3,739 million on low volumes, somewhat offset by price realization. Our projection for the segment’s sales was $3,175 million. Operating profit declined 12% year over year to $444 million. Lower sales, as well as elevated SA&G and R&D expenses, led to the decline. The figure was lower than our estimate of operating profit of $483 million for the segment.
Construction & Forestry sales were $3,742 million, up 11% year over year, backed by higher shipment volumes and price realization. The figure was lower than our projection of $3,772 million. Operating profit increased 25% year over year to $516 million. Gains from higher sales were partially offset by increased production costs, unfavorable impact of foreign currency exchange, less favorable sales mix and a loss on the sale of the Russian roadbuilding business. Our estimate for the segment’s operating profit was $678 million.
Revenues in Deere’s Financial Services division were $1,347 million in the reported quarter, up 36% year over year. The figure was higher than our estimate of $1,049 million. The segment’s operating income was $229 million in the quarter under review, down compared with $297 million in the last fiscal year’s comparable quarter. Our projection was $276 million for the quarter.
Net income for Financial services declined 18% year over year to $190 million in the fourth quarter of fiscal 2023.
Financial Update
Deere reported cash and cash equivalents of $7.46 billion at the end of fiscal 2023 compared with $4.77 billion recorded at fiscal 2022 end. Cash flow from operating activities was $8.6 billion in fiscal 2023 compared with $4.7 billion in the prior fiscal.
At the end of fiscal 2023, DE’s long-term borrowing was nearly $38.5 billion compared with $33.6 billion at fiscal 2022 end.
Fiscal 2023 Performance
The company reported earnings per share of $34.63 in fiscal 2023, which came in 49% higher than the earnings per share of $23.28 in fiscal 2022. It also surpassed the Zacks Consensus Estimate of earnings of $33.89 per share.
Net sales of equipment operations (comprising Agriculture and Turf, Construction and Forestry) rose 16% year over year to $55.6 billion, which beat the consensus estimate of $55.4 billion. Total net sales (including financial services and others) were $61.3 million, up 16.5% year over year.
Guidance
Deere expects net income for fiscal 2024 to be between $7.75 billion and $8.25 billion stating that it expects volumes to return to mid-cycle levels. The stated range is much lower than net income attributable of $10.2 billion in fiscal 2023.
Net sales for Production & Precision Agriculture are expected to be down 15-20% year over year in fiscal 2024. Sales of Small Agriculture & Turf are expected to decline in the range of 10% to 15%. Sales of Construction & Forestry are projected to be down 10%. The Financial Services segment’s net income is expected to be around $770 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -8.65% due to these changes.
VGM Scores
At this time, Deere has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Deere has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Deere (DE) Up 6.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Deere (DE - Free Report) . Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Deere due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Deere Q4 Earnings Beat, Shares Dip on Muted FY24 View
Deere reported fourth-quarter fiscal 2023 earnings of $8.26 per share, beating the Zacks Consensus Estimate of earnings of $7.49 per share. The bottom line increased 11% from the prior-year quarter’s levels, backed by favorable market conditions and price realization.
Despite the outperformance, DE shares dipped 5.3% in pre-market trading as the company’s fiscal 2024 guidance indicates a decline in sales in all its segments along with lower net income. The midpoint of the company’s provided range for net income indicates a year-over-year slump of 21%, thus reflecting the company’s expectations of weak demand.
Net sales of equipment operations (comprising Agriculture and Turf, Construction and Forestry) were $13,801 million, down 4% year over year. Revenues topped the Zacks Consensus Estimate of $13,628 million. Total net sales (including financial services and others) were $15,412 million, down 1% year over year.
Operational Update
The cost of sales in the reported quarter went down 7.7% year over year to $9,427 million. Total gross profit increased 5.7% year over year to $4,374 million. Selling, administrative and general expenses (SA&G) rose 1% to $1,203 million from the year-ago quarter levels.
Total operating profit (including financial services) was up 2% year over year to $3,025 million in the fiscal fourth quarter.
Segment Performance
The Production & Precision Agriculture segment’s sales declined 6% year over year to $6,965 million. The figure was higher than our model’s estimated revenues of $6,567 million for the quarter. Gains from price realization were offset by low volumes.
Operating profit increased 6% year over year to $1,836 million mainly due to price realization. Lower shipment volumes/sales mix, higher SA&G and research and development (R&D) expenses offset some of the gains. Our estimate for the segment’s operating profit was $1,677 million.
Small Agriculture & Turf sales were down 13% year over year at $3,739 million on low volumes, somewhat offset by price realization. Our projection for the segment’s sales was $3,175 million. Operating profit declined 12% year over year to $444 million. Lower sales, as well as elevated SA&G and R&D expenses, led to the decline. The figure was lower than our estimate of operating profit of $483 million for the segment.
Construction & Forestry sales were $3,742 million, up 11% year over year, backed by higher shipment volumes and price realization. The figure was lower than our projection of $3,772 million. Operating profit increased 25% year over year to $516 million. Gains from higher sales were partially offset by increased production costs, unfavorable impact of foreign currency exchange, less favorable sales mix and a loss on the sale of the Russian roadbuilding business. Our estimate for the segment’s operating profit was $678 million.
Revenues in Deere’s Financial Services division were $1,347 million in the reported quarter, up 36% year over year. The figure was higher than our estimate of $1,049 million. The segment’s operating income was $229 million in the quarter under review, down compared with $297 million in the last fiscal year’s comparable quarter. Our projection was $276 million for the quarter.
Net income for Financial services declined 18% year over year to $190 million in the fourth quarter of fiscal 2023.
Financial Update
Deere reported cash and cash equivalents of $7.46 billion at the end of fiscal 2023 compared with $4.77 billion recorded at fiscal 2022 end. Cash flow from operating activities was $8.6 billion in fiscal 2023 compared with $4.7 billion in the prior fiscal.
At the end of fiscal 2023, DE’s long-term borrowing was nearly $38.5 billion compared with $33.6 billion at fiscal 2022 end.
Fiscal 2023 Performance
The company reported earnings per share of $34.63 in fiscal 2023, which came in 49% higher than the earnings per share of $23.28 in fiscal 2022. It also surpassed the Zacks Consensus Estimate of earnings of $33.89 per share.
Net sales of equipment operations (comprising Agriculture and Turf, Construction and Forestry) rose 16% year over year to $55.6 billion, which beat the consensus estimate of $55.4 billion. Total net sales (including financial services and others) were $61.3 million, up 16.5% year over year.
Guidance
Deere expects net income for fiscal 2024 to be between $7.75 billion and $8.25 billion stating that it expects volumes to return to mid-cycle levels. The stated range is much lower than net income attributable of $10.2 billion in fiscal 2023.
Net sales for Production & Precision Agriculture are expected to be down 15-20% year over year in fiscal 2024. Sales of Small Agriculture & Turf are expected to decline in the range of 10% to 15%. Sales of Construction & Forestry are projected to be down 10%. The Financial Services segment’s net income is expected to be around $770 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -8.65% due to these changes.
VGM Scores
At this time, Deere has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Deere has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.