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Why Is Deere (DE) Up 8.5% Since the Last Earnings Report?
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It has been more than a month since the last earnings report for Deere & Company (DE - Free Report) . Shares have added about 8.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? 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 catalysts.
Deere Q4 Earnings & Sales Beat on Rising Farm Market
Deere’s fourth-quarter fiscal 2017 (ended Oct 29, 2017) earnings surged around 74% year over year to $1.57 per share. The bottom line also surpassed the Zacks Consensus Estimate of $1.46.
Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $7.09 billion, rising 26% year over year. Revenues also surpassed the Zacks Consensus Estimate of $6.91 billion.
Price realization had an impact of 1% in the quarter with a favorable currency-translation effect of 2%. Region wise, equipment net sales increased 23% in the United States and Canada, and 30% in the rest of the world. Total net sales (including financial services and others) were $8.02 billion, up 23% year over year.
Deere’s strong results were driven by improving markets for farm and construction equipment. Performance benefits from advanced products and flexible cost structure also drove growth.
Operational Update
Cost of sales in the reported quarter increased 23.8% year over year to $5.43 billion. Gross profit came in at $1.67 billion, advancing 31.6% year over year. Selling, administrative and general expenses flared up 12.5% to $840.8 million. Operating profit significantly improved 59% year over year to $826.7 million.
Operating income from equipment operations surged 89% year over year to $669 million, owing to higher shipment volumes, favorable product mix and price realization, partially offset by elevated production costs, higher selling, administrative and general expenses.
Segment Performance
Agriculture & Turf segment’s sales grew 22% year over year to $5.44 billion, primarily owing to higher shipment volumes, favorable effects of currency translation and price realization. Operating profit at the segment climbed 57% year over year to $584 million, driven by higher shipment volumes and a favorable sales mix, partially offset by elevated production costs and higher selling, administrative and general expenses.
Construction & Forestry sales were up 37% year over year to $1.66 billion, mainly as a result of higher shipment volumes, price realization and favorable impact of currency translation. The segment reported operating profit of $85 million, as against an operating loss of $17 million recorded in the prior-year quarter. The upswing was driven by shipment volumes and price realization.
Net revenues at Deere’s Financial Services division totaled $782 million in the reported quarter, up 6% year over year. The segment’s operating profit came in at $193 million, up 18% year over year. Net income at the segment was $127.8 million compared with $109.8 million recorded in the year-earlier quarter.
Fiscal 2017 Performance
Deere reported earnings per share of $6.68 in fiscal 2017, surpassing the Zacks Consensus Estimate of $6.51. The figure also came in 38.9% higher than the year-ago figure. Revenues improved 11% year over year to $25.9 billion and outpaced the Zacks Consensus Estimate of $25.7 billion. Worldwide net sales in fiscal 2017 were $29.7 billion compared with $26.6 billion recorded in fiscal 2016.
Financial Update
Deere reported cash and cash equivalents of $9.33 billion at the end of fiscal 2017 compared with $4.34 billion at the end of the prior fiscal. The company reported cash from operations of $2.20 billion for fiscal 2017 compared with $3.77 billion in fiscal 2016. As of the end of fiscal 2017, long-term borrowing totaled $25.9 billion compared with $23.7 million at the end of fiscal 2016.
Wirtgen Acquisition
Deere expects the Wirtgen Group acquisition to close in December 2017. The buyout is estimated to contribute about $3.1 billion in net sales in fiscal 2018. Wirtgen is expected to add about 12% to Deere's sales for fiscal 2018 and about 6% for the fiscal first quarter in comparison with fiscal 2017.
After estimating expenses for purchase accounting and transaction costs, Wirtgen is expected to contribute about $75 million to operating profit and about $25 million to net income in fiscal 2018.
Looking Ahead
Deere projects total equipment sales to increase about 38% year over year in the first quarter and 22% in fiscal 2018 compared with the year-ago periods. The forecast includes a positive foreign-currency translation effect of about 3% in the fiscal first quarter and 2% for fiscal 2018. For fiscal 2018, Deere expects net sales to be up roughly 19% year over year and projects net income of about $2.6 billion.
Segment wise, Deere estimates Agriculture and Turf equipment sales to increase about 9% in fiscal 2018, including a positive currency-translation effect of about 2%. Industry sales for agricultural equipment in the United States and Canada are forecast to be up in the range of 5-10% for fiscal 2018, aided by higher demand for large equipment.
In the EU28 region, sales are projected to be up about 5%, thanks to the improving conditions in the dairy and livestock sectors. In South America, industry sales of tractors and combines are projected to be flat to up 5% as a result of continued positive conditions, particularly in Argentina. Sales in Asia are anticipated to be flat as strength in India will help counter weakness in China. Deere anticipates sales growth of turf and utility equipment in the United States and Canada to remain around flat for fiscal 2018.
The company foresees global sales for Construction & Forestry equipment to be up about 69% for fiscal 2018, including a positive currency-translation effect of about 1%. The Wirtgen acquisition is likely to add about 54% to the sales for the segment. The outlook is based on moderate global economic growth, including higher housing starts in the United States, and an improved oil and gas sector. In forestry, global industry sales are projected to be flat to up 5% on the back of improved lumber prices in North America.
The outlook for net income from Financial Services has been set at $515 million for fiscal 2018. The outlook reflects a higher average portfolio, partially offset by elevated selling, administrative and general expenses.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.
Currently, Deere's stock has an average Growth Score of C, however its Momentum is lagging a bit with D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value than growth investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.
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Why Is Deere (DE) Up 8.5% Since the Last Earnings Report?
It has been more than a month since the last earnings report for Deere & Company (DE - Free Report) . Shares have added about 8.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? 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 catalysts.
Deere Q4 Earnings & Sales Beat on Rising Farm Market
Deere’s fourth-quarter fiscal 2017 (ended Oct 29, 2017) earnings surged around 74% year over year to $1.57 per share. The bottom line also surpassed the Zacks Consensus Estimate of $1.46.
Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) came in at $7.09 billion, rising 26% year over year. Revenues also surpassed the Zacks Consensus Estimate of $6.91 billion.
Price realization had an impact of 1% in the quarter with a favorable currency-translation effect of 2%. Region wise, equipment net sales increased 23% in the United States and Canada, and 30% in the rest of the world. Total net sales (including financial services and others) were $8.02 billion, up 23% year over year.
Deere’s strong results were driven by improving markets for farm and construction equipment. Performance benefits from advanced products and flexible cost structure also drove growth.
Operational Update
Cost of sales in the reported quarter increased 23.8% year over year to $5.43 billion. Gross profit came in at $1.67 billion, advancing 31.6% year over year. Selling, administrative and general expenses flared up 12.5% to $840.8 million. Operating profit significantly improved 59% year over year to $826.7 million.
Operating income from equipment operations surged 89% year over year to $669 million, owing to higher shipment volumes, favorable product mix and price realization, partially offset by elevated production costs, higher selling, administrative and general expenses.
Segment Performance
Agriculture & Turf segment’s sales grew 22% year over year to $5.44 billion, primarily owing to higher shipment volumes, favorable effects of currency translation and price realization. Operating profit at the segment climbed 57% year over year to $584 million, driven by higher shipment volumes and a favorable sales mix, partially offset by elevated production costs and higher selling, administrative and general expenses.
Construction & Forestry sales were up 37% year over year to $1.66 billion, mainly as a result of higher shipment volumes, price realization and favorable impact of currency translation. The segment reported operating profit of $85 million, as against an operating loss of $17 million recorded in the prior-year quarter. The upswing was driven by shipment volumes and price realization.
Net revenues at Deere’s Financial Services division totaled $782 million in the reported quarter, up 6% year over year. The segment’s operating profit came in at $193 million, up 18% year over year. Net income at the segment was $127.8 million compared with $109.8 million recorded in the year-earlier quarter.
Fiscal 2017 Performance
Deere reported earnings per share of $6.68 in fiscal 2017, surpassing the Zacks Consensus Estimate of $6.51. The figure also came in 38.9% higher than the year-ago figure. Revenues improved 11% year over year to $25.9 billion and outpaced the Zacks Consensus Estimate of $25.7 billion. Worldwide net sales in fiscal 2017 were $29.7 billion compared with $26.6 billion recorded in fiscal 2016.
Financial Update
Deere reported cash and cash equivalents of $9.33 billion at the end of fiscal 2017 compared with $4.34 billion at the end of the prior fiscal. The company reported cash from operations of $2.20 billion for fiscal 2017 compared with $3.77 billion in fiscal 2016. As of the end of fiscal 2017, long-term borrowing totaled $25.9 billion compared with $23.7 million at the end of fiscal 2016.
Wirtgen Acquisition
Deere expects the Wirtgen Group acquisition to close in December 2017. The buyout is estimated to contribute about $3.1 billion in net sales in fiscal 2018. Wirtgen is expected to add about 12% to Deere's sales for fiscal 2018 and about 6% for the fiscal first quarter in comparison with fiscal 2017.
After estimating expenses for purchase accounting and transaction costs, Wirtgen is expected to contribute about $75 million to operating profit and about $25 million to net income in fiscal 2018.
Looking Ahead
Deere projects total equipment sales to increase about 38% year over year in the first quarter and 22% in fiscal 2018 compared with the year-ago periods. The forecast includes a positive foreign-currency translation effect of about 3% in the fiscal first quarter and 2% for fiscal 2018. For fiscal 2018, Deere expects net sales to be up roughly 19% year over year and projects net income of about $2.6 billion.
Segment wise, Deere estimates Agriculture and Turf equipment sales to increase about 9% in fiscal 2018, including a positive currency-translation effect of about 2%. Industry sales for agricultural equipment in the United States and Canada are forecast to be up in the range of 5-10% for fiscal 2018, aided by higher demand for large equipment.
In the EU28 region, sales are projected to be up about 5%, thanks to the improving conditions in the dairy and livestock sectors. In South America, industry sales of tractors and combines are projected to be flat to up 5% as a result of continued positive conditions, particularly in Argentina. Sales in Asia are anticipated to be flat as strength in India will help counter weakness in China. Deere anticipates sales growth of turf and utility equipment in the United States and Canada to remain around flat for fiscal 2018.
The company foresees global sales for Construction & Forestry equipment to be up about 69% for fiscal 2018, including a positive currency-translation effect of about 1%. The Wirtgen acquisition is likely to add about 54% to the sales for the segment. The outlook is based on moderate global economic growth, including higher housing starts in the United States, and an improved oil and gas sector. In forestry, global industry sales are projected to be flat to up 5% on the back of improved lumber prices in North America.
The outlook for net income from Financial Services has been set at $515 million for fiscal 2018. The outlook reflects a higher average portfolio, partially offset by elevated selling, administrative and general expenses.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.
Deere & Company Price and Consensus
Deere & Company Price and Consensus | Deere & Company Quote
VGM Scores
Currently, Deere's stock has an average Growth Score of C, however its Momentum is lagging a bit with D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value than growth investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.