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Factors Setting the Tone for Deere (DE) in Q3 Earnings

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Deere & Company (DE - Free Report) is scheduled to report third-quarter fiscal 2019 results on Aug 16, before the opening bell.

The Zacks Consensus Estimate for earnings per share is pegged at $2.81 for the fiscal third quarter, indicating an improvement of 8.5% from the year-ago quarter. The Zacks Consensus Estimate for total revenues for the quarter is pegged at $9.30 billion, up from $9.28 billion reported in the year-ago quarter.

Let’s see how things are shaping up prior to this announcement.

Key Factors to Consider

Concerns over tariffs and trade policies and lower commodity prices led to farmers getting cautious about their equipment purchases.  This will keep depressing Deere’s top line. However, industrial sales and replacement demand for agricultural equipment will likely boost order activity for the Agriculture and Turf segment, aiding the upcoming quarterly results, in turn.
The Zacks Consensus Estimate for net sales of Deere’s Agriculture and Turf equipment segment is currently pegged at $6.2 billion for the quarter to be reported, an expected drop from the year-ago quarter’s $6.3 billion. The Agriculture and Turf equipment segment’s operating income is projected at $718 million, down from the $806 million reported in the prior-year quarter.

The Construction & Forestry segment will benefit from continued robust demand for equipment, as well as the Wirtgen acquisition. The economic environment for the construction, forestry and road building industries looks solid, and continues to spur demand for both new and used equipment, which will likely be conducive to the to-be-reported quarter’s results.

The Zacks Consensus Estimate for the Construction & Forestry segment’s sales is pegged at $3.18 billion for the May-July quarter, suggesting an improvement of 6.5% from the year-ago reported figure. The Construction & Forestry segment is estimated to report an operating profit of $382 million, indicating a rise of 36% from the year-earlier quarter’s $281 million.

Net sales of equipment operations (which comprise Agriculture and Turf, Construction and Forestry) are projected at $9.44 billion, calling for an improvement of 1.65% from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for the Financial Services segment’s sales is pinned at $902 million, suggesting growth of 8.6% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for the segment’s operating profit is currently pegged at $213 million, indicating an improvement of 8.6% from prior-year quarter.

Inflated raw-material costs resulting from the implementation of tariffs and logistics will continue dampening Deere’s performance. Further, improved operational performance, cost management, and continued investment in innovative technology and solutions will drive the company’s performance. Nevertheless, unfavorable foreign currency-translation impact will dent margin performance.

Deere & Company Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Deere is likely to beat on earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: The Earnings ESP for Deere is -1.91%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $2.76 and $2.81 respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Deere currently carries a Zacks Rank of 3.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Share Price Performance

Deere’s shares have gained 15.2% over the past year, outperforming the industry’s growth of 14.4%.


Stocks Worth a Look

Here are some stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.

Cisco Systems, Inc. (CSCO - Free Report) has an Earnings ESP of +0.41% and carries a Zacks Rank #3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Acer Therapeutics Inc. (ACER - Free Report) has an Earnings ESP of +10.10% and carries a Zacks Rank of 3, at present.

Aurora Cannabis Inc. (ACB - Free Report) has an Earnings ESP of +50.00% and currently carries a Zacks Rank #2.

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